As filed with the Securities and Exchange Commission on March 2, 1998
File No. 811-8438
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
THE PREMIUM PORTFOLIOS*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
ELIZABETHAN SQUARE, GEORGE TOWN,
GRAND CAYMAN, CAYMAN ISLANDS, BWI
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(345) 945-1824
SUSAN JAKUBOSKI, ELIZABETHAN SQUARE, GEORGE TOWN,
GRAND CAYMAN, CAYMAN ISLANDS, BWI
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM DANA LLP,
150 FEDERAL STREET, BOSTON, MA 02110
_______________________________________________________________________________
* Relates only to Government Income Portfolio.
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940. Beneficial interests in the
Registrant are not registered under the Securities Act of 1933, as amended (the
"1933 Act"), because such interests are issued solely in private placement
transactions which do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Registrant may be made only by
investment companies, common or commingled trust funds or similar organizations
or entities which are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any beneficial interests in the
Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant.
Government Income Portfolio (the "Portfolio") is a separate series of The
Premium Portfolios (the "Trust"). Citibank, N.A. ("Citibank" or the "Adviser")
is the investment adviser for the Portfolio. The Trust is an open-end
management investment company which was organized as a trust under the laws of
the State of New York on September 13, 1993. Beneficial interests in the
Portfolio are issued solely in private placement transactions which do not
involve any "public offering" within the meaning of Section 4(2) of the U.S.
Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolio may be made only by investment companies, common or commingled trust
funds or similar organizations or entities which are "accredited investors"
within the meaning of Regulation D under the 1933 Act. This Registration
Statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.
BENEFICIAL INTERESTS IN THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY AND
INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
INVESTMENT OBJECTIVES AND POLICIES:
The investment objectives of the Portfolio are to generate current income
and preserve the value of the investment of investors in the Portfolio.
The Portfolio seeks its objectives by investing in debt securities that
are backed, as to timely repayment of principal and interest, by the full faith
and credit of the U.S. Government. The dollar weighted average maturity of
securities held by the Portfolio is generally three years or less.
The Portfolio invests in both direct obligations of the U.S. Treasury and
obligations issued or guaranteed by U.S. Government agencies, including
mortgage-backed securities, that are backed by the full faith and credit of the
U.S. Government as to the timely payment of principal and interest. Up to 80%
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of the Portfolio's assets may be invested in direct pass-through certificates
guaranteed by the Government National Mortgage Association ("GNMA").
The Portfolio is designed to provide a higher level of current income than
is generally available from money market funds. The Portfolio invests in
securities with prices that tend to vary more than the prices on money market
instruments but less than the prices of intermediate and long-term bonds.
The Portfolio may invest in U.S. Government securities, including (1) U.S.
Treasury obligations, such as Treasury bills, notes and bonds, which are backed
by the full faith and credit of the United States; and (2) obligations issued
or guaranteed by U.S. Government agencies or instrumentalities that are backed
by the full faith and credit of the U.S. Government.
The Portfolio may purchase mortgage-backed securities issued or guaranteed
as to payment of principal and interest by the U.S. Government or one of its
agencies and backed by the full faith and credit of the U.S. Government,
including direct pass-through certificates of GNMA. Mortgage-backed securities
are generally backed or collateralized by a pool of mortgages. These securities
are sometimes called collateralized mortgage obligations or CMOs.
Even if the U.S. Government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment, because the underlying mortgages are refinanced to
take advantage of the lower rates. Thus the prices of mortgage-backed
securities may not increase as much as prices of other debt obligations when
interest rates decline, and mortgage-backed securities may not be an effective
means of locking in a particular interest rate. In addition, any premium paid
for a mortgage-backed security may be lost when it is prepaid. When interest
rates go up, mortgage-backed securities experience lower rates of prepayment.
This has the effect of lengthening the expected maturity of a mortgage-backed
security. As a result, prices of mortgage-backed securities may decrease more
than prices of other debt obligations when interest rates go up.
Determinations of average maturity of asset-backed securities take into
account expectations of prepayments, which may change in different interest
rate environments. The Portfolio will not consider it a violation of policy if
its average maturity deviates from its normal range as a result of actual or
expected changes in prepayments.
The Portfolio has adopted a policy which is fundamental and which provides
that all of the assets of the Portfolio will be invested in obligations that
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are backed by the full faith and credit of the U.S. Government. (This policy is
not intended to prohibit the use of futures contracts to hedge the Portfolio's
investments.)
CERTAIN ADDITIONAL INVESTMENT POLICIES:
TEMPORARY INVESTMENTS. During periods of unusual economic or market
conditions or for temporary defensive purposes or liquidity, the Portfolio may
invest without limit in cash and in U.S. dollar-denominated high quality money
market and short-term instruments. These investments may result in a lower
yield than would be available from investments with a lower quality or longer
term.
OTHER PERMITTED INVESTMENTS. For more information regarding the
Portfolio's permitted investments and investment practices, see "Permitted
Investments and Investment Practices." The Portfolio will not necessarily
invest or engage in each of the investments and investment practices described
in "Permitted Investments and Investment Practices" but reserves the right to
do so.
INVESTMENT RESTRICTIONS. Part B of this Registration Statement contains a
list of specific investment restrictions which govern the investment policies
of the Portfolio, including a limitation that the Portfolio may borrow money
from banks in an amount not to exceed 1/3 of the Portfolio's net assets for
extraordinary or emergency purposes (e.g., to meet redemption requests). Except
as otherwise indicated, the Portfolio's investment objectives and policies may
be changed without approval by the holders of the outstanding securities of the
Portfolio. If a percentage or rating restriction (other than a restriction as
to borrowing) is adhered to at the time an investment is made, a later change
in percentage or rating resulting from changes in the Portfolio's securities
will not be a violation of policy.
PORTFOLIO TURNOVER. Securities of the Portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Portfolio's
investment objectives, without regard to the length of time a particular
security may have been held. For the fiscal years ended December 31, 1996 and
1997 the Portfolio's turnover rates were 100% and 126%, respectively. The
amount of brokerage commissions and realization of taxable capital gains will
tend to increase as the level of portfolio activity increases.
BROKERAGE TRANSACTIONS. The primary consideration in placing the
Portfolio's security transactions with broker-dealers for execution is to
obtain and maintain the availability of execution at the most favorable prices
and in the most effective manner possible.
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RISK CONSIDERATIONS:
The risks of investing in the Portfolio vary depending upon the nature of
the securities held, and the investment practices employed, on its behalf.
Certain of these risks are described below.
CHANGES IN NET ASSET VALUE. The Portfolio's net asset value will fluctuate
based on changes in the values of the underlying portfolio securities. This
means that an investment in the Portfolio may be worth more or less at
redemption than at the time of purchase.
INTEREST RATE RISK. The value of fixed income securities, including those
backed by the U.S. Government, generally goes down when interest rates go up,
and vice versa. Furthermore, the value of fixed income securities may vary
based on anticipated or potential changes in interest rates. Changes in
interest rates will generally cause bigger changes in the prices of longer-term
securities than in the prices of shorter-term securities.
INVESTMENT PRACTICES. Certain of the investment practices employed for the
Portfolio may entail certain risks. See "Permitted Investments and Investment
Practices" below.
PERMITTED INVESTMENTS AND INVESTMENT PRACTICES:
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements
in order to earn a return on temporarily available cash. The Portfolio will
only enter into repurchase agreements that cover securities that are backed by
the full faith and credit of the U.S. Government. Repurchase agreements are
transactions in which an institution sells the Portfolio a security at one
price, subject to the Portfolio's obligation to resell and the selling
institution's obligation to repurchase that security at a higher price normally
within a seven day period. There may be delays and risks of loss if the seller
is unable to meet its obligation to repurchase.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Portfolio and the agreement by the Portfolio to
repurchase the securities at an agreed-upon price, date and interest payment.
When the Portfolio enters into reverse repurchase transactions, securities of a
dollar amount equal in value to the securities subject to the agreement will be
maintained in a segregated account with the Portfolio's custodian. The
segregation of assets could impair the Portfolio's ability to meet its current
obligations or impede investment management if a large portion of the
Portfolio's assets are involved. Reverse repurchase agreements are considered
to be a form of borrowing.
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LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate additional income, the Portfolio may lend
its portfolio securities to broker-dealers and other institutional borrowers.
Such loans must be callable at any time and continuously secured by collateral
(cash or U.S. Government securities) in an amount not less than the market
value, determined daily, of the securities loaned. It is intended that the
value of securities loaned by the Portfolio would not exceed 30% of the
Portfolio's total assets.
In the event of the bankruptcy of the other party to a securities loan, a
repurchase agreement or a reverse repurchase agreement, the Portfolio could
experience delays in recovering either the securities or cash. To the extent
that, in the meantime, the value of the securities loaned or sold has increased
or the value of the securities purchased has decreased, the Portfolio could
experience a loss.
RULE 144A SECURITIES. The Portfolio may purchase restricted securities
that are not registered for sale to the general public. If the Adviser
determines that there is a dealer or institutional market in the securities,
the securities will not be treated as illiquid for purposes of the Portfolio's
investment limitations. The Trustees will review these determinations. These
securities are known as "Rule 144A securities," because they are traded under
SEC Rule 144A among qualified institutional buyers. Institutional trading in
Rule 144A securities is relatively new, and the liquidity of these investments
could be impaired if trading in Rule 144A securities does not develop or if
qualified institutional buyers become, for a time, uninterested in purchasing
Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. The Portfolio may invest up
to 15% of its net assets (taken at the greater of cost or market value) in
securities for which there is no readily available market. These illiquid
securities may include privately placed restricted securities for which no
institutional market exists. The absence of a trading market can make it
difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Portfolio to sell them promptly
at an acceptable price.
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, the Portfolio may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered to
the Portfolio at a future date beyond customary settlement time. Under normal
circumstances, the Portfolio takes delivery of the securities. In general, the
Portfolio does not pay for the securities until received and does not start
earning interest until the contractual settlement date. While awaiting delivery
of the securities, the Portfolio establishes a segregated account consisting of
cash, cash equivalents or high quality debt securities equal to the amount of
the Portfolio's commitments to purchase "when-issued" securities. An increase
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in the percentage of the Portfolio's assets committed to the purchase of
securities on a "when-issued" basis may increase the volatility of its net
asset value.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may use
financial futures in order to protect itself from fluctuations in interest
rates (sometimes called "hedging") without actually buying or selling debt
securities, or to manage the effective maturity or duration of fixed income
securities in the Portfolio's investment portfolio in an effort to reduce
potential losses or enhance potential gain. Futures contracts provide for the
future sale by one party and purchase by another party of a specified amount of
a security at a specified future time and price, or for making payment of a
cash settlement based on changes in the value of a security or an index of
securities. Because the value of a futures contract changes based on the price
of the underlying security, futures contracts are considered to be
"derivatives." Futures contracts are a generally accepted part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. The futures contracts that may be purchased by the
Portfolio are standardized contracts traded on commodities exchanges or boards
of trade.
When the Portfolio purchases or sells a futures contract, it is required
to make an initial margin deposit. Although the amount may vary, initial margin
can be as low as 1% or less of the face amount of the contract. Additional
margin may be required as the contract fluctuates in value. Since the amount of
margin is relatively small compared to the value of the securities covered by a
futures contract, the potential for gain or loss on a futures contract is much
greater than the amount of the Portfolio's initial margin deposit. The
Portfolio does not currently intend to enter into a futures contract if, as a
result, the initial margin deposits on all of its futures contracts would
exceed approximately 5% of the Portfolio's net assets. Also, the Portfolio
intends to limit its futures contracts so that the value of the securities
covered by its futures contracts would not generally exceed 50% of the
Portfolio's total assets other than its futures contracts and to segregate
sufficient assets to meet its obligations under outstanding futures contracts.
The ability of the Portfolio to utilize futures contracts successfully
will depend on the Adviser's ability to predict interest rate movements, which
cannot be assured. In addition to general risks associated with any investment,
the use of futures contracts entails the risk that, to the extent the Adviser's
view as to interest rate movements is incorrect, the use of futures contracts,
even for hedging purposes, could result in losses greater than if they had not
been used. This could happen, for example, if there is a poor correlation
between price movements of futures contracts and price movements in the
Portfolio's related portfolio position. Also, although the Portfolio will
purchase only standardized futures traded on regulated exchanges, the futures
markets may not be liquid in all circumstances. As a result, in certain
markets, the Portfolio might not be able to close out a transaction without
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incurring substantial losses, if at all. When futures contracts are used for
hedging, even if they are successful in minimizing the risk of loss due to a
decline in the value of the hedged position, at the same time they limit any
potential gain which might result from an increase in value of such position.
The use of futures contracts potentially exposes the Portfolio to the
effects of "leveraging," which occurs when futures are used so that the
Portfolio's exposure to the market is greater than it would have been if the
Portfolio had invested directly in the underlying securities. "Leveraging"
increases the Portfolio's potential for both gain and loss. As noted above, the
Portfolio intends to adhere to certain policies relating to the use of futures
contracts, which should have the effect of limiting the amount of leverage by
the Portfolio. The use of futures contracts may increase the amount of taxable
income of the Portfolio and may affect in other ways the amount, timing and
character of the Portfolio's income for tax purposes, as more fully discussed
in the section entitled "Tax Status" in Part B to this Registration Statement.
The use of futures by the Portfolio and some of their risks are described
more fully in Part B to this Registration Statement.
SHORT SALES "AGAINST THE BOX." In a short sale, the Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return
the identical security. The Portfolio may engage in short sales only if at the
time of the short sale it owns or has the right to obtain, at no additional
cost, an equal amount of the security being sold short. This investment
technique is known as a short sale "against the box." The Portfolio may make a
short sale as a hedge, when it believes that the value of a security owned by
the Portfolio (or a security convertible or exchangeable for such security) may
decline. Not more than 40% of the Portfolio's total assets would be involved in
short sales "against the box."
Item 5. Management of the Portfolio.
The Portfolio is supervised by a Board of Trustees. A majority of the
Trustees are not affiliated with the Adviser. More information on the Trustees
and officers of the Portfolio appears under "Management" in Part B.
The Portfolio draws on the strength and experience of Citibank. Citibank
offers a wide range of banking and investment services to customers across the
United States and throughout the world, and has been managing money since 1822.
Its portfolio managers are responsible for investing in money market, equity
and fixed income securities. Citibank and its affiliates manage more than $88
billion in assets worldwide. Citibank is a wholly-owned subsidiary of Citicorp.
Citibank's address is 153 East 53rd Street, New York, New York 10043.
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Citibank manages the Portfolio's assets pursuant to an investment advisory
agreement (the "Advisory Agreement"). Subject to policies set by the Trustees,
Citibank makes investment decisions for the Portfolio.
Thomas M. Halley was appointed Manager of the Portfolio at its inception
in 1994. Prior to that, since December 1988, he managed CitiFunds Short-Term
U.S. Government Income Portfolio (formerly called Landmark U.S. Government
Income Fund), an investor in the Portfolio. He also manages other commingled
investment funds at Citibank as well as institutional insurance portfolios. Mr.
Halley authors the commentary on economic trends for Citibank Global Asset
Management publications. Prior to joining Citibank in 1988, Mr. Halley was a
Senior Fixed Income Portfolio Manager with Brown Brothers Harriman & Company.
He has more than 20 years of experience in the management of taxable fixed
income investments.
For its services under the Advisory Agreement, the Adviser receives an
investment advisory fee, which is accrued daily and paid monthly, equal to
0.35% of the Portfolio's average daily net assets on an annualized basis for
the Portfolio's then current fiscal year. The Adviser has voluntarily agreed to
waive a portion of its investment advisory fee.
For the fiscal year ended December 31, 1997, the investment advisory fee
paid to Citibank under the Advisory Agreement was 0.34% of the Portfolio's
average daily net assets for that fiscal year.
Citibank and its affiliates may have deposit, loan and other relationships
with the issuers of securities purchased on behalf of the Portfolio, including
outstanding loans to such issuers which may be repaid in whole or in part with
the proceeds of securities so purchased. Citibank has informed the Trust that,
in making its investment decisions, it does not obtain or use material inside
information in the possession of any division or department of Citibank or in
the possession of any affiliate of Citibank.
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the Trust. Citibank believes that its services under the Advisory Agreement
and the activities performed by it as sub-administrator are not underwriting
and are consistent with the Glass-Steagall Act and other relevant federal and
state laws. However, there is no controlling precedent regarding the
performance of the combination of investment advisory and sub-administrative
activities by banks. State laws on this issue may differ from applicable
federal law, and banks and financial institutions may be required to register
as dealers pursuant to state securities laws. Changes in either federal or
state statutes or regulations, or in their interpretations, could prevent
Citibank from continuing to perform these services. If Citibank were to be
prevented from acting as the Adviser or sub-administrator, the Trust would seek
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alternative means for obtaining these services. The Trust does not expect that
shareholders would suffer any adverse financial consequences as a result of any
such occurrence.
The Portfolio has an administrative services plan (the "Administrative
Services Plan") which provides that the Portfolio may obtain the services of an
administrator, a transfer agent and a custodian, and may enter into agreements
providing for the payment of fees for such services. Under the Administrative
Services Plan, fees paid to the Portfolio's administrator may not exceed 0.05%
of the Portfolio's average daily net assets on an annualized basis for the
Portfolio's then-current fiscal year.
Signature Financial Group (Cayman) Ltd. ("SFG") provides certain
administrative services to the Portfolio under an administrative services
agreement. These administrative services include providing general office
facilities, supervising the overall administration of the Portfolio, and
providing persons satisfactory to the Board of Trustees to serve as Trustees
and officers of the Portfolio. These Trustees and officers may be directors,
officers or employees of SFG or its affiliates.
For these services, SFG receives fees accrued daily and paid monthly of
0.05% of the assets of the Portfolio, on an annualized basis for the
Portfolio's then-current fiscal year. However, SFG has voluntarily agreed to
waive a portion of the fees payable to it on a month-to-month basis.
SFG is a wholly-owned subsidiary of Signature Financial Group, Inc.
Pursuant to a sub-administrative services agreement, Citibank performs
such sub-administrative duties for the Portfolio as from time to time are
agreed upon by Citibank and SFG. Citibank's compensation as sub-administrator
is paid by SFG.
The Trust, on behalf of the Portfolio, has entered into a Custodian
Agreement with State Street Bank and Trust Company ("State Street") pursuant to
which State Street acts as custodian for the Portfolio. Securities may be held
by a sub-custodian bank approved by the Trustees. State Street Cayman Trust
Company, Ltd. ("State Street Cayman") provides fund accounting services for the
Portfolio. State Street Cayman also provides transfer agency services to the
Portfolio.
The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, Cayman Islands.
In addition to amounts payable under the Advisory Agreement and the
Administrative Services Plan, the Portfolio is responsible for its own
expenses, including, among other things, the costs of securities transactions,
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the compensation of Trustees that are not affiliated with the Adviser,
government fees, taxes, accounting and legal fees, expenses of communicating
with investors, interest expense, and insurance premiums. For the fiscal year
ended December 31, 1997, the Portfolio's total expenses were 0.35% of its
average daily net assets for that fiscal year.
All fee waivers are voluntary and may be reduced or terminated at any
time.
Item 6. Capital Stock and Other Securities.
Investments in the Portfolio have no pre-emptive or conversion rights and
are fully paid and non-assessable, except as set forth below. The Trust is not
required to hold, and has no current intention of holding, annual meetings of
investors, but the Trust will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote. Investors have 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. Investors also have the right to remove one or more
Trustees without a meeting by a declaration in writing by a specified number of
investors. Upon liquidation or dissolution of the Portfolio, investors would be
entitled to share pro rata in the net assets of the Portfolio available for
distribution to its investors.
The Trust reserves the right to create and issue a number of series, in
which case investors in each series would participate equally in the earnings,
dividends and assets of the particular series. Currently, the Trust has seven
active series.
The Trust is organized as a trust under the laws of the State of New York.
Under the Declaration of Trust, the Trustees are authorized to issue beneficial
interests in the Portfolio. Each investor in the Portfolio is entitled to a
vote in proportion to the amount of its beneficial interest 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. The Declaration of
Trust of the Trust provides that entities investing in the Portfolio are each
liable for all obligations of the Portfolio. It is not expected that the
liabilities of the Portfolio would ever exceed its assets.
The net asset value of the Portfolio (i.e., the value of its securities
and other assets less its liabilities) is determined each day on which the New
York Stock Exchange is open for trading ("Business Day") (and on such other
days as are deemed necessary in order to comply with Rule 22c-1 under the U.S.
Investment Company Act of 1940, as amended (the "1940 Act")). This
determination is made once during each day as of the close of regular trading
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on such Exchange. Values of the Portfolio's assets are determined on the basis
of their market or other fair value, as described in Item 19 of Part B.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Business Day. As of the close of regular trading on the New
York Stock Exchange, on each Business Day, the value of each investor's
beneficial interest in the Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be effected on that day,
are then effected. Thereafter, the investor's percentage of the aggregate
beneficial interests in the Portfolio is then re-computed as the percentage
equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the close of regular trading on
such 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 effected on such
day, and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of the same time on such day plus or minus, as the case may be,
the amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined is then applied to determine the value of the investor's interest
in the Portfolio as of the close of regular trading on the following Business
Day of the Portfolio.
The Trust has determined that the Portfolio is properly treated as a
partnership for U.S. federal and New York state income tax purposes.
Accordingly, the Trust is not subject to any U.S. federal or New York state
income taxes, but each investor in the Portfolio must take into account its
share of the Portfolio's ordinary income, expenses, capital gains and losses,
credits and other items in determining its income tax liability. The
determination of such share is made in accordance with the governing
instruments of the Trust and the U.S. Internal Revenue Code of 1986, as amended
(the "Code"), and regulations promulgated thereunder.
The Trust intends to conduct its activities and those of the Portfolio so
that they will not be deemed to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes. Therefore, it is not anticipated
that an investor in the Portfolio, other than an investor which would be deemed
a "U.S. person" for U.S. federal income tax purposes, will be subject to U.S.
federal income taxation (other than a 30% withholding tax on dividends and
certain interest income) solely by reason of its investment in the Portfolio.
There can be no assurance that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions that, if successful,
might result in the payment of U.S. federal income taxes by investors in the
Portfolio.
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Item 7. Purchase of Securities.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by investment companies, common or commingled trust funds or similar
organizations or entities which are "accredited investors" within the meaning
of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
An investment in the Portfolio is made without a sales load. All
investments are made at net asset value next determined after an order is
received by the Portfolio. There is no minimum initial or subsequent investment
in the Portfolio. However, since the Portfolio intends to be as fully invested
at all times as is reasonably practicable in order to enhance the yield on its
assets, investments must be made in federal funds (i.e., moneys credited to the
account of the Portfolio's custodian bank by a U.S. Federal Reserve Bank).
The Trust reserves the right to cease accepting investments for the
Portfolio at any time or to reject any investment order.
The exclusive placement agent for the Portfolio is CFBDS, Inc. ("CFBDS").
The address of CFBDS is c/o SFG, Elizabethan Square, George Town, Grand Cayman,
Cayman Islands, BWI. CFBDS receives no compensation for serving as the
exclusive placement agent for the Portfolio.
Item 8. Redemption or Repurchase.
An investor in the Portfolio may withdraw all or any portion of its
investment at any time after a withdrawal request in proper form is received by
the Portfolio from the investor. The proceeds of a withdrawal will be paid by
the Portfolio in federal funds normally on the Business Day the withdrawal is
effected, but in any event within seven days. See "Purchase, Redemption and
Pricing of Securities" in Part B of this Registration Statement regarding the
Trust's right to pay the redemption price in kind with readily marketable
securities (instead of cash). 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 New York Stock 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.
<PAGE>
Item 9. Pending Legal Proceedings.
Not applicable.
<PAGE>
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 Trust...............................B-13
Control Persons and Principal Holders of Securities...B-15
Investment Advisory and Other Services................B-16
Brokerage Allocation and Other Practices..............B-19
Capital Stock and Other Securities....................B-20
Purchase, Redemption and Pricing of Securities........B-21
Tax Status............................................B-23
Underwriters..........................................B-26
Calculations of Performance Data......................B-26
Financial Statements..................................B-26
item 12. General Information and History.
Not applicable.
Item 13. Investment Objectives and Policies.
Part A contains additional information about the investment objectives and
policies of the Government Income Portfolio (the "Portfolio"), a series of The
Premium Portfolios (the "Trust"). This Part B should be read in conjunction
with Part A.
The investment objectives of the Portfolio are to generate current income
and preserve the value of the investment of investors in the Portfolio. The
investment objectives of the Portfolio may be changed without approval by the
Portfolio's investors. Of course, there can be no assurance that the Portfolio
will achieve its investment objectives.
Part A contains a discussion of the various types of securities in which
the Portfolio may invest and the risks involved in such investments. The
<PAGE>
following supplements the information contained in Part A concerning the
investment objectives, policies and techniques of the Portfolio.
The Portfolio seeks its objectives by investing in debt obligations that
are backed, as to the timely payment of interest and principal, by the full
faith and credit of the U.S. Government, and by entering into repurchase
agreements covering such obligations. Futures contracts ("Futures Contracts")
on fixed income securities may also be used for the purpose of protecting
(i.e., "hedging") the value of the Portfolio's securities.
The debt obligations in which assets of the Portfolio are invested include
(1) U.S. Treasury obligations, which differ only 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 10 years), and U.S.
Treasury bonds (generally maturities of greater than 10 years); and (2)
obligations issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities if such obligations are backed, as to the timely payment of
interest and principal, by the full faith and credit of the U.S. Government,
e.g., direct pass-through certificates of the Government National Mortgage
Association ("GNMA"). For a description of such obligations, see Appendix A to
this Part B of the Registration Statement.
When and if available, U.S. Government obligations may be purchased at a
discount from face value. However, it is not intended that such securities will
be held to maturity for the purpose of achieving potential capital gains,
unless current yields on these securities remain attractive.
Although U.S. Government obligations which are purchased for the Portfolio
are backed, as to the timely payments of interest and principal, by the full
faith and credit of the U.S. Government, beneficial interests in the Portfolio
are neither insured nor guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities. MOREOVER, THE NET ASSET VALUE OF BENEFICIAL
INTERESTS IN AN OPEN-END INVESTMENT COMPANY SUCH AS THE PORTFOLIO, THE ASSETS
OF WHICH ARE INVESTED IN FIXED INCOME SECURITIES, CHANGES AS THE GENERAL LEVELS
OF INTEREST RATES FLUCTUATE. WHEN INTEREST RATES DECLINE, THE VALUE OF THE
PORTFOLIO'S SECURITIES CAN GENERALLY BE EXPECTED TO RISE. CONVERSELY, WHEN
INTEREST RATES RISE, THE VALUE OF THE PORTFOLIO'S SECURITIES CAN BE EXPECTED TO
DECLINE. Although changes in the value of the Portfolio's securities subsequent
to their acquisition are reflected in the net asset value of beneficial
interests of the Portfolio, such changes do not affect the income received by
the Portfolio from such securities.
Citibank, N.A. ("Citibank" or the "Adviser") intends to fully manage the
investments of the Portfolio by buying and selling U.S. Government obligations,
and by entering into repurchase agreements covering such obligations, as well
as by holding selected obligations to maturity. In managing the Portfolio's
investments, the Adviser seeks to maximize the return for the Portfolio by
<PAGE>
taking advantage of market developments and yield disparities, which may
include use of the following strategies:
(1) shortening the average maturity of the Portfolio's securities in
anticipation of a rise in interest rates so as to minimize
depreciation of principal;
(2) lengthening the average maturity of the Portfolio's securities
in anticipation of a decline in interest rates so as to maximize
appreciation of principal;
(3) selling one type of U.S. Government obligation (e.g., Treasury
bonds) and buying another (e.g., GNMA direct pass-through
certificates) when disparities arise in the relative values of each;
and
(4) changing from one U.S. Government obligation to an essentially
similar U.S. Government obligation when their respective yields are
distorted due to market factors.
In order to enhance the stability of the value of the beneficial interests in
the Portfolio by reducing volatility resulting from changes in interest rates
and other market conditions, the dollar weighted average maturity of the
Portfolio's investment securities is generally three years or less. These
strategies may result in increases or decreases in the Portfolio's current
income and in the holding for the Portfolio of obligations which sell at
moderate to substantial premiums or discounts from face value. Moreover, if the
Adviser's expectations of changes in interest rates or its valuation of the
normal yield relationship between two obligations proves to be incorrect, the
Portfolio's income, net asset value and potential capital gain may be decreased
or its potential capital loss may be increased.
The Portfolio is managed to provide an income yield that is generally
higher than those offered by money market funds (which have a share price which
is more stable than the value of an investment in the Portfolio and which have
a portfolio of investments with an average maturity which is shorter than the
Portfolio's securities) with a value of an investment in the Portfolio that is
more stable than the share price of other fixed income funds that have a longer
term investment focus. Debt securities with longer maturities than those in
which the assets of the Portfolio are invested generally tend to produce higher
yields and are subject to greater market fluctuation as a result of changes in
interest rates than debt securities with shorter maturities. At the same time,
the securities in which the assets of the Portfolio are invested tend to
produce lower yields and are subject to lower market fluctuation as a result of
changes in interest rates than debt securities with longer maturities that tend
to be purchased by longer term bond funds than the Portfolio. However, since
available yields vary over time, no specific level of income can be assured.
The income derived from an investment in the Portfolio increases or decreases
<PAGE>
in relation to the income received by the Portfolio from its investments, which
in any case is reduced by the Portfolio's expenses.
The policies described above (other than the policy to invest in debt
obligations that are backed, as to the timely payment of principal and
interest, by the full faith and credit or the U.S. Government, which is a
fundamental policy) and those described below are not fundamental and may be
changed without investor approval.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements covering obligations of,
or guaranteed by the U.S. government, its agencies, authorities or
instrumentalities. Repurchase agreements are agreements by which the Portfolio
purchases a security and simultaneously commits to resell that security to the
seller (which is usually a member bank of the U.S. Federal Reserve System or a
member firm of the New York Stock Exchange (or a subsidiary thereof)) at an
agreed-upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an
agreed-upon market rate of interest which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security. Under the Investment
Company Act of 1940, as amended (the "1940 Act"), repurchase agreements may be
considered to be loans by the buyer. The Portfolio's risk is limited to the
ability of the seller to pay the agreed-upon amount on the delivery date. If
the seller defaults, the underlying security constitutes collateral for the
seller's obligation to pay although the Portfolio may incur certain costs in
liquidating this collateral and in certain cases may not be permitted to
liquidate this collateral. All repurchase agreements entered into by the
Portfolio are fully collateralized, with such collateral being marked to market
daily.
FUTURES CONTRACTS
A Futures Contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of an index of securities. A
"sale" of a Futures Contract means the acquisition of a contractual obligation
to deliver the securities called for by the Contract at a specified price, or
to make or accept the cash settlement called for by the Contract, on a
specified date. A "purchase" of a Futures Contract means the acquisition of a
contractual obligation to acquire the securities called for by the Contract at
a specified price, or to make or accept the cash settlement called for by the
Contract, on a specified date. Futures Contracts have been designed by
exchanges which have been designated "contract markets" by the Commodity
Futures Trading Commission ("CFTC") and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures Contracts trade on these markets, and the exchanges,
<PAGE>
through their clearing organizations, guarantee that the Contracts will be
performed as between the clearing members of the exchange.
While Futures Contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally a Futures Contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when the Portfolio
purchases or sells a Futures Contract. At the same time such a purchase or sale
is made, the Portfolio must provide cash or securities as a deposit ("initial
deposit") known as "margin." The initial deposit required will vary, but may be
as low as 1% or less of a Contract's face value. Daily thereafter, the Futures
Contract is valued through a process known as "marking to market," and the
Portfolio may receive or be required to pay additional "variation margin" as
the Futures Contract becomes more or less valuable. At the time of delivery of
securities pursuant to such a Contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than the specific security that provides the standard for the
Contract. In some (but not many) cases, securities called for by a Futures
Contract may not have been issued when the Contract was entered into.
The Portfolio may purchase or sell Futures Contracts to attempt to protect
the Portfolio from fluctuations in interest rates, or to manage the effective
maturity or duration of the Portfolio's investment portfolio in an effort to
reduce potential losses or enhance potential gain, without actually buying or
selling long-term debt securities. For example, if interest rates were expected
to increase, the Portfolio might enter into Futures Contracts for the sale of
debt securities. Such a sale would have much the same effect as if the
Portfolio sold bonds that it owned, or as if the Portfolio sold longer-term
bonds and purchased shorter-term bonds. If interest rates did increase, the
value of the Portfolio's debt securities would decline, but the value of the
Futures Contracts would increase thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. Similar results
could be accomplished by selling bonds, or by selling bonds with longer
maturities and investing in bonds with shorter maturities. However, by using
Futures Contracts, the Portfolio avoids having to sell its securities.
Similarly, when it is expected that interest rates may decline, the
Portfolio might enter into Futures Contracts for the purchase of debt
securities. Such a transaction would be intended to have much the same effect
as if the Portfolio purchased bonds, or as if the Portfolio sold shorter-term
bonds and purchased longer-term bonds. If interest rates did decline, the value
of the Futures Contracts would increase.
Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if the
Portfolio sells a Futures Contract to protect against losses in the debt
securities held by the Portfolio), at the same time the Futures Contracts limit
any potential gain which might result from an increase in value of a hedged
position.
<PAGE>
In addition, the ability effectively to hedge all or a portion of the
Portfolio's investments through transactions in Futures Contracts depends on
the degree to which movements in the value of the debt securities underlying
such Contracts correlate with movements in the value of the Portfolio's
securities. If the security underlying a Futures Contract is different than the
security being hedged, they may not move to the same extent or in the same
direction. In that event, the Portfolio's hedging strategy might not be
successful and the Portfolio could sustain losses on these hedging transactions
which would not be offset by gains on the Portfolio's other investments or,
alternatively, the gains on the hedging transaction might not be sufficient to
offset losses on the Portfolio's other investments. It is also possible that
there may be a negative correlation between the security underlying a Futures
Contract and the securities being hedged, which could result in losses both on
the hedging transaction and the securities. In these and other instances, the
Portfolio's overall return could be less than if the hedging transactions had
not been undertaken. Similarly, even where the Portfolio enters into futures
transactions other than for hedging purposes, the effectiveness of its strategy
may be affected by lack of correlation between changes in the value of the
Futures Contracts and changes in value of the securities which the Portfolio
would otherwise buy and sell.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out Futures Contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, there is the potential that the liquidity of
the futures market may be lacking. Prior to expiration, a Futures Contract may
be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the contract market on which the Futures
Contract was originally entered into. While the Portfolio will establish a
futures position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular Futures Contract at any specific time. In that event, it may not be
possible to close out a position held by the Portfolio, which could require the
Portfolio to purchase or sell the instrument underlying the Futures Contract or
to meet ongoing variation margin requirements. The inability to close out
futures positions also could have an adverse impact on the ability effectively
to use futures transactions for hedging or other purposes.
The liquidity of a secondary market in a Futures Contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a Futures Contract during
a single trading day and prohibit trading beyond such limits once they have
been reached. The trading of Futures Contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
<PAGE>
Investments in Futures Contracts also entail the risk that if the
Adviser's investment judgment about the general direction of interest rates is
incorrect, the Portfolio's overall performance may be poorer than if any such
Contract had not been entered into. For example, if the Portfolio hedged
against the possibility of an increase in interest rates which would adversely
affect the price of the Portfolio's bonds and interest rates decrease instead,
part or all of the benefit of the increased value of the Portfolio's bonds
which were hedged will be lost because the Portfolio will have offsetting
losses in its futures positions. Similarly, if the Portfolio purchases Futures
Contracts expecting a decrease in interest rates and interest rates instead
increased, the Portfolio will have losses in its futures positions which will
increase the amount of the losses on the securities in its portfolio which will
also decline in value because of the increase in interest rates. In addition,
in such situations, if the Portfolio has insufficient cash, the Portfolio may
have to sell bonds from its investments to meet daily variation margin
requirements, possibly at a time when it may be disadvantageous to do so.
Each contract market on which Futures Contracts are traded has established
a number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Adviser
does not believe that these trading and position limits would have an adverse
impact on the Portfolio's strategies involving futures.
CFTC regulations require compliance with certain limitations in order to
assure that the Portfolio is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit the Portfolio from
purchasing or selling Futures Contracts (other than for bona fide hedging
transactions) if, immediately thereafter, the sum of the amount of initial
margin required to establish the Portfolio's non-hedging futures positions
would exceed 5% of the Portfolio's net assets.
The Portfolio will comply with this CFTC requirement, and currently
intends to adhere to the additional policies described below. First, an amount
of cash or cash equivalents will be maintained by the Portfolio in a segregated
account with the Portfolio's custodian so that the amount so segregated, plus
the initial margin held on deposit, will be approximately equal to the amount
necessary to satisfy the Portfolio's obligations under the Futures Contract.
The second is that the Portfolio will not enter into a Futures Contract if
immediately thereafter the amount of initial margin deposits on all the Futures
Contracts held by the Portfolio would exceed approximately 5% of the net assets
of the Portfolio. The third is that the aggregate market value of the Futures
Contracts held by the Portfolio not generally exceed 50% of the market value of
the Portfolio's total assets other than its Futures Contracts. For purposes of
this third policy, "market value" of a Futures Contract is deemed to be the
amount obtained by multiplying the number of units covered by the Futures
Contract times the per unit price of the securities covered by that Contract.
The use of Futures Contracts may increase the amount of taxable income of
the Portfolio and may affect the amount, timing and character of the
Portfolio's income for tax purposes, as more fully discussed herein in the
section entitled "Tax Status."
<PAGE>
SHORT SALES "AGAINST THE BOX"
In a short sale, the Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio, in accordance with applicable investment restrictions, may engage in
short sales only if at the time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position is maintained for the Portfolio by the custodian or qualified
sub-custodian. While the short sale is open, an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities are maintained in a segregated
account for the Portfolio. These securities constitute the Portfolio's long
position.
The Portfolio does not engage in short sales against the box for
investment purposes. The Portfolio may, however, make a short sale against the
box as a hedge, when it believes that the price of a security may decline,
causing a decline in the value of a security owned by the Portfolio (or a
security convertible or exchangeable for such security). In such case, any
future losses in the Portfolio's long position should be reduced by a gain in
the short position. Conversely, any gain in the long position should be reduced
by a loss in the short position. The extent to which such gains or losses are
reduced depends upon the amount of the security sold short relative to the
amount the Portfolio owns. There are certain additional transaction costs
associated with short sales against the box, but the Portfolio endeavors to
offset these costs with the income from the investment of the cash proceeds of
short sales.
The Adviser does not expect that more than 40% of the Portfolio's total
assets would be involved in short sales against the box. The Adviser does not
currently intend to engage in such sales.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, the Portfolio may lend its securities to broker-dealers and
other institutional borrowers. Such loans will usually be made only to member
banks of the U.S. Federal Reserve System and to member firms of the New York
Stock Exchange (and subsidiaries thereof). Loans of securities would be secured
<PAGE>
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to call a loan
at any time on customary industry settlement notice (which will not usually
exceed three business days). During the existence of a loan, the Portfolio
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned and with respect to cash collateral would
also receive compensation based on investment of the collateral (subject to a
rebate payable to the borrower). Where the borrower provides the Portfolio with
collateral consisting of U.S. Treasury obligations, the borrower is also
obligated to pay the Portfolio a fee for use of the borrowed securities. The
Portfolio would not, however, have the right to vote any securities having
voting rights during the existence of the loan, but would call the loan in
anticipation of an important vote to be taken among holders of the securities
or of the giving or withholding of their consent on a material matter affecting
the investment. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower fail
financially. However, the loans would be made only to entities deemed by the
Adviser to be of good standing, and when, in the judgment of the Adviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. In addition, the Portfolio could suffer a loss if the
borrower terminates the loan and the Portfolio is forced to liquidate
investments in order to return the cash collateral to the buyer. If the Adviser
determines to make loans, it is not intended that the value of the securities
loaned by the Portfolio would exceed 30% of the value of its total assets.
WHEN-ISSUED SECURITIES
The Portfolio may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, the Portfolio
would take delivery of such securities. When the Portfolio commits to purchase
a security on a "when-issued" or on a "forward delivery" basis, it sets up
procedures consistent with Securities and Exchange Commission ("SEC") policies.
Since those policies currently require that an amount of the Portfolio's assets
equal to the amount of the purchase be held aside or segregated to be used to
pay for the commitment, the Portfolio expects always to have cash, cash
equivalents or high quality debt securities sufficient to cover any commitments
or to limit any potential risk. However, even though the Portfolio does not
intend to make such purchases for speculative purposes and intends to adhere to
the provisions of SEC policies, purchases of securities on such bases may
involve more risk than other types of purchases. For example, the Portfolio may
have to sell assets which have been set aside in order to meet redemptions.
Also, if the Adviser determines it is advisable as a matter of investment
strategy to sell the "when-issued" or "forward delivery" securities, the
Portfolio would be required to meet its obligations from the then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or less than the Portfolio's payment
obligation).
<PAGE>
RULE 144A SECURITIES
The Portfolio may purchase securities that are not registered ("Rule 144A
securities") under the Securities Act of 1933 (the "1933 Act"), but can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
1933 Act. However, the Portfolio will not knowingly invest more than 15% of its
net assets in illiquid investments, which includes securities for which there
is no readily available market, securities subject to contractual restrictions
on resale and Rule 144A securities, unless the Trustees of the Trust determine,
based on the trading markets for the specific Rule 144A security, that it is
liquid. The Trustees have adopted guidelines and delegated to the Adviser the
daily function of determining and monitoring liquidity of Rule 144A securities.
The Trustees, however, retain oversight and are ultimately responsible for the
determinations.
Since it is not possible to predict with assurance exactly how the market
for Rule 144A securities will develop, the Trustees will carefully monitor the
Portfolio's investments in Rule 144A securities, focusing on such factors,
among others, as valuation, liquidity and availability of information. The
liquidity of investments in Rule 144A securities could be impaired if trading
in Rule 144A securities does not develop or if qualified institutional buyers
become for a time uninterested in purchasing Rule 144A securities.
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Portfolio, has adopted the following policies
which may not be changed without approval by holders of a majority of the
outstanding voting securities of the Portfolio, which as used in this Part B
means the vote of the lesser of (i) 67% or more of the outstanding voting
securities of the Portfolio present at a meeting at which the holders of more
than 50% of the outstanding voting securities of the Portfolio are present or
represented by proxy, or (ii) 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) borrow money or pledge, mortgage or hypothecate the Portfolio's
assets, except that as a temporary measure for extraordinary or emergency
purposes it may borrow from banks in an amount not to exceed 1/3 of the value
of the Portfolio's net assets, including the amount borrowed, and may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that the Portfolio would borrow money only from
banks and only to accommodate requests for the withdrawal of all or a portion
of a beneficial interest in the Portfolio while effecting an orderly
liquidation of securities), provided that collateral arrangements with respect
to Futures Contracts, including deposits of initial and variation margin, are
not considered a pledge of assets for purposes of this restriction;
<PAGE>
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit may be obtained for the Portfolio as may be
necessary for the clearance of purchases and sales of securities and except
that deposits of initial and variation margin may be made for the Portfolio in
connection with the purchase, ownership, holding or sale of Futures Contracts;
(3) write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) the writing, purchasing or
selling of puts, calls or combinations thereof with respect to U.S. Government
securities or with respect to Futures Contracts, or (ii) the writing, purchase,
ownership, holding or sale of Futures Contracts;
(4) underwrite securities issued by other persons and except insofar as
the Trust acting on behalf of the Portfolio may technically be deemed an
underwriter under the Securities Act of 1933 in selling a portfolio security;
(5) make loans to other persons except (a) through the lending of
securities held for the Portfolio and provided that any such loans not exceed
30% of the Portfolio's total assets (taken at market value), (b) through the
use of repurchase agreements or the purchase of short-term obligations, or (c)
by purchasing a portion of an issue of debt securities of types commonly
distributed privately to financial institutions, for which purposes the
purchase of short-term commercial paper or a portion of an issue of debt
securities which is part of an issue to the public shall not be considered the
making of a loan;
(6) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except Futures Contracts) in the ordinary course of business the Portfolio
reserves the freedom of action to hold and to sell real estate acquired as a
result of the ownership of securities by the Portfolio);
(7) purchase securities of any issuer if such purchase at the time thereof
would cause the Portfolio to hold more than 10% of the voting securities of
such issuer;
(8) purchase securities of any issuer if such purchase at the time thereof
would cause more than 5% of the Portfolio's assets (taken at market value) to
be invested in the securities of such issuer (other than securities or
obligations issued or guaranteed by the United States, any state or political
subdivision of either of the foregoing, or any agency or instrumentality of the
United States or of any state or of any political subdivision of any state or
the United States); provided that for purposes of this restriction the issuer
of a Futures Contract shall not be deemed to be the issuer of the security or
securities underlying such contract;
<PAGE>
(9) make short sales of securities or maintain a short position, unless at
all times when a short position is open the Portfolio owns an equal amount of
such securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of the
Portfolio's net assets (taken at market value) is held as collateral for such
sales at any one time (it is the present intention of the Trust to make such
sales only for the purpose of deferring realization of gain or loss for federal
income tax purposes; such sales would not be made of securities subject to
outstanding options);
(10) concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of the Portfolio's investment objective,
up to 25% of assets at market value at the time of each investment, may be
invested in any one industry, except that positions in Futures Contracts shall
not be subject to this restriction; or
(11) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to Futures Contracts, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security for purposes
of this restriction.
The Portfolio has also adopted a policy which is fundamental and which
provides that all of the assets of the Portfolio will be invested in
obligations that are backed by the full faith and credit of the U.S.
Government. This policy is not intended to prohibit the use of Futures
Contracts to hedge the Portfolio's investments.
As an operating policy, the Portfolio will not invest more than 15% of its
net assets in securities for which there is no readily available market. This
policy is not fundamental and may be changed by the Trust without the approval
of the holders of the beneficial interests in the Portfolio.
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in Part A is adhered to at the time an
investment is made or assets are so utilized, a later change in percentage
resulting from changes in the value of the securities or a later change in the
rating of the securities held for the Portfolio will not be considered a
violation of policy.
<PAGE>
Item 14. Management of the Trust.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate that those Trustees and officers are
"interested persons" (as defined in the 1940 Act) of the Trust. Unless
otherwise indicated below, the address of each Trustee and officer is 6 St.
James Avenue, Boston, Massachusetts. The address of the Trust is Elizabethan
Square, George Town, Grand Cayman, Cayman Islands, British West Indies.
TRUSTEES
ELLIOTT J. BERV (aged 54) -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June, 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June, 1991 to
June, 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS, Inc. ("CFBDS").
MARK T. FINN (aged 54) -- President and Director, Delta Financial, Inc. (since
June, 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage
Consulting Group, Inc. (since October, 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
C. OSCAR MORONG, JR. (aged 62) -- Chairman of the Board of Trustees of the
Trust; Managing Director, Morong Capital Management (since February, 1993);
Senior Vice President and Investment Manager, CREF Investments, Teachers
Insurance & Annuity Association (retired January, 1993); Director, Indonesia
Fund; Trustee, MAS Funds (since 1993). His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
WALTER E. ROBB, III (aged 71) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (Corporate Financial Advisors) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors)
(since 1989); Trustee of certain registered investment companies in the MFS
Family of Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
OFFICERS
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS.
<PAGE>
CHRISTINE A. DRAPEAU* (aged 27) -- Assistant Secretary and Assistant Treasurer
of the Trust; Assistant Vice President, Signature Financial Group, Inc. (since
January, 1996); Paralegal and Compliance Officer, various financial companies
(July, 1992 to January, 1996); Graduate Student, Bentley College (prior to
December, 1994).
TAMIE EBANKS-CUNNINGHAM* (aged 25) -- Assistant Secretary of the Trust; Office
Manager, Signature Financial Group (Cayman) Ltd. (Since April 1995);
Administrator, Cayman Islands Primary School (prior to April 1995). Her address
is P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I.
JOHN R. ELDER* (aged 49) -- Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (since April, 1995); Treasurer, CFBDS (since April,
1995); Treasurer of the Phoenix Family of Mutual Funds, Phoenix Home Life
Mutual Insurance Company (1983 to March, 1995).
LINDA T. GIBSON* (aged 32) -- Secretary of the Trust; Vice President, Signature
Financial Group, Inc. (since May, 1992); Assistant Secretary, CFBDS (since
October, 1992).
JOAN R. GULINELLO* (aged 42) -- Assistant Secretary and Assistant Treasurer of
the Trust; Vice President, Signature Financial Group, Inc. (since October,
1993); Secretary, CFBDS (since October, 1995); Vice President and Assistant
General Counsel, Massachusetts Financial Services Company (prior to October,
1993).
JAMES E. HOOLAHAN* (aged 51) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Senior Vice President, Signature Financial
Group, Inc.
SUSAN JAKUBOSKI* (aged 33) -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust; Vice President, Signature Financial Group (Cayman) Ltd.
(since August, 1994); Fund Compliance Administrator, Concord Financial Group
(November, 1990 to August, 1994). Her address is Suite 193, 12 Church Street,
Hamilton HM11, Bermuda.
MOLLY S. MUGLER* (aged 46) -- Assistant Secretary and Assistant Treasurer of
the Trust; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, CFBDS.
CLAIR TOMALIN* (aged 29) -- Assistant Secretary of the Trust; Office Manager,
Signature Financial Group (Europe) Limited (since 1993). Her address is 117
Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON* (aged 49) -- Assistant Secretary and Assistant Treasurer of
the Trust; Assistant Vice President, Signature Financial Group, Inc.
<PAGE>
The Trustees and officers of the Trust also hold comparable positions with
certain other funds for which SFG or an affiliate serves as the administrator.
The Declaration of Trust provides that the Trust 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
Trust, unless, as to liability to the Trust 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 Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable
determination, based upon a review of readily available facts, by vote of a
majority of disinterested Trustees or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.
The Trustees of the Portfolio received the following remuneration from the
Portfolio during its fiscal year ended December 31, 1997.
Trustee Compensation
Table
Aggregate Total Compensation
Compensation from
Trustee(1) from the Trust (2) Trust and Complex (1)
---------- ------------------ ---------------------
Elliott J. Berv $1,493 $57,000
Philip W. Coolidge $0 $0
Mark T. Finn $1,453 $54,000
Walter E. Robb, III $1,499 $56,000
(1) Mr. Morong became a Trustee of the Trust on November 14, 1998 and
received no compensation for serving as a Trustee of the Trust during the
fiscal year ended December 31, 1997.
(2) Information relates to the calendar year ended December 31, 1997.
Messrs. Berv, Coolidge, Finn and Robb serve as Trustees of 31, 55, 26 and
24 funds or portfolios, respectively, in the family of open-end registered
investment companies advised or managed by Citibank.
Item 15. Control Persons and Principal Holders of Securities.
<PAGE>
As of February 24, 1998, CitiFundsSM Short-Term U.S. Government Income
Portfolio (the "Fund") owned approximately 33.0%, and Citi U.S. Government
Income Fund, Ltd. owned approximately 67.0%, of the outstanding beneficial
interests in the Portfolio. Because the Fund controls the Portfolio, the Fund
could take actions without the approval of any other investor. The 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 its 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 Fund is a series of CitiFunds Fixed Income Trust, a
Massachusetts business trust organized on June 23, 1986 and registered under
the 1940 Act as an investment company. Prior to June 11, 1992 CitiFunds Fixed
Income Trust was called Landmark U.S. Government Income Fund, and prior to
March 2, 1998 CitiFunds Fixed Income Trust was called Landmark Fixed Income
Funds.
Item 16. Investment Advisory and Other Services.
Citibank manages the assets of the Portfolio pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Trustees may determine, the Adviser manages the Portfolio's securities
and makes investment decisions for the Portfolio. The Adviser furnishes at its
own expense all services, facilities and personnel necessary in connection with
managing the Portfolio's investments and effecting securities transactions for
the Portfolio. The Advisory Agreement continues in effect from year to year as
long as such continuance is specifically approved at least annually by the
Board of Trustees or by a vote of a majority of the outstanding voting
securities of the Portfolio, and, in either case, by a majority of the Trustees
who are not parties to the Advisory Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Trust when authorized
either by a vote of a majority of the outstanding voting securities of the
Portfolio or by a vote of a majority of the Board of Trustees, or by the
Adviser on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Advisory
Agreement provides that neither the Adviser nor its personnel shall be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of security transactions
for the Portfolio, except for willful misfeasance, bad faith or gross
negligence or reckless disregard of its or their obligations and duties under
the Advisory Agreement. For the fiscal years ended December 31, 1995, 1996 and
1997 the fees payable to Citibank under the Advisory Agreement were $179,525
(of which $1,055 was voluntarily waived), $198,024 (of which $2,044 was
voluntarily waived) and $196,529 (of which $5,466 was voluntarily waived),
respectively.
<PAGE>
Pursuant to an administrative services agreement (the "Administrative
Services Agreement"), SFG (in its capacity under the Administrative Services
Agreement, the "Administrator") provides the Trust with general office
facilities and supervises the overall administration of the Trust, including,
among other responsibilities, the negotiation of contracts and fees with, and
the monitoring of performance and billings of, the Trust's independent
contractors and agents; the preparation and filing of all documents required
for compliance by the Trust with applicable laws and regulations; and arranging
for the maintenance of books and records of the Trust. The Administrative
Services Agreement with SFG continues in effect if such continuance is
specifically approved at least annually by the Board of Trustees or by a vote
of a majority of the outstanding voting securities of the Trust and, in either
case, by a majority of the Trustees who are not parties to the Administrative
Services Agreement or interested persons of any such party. The Administrator
provides persons satisfactory to the Board of Trustees to serve as Trustees and
officers of the Trust. Such Trustees and officers, as well as certain other
employees and Trustees of the Trust, may be directors, officers or employees of
the Administrator or its affiliates For the fiscal years ended December 31,
1995, 1996 and 1997, the fees payable to the Administrator from the Portfolio
under the Administrative Services Agreement with the Trust were $25,646 (of
which $18,221 was voluntarily waived), $28,289 (of which $27,649 was
voluntarily waived) and $28,076 (of which $27,174 was voluntarily waived),
respectively.
The Administrative Services Agreement provides that SFG may render
administrative services to others. The Administrative Services Agreement
terminates automatically if it is assigned and may be terminated without
penalty by vote of a majority of the outstanding voting securities of the Trust
or by either party on not more than 60 days' nor less than 30 days' written
notice. The Administrative Services Agreement also provides that neither SFG,
as the Administrator, nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration or
management of the Trust, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Administrative
Services Agreement.
SFG is a wholly-owned subsidiary of Signature Financial Group, Inc. SFG is
a company organized under the laws of the Cayman Islands. Its principal place
of business is in George Town, Grand Cayman, British West Indies.
Pursuant to a sub-administrative services agreement, Citibank performs
such sub-administrative duties for the Trust as from time to time are agreed
upon by Citibank and SFG. Citibank performs such sub-administrative duties in a
manner consistent with the Operating Policies and Procedures of the Trust.
Citibank's sub-administrative duties may include providing equipment and
clerical personnel necessary for maintaining the Trust's organization,
participation in the preparation of documents required for compliance by the
Trust with applicable laws and regulations, the preparation of certain
<PAGE>
documents in connection with meetings of Trustees and shareholders, and other
functions which would otherwise be performed by the Administrator. For
performing such sub-administrative services, Citibank receives compensation as
from time to time is agreed upon by SFG, not in excess of the amount paid to
SFG for its services under the Administrative Services Agreement with the
Trust. All such compensation is paid by SFG.
The Trust has adopted an administrative services plan (the "Administrative
Plan") which provides that the Trust may obtain the services of an
administrator, a transfer agent and a custodian, and may enter into agreements
providing for the payment of fees for such services. Under the Administrative
Plan, the administrative services fee payable to the Administrator from the
Portfolio may not exceed 0.05% of the Portfolio's average daily net assets on
an annualized basis for its then-current fiscal year.
The Administrative Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trustees and a majority of the Trustees who are not "interested persons" of the
Portfolio and who have no direct or indirect financial interest in the
operation of the Administrative Plan or in any agreement related to such Plan
("Qualified Trustees"). The Administrative Plan requires that the Trust provide
to the Board of Trustees and the Board of Trustees review, at least quarterly,
a written report of the amounts expended (and the purposes therefor) under the
Administrative Plan. The Administrative Plan may be terminated at any time by a
vote of a majority of the Qualified Trustees or, with respect to the Portfolio,
by a vote of a majority of the outstanding voting securities of the Portfolio.
The Administrative Plan may not be amended to increase materially the amount of
permitted expenses thereunder without the approval of a majority of the
outstanding voting securities of the Trust and may not be materially amended in
any case without a vote of the majority of both the Trustees and the Qualified
Trustees.
The Trust, on behalf of the Portfolio, has entered into a Custodian
Agreement with State Street Bank and Trust Company ("State Street") pursuant to
which State Street acts as custodian to the Portfolio. The Trust, on behalf of
the Portfolio, has also entered into a Fund Accounting Agreement with State
Street Cayman Trust Company, Ltd. ("State Street Cayman") pursuant to which
State Street Cayman performs fund accounting services for the Portfolio. State
Street Cayman also provides transfer agency services to the Portfolio.
The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, British West Indies.
Price Waterhouse are the chartered accountants for the Trust, providing
audit services, and assistance and consultation with respect to the preparation
of filings with the SEC. The address of Price Waterhouse is Suite 3000, Box 82,
Royal Trust Towers, Toronto Dominion Center, Toronto, Ontario, Canada M5X 1G8.
<PAGE>
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel
for the Portfolio.
Item 17. Brokerage Allocation and Other Practices.
The Trust trades securities for the Portfolio if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Portfolio's investment objectives. Changes in the Portfolio's investments are
made without regard to the length of time a security has been held, or whether
a sale would result in the recognition of a profit or loss. Therefore, the rate
of turnover is not a limiting factor when changes are appropriate. Specific
decisions to purchase or sell securities for the Portfolio are made by a
portfolio manager who is an employee of the Adviser and who is appointed and
supervised by its senior officers. The portfolio manager may serve other
clients of the Adviser in a similar capacity.
The primary consideration in placing portfolio securities transactions
with broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of the Portfolio and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Adviser normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the Adviser on the tender of the
Portfolio's securities in so-called tender or exchange offers. Such soliciting
dealer fees are in effect recaptured for the Portfolio by the Adviser. At
present no other recapture arrangements are in effect.
Under the Advisory Agreement, in connection with the selection of such
brokers or dealers and the placing of such orders, the Adviser is directed to
seek for the Portfolio in its best judgment, prompt execution in an effective
manner at the most favorable price. Subject to this requirement of seeking the
most favorable price, securities may be bought from or sold to broker-dealers
who have furnished statistical, research and other information or services to
the Adviser or the Portfolio, subject to any applicable laws, rules and
regulations.
The investment advisory fee that the Portfolio pays to the Adviser will
not be reduced as a consequence of the Adviser's receipt of brokerage and
<PAGE>
research services. While such services are not expected to reduce the expenses
of the Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff or obtain such services
independently.
In certain instances there may be securities that are suitable as an
investment for the Portfolio as well as for one or more of the Adviser's other
clients. Investment decisions for the Portfolio and for the Adviser's other
clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for
only one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling the same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable
for the investment objectives of more than one client. When two or more clients
are simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could adversely affect
the price of or the size of the position obtainable for the security for the
Portfolio. When purchases or sales of the same security for the Portfolio and
for other portfolios managed by the Adviser occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large volume purchases or sales.
For the fiscal years ended December 31, 1995, 1996 and 1997 the Portfolio
paid no brokerage commissions.
Item 18. Capital Stock and Other Securities.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Trust and to establish series, each of which shall
be a subtrust, the beneficial interests in which shall be separate and distinct
from the beneficial interests in any other series. The Portfolio is one of the
series of the Trust. Investors in the Portfolio are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the
Portfolio. Upon liquidation or dissolution of the Portfolio, investors are
entitled to share pro rata in the Portfolio's net assets available for
distribution to its investors. Interests in the Portfolio have no preference,
pre-emptive, conversion or similar rights and are fully paid and
non-assessable, except as set forth below. Interests in the Portfolio may not
be transferred.
Each investor is entitled to a vote in proportion to its percentage of the
aggregate beneficial interests in the Portfolio. Investors in the Portfolio do
not have cumulative voting rights, and investors holding more than 50% of the
aggregate beneficial interests in the Trust may elect all of the Trustees if
they choose to do so and in such event the other investors in the Trust would
not be able to elect any Trustee. The Trust is not required to hold, and has no
current intention of holding, annual meetings of investors but the Trust will
hold special meetings of investors when in the judgment of the Trustees it is
necessary or desirable to submit matters for an investor vote.
<PAGE>
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by a vote of a majority, as
defined in the 1940 Act, of the holders of the Trust's outstanding voting
securities voting as a single class, or of the affected series of the Trust, as
the case may be, or if authorized by an instrument in writing without a
meeting, consented to by holders of not less than a majority of the interests
of the affected series. However, if the Trust or the affected series is the
surviving entity of the merger, consolidation or sale of assets, no vote of
interest holders is required. Any series of the Trust may be dissolved (i) by
the affirmative vote of not less than two-thirds of the outstanding beneficial
interests in such series at any meeting of holders of beneficial interests or
by an instrument in writing signed by a majority of the Trustees and consented
to by not less than two-thirds of the outstanding beneficial interests, (ii) by
the Trustees by written notice to holders of the beneficial interests in the
series or (iii) upon the bankruptcy or expulsion of a holder of a beneficial
interest in the series, unless the remaining holders of beneficial interests,
by majority vote, agree to continue the series. The Trust may be dissolved by
action of the Trustees upon the dissolution of the last remaining series.
The Portfolio is a series of the Trust, organized as a trust under the
laws of the State of New York. The Trust's Declaration of Trust provides that
investors in the Portfolio are each liable for all obligations of the
Portfolio. The Declaration of Trust also provides that the Trust may maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its investors, Trustees, officers,
employees and agents covering possible tort and other liabilities. Thus, the
risk of an investor incurring financial loss on account of investor liability
is limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations. It is not expected that the
liabilities of the Portfolio would ever exceed its assets.
The Declaration of Trust further provides that obligations of the Trust
are not binding upon the Trustees individually and that the Trustees will not
be liable for any action or failure to act, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he or she 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
or her office.
Item 19. Purchase, Redemption and Pricing of Securities.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by investment companies, common or commingled trust funds or similar
organizations or entities which are "accredited investors" within the meaning
<PAGE>
of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
The net asset value of the Portfolio (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued)
is determined each day during which the New York Stock Exchange is open for
trading ("Business Day"). As of the date of this Registration Statement, such
Exchange is open for trading every weekday except for the following holidays
(or the days on which they are observed): New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. This determination of net asset value
of the Portfolio is made once each day as of the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m. Eastern time). As set forth in
more detail below, purchases and withdrawals will be effected at the time of
determination of net asset value next following the receipt of any purchase or
withdrawal order.
For the purpose of calculating the Portfolio's net asset value, bonds and
other fixed income securities held for the Portfolio (other than short-term
obligations) are valued on the basis of valuations furnished by a pricing
service, use of which has been approved by the Board of Trustees of the Trust.
In making such valuations, the pricing service utilizes both dealer-supplied
valuations and electronic data processing techniques that take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon quoted
prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations (maturing in 60 days or less) are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Futures Contracts are normally valued at the settlement price on the exchange
on which they are traded. Securities for which there are no such valuations are
valued at fair value as determined in good faith by or at the direction of the
Board of Trustees.
Interest income on long-term obligations held for the Portfolio is
determined on the basis of interest accrued plus amortization of "original
issue discount" (generally, the difference between issue price and stated
redemption price at maturity) and premiums (generally, the excess of purchase
price over stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest accrued less amortization of
premium.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Business Day. As of the close of regular trading on the New
York Stock Exchange, on each Business Day, the value of each investor's
beneficial interest in the Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be effected on that day,
<PAGE>
are then effected. Thereafter, the investor's percentage of the aggregate
beneficial interests in the Portfolio is re-computed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of the close of regular trading on such 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 effected on such day, and (ii)
the denominator of which is the aggregate net asset value of the Portfolio as
of the same time on such day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the Portfolio
as of the close of regular trading on the following Business Day of the
Portfolio.
Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption price of beneficial interests in the Portfolio,
either totally or partially, by a distribution in kind of readily marketable
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 beneficial interests being sold. If a holder of beneficial interests
received a distribution in kind, such holder could incur brokerage or other
charges in converting the securities to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for beneficial interests in the Portfolio more than seven days during
any period when (a) trading in the markets the Portfolio normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the
SEC, exists making disposal of the Portfolio's investments or determination of
its net asset value not reasonably practicable; (b) the New York Stock Exchange
is closed (other than customary weekend and holiday closings); or (c) the SEC
has by order permitted such suspension.
Item 20. Tax Status.
The Trust is organized as a trust under New York law. The Trust has
determined that the Portfolio is properly treated as a partnership for U.S.
federal and New York State income tax purposes. Accordingly, under those tax
laws, the Portfolio is not subject to any income tax, but each investor in the
Portfolio must take into account its share of the Portfolio's ordinary income,
expenses, capital gains and losses, credits and other items in determining its
income tax liability. The determination of such share is made in accordance
with the governing instruments of the Trust and the U.S. Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder.
<PAGE>
The Portfolio's taxable year ends December 31. Although, as described
above, the Portfolio is not subject to U.S. federal income tax, it files
appropriate U.S. federal income tax returns.
The Trust believes that, in the case of an investor in the Portfolio that
seeks to qualify as a regulated investment company ("RIC") under the Code, the
investor should be treated for U.S. federal income tax purposes as an owner of
an undivided interest in the assets and operations of the Portfolio, and
accordingly should be deemed to own a proportionate share of each of the assets
of the Portfolio and be entitled to treat as earned by it the portion of the
Portfolio's gross income attributable to that share. The Trust also believes
that each such investor 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 investor has been a partner in the Portfolio, whichever is shorter.
Each investor should consult its tax advisers regarding whether, in light of
its particular tax status and any special tax rules applicable to it, this
approach applies to its investment in the Portfolio, or whether the Portfolio
should be treated, as to it, as a separate entity as to which the investor has
no direct interest in Portfolio assets or operations.
In order to enable an investor in the Portfolio that is otherwise eligible
to qualify as a RIC under the Code to so qualify, the Trust intends that the
Portfolio will satisfy the requirements of Subchapter M of the Code relating to
the nature of the Portfolio's gross income and the composition
(diversification) of the Portfolio's assets as if those requirements were
directly applicable to the Portfolio and to allocate and permit withdrawals of
its net investment income and any net realized capital gains in a manner that
will enable an investor that is a RIC to comply with the qualification
requirements imposed by Subchapter M of the Code.
The Trust will allocate at least annually among the Portfolio's 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 in a manner intended to comply with the Code and
applicable U.S. Treasury regulations.
To the extent the cash proceeds of any withdrawal or distribution exceed
an investor's adjusted tax basis in its partnership interest in the Portfolio,
the investor will generally realize gain for U.S. federal income tax purposes.
If, upon a complete withdrawal (i.e., a redemption of its entire interest in
the Portfolio), the investor's adjusted tax basis in its partnership interest
in the Portfolio exceeds the proceeds of the withdrawal, the investor will
generally realize a loss for federal income tax purposes. An investor's
adjusted tax basis in its partnership interest in the Portfolio will generally
be the aggregate price paid therefor, increased by the amounts of its
distributive shares of items of realized net income and gain (including income,
if any, exempt from U.S. Federal income tax), and reduced, but not below zero,
by the amounts of its distributive shares of items of net loss and the amounts
of any distributions received by the investor. This discussion does not address
any distributions by the Portfolio in kind (i.e., any distributions of readily
<PAGE>
marketable securities or other non-cash property), which will be subject to
special tax rules and may have consequences different from those described in
this paragraph.
Any investment in zero coupon bonds, certain stripped securities, and
certain securities purchased at a market discount will cause the Portfolio to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to enable an investor that is a RIC to distribute this
income and avoid a tax on the investor, the Portfolio may be required to
liquidate Portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the Portfolio.
The Portfolio's short sales "against the box" and transactions in futures
contracts and options will be subject to special tax rules that may affect the
amount, timing, and character of Portfolio income and distributions 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
sold) on that day, and any gain or loss associated with the positions will be
treated as 60% long-term and 40% short-term capital gain or loss. Certain
positions held by the Portfolio that substantially diminish its risk of loss
with respect to other positions in its portfolio may constitute "straddles,"
and may be subject to special tax rules that would cause deferral of Portfolio
losses, adjustments in the holding periods of Portfolio securities, and
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles that may alter the effects of these rules. The Portfolio
will limit its activities in futures contracts and options to the extent
necessary to enable any investor that is a RIC to meet the requirements of
Subchapter M of the Code.
Portfolio income allocated to investors that is derived from interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities (but generally not from capital gains realized upon the
disposition of such obligations) may be exempt from state and local taxes. In
other states, arguments can be made on the basis of a U.S. Supreme Court
decision to the effect that such income should be exempt from state and local
taxes. The Portfolio intends to advise investors of the extent, if any, to
which its income consists of such interest. Investors are urged to consult
their tax advisers regarding the possible exclusion of such portion of the
income allocated to them by the Portfolio for state and local income tax.
There are certain tax issues which will be relevant to only certain
investors, specifically, investors which are segregated asset accounts and
investors who contribute assets other than cash to the Portfolio. It is
intended that such segregated asset accounts will be able to satisfy
diversification requirements applicable to them and that such contributions of
assets will not be taxable provided certain requirements are met. Such
investors are advised to consult their own tax advisers as to the tax
consequences of an investment in the Portfolio.
<PAGE>
The Trust intends to conduct its activities and those of the Portfolio so
that they will not be deemed to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes. Therefore, it is not anticipated
that an investor in the Portfolio, other than an investor which would be deemed
a "U.S. person" for U.S. federal income tax purposes, will be subject to U.S.
federal income taxation (other than a 30% withholding tax on dividends and
certain interest income) solely by reason of its investment in the Portfolio.
There can be no assurance that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions that, if successful,
might result in the payment of U.S. federal income taxes by investors in the
Portfolio.
The above discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions, or the state, local, or non-U.S. tax laws that may
be applicable to certain investors. Investors should consult their own tax
advisers with respect to the special tax rules that may apply in their
particular situations, as well as the state, local, or foreign tax consequences
to them of investing in the Portfolio.
Item 21. Underwriters.
CFBDS, exclusive placement agent for the Portfolio, receives no
compensation for serving in this capacity. Investment companies, insurance
company separate accounts, common and commingled trust funds and similar
organizations and entities may continuously invest in the Portfolio.
Item 22. Calculations of Performance Data.
Not applicable.
Item 23. Financial Statements.
The financial statements contained in the Annual Report of the Portfolio
for the fiscal year ended December 31, 1997, as filed with the SEC, via the
EDGAR system, on February 24, 1998 (Accession Number 0000950156-98-000163), are
incorporated by reference into this Part B.
A copy of the Annual Report of the Portfolio accompanies this Part B.
<PAGE>
Appendix A
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES, AUTHORITIES OR INSTRUMENTALITIES
BACKED BY THE FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT
U.S. ARMORY BOARD BONDS - bonds issues by the District of Columbia Armory Board.
EXPORT-IMPORT BANK CERTIFICATES - certificates of beneficial interest and
participation certificates issued and guaranteed by the Export-Import Bank of
the United States.
FHA DEBENTURES - debentures issued by the Federal Housing Administration if the
U.S. Government.
GNMA CERTIFICATES - mortgage-backed securities issued by the Government
National Mortgage Association, with timely payment guaranteed by the full faith
and credit of the U.S. Government, which represent partial ownership interests
in pools of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Each mortgage loan included
in the pool is either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration.
The Portfolio purchases only GNMA Certificates of the "modified pass-through"
type, which entitle the holder to receive its proportionate share of all
interest and principal payments owned by the mortgage pool, net of fees paid to
the issuer and GNMA. Payment of the principal of and interest on GNMA
Certificates of the "modified pass through" type is guaranteed by GNMA.
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures usually result
in the return of the greater part of principal invested far in advance of the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the
average life of a single-family dwelling mortgage with a 25-30-year maturity,
the type of mortgage which backs the vast majority of GNMA Certificates, is
approximately 12 years. It is therefore customary practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest
paid on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
<PAGE>
The yield which is earned on GNMA Certificates may vary from their coupon rates
for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned
on the Certificates; and (iv) the actual yield of each Certificate is affected
by the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested.
Principal which is so prepaid is reinvested, although sometimes at a lower
rate. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to
the Portfolio.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors. GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things,
the level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
GNMA FHLMC BONDS - mortgage-backed bonds issued by the Federal Home Loan
Mortgage Corporation and guaranteed by GNMA.
GNMA FNMA BONDS - mortgage-backed bonds issued by the Federal National Mortgage
Association and guaranteed by GNMA.
GSA PARTICIPATION CERTIFICATES - participation certificates issued by the
General Services Administration of the U.S. Government.
NEW COMMUNITIES DEBENTURES - debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
PUBLIC HOUSING NOTES AND BONDS - short-term project notes and long-term bonds
issued by public housing and urban renewal agencies in connection with programs
administered by the Department of Housing and Urban Development of the U.S.
Government, the payment of which is guaranteed by the U.S. Government .
PENN CENTRAL TRANSPORTATION CERTIFICATES - certificates issued by Penn Central
Transportation and guaranteed by the U.S. Government.
SBA DEBENTURES - debentures fully guaranteed as to principal and interest by
the Small Business Administration of the U.S. Government.
<PAGE>
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS - bonds issued by the
Washington Metropolitan Area Transit Authority and guaranteed by the U.S.
Government.
The list of securities set forth above does not purport to be a complete list
of all debt obligations which are backed by the full faith and credit of the
U.S. Government. The Portfolio reserves the right to invest its assets in debt
obligations backed by the full faith and credit of the U.S. Government other
than those listed above.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Included in Part A:
Not applicable.
Financial Statements Included in Part B:
Portfolio of Investments at December 31, 1997*
Statement of Assets and Liabilities at December 31, 1997*
Statement of Operations for the year ended December 31, 1997*
Statement of Changes in Net Assets for the years ended December 31,
1996 and 1997*
Financial Highlights for the period from May 1, 1994
(commencement of operations) to December 31, 1994
and for the years ended December 31, 1995, 1996 and 1997*
Notes to Financial Statements - December 31, 1997*
Independent Auditors' Report - February 2, 1998*
_____________
* Incorporated herein by reference to the Annual Report of the Registrant
relating to Government Income Portfolio (the "Portfolio") for the fiscal year
ended December 31, 1997 (Accession Number 0000950156-98-000163).
(b) Exhibits
* 1(a) Copy of the Declaration of Trust of the Trust
* 1(b) Form of Amendment to Declaration of Trust
** 1(c) Amendment to Declaration of Trust
* 2 By-laws of the Trust
* 5 Form of Investment Advisory Agreement between the
Registrant and Citibank, N.A., as investment adviser
* 6 Form of Placement Agency Agreement between the Registrant
and CFBDS, Inc. (formerly known as The Landmark Funds
Broker-Dealer Services, Inc.), as exclusive placement
agent
<PAGE>
8 Custodian Agreement between the Registrant and State
Street Bank and Trust Company, as custodian
* 9(a) Form of Administrative Services Agreement between the
Registrant and Signature Financial Group (Cayman)
Ltd., as administrator
* 9(b) Form of Amended and Restated Administrative Services
Plan of the Registrant
9(c) Fund Accounting Agreement between the Registrant and
State Street Cayman Trust Company, Ltd.
27 Financial Data Schedule
_____________________
*Incorporated herein by reference to the Registration Statement on Form
N-1A of the Registrant relating to the Portfolio filed March 21, 1994.
**Incorporated herein by reference to Amendment No. 2 to the Registration
Statement on Form N-1A of the Registrant relating to the Portfolio filed
April 29, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
(1) (2)
Title of Class Number of Record Holders
Beneficial Interests (as of February 27, 1998)
Government Income Portfolio 2
Item 27. Indemnification.
Reference is hereby made to Article V of the Declaration of Trust
(Exhibits 1(a) and 1(b) to this Registration Statement).
The Trustees and officers of the Trust and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
<PAGE>
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940,
as amended.
Item 28. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range of
banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, a
registered bank holding company. Citibank also serves as investment adviser to
the following registered investment companies (or series thereof): Asset
Allocation Portfolios (Large Cap Value Portfolio, Small Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio
and Short-Term Portfolio), The Premium Portfolios (Growth & Income Portfolio,
Balanced Portfolio, Large Cap Growth Portfolio, International Equity Portfolio,
Emerging Asian Markets Equity Portfolio and Small Cap Growth Portfolio), Tax
Free Reserves Portfolio, U.S. Treasury Reserves Portfolio, Cash Reserves
Portfolio, CitiFundsSM Multi-State Tax Free Trust (CitiFundsSM New York Tax
Free Reserves, CitiFundsSM Connecticut Tax Free Reserves and CitiFundsSM
California Tax Free Reserves), CitiFundsSM Tax Free Income Trust (CitiFundsSM
National Tax Free Income Portfolio and CitiFundsSM New York Tax Free Income
Portfolio), CitiFundsSM Institutional Trust (CitiFundsSM Institutional Cash
Reserves), CitiFundsSM Fixed Income Trust (CitiFundsSM Intermediate Income
Portfolio) and Variable Annuity Portfolios (CitiSelect(R) VIP Folio 200,
CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP
Folio 500 and CitiFundsSM Small Cap Growth VIP Portfolio). Citibank and its
affiliates manage assets in excess of $88 billion worldwide. The principal
place of business of Citibank is located at 399 Park Avenue, New York, New York
10043.
John S. Reed is the Chairman of the Board and a Director of Citibank. The
following are Vice Chairmen of the Board and Directors of Citibank: Paul J.
Collins and William R. Rhodes. Other Directors of Citibank are D. Wayne
Calloway, former Chairman and Chief Executive Officer, PepsiCo, Inc.; John M.
Deutch, Institute Professor, Massachusetts Institute of Technology; Reuben
Mark, Chairman and Chief Executive Officer, Colgate-Palmolive Company; Richard
D. Parsons, President, Time Warner, Inc.; Rozanne L. Ridgway, Former Assistant
Secretary of State for Europe and Canada; Robert B. Shapiro, Chairman,
President and Chief Executive Officer, Monsanto Company; Frank A. Shrontz,
Chairman Emeritus, The Boeing Company; and Franklin A. Thomas, former
President, The Ford Foundation.
Each of the individuals named above is also a Director of Citicorp. In
addition, the following persons have the affiliations indicated:
<PAGE>
D. Wayne Calloway Director, Exxon Corporation
Director, General Electric Company
Retired Chairman and Chief Executive
Officer and Director, PepsiCo, Inc.
Paul J. Collins Director, Kimberly-Clark Corporation
John M. Deutch Director, Ariad Pharmaceuticals, Inc.
Director, CMS Energy
Director, Palomar Medical Technologies, Inc.
Director, Cummins Engine Company,Inc.
Director, Schlumberger, Ltd.
Reuben Mark Director, Chairman and Chief Executive Officer
Colgate-Palmolive Company
Director, New York Stock Exchange
Director, Time Warner, Inc.
Non-Executive Director, Pearson, PLC
Richard D. Parsons Director, Federal National Mortgage Association
Director, Philip Morris Companies Incorporated
Member, Board of Representatives, Time Warner
Entertainment Company, L.P.
Director and President, Time Warner, Inc.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding Corporation
<PAGE>
Rozanne L. Ridgway Director, 3M
Director, Bell Atlantic Corporation
Director, Boeing Company
Director, Emerson Electric Company
Member-International Advisory Board,
New Perspective Fund, Inc.
Director, RJR Nabisco, Inc.
Director, Sara Lee Corporation
Director, Union Carbide Corporation
Robert B. Shapiro Director, Chairman and Chief Executive
Officer, Monsanto Company
Director, Silicon Graphics
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director and Chairman Emeritus, Boeing Company
Director, Boise Cascade Corp.
Director, Chevron Corporation
Franklin A. Thomas Director, Aluminum Company of America
Director, Cummins Engine Company, Inc.
Director, Lucent Technologies
Director, PepsiCo, Inc.
Item 29. Principal Underwriters.
(a) CFBDS, the Registrant's exclusive placement agent, is also the
distributor for CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Emerging Asian Markets
Equity Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash
Reserves, CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium
Liquid Reserves, CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM
Institutional Liquid Reserves, CitiFundsSM Institutional Cash Reserves,
CitiFundsSM Tax Free Reserves, CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves, CitiFundsSM Connecticut Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves, CitiFundsSM Balanced
Portfolio, CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth & Income
Portfolio, CitiFundsSM Large Cap Growth Portfolio, CitiFundsSM Small Cap Growth
Portfolio, CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM New York
<PAGE>
Tax Free Income Portfolio, CitiFundsSM U.S. Government Income Portfolio,
CitiFundsSM Intermediate Income Portfolio, CitiSelect(R) VIP Folio 200,
CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP
Folio 500, CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect(R) Folio 200,
CitiSelect(R) Folio 300, CitiSelect(R) Folio 400, and CitiSelect(R) Folio 500.
CFBDS is also the placement agent for Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio, Short-Term Portfolio, Growth & Income Portfolio, Large Cap
Growth Portfolio, Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Emerging Asian Markets Equity Portfolio, Tax Free Reserves
Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
(b) The information required by this Item 29 with respect to each director
and officer of CFBDS is incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Name Address
Signature Financial Group Elizabethan Square, George Town,
(Cayman) Ltd. Grand Cayman
(administrator) Cayman Islands, BWI
State Street Bank and Trust Company 1776 Heritage Drive
(custodian) North Quincy, MA 02171
State Street Cayman Trust Company, Ltd. P.O. Box 2508 GT
(accounting services agent Grand Cayman
and transfer agent) British West Indies
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
<PAGE>
CFBDS, Inc. c/o Signature Financial Group
(placement agent) (Cayman) Ltd.
Elizabethan Square
George Town, Grand Cayman
Cayman Islands BWI
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
The Registrant undertakes to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940.
<PAGE>
SIGNATURE
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 Southampton, Bermuda, on the 27th day of February, 1998.
THE PREMIUM PORTFOLIOS
on behalf of Government Income Portfolio
By: Philip W. Coolidge
Philip W. Coolidge
President of
The Premium Portfolios
<PAGE>
EXHIBIT INDEX
Exhibit Description:
No.:
8 Custodian Agreement between the
Registrant and State Street Bank and
Trust Company, as custodian
9(c) Fund Accounting Agreement between
the Registrant and State Street
Cayman Trust Company, Ltd.
27 Financial Data Schedule
Exhibit 8
CUSTODIAN CONTRACT
Between
THE PREMIUM PORTFOLIOS
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It.........................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States......2
2.1 Holding Securities.....................................2
2.2 Delivery of Securities.................................2
2.3 Registration of Securities.............................4
2.4 Bank Accounts..........................................4
2.5 Availability of Federal Funds..........................5
2.6 Collection of Income...................................5
2.7 Payment of Fund Monies.................................6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased...................................7
2.9 Appointment of Agents..................................7
2.10 Deposit of Fund Assets in U.S. Securities System.......7
2.11 Fund Assets Held in the Custodian's Direct
Paper System...........................................8
2.12 Segregated Account.....................................9
2.13 Ownership Certificates for Tax Purposes...............10
2.14 Proxies...............................................10
2.15 Communications Relating to Portfolio
Securities............................................10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States.................10
3.1 Appointment of Foreign Sub-Custodians.................10
3.2 Assets to be Held.....................................11
3.3 Foreign Securities Systems............................11
3.4 Holding Securities....................................11
3.5 Agreements with Foreign Banking Institutions..........11
3.6 Access of Independent Accountants of the Fund.........11
3.7 Reports by Custodian..................................12
3.8 Transactions in Foreign Custody Account...............12
3.9 Liability of Foreign Sub-Custodians...................12
3.10 Liability of Custodian................................12
3.11 Reimbursement for Advances............................13
3.12 Monitoring Responsibilities...........................13
3.13 Branches of U.S. Banks................................13
3.14 Tax Law...............................................14
<PAGE>
4. Payments for Sales or Repurchases or Redemptions
of Beneficial Interests of the Fund........................14
5. Proper Instructions........................................14
6. Actions Permitted Without Express Authority................15
7. Evidence of Authority......................................15
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income..........16
9. Records....................................................16
10. Opinion of Fund's Independent Accountants..................16
11. Reports to Fund by Independent Public Accountants..........16
12. Compensation of Custodian..................................17
13. Responsibility of Custodian................................17
14. Effective Period, Termination and Amendment................18
15. Successor Custodian........................................19
16. Interpretive and Additional Provisions.....................19
17. Additional Funds...........................................20
18. Massachusetts Law to Apply.................................20
19. Prior Contracts............................................20
20. No Liability of Other Series...............................20
21. Beneficial Interestholder Communications Election..........20
<PAGE>
CUSTODIAN CONTRACT
This Contract between The Premium Portfolios, a trust organized and
existing under the laws of New York, having its principal place of business at
Elizabethan Square, Georgetown, Grand Cayman, Cayman Islands, British West
Indies hereinafter called the "Fund", and State Street Bank and Trust Company,
a Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue beneficial interests in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently offers beneficial interests in one or more
series, including, the Equity Portfolio, Small Cap Equity Portfolio, Balanced
Portfolio, International Equity Portfolio, Emerging Asian Markets Equity
Portfolio and Government Income Portfolio (such series together with all other
series subsequently established by the Fund and made subject to this Contract
in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such beneficial interests of the Fund
representing interests in the Portfolios ("Beneficial Interests") as may be
issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies (each, a "U.S. Securities System")
and (b) commercial paper of an issuer for which State Street Bank and
Trust Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the Custodian
(the "Direct Paper System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate
by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
<PAGE>
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities
prior to receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of
the Portfolio, which may be in the form of cash or obligations
issued by the United States government, its agencies or
<PAGE>
instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in the
book-entry system authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, but only against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of Beneficial Interests in connection with distributions in
kind, as may be described from time to time in the currently
effective prospectus and statement of additional information of the
Fund, related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Beneficial Interests for repurchase or
redemption; and
15) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees
or of the Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary, specifying the
<PAGE>
securities of the Portfolio to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian
shall utilize its best efforts only to timely collect income due the Fund
on such securities and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from
or for the account of the Portfolio, other than cash maintained by the
Portfolio in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company shall
be qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees of the Fund. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
<PAGE>
shall, upon the receipt of Proper Instructions from the Fund on behalf of
a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Beneficial
Interests of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on the
date of payment by the issuer, such securities are held by the Custodian
or its agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than
to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of
title to such options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to
act as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Portfolio or
in the name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
<PAGE>
conditions set forth in Section 2.11; (d) in the case of repurchase
agreements entered into between the Fund on behalf of the Portfolio
and the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written evidence of
the agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund as
defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For payment of the amount of dividends received in respect of
securities sold short;
4) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment is to
be made.
In connection with the following type of expenses, the Custodian shall
make payments upon Proper Instructions for the Fund from an account of
the Fund controlled from outside of the United States:
5) For the redemption or repurchase of Beneficial Interests issued by
the Portfolio as set forth in Article 4 hereof;
6) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses of
the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
<PAGE>
7) For the payment of any dividends on Beneficial Interests of the
Portfolio declared pursuant to the governing documents of the Fund;
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written instructions
from the Fund on behalf of such Portfolio to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities to
the same extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in
an account ("Account") of the Custodian in the U.S. Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
<PAGE>
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Portfolio.
The Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Portfolio. Copies of all advices from the U.S. Securities System
of transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon request,
the Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial certificate required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from use
of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or
of any of its or their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as it may have
against the U.S. Securities System; at the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of any
such loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
<PAGE>
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the Fund
on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the U.S.
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
<PAGE>
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio,
the Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper purposes, but
only, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions from the Fund on behalf of the applicable Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise of
call and put options written by the Fund on behalf of the Portfolio and
<PAGE>
the maturity of futures contracts purchased or sold by the Portfolio)
received by the Custodian from issuers of the securities being held for
the Portfolio. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Portfolio all written information received
by the Custodian from issuers of the securities whose tender or exchange
is sought and from the party (or his agents) making the tender or
exchange offer. If the Portfolio desires to take action with respect to
any tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior
to the date on which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of Trustees, the
Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in a clearing agency which acts as a securities depository or
in a book-entry system for the central handling of securities located
outside the United States (each a "Foreign Securities System") only
through arrangements implemented by the foreign banking institutions
<PAGE>
serving as sub-custodians pursuant to the terms hereof (Foreign
Securities Systems and U.S. Securities Systems are collectively referred
to herein as the "Securities Systems"). Where possible, such arrangements
shall include entry into agreements containing the provisions set forth
in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i)
the records of the Custodian with respect to securities and other
non-cash property of the Fund which are maintained in such account shall
identify by book-entry those securities and other non-cash property
belonging to the Fund and (ii) the Custodian shall require that
securities and other non-cash property so held by the foreign
sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian will be
subject only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities
and other assets of the Portfolio(s) held by foreign sub-custodians,
<PAGE>
including but not limited to an identification of entities having
possession of the Portfolio(s) securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities acquired
for a Portfolio, the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and
2.7 of this Contract shall apply, mutatis mutandis to the foreign
securities of the Fund held outside the United States by foreign
sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities
to the purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer. (c)
Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
<PAGE>
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to State
Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b)
other losses (excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear incident
or other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
such Portfolio's assets to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below
<PAGE>
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall
be maintained in an interest bearing account established for the Fund
with the Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or
any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the tax
law of jurisdictions other than those mentioned in the above sentence,
including responsibility for withholding and other taxes, assessments or
other governmental charges, certifications and governmental reporting.
The sole responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any
claim for exemption or refund under the tax law of jurisdictions for
which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Beneficial Interests
of the Fund
The Custodian shall receive from the distributor for the Beneficial
Interests or from the Transfer Agent of the Fund and deposit into the account
of the appropriate Portfolio such payments as are received for beneficial
interests of that Portfolio issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Fund on behalf of each such
Portfolio and the Transfer Agent of any receipt by it of payments for
Beneficial Interests of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
<PAGE>
instructions from the Transfer Agent, make funds available to the Fund at an
account of the Fund controlled from outside of the United States for payment to
holders of Beneficial Interests who have delivered to the Transfer Agent a
request for redemption or repurchase of their Beneficial Interests. In
connection with the redemption or repurchase of Beneficial Interests of a
Portfolio, the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank designated by the
redeeming Beneficial Interestholders. In connection with the redemption or
repurchase of Beneficial Interests of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Beneficial Interests, which checks
have been furnished by the Fund to the holder of Beneficial Interests, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the Secretary or
an Assistant Secretary as to the authorization by the Board of Trustees of the
Fund accompanied by a detailed description of procedures approved by the Board
of Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
<PAGE>
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any
action by the Board of Trustees pursuant to the Declaration of Trust as
described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
interest of the outstanding beneficial interests of each Portfolio or, if
directed in writing to do so by the Fund on behalf of the Portfolio, shall
itself keep such books of account and/or compute such net asset value per
beneficial interest. If so directed, the Custodian shall also calculate daily
the net income of the Portfolio as described in the Fund's currently effective
prospectus related to such Portfolio and shall advise the Fund and the Transfer
Agent daily of the total amounts of such net income and, if instructed in
writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per beneficial interest and the daily
<PAGE>
income of each Portfolio shall be made at the time or times described from time
to time in the Fund's currently effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on
futures contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so
state.
<PAGE>
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances
beyond the reasonable control of the Custodian or any sub-custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of
trading on or the closure of any securities market, power or other mechanical
or technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
the Investment Advisor in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency
of or acts or omissions by a Securities System; (iv) any delay or failure of
any broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge or registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
<PAGE>
any disorder in market infrastructure with respect to any particular security
or Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of
competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of the Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money
or which action may, in the opinion of the Custodian, result in the Custodian
or its nominee assigned to the Fund or the Portfolio being liable for the
payment of money or incurring liability of some other form, the Fund on behalf
of the Portfolio, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated with respect to any Portfolio by either party by an instrument in
writing delivered or mailed, postage prepaid to the other party, such
termination to take effect not sooner than thirty (30) days after the date of
such delivery or mailing; provided, however that the Custodian shall not with
respect to a Portfolio act under Section 2.10 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
<PAGE>
Board of Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio, as required by Rule 17f-4 under the
Investment Company Act of 1940, as amended and that the Custodian shall not
with respect to a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System by such Portfolio ; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of its Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the event of the appointment of
a conservator or receiver for the Custodian by the Comptroller of the Currency
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
<PAGE>
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to
transfer to an account of such successor custodian all of the securities of
each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal
or state regulations or any provision of the Declaration of Trust of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Beneficial
Interests in addition to Equity Portfolio, Small Cap Equity Portfolio, Balanced
Portfolio, International Equity Portfolio, Emerging Asian Markets Equity
Portfolio and Government Income Portfolio with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in
writing to provide such services, such series of Beneficial Interests shall
become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
<PAGE>
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. No Liability of Other Series
Notwithstanding any other provision of this Agreement, the parties agree
that the assets and liabilities of each Portfolio are separate and distinct
from the assets and liabilities of each other Portfolio and that no Portfolio
shall be charged for any debt, obligation or liability of any other Portfolio,
whether arising under this Agreement or otherwise.
21. Beneficial Interestholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below,
the Custodian is required by the rule to treat the Fund as consenting to
disclosure of this information for all securities owned by the Fund or any
funds or accounts established by the Fund. For the Fund's protection, the Rule
prohibits the requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate below whether the
Fund consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of September, 1997.
<PAGE>
ATTEST THE PREMIUM PORTFOLIOS
______________________ By Philip Coolidge
ATTEST STATE STREET BANK AND TRUST
COMPANY
______________________ By Ronald E. Logue
Executive Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of The Premium
Portfolios for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
Exhibit 9(c)
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of the 1st day of September, 1997 by and
between STATE STREET CAYMAN TRUST COMPANY, LTD., a trust company duly organized
under the laws of the Cayman Islands (the "ACCOUNTING AGENT") and THE PREMIUM
PORTFOLIOS, a trust organized under the laws of the State of New York (the
"FUND").
W I T N E S S E T H:
WHEREAS, the Fund is authorized to issue beneficial interests in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently offers beneficial interests in one or more
series, including, Equity Portfolio, Small Cap Equity Portfolio, Balanced
Portfolio, International Equity Portfolio, Emerging Asian Markets Equity
Portfolio and Government Income Portfolio (such series, together with all other
series subsequently established by the Fund and made subject to this Agreement
in accordance with Section 7.1 below, each a "PORTFOLIO" and collectively, the
"PORTFOLIOS"); and
WHEREAS, the Fund desires to retain the Accounting Agent to perform
certain accounting and recordkeeping duties on behalf of each Portfolio and the
Accounting Agent is willing to perform such services upon the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein (the adequacy of which consideration with respect to each
party is hereby mutually admitted), the parties hereto hereby agree as follows:
Section 1. DUTIES OF THE ACCOUNTING AGENT.
Section 1.1 BOOKS OF ACCOUNT.
The Accounting Agent shall maintain the books of account of each
Portfolio and shall perform the following duties, using information provided to
the Accounting Agent by the Fund and others, in the manner prescribed by each
Portfolio's currently effective Registration Statement and the Declaration of
Trust of the Fund, certified copies of which have been supplied to the
Accounting Agent (with respect to each Portfolio, the "CONSTITUTIVE DOCUMENTS")
<PAGE>
and in accordance with such written procedures as may be agreed upon by the
Fund and the Accounting Agent from time to time:
(a) Record general ledger entries;
(b) Calculate daily net income;
(c) Reconcile activity to the trial balance;
(d) Calculate book capital account balances;
(e) Prepare capital allocation reports in accordance with
Regulation 1.704-3(e)(3) ("Special aggregation rule for
securities partnerships") under the U.S. Internal Revenue
Code, based upon tax adjustments supplied by the Fund;
(f) Calculate and publish daily net asset value; and
(g) Prepare account balances.
In performing the foregoing services the Accounting Agent will provide to
the Fund on a daily basis the information requested by the Fund in order that
the Fund may calculate each Portfolio's percentage allocations of its
investment activities to be applied to the Portfolio's feeder funds, and the
Accounting Agent will use and rely on the Fund's allocations as so calculated.
The Fund shall provide timely prior notice to the Accounting Agent of any
modification in the manner in which such calculations are to be performed
pursuant to any revision to the Constitutive Documents of a Portfolio and shall
supply the Accounting Agent with certified copies of all amendments and/or
supplements to each Portfolio's Constitutive Documents in a timely manner. For
purposes of calculating the net asset value of each Portfolio, the Accounting
Agent shall value such Portfolio's portfolio securities utilizing prices
obtained from sources designated by the Fund on a Price Source Authorization
substantially in the form attached hereto as Exhibit A, as the same may be
amended by the Fund and the Accounting Agent from time to time, or otherwise
designated by means of Proper Instructions (as such term is defined in Section
2.2 below) (collectively, the "AUTHORIZED PRICE SOURCES"). The Accounting Agent
shall not be responsible for any revisions to the methods of calculation
prescribed by the Constitutive Documents of any Portfolio unless and until such
revisions are communicated in writing to the Accounting Agent. The Accounting
Agent represents and warrants to the Fund that it has all consents, approvals,
licenses, rights and authority necessary to perform the services to be provided
hereunder.
Section 1.2 RECORDS.
The Accounting Agent shall create and maintain all records relating to
its activities and obligations under this Agreement with respect to each
Portfolio in a manner which shall meet the obligations of such Portfolio under
its Constitutive Documents. All such records shall be the property of the
<PAGE>
relevant Portfolio and shall at all times during the regular business hours of
the Accounting Agent be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the regulatory
agencies having jurisdiction over the Portfolio. Subject to Section 3 below,
the Accounting Agent shall preserve the records required to be maintained
thereunder for the period required by law. The Accounting Agent agrees that all
services to be performed by it hereunder shall be performed outside the United
States.
Section 1.3 APPOINTMENT OF AGENTS.
The Accounting Agent may at is own expense employ agents in the
performance of its duties and the exercise of its rights under this Agreement,
provided that the employment of such agents shall not reduce the Accounting
Agent's obligations or liabilities hereunder.
Section 2. DUTIES OF THE FUND.
Section 2.1 PROVISION OF INFORMATION.
The Fund shall provide to the Accounting Agent, or shall cause a third
party to so provide, certain data with respect to each Portfolio as a condition
to the Accounting Agent's obligations under Section 1 above. The data required
to be provided with respect to each Portfolio pursuant to this Section is set
forth on Schedule A hereto, which schedule may be separately amended or
supplemented by the Fund and the Accounting Agent from time to time.
The Accounting Agent is authorized and instructed to rely upon the
information it receives from the Fund or any third party authorized by the Fund
(a "THIRD PARTY AGENT") to provide such information to the Accounting Agent.
The Accounting Agent shall have no responsibility to review, confirm or
otherwise assume any duty with respect to the accuracy or completeness of any
information supplied to it by the Fund or any Third Party Agent.
Section 2.2 PROPER INSTRUCTIONS.
The term "PROPER INSTRUCTIONS" shall mean instructions received by the
Accounting Agent from the Fund, the investment advisor of the Portfolios
appointed by the Fund from time to time (the "INVESTMENT ADVISOR") or any
person duly authorized by them. Such instructions may be in writing signed by
the authorized person or may be in a tested communication or in a communication
utilizing access codes effected between electro-mechanical or electronic
devices or may be by such other means as may be agreed upon from time to time
by the Accounting Agent and the party giving such instructions (including,
<PAGE>
without limitation, oral instructions). All oral instructions shall be promptly
confirmed in writing. The Fund and the Investment Advisor shall each cause its
duly authorized representative to certify to the Accounting Agent in writing
the names and specimen signatures of persons authorized to give Proper
Instructions. The Accounting Agent shall be entitled to rely upon the identity
and authority of such persons until it receives written notice from the Fund or
the Investment Advisor, as the case may be, to the contrary. The Accounting
Agent may rely upon any Proper Instruction reasonably believed by it to be
genuine and to have been properly issued by or on behalf of the Fund or the
Investment Advisor, as the case may be. The Fund shall give timely Proper
Instructions to the Accounting Agent in regard to matters affecting accounting
practices and the Accounting Agent's performance pursuant to this Agreement.
Section 3. SUCCESSOR AGENT.
If a successor accounting agent for the Portfolios shall be appointed by
the Fund, the Accounting Agent shall upon termination of this Agreement deliver
to such successor agent at the office of the Accounting Agent all books and
records of account of each Portfolio maintained by the Accounting Agent
hereunder. In the event this Agreement is terminated by either party without
the appointment of a successor agent, the Accounting Agent shall, upon receipt
of Proper Instructions, deliver such properties at its office in accordance
with such instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Accounting Agent on or
before the effective date of such termination, then the Accounting Agent shall
have the right to deliver to a bank or trust company of its own selection,
having aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than $2,000,000, all property of the Portfolios
held by the Accounting Agent hereunder. Thereafter, such bank or trust company
shall be the successor of the Accounting Agent under this Agreement.
Section 4. STANDARD OF CARE; LIMITATION ON LIABILITY.
The Accounting Agent shall at all times exercise reasonable care and
diligence and act in good faith in the performance of its duties hereunder,
provided, however, that the Accounting Agent shall assume no responsibility and
shall be without liability for any loss, damage or expense suffered or incurred
by the Fund or any Portfolio unless caused by its own fraud, wilful default,
negligence or wrongful act or that of its agents or employees.
Without in any way limiting the generality of the foregoing, the
Accounting Agent shall in no event be liable for any loss or damage arising
<PAGE>
from causes beyond its reasonable control, including, without limitation, delay
or cessation of services hereunder or any damages to the Fund or any Portfolio
resulting therefrom as a consequence of any work stoppage, power or other
mechanical failure, natural disaster, governmental action, communications
disruption or other impossibility of performance. The Accounting Agent shall
not be liable for any special, indirect, incidental, or consequential damages
of any kind whatsoever (including, without limitation, attorneys' fees) in any
way due to any Portfolio's use of the accounting services or the performance of
or failure to perform the Accounting Agent's obligations under this Agreement.
The Fund and any Third Party Agents or Authorized Price Sources from
which the Accounting Agent shall receive or obtain certain records, reports and
other data included in the accounting services provided hereunder are solely
responsible for the contents of such information, including, without
limitation, the accuracy thereof. The Accounting Agent shall have no
responsibility to review, confirm or otherwise assume any duty with respect to
the accuracy or completeness of any such information and shall be without
liability for any loss or damage suffered by the Fund or any Portfolio as a
result of the Accounting Agent's reasonable reliance on and utilization of such
information, except as otherwise required by the terms of the Price Source
Authorization form attached hereto as Exhibit A with respect to the use of data
obtained from Authorized Price Sources. The Accounting Agent shall have no
responsibility and shall be without liability for any loss or damage caused by
the failure of the Fund or any Third Party Agent to provide it with the
information required by Section 2.1 hereof.
Section 5. INDEMNIFICATION.
The Fund hereby agrees to indemnify and hold harmless the Accounting
Agent from and against any loss, liability, claim or expense (including
reasonable attorney's fees and disbursements) suffered or incurred by the
Accounting Agent in connection with the performance of its duties hereunder,
including, without limitation, any liability or expense suffered or incurred as
a result of the acts or omissions of the Fund or any Third Party Agent or
Authorized Price Source whose data or services, including records, reports and
other information, the Accounting Agent must rely upon in performing accounting
services hereunder. Notwithstanding the immediately preceding sentence, the
Fund in no event shall indemnify or hold harmless the Accounting Agent from any
loss, liability, claim or expenses involving any breach or alleged breach or
violation of U.S. Patent No. 5,193,056, entitled Data Processing System for Hub
and Spoke Financial Services Configuration.
<PAGE>
Section 6. DATA ACCESS AND PROPRIETARY INFORMATION.
The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals which may be furnished to it by the Accounting Agent as part of the
Fund's ability to access certain Portfolios-related data ("CUSTOMER DATA")
maintained by the Accounting Agent on data bases under the control and
ownership of the Accounting Agent ("DATA ACCESS SERVICES") constitute
copyrighted, trade secret, or other proprietary information (collectively,
"PROPRIETARY INFORMATION") of substantial value to the Accounting Agent. The
Fund agrees to treat all Proprietary Information as proprietary to the
Accounting Agent and further agrees that it shall not divulge any Proprietary
Information to any person or organization except as may be provided hereunder.
Without limiting the foregoing, the Fund agrees for itself and its employees
and agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Accounting Agent and solely in accordance with the
Accounting Agent's applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently
obtained, to inform the Accounting Agent in a timely manner of such
fact and dispose of such information in accordance with the
Accounting Agent's instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of the
Accounting Agent;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties; and
(f) to honor all reasonable written requests made by the Accounting
Agent to protect at the Accounting Agent's expense and risk the
rights of the Accounting Agent in Proprietary Information at common
law, under federal copyright law and under other federal or state
law.
Each party shall take reasonable efforts to advise its employees and agents of
their obligations pursuant to this Section 6. The obligations of this Section
shall survive for a period of five (5) years any earlier termination of this
Agreement.
<PAGE>
The Fund hereby acknowledges that the data and information it may access
from the Accounting Agent utilizing the Data Access Services will be unaudited
and may not be accurate due to inaccurate pricing of securities, delays of a
day in updating a Portfolio's account and other causes for which Accounting
Agent will not be liable to the Fund or any Portfolio.
If the Fund notifies the Accounting Agent that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Accounting Agent shall use its best
efforts to correct such failure as promptly as possible. Data access services
and all computer programs and software specifications used in connection
therewith are provided on an as is, as available basis. The Accounting Agent
expressly disclaims all warranties except those expressly stated herein
including, but not limited to, the implied warranties of merchantability and
fitness for a particular purpose.
If the transactions available to the Fund include the ability to
originate electronic instructions to the Accounting Agent in order to (i)
effect the transfer or movement of cash or beneficial interests or (ii)
transmit interestholder information or other information (such transactions
constituting a "COEFI"), then in such event the Accounting Agent shall be
entitled to rely on the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with mutually acceptable security procedures established by the
Accounting Agent and the Fund from time to time.
Notwithstanding anything to the contrary in this Section 6, the Fund and
its employees and agents may copy and duplicate Proprietary Information for its
own internal use in a manner consistent with this Agreement.
The Fund and its employees and agents may disclose any Proprietary
Information (i) if and to the extent the Fund and its employees and agents are
required to do so by applicable law or an order of a court of competent
jurisdiction or other government agency having appropriate authority, in which
case the Fund shall provide the Accounting Agent with timely notice prior to
such disclosure and (ii) to the extent any of such documents, materials and
information are made public by means other than a breach by the Fund or its
respective employees and agents of the obligations hereunder.
Notwithstanding anything in this Section 6 to the contrary, the Fund and
its employees and agents shall have the right to independently develop
products, provided they do so without any misappropriation of the Proprietary
<PAGE>
Information or violation of the Accounting Agent's copyright or patent rights
or interests.
Section 7. GENERAL.
Section 7.1 ADDITIONAL PORTFOLIOS
In the event that the Fund establishes one or more series of beneficial
interests in addition to Equity Portfolio, Small Cap Equity Portfolio, Balanced
Portfolio, International Equity Portfolio, Emerging Asian Markets Equity
Portfolio and Government Income Portfolio, with respect to which it desires to
have the Accounting Agent render services under the terms of this Agreement, it
shall so notify the Accounting Agent in writing, and if the Accounting Agent
agrees in writing to provide such services, such series shall become a
Portfolio hereunder.
Section 7.2 TERM OF AGREEMENT.
This Agreement shall be effective from the date first stated above and
shall remain in full force and effect until terminated as hereinafter provided.
Either party may, in its discretion, terminate this Agreement with respect to
any Portfolio for any reason by giving the other party at least sixty (60) days
prior written notice of termination.
Section 7.3 FEES AND EXPENSES.
The Fund agrees to pay the Accounting Agent such reasonable compensation
for its services and expenses as may be agreed upon from time to time in a
written fee schedule approved by the Fund and the Accounting Agent.
Section 7.4 CONFIDENTIALITY.
The Accounting Agent agrees on behalf of itself and its employees to
treat confidentially all records and other information relating to the Fund and
each Portfolio, except where required to be disclosed by law or where the
Accounting Agent has determined that such disclosure is necessary for the
protection of its interests or has received the prior written consent of the
Fund, which consent shall not be unreasonably withheld.
Section 7.5 NOTICES.
All notices shall be in writing and shall be deemed given when delivered
in person, by facsimile, by overnight delivery through a commercial courier
service, or by registered or certified mail, return receipt requested. Notices
<PAGE>
shall be addressed to each party at its address set forth below, or such other
address as the recipient may have specified by earlier notice to the sender.
If to the Accounting Agent: STATE STREET CAYMAN TRUST COMPANY, LTD.
P.O. Box 2508 GT
Grand Cayman, Cayman Islands
Attention: Jacqueline Henning
Telephone: 809-949-6644
Telecopy: 809-949-3181
With a copy to: STATE STREET FUND SERVICES TORONTO INC.
100 King Street, West
Suite 3600
Toronto, Ontario
Canada M5X 1A9
Attention: Mike Larkin
Telephone: (416) 956-2987
Telecopy: (416) 956-2874
If to the Fund: THE PREMIUM PORTFOLIOS
Elizabethan Square
Grand Cayman, Cayman Islands
Attention: Susan Jakuboski
Telephone: 809-945-1824
Telecopy: 809-945-1823
With a copy to: CITIBANK GLOBAL ASSET MANAGEMENT
153 East 53rd Street
New York, NY 10043
Attention: Andrew Shoup
Telephone: 212-559-1177
Telecopy: 212-793-1812
Section 7.6 ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign its
rights and obligations hereunder to a party controlling, controlled by, or
under common control with such party.
<PAGE>
Section 7.7 ENTIRE AGREEMENT.
This Agreement (including all schedules and attachments hereto)
constitutes the entire Agreement between the parties with respect to its
subject matter.
Section 7.8 AMENDMENTS.
No amendment to this Agreement shall be effective unless it is in writing
and signed by a duly authorized representative of each party. The term
"Agreement", as used herein, includes all schedules and attachments hereto and
any future written amendments, modifications, or supplements made in accordance
herewith.
Section 7.9 HEADINGS NOT CONTROLLING.
Headings used in this Agreement are for reference purposes only and shall
not be deemed a part of this Agreement.
Section 7.10 SURVIVAL.
All provisions regarding indemnification, warranty, liability and limits
thereon shall survive following the expiration or termination of this
Agreement.
Section 7.11 SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
Section 7.12 COUNTERPARTS.
This Agreement may be simultaneously executed in several counterparts,
each of which shall be deemed to be an original, and all such counterparts
shall together constitute but one and the same Agreement.
Section 7.13 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the Cayman Islands.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
State Street Cayman Trust Company, Ltd.
By: Jacqueline Henning
Its: Managing Director
The Premium Portfolios
By: Philip Coolidge
Its: President
<PAGE>
SCHEDULE A
REQUIRED INFORMATION RESPONSIBLE PARTY
Portfolio Trade Authorizations Investment Adviser
Currency Transactions Investment Adviser
Cash Transaction Report Custodian
Portfolio Prices Third Party Vendors/Investment
Adviser
Exchange Rates Third Party Vendors/Investment
Adviser
Capital Stock Activity Report Transfer Agent
Dividend/Distribution Schedule Fund
Dividend/Distribution Declaration Fund
Dividend Reconciliation/Confirmation Transfer Agent
Corporate Actions Third Party Vendors/Custodian
Service Provider Fee Schedules Fund
Expense Budget Fund
Expense Payments and other
Cash Disbursements Fund
Amortization Policy Fund
Accounting Policy/Complex Investments Fund
Audit Management Letter Auditor
Annual Interestholder Letter Fund
Annual/Semi-Annual Reports Fund
Master/Feeder Allocation Methodology Fund
Tax Adjustments to Book Capital
Account Fund
<PAGE>
EXHIBIT A
ACCOUNTING SERVICES AGREEMENT
dated
_____ __, 1997
by and between
THE PREMIUM PORTFOLIOS
and
STATE STREET CAYMAN TRUST COMPANY, LTD.
(the "ACCOUNTING AGENT")
Pursuant to the terms of the Accounting Services Agreement, the Fund has
directed the Accounting Agent to calculate the net asset value of each
Portfolio and to perform certain other accounting services in accordance with
the Constitutive Documents (as such term is defined therein) of each Portfolio.
The Fund hereby authorizes and instructs the Accounting Agent to utilize the
pricing sources specified on the attached forms as sources for securities
prices in calculating the net asset value of each Portfolio and acknowledges
and agrees that the Accounting Agent shall have no liability for any incorrect
data provided by pricing sources selected by the Fund or otherwise authorized
by Proper Instructions (as such term is defined in the Accounting Services
Agreement), except as may arise from the Accounting Agent's lack of reasonable
care in performing the agreed-upon tolerance checks as to the data furnished
and calculating the net asset value of a Portfolio in accordance with the data
furnished and the Accounting Agent's performance of the agreed-upon tolerance
checks.
The Premium Portfolios
By:_____________________________
Title:
Date:___________________________
<PAGE>
<TABLE>
<CAPTION>
STATE STREET CAYMAN TRUST COMPANY, LTD.
PRICE SOURCE AUTHORIZATION
FUND:__________________________ SIGNATURE:________________________
- -------------------------------------------------------------------------------------------------------------------------------
SECURITY TELEKURS OPTIONS PRICE (3) (2) (1) (1)
TYPE NYSE NASDAQ REPORTING AUTHORITY MANUAL BACK-UP TOLERANCE
AMEX BID MEAN LS/BILS MEAN TELEKURS LS BID LS/MEAN QUOTES SOURCE INDEX PERCENTAGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
I. LISTED
EQUITIES
------------------------------------------------------------------------------------------------------------
II. OTC EQUITIES
------------------------------------------------------------------------------------------------------------
III. FOREIGN
EQUITIES
------------------------------------------------------------------------------------------------------------
IV. EQUITY
OPTIONS
------------------------------------------------------------------------------------------------------------
V. FUTURES N/A
------------------------------------------------------------------------------------------------------------
</TABLE>
INSTRUCTIONS: For each security type, allowed by the Fund prospectus, please
indicate the primary price source and a back-up source to be used in
calculating Net Asset Value for the Fund identified above. Also, please
indicate a published market index and tolerance range (in terms of percent) to
be used for reasonability testing. If you do not wish to use a published index
please indicate N/A but do not leave blank.
(1) * INDEX/TOLERANCE CHECK: The price movement for a particular security is
compared to the index movement. If the security price movement exceeds the
index movement by more than the percentage authorized on this form, then the
security price will be verified using the back-up source authorized. The index
and tolerance information authorized here will be the basis for this
reasonability test.
(2) BACK-UP SOURCE: The following sources are available for back-up, price
verification and historical price and yield information: Bloomberg, Bridge,
Reuters, and Telerate. Please do not leave blank.
(3) MANUAL QUOTES AND PRIVATE PLACEMENTS: Please specify the source for private
placements or manual quotes as necessary. See page 3 to list additional
information if needed.
<PAGE>
<TABLE>
<CAPTION>
STATE STREET CAYMAN TRUST COMPANY, LTD.
PRICE SOURCE AUTHORIZATION
---------------------------------------------------------------------------------------------------------
SECURITY MERRILL INTERACTIVE
TYPE LYNCH STANDARD MULLER DATA KENNY (3) (2) (1) (1)
CAPITAL & POORS DATA SERVICES INFORMATION IDC/ MANUAL BACK-UP TOLERANCE
MARKETS MEAN BID MEAN BID MEAN BID SYSTEMS EXTEL QUOTES QUOTES INDEX PERCENTAGE
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VI. LISTED BONDS
IS LAST SALE
REQUIRED
WHEN
AVAILABLE
YES_____
NO_______
-------------------------------------------------------------------------------------------------------
VII. CORPORATE
BONDS
-------------------------------------------------------------------------------------------------------
VIII.U.S.
GOVERNMENT
OBLIGATIONS
-------------------------------------------------------------------------------------------------------
IX. MORTAGE
BACKED
SECURITIES
-------------------------------------------------------------------------------------------------------
X. MUNICIPAL
BONDS
-------------------------------------------------------------------------------------------------------
XI. FIXED INCOME
OPTIONS
-------------------------------------------------------------------------------------------------------
XII. FOREIGN BONDS
-------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE STREET CAYMAN TRUST COMPANY, LTD.
PRICE SOURCE AUTHORIZATION
XII. Private Placements and Other Manual Quotes Information
--------------------------------------------------------------------------------------------------------------
SECURITY TYPE ADVISOR BROKER OTHER ADDITIONAL INFORMATION:
CONTACT NAME, TELEPHONE NUMBER
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
INSTRUCTIONS: For all securities types which require manual quotes, please list
the source of the quotes and any additional information needed to obtain these
quotes.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000920843
<NAME> GOVERNMENT INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 60,779,245
<INVESTMENTS-AT-VALUE> 60,660,167
<RECEIVABLES> 654,916
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 21
<TOTAL-ASSETS> 61,315,104
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,297,997
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 61,297,997
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,366,572
<OTHER-INCOME> 0
<EXPENSES-NET> 196,524
<NET-INVESTMENT-INCOME> 3,170,048
<REALIZED-GAINS-CURRENT> (113,894)
<APPREC-INCREASE-CURRENT> 507,465
<NET-CHANGE-FROM-OPS> 3,563,619
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,243,756
<NUMBER-OF-SHARES-REDEEMED> (22,008,195)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,799,180
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196,529
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 229,164
<AVERAGE-NET-ASSETS> 56,151,032
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
