As filed with the Securities and Exchange Commission on April 29, 1999
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. 4
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
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* Relates only to Government Income Portfolio.
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EXPLANATORY NOTE
The Premium Portfolios has filed this Registration Statement pursuant to
Section 8(b) of the Investment Company Act of 1940. However, beneficial
interests in Government Income Portfolio are not being registered under the
Securities Act of 1933, since such interests will be issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Only investment companies, insurance
company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act may make investments in the Portfolio. This
Registration Statement is not an offer to sell, or the solicitation of an offer
to buy, any beneficial interests in the Portfolio.
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PART A
Responses to Items 1, 2, 3, 5 and 9 have been omitted pursuant to General
Instruction B.2(b) of Form N-1A.
Item 4. Investment Objectives, Principal Investment Strategies, and Related
Risks.
PORTFOLIO GOALS
The goals of Government Income Portfolio are to generate current income and
preserve the value of the investment of investors in the Portfolio
The goals of the Portfolio may be changed without approval by the Portfolio's
investors but not without written notice thereof to the Portfolio's investors
at least 30 days prior to implementing the change. Of course, there can be no
assurance that the Portfolio will achieve its goals.
MAIN INVESTMENT STRATEGIES
The Portfolio's principal investment strategies are the strategies that, in the
opinion of Citibank, N.A., the investment adviser for the Portfolio, are most
likely to achieve the Portfolio's investment goals. Of course, there can be no
assurance that the Portfolio will achieve its goals. Please note that the
Portfolio may also use strategies and invest in securities that are not
described below but that are described in Part B to this Registration
Statement. Of course, Citibank may decide, as a matter of investment strategy,
not to use the investments and investment techniques described below and in
Part B at any particular time. The Portfolio's strategies may be changed
without investor approval.
The Portfolio invests 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. These include U.S. Treasury bills, notes and bonds, and
obligations, including mortgage-backed securities, issued or guaranteed by U.S.
government agencies or instrumentalities. Even if the U.S. government or one of
its agencies guarantees principal and interest payments, the market price of
the security is not insured and may be volatile.
Home mortgage loans are typically grouped together into "pools" by banks and
other lending institutions, and interests in these pools are then sold to
investors, allowing the bank or other lending institution to have more money
available to loan to home buyers. When homeowners make interest and principal
payments, these payments are passed on to the investors in the pool. Interest
and principal payments on many mortgage-backed securities are guaranteed by
U.S. government agencies or instrumentalities. Certain types of mortgage-backed
securities are called collateralized mortgage obligations, or CMOs.
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The Portfolio may invest up to 80% of its assets in mortgage-backed securities
that are direct pass-through certificates called "GNMAs" or in collateralized
mortgage obligations that are backed by GNMAs. GNMAs are securities backed by a
pool of mortgages guaranteed as to payment and principal by the Government
National Mortgage Association.
The Portfolio may hold cash pending investment, and may invest in money market
instruments, repurchase agreements and reverse repurchase agreements for cash
management purposes. The Portfolio may also lend its portfolio securities or
sell its securities short, as long as, in the case of a short sale, the
Portfolio owns, or has the right to obtain, the securities being sold short.
DERIVATIVES. The Portfolio may invest in derivatives including financial
futures and options on futures contracts. The Portfolio may use derivatives in
order to protect (or "hedge") against declines in the value of securities held
by the Portfolio or increases in the cost of securities to be purchased in the
future. The Portfolio may also use derivatives, for non-hedging purposes, to
enhance yields, price sensitivity, and potential gain.
The derivatives purchased by the Portfolio are standardized contracts traded on
commodities exchanges or boards of trade. This means that the exchange or board
of trade guarantees counterparty performance. In some cases, the derivatives
may be illiquid, and the Portfolio may bear more counterparty risk. Derivatives
may not be available on terms that make economic sense (for example, they may
be too costly).
DEFENSIVE STRATEGIES. The Portfolio may, from time to time, take temporary
defensive positions in attempting to respond to adverse market, political or
other conditions. When doing so, the Portfolio may invest without limit in
money market instruments and other very short-term instruments. The income on
money market and other very short-term instruments is likely to be less than
the income on the debt obligations generally purchased by the Portfolio.
MANAGEMENT STYLE
Managers of mutual funds use different styles when selecting securities to
purchase. In selecting securities to buy for the Portfolio, Citibank first
establishes the overall duration of the portfolio and its yield curve position,
based upon the portfolio managers' outlook on the economy, prospects for
economic growth and inflation, and the U.S. government bond market. The
portfolio managers then allocate the portfolio between the two primary sectors
of the U.S. government securities market, U.S. Treasury and agency obligations,
in an attempt to maximize exposure to securities providing the best relative
values. The portfolio managers then choose individual securities based upon
their relative value within their sector. The portfolio managers use this same
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approach when deciding which securities to sell. Securities are sold when the
Portfolio needs cash to meet redemptions, or when the portfolio managers
believe that better opportunities exist or that the security no longer fits
within the managers' overall strategies for achieving the Portfolio's goals.
The Portfolio is actively managed. Although the portfolio managers attempt to
minimize portfolio turnover, from time to time the Portfolio's annual portfolio
turnover rate may exceed 100%. The sale of securities may produce capital
gains, which, when distributed, are taxable to investors. Active trading may
also increase the amount of commissions or mark-ups the Portfolio pays to
brokers or dealers when it buys and sells securities. For the fiscal years
ended December 31, 1997 and 1998, the Portfolio's portfolio turnover rates were
126% and 288%, respectively.
Citibank may use brokers or dealers for Portfolio transactions who also provide
brokerage and research services to the Portfolio or other accounts over which
Citibank or its affiliates exercise investment discretion. The Portfolio may
"pay up" for brokerage services, meaning that it is authorized to pay a broker
or dealer who provides these brokerage and research services a commission for
executing a portfolio transaction which is higher than the commission another
broker or dealer would have charged. However, the Portfolio will "pay up" only
if Citibank determines in good faith that the higher commission is reasonable
in relation to the brokerage and research services provided, viewed in terms of
either the particular transaction or all of the accounts over which Citibank
exercises investment discretion.
MAIN RISKS
The principal risks of investing in the Portfolio are described below:
MARKET RISK. This is the risk that the prices of securities will rise or fall
due to changing economic, political or market conditions. The Portfolio's net
asset value will change daily as the value of its underlying securities change.
This means that your interest in the Portfolio may be worth more or less when
you sell it than when you bought it.
INTEREST RATE RISK. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise, although shorter term
obligations are usually less sensitive to interest rate changes. Longer term
obligations are usually more sensitive to interest rate changes. A change in
interest rates could cause the Portfolio's net asset value to go down.
PREPAYMENT RISK. The issuers of debt securities held by the Portfolio may be
able to prepay principal due on the securities, particularly during periods of
declining interest rates. The Portfolio may not be able to reinvest that
principal at attractive rates, reducing income to the Portfolio, and the
Portfolio may lose any premium paid. On the other hand, rising interest rates
may cause prepayments to occur at slower than expected rates. This effectively
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lengthens the maturities of the affected securities, making them more sensitive
to interest rate changes and the Portfolio's net asset value more volatile.
Mortgage-backed securities, including CMOs, are particularly susceptible to
prepayment risk and their prices may be very volatile.
DERIVATIVES. The Portfolio's use of derivatives such as futures and options on
futures contracts, particularly when used for non-hedging purposes, may be
risky. This practice could result in losses that are not offset by gains on
other portfolio assets, causing the Portfolio's net asset value to go down. In
addition, the Portfolio's ability to use derivatives successfully depends on
Citibank's ability to accurately predict movements in interest rates and other
economic factors and the availability of liquid markets. If Citibank's
predictions are wrong, or if the derivatives do not work as anticipated, the
Portfolio could suffer greater losses than if the Portfolio had not used
derivatives.
CREDIT RISK. The Portfolio invests only in securities that are backed by the
full faith and credit of the United States. These securities are generally
thought to have minimal credit risk.
YEAR 2000. The Portfolio could be adversely affected if the computer systems
used by the Portfolio or its service providers are not programmed to accurately
process information on or after January 1, 2000. The Portfolio, and its service
providers, are making efforts to resolve any potential Year 2000 problems.
While it is likely these efforts will be successful, the failure to implement
any necessary modifications could have an adverse impact on the Portfolio. The
Portfolio also could be adversely affected if the issuers of securities held by
the Portfolio do not solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems.
PLEASE NOTE THAT AN INVESTMENT IN THE PORTFOLIO IS NOT A DEPOSIT OF CITIBANK
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
Item 6. Management, Organization and Capital Structure.
INVESTMENT MANAGERS
The Portfolio draws on the strength and experience of Citibank. Citibank is the
investment manager of the Portfolio, and subject to policies set by the
Portfolio's Trustees, Citibank makes investment decisions. Citibank has been
managing money since 1822. With its affiliates, it currently manages more than
$327 billion in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York, New York, is a
wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was formed as a result
of the merger of Citicorp and Travelers Group, Inc., which was completed on
October 8, 1998.
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Citibank and its affiliates may have banking and investment banking
relationships with the issuers of securities that are held in the Portfolio.
However, in making investment decisions for the Portfolio Citibank does not
obtain or use material inside information acquired by any division, department
or affiliate of Citibank in the course of those relationships. Citibank and its
affiliates may have loans outstanding that are repaid with proceeds of
securities purchased by the Portfolio.
Denise Guetta, a Vice President of Citibank, has served as manager of the
Portfolio since April 1997. Ms. Guetta is a Senior Portfolio Manager
responsible for managing institutional liquidity and short-duration portfolios.
Ms. Guetta has over ten years investment experience. Prior to joining Citibank
in 1996, she was a portfolio manager at Fischer Francis Trees and Watts, Inc.,
managing leveraged risk positions in the U.S. Treasury and Canadian markets.
She began her career as an account executive at Drexel Burnham Lambert, Inc.
managing fixed income and equity portfolios.
ADVISORY FEES
For the advisory services Citibank provided to the Portfolio during the fiscal
year ended December 31, 1998, Citibank received a total of 0.35% of the
Portfolio's average daily net assets, after waivers.
CAPITAL STOCK
Investments in the Portfolio have no preference, pre-emptive or conversion
rights and are fully paid and non-assessable, except as set forth below. The
Portfolio is not required and have no current intention to hold annual meetings
of investors, but the Portfolio holds 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 in the
Portfolio would be entitled to share pro rata in the net assets of the
Portfolio available for distribution to investors.
The Portfolio is a series of The Premium Portfolios (known as the "Trust"),
which is organized as a trust under the laws of the State of New York. Under
the Declaration of Trust, the Trustees are authorized to issue beneficial
interests in the Portfolio. Each investor is entitled to a vote in proportion
to the value of its investment in the Portfolio. Investments in the Portfolio
may not be transferred, but an investor may withdraw all or any portion of its
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investment at any time at net asset value. Investors in the Portfolio (e.g.,
investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, it is not expected that the liabilities of the Portfolio would ever
exceed its assets.
Item 7. Investor Information.
HOW NET INCOME IS CALCULATED
The Portfolio calculates its net asset value (NAV) every day the New York Stock
Exchange is open for trading (Business Day). This calculation is made at the
close of regular trading on the New York Stock Exchange, normally 4:00 p.m.
Eastern time. On days when the financial markets in which the Portfolio invests
close early, NAV will be calculated as of the close of those markets.
The Portfolio's securities are valued primarily on the basis of market
quotations. When market quotations are not readily available, the Portfolio may
price securities at fair value. Fair value is determined in accordance with
procedures approved by the Portfolio's Board of Trustees. When the Portfolio
uses the fair value pricing method, a security may be priced higher or lower
than if the Portfolio had used a market quotation to price the same security.
Short-term obligations (maturing in 60 days or less) are valued at amortized
cost, which is approximately equal to market value.
It is intended that the Portfolio's assets, income and distributions will be
managed in such a way that an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, assuming that the investor invested all of its investable assets in
the Portfolio.
THE PURCHASE AND REDEMPTION OF BENEFICIAL INTERESTS IN THE PORTFOLIO
Beneficial interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933. Only investment companies,
insurance company separate accounts, common or commingled trust funds or
similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act may invest in the Portfolio. This
Registration Statement is not 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).
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The Portfolio reserves the right to cease accepting investments at any time or
to reject any investment order.
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. Investments in the Portfolio may
not be transferred.
Subject to compliance with applicable regulations, the Portfolio may 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 redeemed. 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 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.
TAX MATTERS
The Portfolio expects to be treated as a partnership for U.S. federal income
tax purposes. As a result, the Portfolio does not expect to pay any federal
income taxes and, generally, investors in the Portfolio should not have to pay
federal income taxes when they receive distributions or make withdrawals from
the Portfolio. However, 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 whether or not distributed in determining its
income tax liability.
The Trust also expects that investors in the Portfolio which seek to qualify as
regulated investment companies under the Internal Revenue Code will be able to
look to their proportionate share of the assets and gross income of the
Portfolio for purposes of determining their compliance with the requirements
applicable to such companies.
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.
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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 foregoing tax discussion is only for an investor's general information, and
does not take account of the special rules applicable to certain investors
(such as tax-exempt investors) or a number of special circumstances. Each
investor should consult its own tax advisers regarding the tax consequences in
its circumstances of an investment in the Portfolio, as well as any state,
local or foreign tax consequences to them of investing in the Portfolio.
Item 8. Distribution Arrangements.
The exclusive placement agent for the Portfolio is CFBDS, Inc. CFBDS receives
no compensation for serving as the Portfolio's exclusive placement agent.
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PART B
Item 10. Cover Page and Table of Contents.
This Part B sets forth information with respect to Government Income
Portfolio, a series of The Premium Portfolios, an investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The date
of this Part B and Part A to the Registration Statement for the Portfolio is
April 29, 1999.
TABLE OF CONTENTS Page
Portfolio History.......................................................B-2
Description of the Portfolio and Its Investments and Risks..............B-2
Management of the Portfolio.............................................B-18
Control Persons and Principal Holders
of Securities.........................................................B-21
Investment Advisory and Other Services..................................B-22
Brokerage Allocation and Other Practices................................B-25
Capital Stock and Other Securities......................................B-27
Purchase, Redemption and Pricing of
Securities............................................................B-28
Taxation of the Portfolio...............................................B-30
Underwriters............................................................B-32
Calculations of Performance Data........................................B-33
Financial Statements....................................................B-33
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Item 11. Portfolio History.
The Premium Portfolios (the "Trust") was organized as a trust under the
laws of the State of New York and Government Income Portfolio was designated as
a series of the Trust on September 13, 1993.
Item 12. Description of the Portfolio and Its Investments and Risks.
The investment objectives of the Portfolio are to generate current income
and preserve the value of the investment of investors in the Portfolio.
The policies described above and those described below are not fundamental
and may be changed without investor approval.
The Portfolio may, but need not, invest in any or all of the investments
and utilize any or all of the investment techniques described below and in Part
A to this Registration Statement. The selection of investments and the
utilization of investment techniques depend on, among other things, the
investment strategies of Citibank, N.A., the Portfolio's investment adviser
("Citibank" or the "Adviser"), conditions and trends in the economy and
financial markets, and investments being available on terms that, in Citibank's
opinion, make economic sense.
U.S. GOVERNMENT SECURITIES
The Portfolio invests 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.
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 the U.S. Government or its agencies,
authorities or instrumentalities. The Portfolio may only invest in obligations
issued or guaranteed by U.S. Government agencies 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.
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
may be backed, as to the timely payment of interest and principal, by the full
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faith and credit of the U.S. Government, interests in the Portfolio are neither
insured nor guaranteed by the U.S. Government or its agencies, authorities or
instrumentalities.
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 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.
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.
In order to enhance the stability of the value of 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. 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. It is intended that the Portfolio will have a net
asset value 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
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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
in relation to the income received by the Portfolio from its investments, which
in any case is reduced by the Portfolio's expenses.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements collateralized by
securities in which the Portfolio may otherwise invest. 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, usually U.S. Government or government agency issues. Under
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. In the event of the bankruptcy of the
other party to a repurchase agreement, the Portfolio could experience delays in
recovering the securities sold. To the extent that, in the meantime, the value
of the securities sold has increased, the Portfolio could experience a loss.
REVERSE REPURCHASE AGREEMENTS
The Portfolio may enter into reverse repurchase agreements subject to the
Portfolio's investment restriction on borrowing. 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 segregated. 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
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involved. Reverse repurchase agreements are considered to be a form of
borrowing. In the event of the bankruptcy of the other party to a reverse
repurchase agreement, the Portfolio could experience delays in recovering the
securities sold. To the extent that, in the meantime, the value of the
securities sold has changed, the Portfolio could experience a loss.
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 the securities or 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 in the
United States 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, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Futures contracts may also be traded on markets outside the
U.S.
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
itself 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
debt securities. For example, if interest rates were expected to increase, the
<PAGE>
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, if correctly used, 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), they do not eliminate the risk of
loss and at the same time the futures contracts limit any potential gain which
might result from an increase in value of a hedged position.
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 or 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
<PAGE>
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.
Investments in futures contracts also entail the risk that if the
Adviser's investment judgment about the general direction of interest rates or
other economic factors 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
<PAGE>
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,
together with any premiums on options on futures contracts (see "Options on
Futures Contracts" below) used for non-hedging purposes, would exceed 5% of the
Portfolio's net assets.
The Portfolio will comply with this CFTC requirement, and the Portfolio
currently intends to adhere to the additional policies described below. First,
an amount of cash or liquid securities will be maintained by the Portfolio in a
segregated account so that the amount so segregated, plus the applicable 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 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 the amount, timing and character of the
Portfolio's income for tax purposes, as more fully discussed herein in the
section entitled "Taxation of the Portfolio."
OPTIONS ON FUTURES CONTRACTS
The Portfolio may purchase and write options to buy or sell futures
contracts in which the Portfolio may invest. Such investment strategies may be
used for hedging and non-hedging purposes, subject to applicable law.
<PAGE>
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option
by the holder, the contract market clearinghouse establishes a corresponding
short position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date), as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by the
Portfolio on U.S. exchanges are traded on the same contract market as the
underlying futures contract, and, like futures contracts, are subject to
regulation by the CFTC and the performance guarantee of the exchange
clearinghouse. In addition, options on futures contracts may be traded on
foreign exchanges.
The Portfolio may cover the writing of call options on futures contracts
(a) through purchases of the underlying futures contract, (b) through ownership
of the instrument, or instruments included in the index underlying the futures
contract, or (c) through the holding of a call on the same futures contract and
in the same principal amount as the call written where the exercise price of
the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash or securities in a segregated
account. The Portfolio may cover the writing of put options on futures
contracts (a) through sales of the underlying futures contract, (b) through
segregation of cash or liquid securities in an amount equal to the value of the
security or index underlying the futures contract, (c) through the holding of a
put on the same futures contract and in the same principal amount as the put
written where the exercise price of the put held is equal to or greater than
the exercise price of the put written or where the exercise price of the put
held is less than the exercise price of the put written if the difference is
maintained by the Portfolio in cash or liquid securities in a segregated
account. Put and call options on futures contracts may also be covered in such
other manner as may be in accordance with the rules of the exchange on which
<PAGE>
the option is traded and applicable laws and regulations. Upon the exercise of
a call option on a futures contract written by the Portfolio, the Portfolio
will be required to sell the underlying futures contract which, if the
Portfolio has covered its obligation through the purchase of such contract,
will serve to liquidate its futures position. Similarly, where a put option on
a futures contract written by the Portfolio is exercised, the Portfolio will be
required to purchase the underlying futures contract which, if the Portfolio
has covered its obligation through the sale of such contract, will close out
its futures position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. The Portfolio will receive an option premium when it writes
the call, and, if the price of the futures contract at expiration of the option
is below the option exercise price, the Portfolio will retain the full amount
of this option premium, which provides a partial hedge against any decline that
may have occurred in the Portfolio's security holdings. Similarly, the writing
of a put option on a futures contract constitutes a partial hedge against
increasing prices of the securities deliverable upon exercise of the futures
contract. If the Portfolio writes an option on a futures contract and that
option is exercised, the Portfolio may incur a loss, which loss will be reduced
by the amount of the option premium received, less related transaction costs.
The Portfolio's ability to hedge effectively through transactions in options on
futures contracts depends on, among other factors, the degree of correlation
between changes in the value of securities held by the Portfolio and changes in
the value of its futures positions. This correlation cannot be expected to be
exact, and the Portfolio bears a risk that the value of the futures contract
being hedged will not move in the same amount, or even in the same direction,
as the hedging instrument. Thus it may be possible for the Portfolio to incur a
loss on both the hedging instrument and the futures contract being hedged.
The Portfolio may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of projected changes in interest rates, the Portfolio could, in
lieu of selling futures contracts, purchase put options thereon. In the event
that such decrease occurs, it may be offset, in whole or part, by a profit on
the option. Conversely, where it is projected that the value of securities to
be acquired by the Portfolio will increase prior to acquisition, due to a
market advance or changes in interest rates, the Portfolio could purchase call
options on futures contracts, rather than purchasing the underlying futures
contracts.
FURTHER INFORMATION REGARDING DERIVATIVES
Transactions in financial futures and options on futures contracts entered
into for non-hedging purposes involve greater risk and could result in losses
which are not offset by gains on other portfolio assets. Financial futures and
options on futures contracts may be used alone or in combinations in order to
create synthetic exposure to securities in which the Portfolio otherwise
invests.
<PAGE>
WHEN-ISSUED SECURITIES
The Portfolio may purchase securities on a "when-issued" or on a "forward
delivery" basis, meaning that delivery of the securities occurs beyond normal
settlement times. In general, the Portfolio does not pay for the securities
until received and does not start earning interest until the contractual
settlement date. It is expected that, under normal circumstances, the Portfolio
would take delivery of such securities but the Portfolio may sell them before
the settlement date. 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 or liquid 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. The when-issued securities are subject to market fluctuation, and no
interest accrues on the security to the purchaser during this period. The
payment obligation and the interest rate that will be received on the
securities are each fixed at the time the purchaser enters into the commitment.
Purchasing obligations on a when-issued basis is a form of leveraging and can
involve a risk that the yields available in the market when the delivery takes
place may actually be higher than those obtained in the transaction itself. In
that case, there could be an unrealized loss at the time of delivery. An
increase 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.
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 is maintained in a segregated
account for the Portfolio. These securities constitute the Portfolio's long
position.
<PAGE>
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.
MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS
The Portfolio may invest in mortgage-backed securities, which are
securities representing interests in pools of mortgage loans, as long as they
are backed by the full faith and credit of the United States Government.
Interests in pools of mortgage-related securities differ from other forms of
debt securities which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
costs which may be incurred. The market value and interest yield of these
instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages.
The Portfolio may purchase mortgage-backed securities issued or guaranteed
by the Government National Mortgage Association ("GNMA"). Obligations of GNMA
are backed by the full faith and credit of the United States Government.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. Government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price to its par value which may result in a loss.
<PAGE>
A portion of the Portfolio's assets may be invested in collateralized
mortgage obligations ("CMOs"), which are debt obligations collateralized by
mortgage loans or mortgage pass-through securities (such collateral
collectively hereinafter referred to as "Mortgage Assets"); provided, however,
that the CMOs are backed as to the timely payment of interest and principal by
the full faith and credit of the U.S. Government. The Portfolio may also invest
a portion of its assets in multi-class pass-through securities which are
interests in a trust composed of Mortgage Assets; provided, however, that the
Mortgage Assets are backed as to the timely payment of interest and principal
by the full faith and credit of the U.S. Government. CMOs (which include
multi-class pass-through securities) may be issued by agencies, authorities or
instrumentalities of the U.S. Government or by private originators of or
investors in mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multi-class pass-through
securities. In a CMO, a series of bonds or certificates is usually issued in
multiple classes with different maturities. Each class of a CMO, often referred
to as a "tranche," is issued at a specific fixed or floating coupon rate and
has a stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates, resulting in a loss of all
or part of the premium if any has been paid. Interest is paid or accrues on all
classes of the CMOs on a monthly, quarterly or semiannual basis. The principal
of and interest on the Mortgage Assets may be allocated among the several
classes of a series of a CMO in various ways. In a common structure, payments
of principal, including any principal prepayments, on the Mortgage Assets are
applied to the classes of the series of a CMO in the order of their respective
stated maturities or final distribution dates, so that no payment of principal
will be made on any class of CMOs until all other classes having an earlier
stated maturity or final distribution date have been paid in full.
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. 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.
This particular risk, referred to as "maturity extension risk," may effectively
convert a security that was considered short or intermediate-term at the time
<PAGE>
of purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities. Thus, rising interest rates would not only likely
decrease the value of the Portfolio's fixed income securities, but would also
increase the inherent volatility of the Portfolio by effectively converting
short-term debt instruments into long-term debt instruments. 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 mortgage-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.
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
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 cash 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. 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. The Adviser
will make loans only when, in the judgment of the Adviser, the consideration
which can be earned currently from loans of this type justifies the attendant
risk. If the Adviser determines to make loans, it is not intended that the
value of the securities loaned would exceed 30% of the market value of the
Portfolio's total assets.
<PAGE>
RULE 144A SECURITIES
Consistent with applicable investment restrictions, the Portfolio may
purchase securities that are not registered under the Securities Act of 1933
(the "Securities Act"), but can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act ("Rule 144A securities").
However, the Portfolio does not invest more than 15% of its net assets (taken
at market value) in illiquid investments, which include securities for which
there is no readily available market, securities subject to contractual
restrictions on resale and Rule 144A securities, unless, in the case of
restricted securities, the Board of Trustees of the Trust determines, based on
the trading markets for the specific Rule 144A security, that it is liquid. The
Trustees have adopted guidelines and, subject to oversight by the Trustees,
have delegated to the Adviser the daily function of determining
and monitoring liquidity of Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets 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.
DEFENSIVE STRATEGIES
The Portfolio may, from time to time, take temporary defensive positions
in attempting to respond to adverse market, political or other conditions. When
doing so, the Portfolio may invest without limit in money market instruments
and other very short-term instruments, as long as the instruments purchased are
backed by the full faith and credit of the United States. The income on money
market and other very short-term instruments is likely to be less than the
income on the debt obligations generally purchased by the Portfolio.
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
<PAGE>
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;
(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
<PAGE>
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;
(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;
(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 on fixed income securities or options on futures contracts by the
Portfolio. Investment restriction (9) above applies only to short sales of or
short positions in securities, and does not prevent the writing, purchase,
ownership, holding or sale of futures contracts.
<PAGE>
For purposes of restriction (1) above, arrangements with respect to
securities lending are not treated as borrowing.
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. If the value of the Portfolio's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
Item 13. Management of the Portfolio.
The Trustees and officers of the Portfolio 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 Portfolio. Unless
otherwise indicated below, the address of each Trustee and officer is 21 Milk
Street, Boston, Massachusetts 02109. The address of the Portfolio is
Elizabethan Square, George Town, Grand Cayman, Cayman Islands, British West
Indies.
TRUSTEES
ELLIOTT J. BERV; 55 -- 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 24 Atlantic Drive, Scarborough,
Maine.
PHILIP W. COOLIDGE*; 47 -- President of the Portfolio; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS, Inc.
MARK T. FINN; 55 -- 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); General Partner and
Shareholder, Greenwich Ventures LLC (Investment Partnership) (since January
1996); President and Secretary, Phoenix Trading Co. (Commodity Trading Advisory
Firm) (since March 1997); Director, Vantage Consulting Group, Inc. (since
<PAGE>
October 1988). His address is 3500 Pacific Avenue, P.O. Box 539, Virginia
Beach, Virginia.
C. OSCAR MORONG, JR.; 64 -- Chairman of the Board of Trustees of the Portfolio;
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; 72 -- 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.
E. KIRBY WARREN; 64 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987); Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University,
Graduate School of Business, 725 Uris Hall, New York, New York.
OFFICERS
PHILIP W. COOLIDGE*; 47 -- President of the Portfolio; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS, Inc.
CHRISTINE A. DRAPEAU*; 28 -- Assistant Secretary and Assistant Treasurer of the
Portfolio; Vice President, Signature Financial Group, Inc. (since January
1996); Paralegal and Compliance Officer, various financial companies (July 1992
to January 1996).
TAMIE EBANKS-CUNNINGHAM*; 26 -- Assistant Secretary of the Portfolio; 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*; 50 -- Treasurer of the Portfolio; Vice President, Signature
Financial Group, Inc. (since April, 1995); Assistant Treasurer, CFBDS, Inc.
(since April 1995); Treasurer of the Phoenix Family of Mutual Funds, Phoenix
Home Life Mutual Insurance Company (1983 to March 1995).
LINDA T. GIBSON*; 33 -- Secretary of the Portfolio; Senior Vice President,
Signature Financial Group, Inc.; Secretary, CFBDS, Inc.
<PAGE>
JAMES E. HOOLAHAN*; 52 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Portfolio; Senior Vice President, Signature Financial Group,
Inc.
SUSAN JAKUBOSKI*; 35 -- Vice President, Assistant Treasurer and Assistant
Secretary of the Portfolio; Vice President, Signature Financial Group (Cayman)
Ltd. (since August 1994); Fund Compliance Administrator, Concord Financial
Group (November 1990 to August 1994).
MOLLY S. MUGLER*; 47 -- Assistant Secretary and Assistant Treasurer of the
Portfolio; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, CFBDS, Inc.
CLAIR TOMALIN*; 30 -- Assistant Secretary of the Portfolio; Office Manager,
Signature Financial Group (Europe) Limited. Her address is 117 Charterhouse
Street, London ECIM 6AA.
SHARON M. WHITSON*; 50 -- Assistant Secretary and Assistant Treasurer of the
Portfolio; Assistant Vice President, Signature Financial Group, Inc.
JULIE J. WYETZNER*; 39 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Portfolio; Vice President, Signature Financial Group, Inc.
The Trustees and officers of the Portfolio also hold comparable positions
with certain other funds for which Signature Financial Group (Cayman) Ltd.
("SFG" or the "Administrator"), the Portfolio's administrator and a
wholly-owned subsidiary of Signature Financial Group, Inc., or an affiliate
serves as the distributor or administrator. Mr. Coolidge is also a Trustee of
CitiFunds Fixed Income Trust, an open-end investment company, a series of which
is an investor in the Portfolio, and each officer of the Portfolio holds the
same position with CitiFunds Fixed Income Trust.
The Trustees of the Portfolio received the following remuneration from the
Portfolio during its fiscal year ended December 31, 1998:
TRUSTEE COMPENSATION TABLE
Aggregate
Compensation
from Total
Government Compensation
Income from Trust and
Trustee Portfolio (1)(2) Complex (1)(2)
Elliott J. Berv $1,419 $53,750
Philip W. Coolidge $0 $0
<PAGE>
Mark T. Finn $1,396 $52,000
C. Oscar Morong, Jr. $1,519 $71,000
Walter E. Robb, III $1,375 $50,000
E. Kirby Warren $1,350 $49,000
(1) Information relates to the fiscal year ended December 31, 1998.
(2) Messrs. Berv, Coolidge, Finn, Morong, Robb and Warren are trustees of 27,
50, 26, 41, 30 and 41, funds, respectively, in the family of open-end
registered investment companies advised or managed by Citibank.
The Portfolio's Declaration of Trust provides that the Portfolio will
indemnify its Trustees and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless with respect to any other matter it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Portfolio. In the case of
settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of 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.
Item 14. Control Persons and Principal Holders of Securities.
As of April 26, 1999, CitiFundsSM Short-Term U.S. Government Income
Portfolio owned approximately 69.27% and CitiFunds Short-Term U.S. Government
Income Portfolio, Ltd. owned approximately 30.73% of the outstanding interests
in the Portfolio. The address of CitiFunds Short-Term U.S. Government Income
Portfolio, Ltd. is c/o Maples and Calder, P.O. Box 309, Ugland House, George
Town, Grand Cayman, Cayman Islands, British West Indies. The address of
CitiFunds Short-Term U.S. Government Income Portfolio (the "Fund") is 21 Milk
Street, Boston, Massachusetts 02109. The Fund is a series of CitiFunds Fixed
Income Trust. CitiFunds Fixed Income Trust is a Massachusetts business trust
and is registered under the 1940 Act as an investment company.
The Fund and CitiFunds Short-Term U.S. Government Income Portfolio, Ltd.
each control the Portfolio by virtue of owning more than 25% of the outstanding
interests in the Portfolio, as noted above. The Fund has informed the Portfolio
that whenever requested to vote on matters pertaining to the Portfolio (other
than a vote to continue the Portfolio following the withdrawal of an investor)
<PAGE>
it will hold a meeting of shareholders and will cast its vote as instructed by
its shareholders, or otherwise act in accordance with applicable law.
Notwithstanding the foregoing, at any meeting of shareholders of the Fund, a
service agent may vote any shares of which it is the holder of record and for
which it does not receive voting instructions proportionately in accordance
with instructions it received for all other shares of which that service agent
is the holder of record.
Item 15. 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 its services under the Advisory Agreement, the Adviser receives an
investment advisory fee, which is computed daily and paid monthly, at an annual
rate 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 may
voluntarily agree to waive a portion of its investment advisory fee.
For the fiscal years ended December 31, 1996, 1997 and 1998 the fees paid
to Citibank under the Advisory Agreement with respect to the Portfolio were
$198,024 (of which $2,044 was voluntarily waived), $196,529 (of which $5,466
was voluntarily waived) and $235,934, 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 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 as necessary to maintain the
projected rate of total operating expenses.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Trust
paid the Administrator $28,289 (of which $27,649 was voluntarily waived),
$28,076 (of which $27,174 was voluntarily waived) and $33,706 (all of which was
voluntarily waived), respectively, under the Administrative Services Agreement
with respect to the Portfolio.
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.
<PAGE>
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
documents in connection with meetings of Trustees and investors, 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 Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of openend 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 alternative
means for obtaining these services. The Trust does not expect that investors
would suffer any adverse financial consequences as a result of any such
occurrence.
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
<PAGE>
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.
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,
the compensation of Trustees that are not affiliated with Citibank or SFG,
government fees, taxes, accounting and legal fees, expenses of communicating
with investors, interest expense, and insurance premiums. For the fiscal year
ended December 31, 1998, the Portfolio's total expenses were 0.35% of its
average daily net assets for that fiscal year.
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.
PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP
is Suite 3000, Box 82, Royal Trust Towers, Toronto Dominion Center, Toronto,
Ontario, Canada M5K 1G8.
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel to
the Trust.
<PAGE>
Item 16. 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.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or the other
accounts over which Citibank or its affiliates exercise investment discretion.
Citibank is authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for
the Portfolio which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if Citibank determines
in good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular transaction
or the overall responsibilities which Citibank and its affiliates have with
respect to accounts over which they exercise investment discretion.
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
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
<PAGE>
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, 1996, 1997 and 1998 the Portfolio
paid no brokerage commissions.
Item 17. 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 a 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 in the Portfolio 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 it is required to do so by law, or in
the judgment of the Trustees it is necessary or desirable to submit matters for
an investor vote.
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
<PAGE>
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. Investors in the Portfolio are personally liable
for its obligations and liabilities, subject, however, to indemnification by
the Portfolio in the event that there is imposed upon an investor a greater
portion of the liabilities and obligations of the Portfolio than its
proportionate beneficial interest in the Portfolio. The Declaration of Trust
also provides that the Portfolio shall maintain appropriate insurance (e.g.,
fidelity bonding and errors and omissions insurance) for the protection of the
Portfolio, its investors, Trustees, officers, employees and agents covering
possible tort and other liabilities. Thus, the risk of an investor incurring
financial loss on account of investor liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. It is not expected that the liabilities of the Portfolio
would ever exceed its assets.
The Declaration of Trust 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.
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 days during which the Exchange is open for trading, 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
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.
<PAGE>
Item 18. 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 Securities 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 Securities 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 Securities 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, the
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 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
<PAGE>
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.
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 19. Taxation of the Portfolio.
The Trust is organized as a trust under New York law. The Trust has
determined that the Portfolio is properly treated as a separate 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. The Portfolio's
taxable year ends December 31. Although the Portfolio is not subject to U.S.
federal income tax, it files appropriate U.S. federal income tax returns.
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. Withdrawals by an investor are generally not taxable.
However, to the extent the cash proceeds of any withdrawal 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
<PAGE>
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
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.
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. 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.
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.
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
<PAGE>
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. 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.
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 non-U.S. tax
consequences to them of investing in the Portfolio.
<PAGE>
Item 20. Underwriters.
The exclusive placement agent for the Portfolio is CFBDS, Inc., which
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 21. Calculation of Performance Data.
Not applicable.
Item 22. Financial Statements.
The financial statements contained in the Annual Report of the Portfolio,
as filed with the Securities and Exchange Commission on March 9, 1999
(Accession Number 0000930413-99-000318), for the fiscal year ended December 31,
1998 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.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS - bonds issued by the
Washington Metropolitan Area Transit Authority and guaranteed by the U.S.
Government.
<PAGE>
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 23. Exhibits.
a(1) The Declaration of Trust of the Trust
* and filed a(2) Amendments to the Declaration of Trust of the Trust
herewith
b By-laws of the Trust
d Investment Advisory Agreement between the Registrant and
Citibank, N.A., as investment adviser
e Placement Agency Agreement between the Registrant and
CFBDS, Inc. (formerly known as The Landmark Funds Broker-
Dealer Services, Inc.), as exclusive placement agent
** g Custodian Contract between the Registrant and State Street
Bank and Trust Company, as custodian
h(1) Administrative Services Agreement between the Registrant and
Signature Financial Group (Cayman) Ltd. ("SFG"), as
administrator
h(2) Amended and Restated Administrative Services Plan of the
Registrant
** h(3) Accounting Services Agreement between the Registrant and State
Street Cayman Trust Company, Ltd.
n Financial Data Schedule
- -------------------
* Incorporated herein by reference to Amendment No. 2 to the Registration
Statement on Form N-1A of the Registrant relating to Government Income
Portfolio File No. 811-8438, filed April 29, 1996.
<PAGE>
**Incorporated herein by reference to Amendment No. 3 to the Registration
Statement on Form N-1A of the Registrant relating to Government Income
Portfolio File No. 811-8438, filed March 2, 1998.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to Article V of the Declaration of Trust
(Exhibits a(1) and a(2) 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
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 26. 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, which is,
in turn, a wholly owned subsidiary of Citigroup Inc. 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 (U.S. Fixed
Income Portfolio, High Yield Portfolio, Growth & Income Portfolio, Balanced
Portfolio, Large Cap Growth Portfolio, International 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, CitiFundsSM New
York Tax Free Income Portfolio and CitiFundsSM California Tax Free Income
Portfolio), CitiFundsSM Institutional Trust (CitiFundsSM Institutional Cash
Reserves) and Variable Annuity Portfolios (CitiSelect VIP Folio 200, CitiSelect
VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500 and
CitiFundsSM Small Cap Growth VIP Portfolio). Citibank and its affiliates manage
assets in excess of $327 billion worldwide. The principal place of business of
Citibank is located at 399 Park Avenue, New York, New York 10043.
<PAGE>
John S. Reed is the Chairman of the Board and a Director of Citibank.
Victor J. Menezes is the President and a Director of Citibank. William R.
Rhodes and H. Onno Ruding are Vice Chairmen and Directors of Citibank. The
other Directors of Citibank are Paul S. Collins, Vice Chairman of Citigroup,
Inc. and Robert I. Lipp, Chairman and Chief Executive Officer of Travelers
Insurance Group and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citicorp. In
addition, the following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President,
Travelers Property Casualty Corp.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding
Corporation
H. Onno Ruding Supervisory Director, Amsterdamsch
Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFundsSM International Growth & Income Portfolio, CitiFundsSM International
Growth 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 Intermediate
Income Portfolio, CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM National Tax Free
Income Portfolio, CitiFundsSM California Tax Free Income Portfolio, CitiFundsSM
<PAGE>
Small Cap Value Portfolio, CitiFundsSM Growth & Income Portfolio, CitiFundsSM
Large Cap Growth Portfolio, CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM
Balanced Portfolio, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400, CitiSelect Folio 500, CitiSelect VIP Folio 200, CitiSelect VIP Folio
300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500 and CitiFundsSM Small
Cap Growth VIP Portfolio. 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, International
Equity Portfolio, Balanced Portfolio, Government Income Portfolio, Tax Free
Reserves Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio. CFBDS also serves as the distributor for the following funds: The
Travelers Fund U for Variable Annuities, The Travelers Fund VA for Variable
Annuities, The Travelers Fund BD for Variable Annuities, The Travelers Fund BD
II for Variable Annuities, The Travelers Fund BD III for Variable Annuities,
The Travelers Fund BD IV for Variable Annuities, The Travelers Fund ABD for
Variable Annuities, The Travelers Fund ABD II for Variable Annuities, The
Travelers Separate Account PF for Variable Annuities, The Travelers Separate
Account PF II for Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for Variable Annuities,
The Travelers Separate Account TM II for Variable Annuities, The Travelers
Separate Account Five for Variable Annuities, The Travelers Separate Account
Six for Variable Annuities, The Travelers Separate Account Seven for Variable
Annuities, The Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Life Insurance, The Travelers Fund UL II for Life
Insurance, The Travelers Fund UL III for Life Insurance, The Travelers Variable
Life Insurance Separate Account One, The Travelers Variable Life Insurance
Separate Account Two, The Travelers Variable Life Insurance Separate Account
Three, The Travelers Variable Life Insurance Separate Account Four, The
Travelers Separate Account MGA, The Travelers Separate Account MGA II, The
Travelers Growth and Income Stock Account for Variable Annuities, The Travelers
Quality Bond Account for Variable Annuities, The Travelers Money Market Account
for Variable Annuities, The Travelers Timed Growth and Income Stock Account for
Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities,
The Travelers Timed Bond Account for Variable Annuities, Emerging Growth Fund,
Government Fund, Growth and Income Fund, International Equity Fund, Municipal
Fund, Balanced Investments, Emerging Markets Equity Investments, Government
Money Investments, High Yield Investments, Intermediate Fixed Income
Investments, International Equity Investments, International Fixed Income
Investments, Large Capitalization Growth Investments, Large Capitalization
Value Equity Investments, Long- Term Bond Investments, Mortgage Backed
Investments, Municipal Bond Investments, Small Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Appreciation
Portfolio, Diversified Strategic Income Portfolio, Emerging Growth Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio,
Intermediate High Grade Portfolio, International Equity Portfolio, Money Market
Portfolio, Total Return Portfolio, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney
<PAGE>
Appreciation Fund, Smith Barney Arizona Municipals Fund Inc., Smith Barney
California Municipals Fund Inc., Balanced Portfolio, Conservative Portfolio,
Growth Portfolio, High Growth Portfolio, Income Portfolio, Global Portfolio,
Select Balanced Portfolio, Select Conservative Portfolio, Select Growth
Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert
Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney
Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond
Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value
Fund, Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade
Bond Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate
Maturity California Municipals Fund, Smith Barney Intermediate Maturity New
York Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith
Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney
Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio,
Retirement Portfolio, California Money Market Portfolio, Florida Portfolio,
Georgia Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New
York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC
Managed Income Portfolio, Van Kampen American Capital Enterprise Portfolio,
Centurion Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International
Equity Fund, Centurion U.S. Protection Fund, Centurion International Protection
Fund, Global High-Yield Bond Fund, International Equity Fund, Emerging
Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Global Dimensions
Fund L.P., Citicorp Private Equity L.P., AIM V.I. Capital Appreciation Fund,
AIM V.I. Government Series Fund, AIM V.I. Growth Fund, AIM V.I. International
Equity Fund, AIM V.I. Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP
High Income Portfolio, Fidelity VIP Equity Income Portfolio, Fidelity VIP
Overseas Portfolio, Fidelity VIP II Contrafund Portfolio, Fidelity VIP II Index
<PAGE>
500 Portfolio, MFS World Government Series, MFS Money Market Series, MFS Bond
Series, MFS Total Return Series, MFS Research Series, MFS Emerging Growth
Series, Salomon Brothers Institutional Money Market Fund, Salomon Brothers Cash
Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon
Brothers National Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth
Fund, Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc,
Salomon Brothers Opportunity Fund Inc, Salomon Brothers Institutional High
Yield Bond Fund, Salomon Brothers Institutional Emerging Markets Debt Fund,
Salomon Brothers Variable Investors Fund, Salomon Brothers Variable Capital
Fund, Salomon Brothers Variable Total Return Fund, Salomon Brothers Variable
High Yield Bond Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon
Brothers Variable U.S. Government Income Fund, and Salomon Brothers Variable
Asia Growth Fund.
(b) The information required by this Item 27 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 28. 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, Cayman Islands, BWI
(administrator)
State Street Bank and Trust Company 225 Franklin Street
(custodian) Boston, MA 02110
State Street Cayman Trust P.O. Box 2508 GT
Company, Ltd. Grand Cayman
(accounting services 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 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<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 Grand Cayman, Cayman Islands, on the 29th day of April, 1999.
THE PREMIUM PORTFOLIOS
on behalf of Government Income Portfolio
By: /s/ Tamie Ebanks-Cunningham
-------------------------------
Tamie Ebanks-Cunningham
Assistant Secretary of
The Premium Portfolios
<PAGE>
EXHIBIT INDEX
Exhibit No.: Description:
a(1) The Declaration of Trust of the Trust
a(2) Amendments to the Declaration of Trust of the Trust
b By-laws of the Trust
d Investment Advisory Agreement between the
Registrant and Citibank, N.A., as investment
adviser
e Placement Agency Agreement between the
Registrant and CFBDS, Inc. (formerly known as
The Landmark Funds Broker-Dealer Services, Inc.),
as exclusive placement agent
h(1) Administrative Services Agreement between the
Registrant and Signature Financial Group
(Cayman) Ltd. ("SFG"), as administrator
h(2) Amended and Restated Administrative Services
Plan of the Registrant
n Financial Data Schedule
Exhibit a(1)
THE PREMIUM PORTFOLIOS
----------------------
DECLARATION OF TRUST
Dated as of September 13, 1993
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--The Trust .................................................... 1
Section 1.1 Name .................................................... 1
Section 1.2 Definitions ............................................ 1
ARTICLE II--Trustees .................................................... 3
Section 2.1 Number and Qualification ................................ 3
Section 2.2 Term and Election ....................................... 4
Section 2.3 Resignation, Removal and Retirement ..................... 4
Section 2.4 Vacancies ............................................... 4
Section 2.5 Meetings ................................................ 5
Section 2.6 Officers; Chairman of the Board ......................... 6
Section 2.7 By-Laws ................................................. 6
ARTICLE III--Powers of Trustees ........................................ 6
Section 3.1 General ................................................. 6
Section 3.2 Investments.............................................. 6
Section 3.3 Legal Title ............................................. 7
Section 3.4 Sale and Increases of Interests ......................... 7
Section 3.5 Decreases and Redemptions of Interests .................. 8
Section 3.6 Borrow Money ............................................ 8
Section 3.7 Delegation; Committees .................................. 8
Section 3.8 Collection and Payment .................................. 8
Section 3.9 Expenses ................................................ 8
Section 3.10 Miscellaneous Powers .................................... 9
Section 3.11 Further Powers .......................................... 9
ARTICLE IV--Investment Advisory, Administration and Placement
Agent Arrangements; Custodian ............................... 10
Section 4.1 Investment Advisory and Other Arrangements ............ 10
Section 4.2 Parties to Contract ..................................... 10
Section 4.3 Custodian ............................................... 10
Section 4.4 1940 Act Governance ..................................... 10
<PAGE>
ARTICLE V--Liabilitv of Holders; Limitations of Liability of Trustees,
Officers, etc. ............................................... 11
Section 5.1 Liability of Holders; Indemnification ................... 11
Section 5.2 Limitations of Liability of Trustees,Officers,
Employees, Agents, Independent Contractors
to Third Parties ........................................ 11
Section 5.3 Limitations of Liability of Trustees,Officers,
Employees, Agents, Independent Contractors
to Trust, Holders, etc. ................................. 11
Section 5.4 Mandatory Indemnification ............................... 12
Section 5.5 No Bond Required of Trustees ............................ 13
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc......................................... 13
Section 5.7 Reliance on Experts, etc. ............................... 13
Section 5.8 No Repeal or Modification ............................... 13
ARTICLE VI--Interests .................................................. 14
Section 6.1 Interests ............................................... 14
Section 6.2 Establishment and Designation of Series ................. 14
Section 6.3 Non-Transferability ..................................... 15
Section 6.4 Register of Interests ................................... 15
ARTICLE VII--Increases, Decreases And Redemptions of Interests .......... 15
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions ......................................... 16
Section 8.1 Book Capital Account Balances ........................... 16
Section 8.2 Allocations and Distributions to Holders ................ 16
Section 8.3 Power to Modify Foregoing Procedures .................... 16
ARTICLE IX--Holders .................................................... 17
Section 9.1 Rights of Holders ....................................... 17
Section 9.2 Meetings of Holders ..................................... 17
Section 9.3 Notice of Meetings ...................................... 18
Section 9.4 Record Date for Meetings, Distributions, etc. ........... 18
Section 9.5 Proxies, etc. ........................................... 18
Section 9.6 Reports ................................................. 18
Section 9.7 Inspection of Records ................................... 19
Section 9.8 Holder Action by Written Consent ........................ 19
Section 9.9 Notices ................................................. 19
ARTICLE X--Duration; Termination; Dissolution; Amendment; Mergers; Etc... 19
Section 10.1 Duration ................................................ 19
Section 10.2 Dissolution ............................................. 20
Section 10.3 Termination ............................................. 20
Section 10.4 Amendment Procedure ..................................... 21
Section 10.5 Merger, Consolidation and Sale of Assets ................ 22
Section 10.6 Incorporation ........................................... 22
<PAGE>
ARTICLE XI--Miscellaneous ............................................... 23
Section 11.1 Certificate of Designation; Agent for Service of Process 23
Section 11.2 Governing Law ........................................... 23
Section 11.3 Counterparts ............................................ 23
Section 11.4 Reliance by Third Parties ............................... 23
Section 11.5 Provisions in Conflict with Law or Regulations .......... 23
<PAGE>
LM3063A
DECLARATION OF TRUST
OF
THE PREMIUM PORTFOLIOS
----------------------
This DECLARATION OF TRUST of The Premium Portfolios is made as of the 13th
day of September, 1993 by the parties signatory hereto, as Trustees (as defined
in Section 1.2 hereof).
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a master trust fund or "Trust" (as
defined in Section 1.2 hereof) under the law of the State of New York
consisting of one or more subtrusts or "Series" (as defined in Section 1.2
hereof) for the investment and reinvestment of assets contributed thereto; and
WHEREAS, it is proposed that the trust assets be composed of money and
other property contributed to the Series, such assets to be held and managed in
trust for the benefit of the holders of beneficial interests in such Series;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust
all money and other property contributed to the Trust and will manage and
dispose of the same for the benefit of such holders of beneficial interests and
subject to the provisions hereof, to wit:
ARTICLE I
The Trust
1.1. Name. The name of the Trust shall be The Premium Portfolios and so
far as may be practicable the Trustees shall conduct the Trust's activities,
execute all documents and sue or be sued under that name, which name (and the
term "Trust" wherever hereinafter used) shall refer to the Trustees as
Trustees, and not individually, and shall not refer to the officers, employees,
agents or independent contractors of the Trust or its holders of beneficial
interests.
1.2. Definitions. As used in this Declaration, the following terms shall
have the following meanings:
<PAGE>
"Administrator" shall mean any party furnishing services to one or more
Series pursuant to any administration contract described in Section 4.1 hereof.
"Book Capital Account" shall mean, for any Holder (as hereinafter defined)
at any time, the Book Capital Account of the Holder at such time with respect
to the Holder's beneficial interest in the Trust Property (as hereinafter
defined) of any Series, determined in accordance with the method established by
the Trustees pursuant to Section 8.1 hereof. The Trust shall maintain separate
records of Book Capital Accounts for each such Series.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
Internal Revenue Code of 1954, as amended (or any corresponding provision or
provisions of succeeding law).
"Commission" shall mean the United States Securities and Exchange
Commission.
"Declaration" shall mean this Declaration of Trust as amended from time to
time. References in this Declaration to "Declaration", "hereof", "herein" and
"hereunder" shall be deemed to refer to this Declaration rather than the
article or section in which any such word appears.
"Fiscal Year" shall mean an annual period determined by the Trustees which
ends on December 31 of each year or on such other day as is permitted or
required by the Code.
"Holder" shall mean the record holder of any Interest.
"Institutional Investor(s)" shall mean any regulated investment company,
segregated asset account, foreign investment company, common trust fund, group
trust or other investment arrangement, whether organized within or without the
United States of America, other than an individual, S corporation, partnership
or grantor trust beneficially owned by any individual, S corporation or
partnership.
"Interested Person" shall have the meaning given it in the 1940 Act (as
hereinafter defined).
"Interest" shall mean the beneficial interest of a Holder in the Trust
Property of any Series, including all rights, powers and privileges accorded to
Holders by this Declaration, which interest may be expressed as a percentage,
determined by calculating for a particular Series, at such times and on such
basis as the Trustees shall from time to time determine, the ratio of each
Holder's Book Capital Account balance to the total of all Holders' Book Capital
Account balances. Reference herein to a specified percentage of, or fraction
of, Interests, means Holders whose combined Book Capital Account balances
represent such specified percentage or fraction of the combined Book Capital
Account balances of all, or a specified group of, Holders.
<PAGE>
"Investment Adviser" shall mean any party furnishing services to one or
more Series of the Trust pursuant to any investment advisory contract described
in Section 4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a meeting of Holders of
one or more Series as the context may require, of (A) 67% or more of the
Interests present or represented at such meeting, if Holders of more than 50%
of all Interests in such one or more Series are present or represented by
proxy, or (B) more than 50% of all Interests in such one or more Series,
whichever is less.
"1940 Act" shall mean the United States Investment Company Act of 1940, as
amended~from time to time, and the rules and regulations thereunder.
"Person" shall mean and include individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
"Redemption" shall mean the complete withdrawal of an Interest of a Holder
the result of which is to reduce the Book Capital Account balance of that
Holder to zero, and the term "redeem" shall mean to effect a Redemption.
"Series" shall mean the subtrusts of the Trust as the same are established
and designated pursuant to Article VI hereof, each of which shall be a separate
subtrust.
"Trust" shall mean the master trust fund established hereby and shall
include each Series hereof.
"Trust Property" shall mean as of any particular time any and all assets
or other property, real or personal, tangible or intangible, which at such time
is owned or held by or for the account of any Series or for the account of the
Trustees, each component of which shall be allocated and belong to a specific
Series to the exclusion of all other Series.
"Trustees" shall mean each signatory to this Declaration, so long as such
signatory shall continue in office in accordance with the terms hereof, and all
other individuals who at the time in question have been duly elected or
appointed and have qualified as Trustees in accordance with the provisions
hereof and are then in office, and reference in this Declaration to a Trustee or
Trustees shall refer to such individual or individuals in their capacity as
Trustees hereunder.
ARTICLE II
Trustees
2.1. Number and Qualification. The number of Trustees shall be fixed from
time to time by action of the Trustees taken as provided in Section 2.5 hereof;
provided, however, that the number of Trustees so fixed shall in no event be
less than three. Any vacancy created by an increase in the number of Trustees
<PAGE>
may be filled by the appointment of an individual having the qualifications
described in this Section 2.1 made by action of the Trustees taken as provided
in Section 2.5 hereof. Any such appointment shall not become effective,
however, until the individual named in the written instrument of appointment
shall have accepted in writing such appointment and agreed in writing to be
bound by the terms of this Declaration. No reduction in the number of Trustees
shall have the effect of removing any Trustee from office. Whenever a vacancy
occurs, until such vacancy is filled as provided in Section 2.4 hereof, the
Trustees continuing in office, regardless of their number, shall have all the
powers granted to the Trustees and shall discharge all the duties imposed upon
the Trustees by this Declaration. A Trustee shall be an individual at least 21
years of age who is not under legal disability.
2.2. Term and Election. Each Trustee named herein, or elected or appointed
prior to the first meeting of Holders, shall (except in the event of
resignations, retirements, removals or vacancies pursuant to Section 2.3 or
Section 2.4 hereof) hold office until a successor to such Trustee has been
elected at such meeting and has qualified to serve as Trustee, as required
under the 1940 Act. Subject to the provisions or Section 16(a) of the 1940 Act
and except as provided in Section 2.3 hereof, each Trustee shall hold office
during the lifetime of the Trust and until its termination as hereinafter
provided.
2.3. Resignation, Removal and Retirement. Any Trustee may resign his or
her trust (without need for prior or subsequent accounting) by an instrument in
writing executed by such Trustee and delivered or mailed to the Chairman, if
any, the President or the Secretary of the Trust and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any Trustee may be removed with or without cause by the affirmative
vote of Holders of two-thirds of the Interests or (provided the aggregate
number of Trustees, after such removal and after giving effect to any
appointment made to fill the vacancy created by such removal, shall not be less
than the number required by Section 2.1 hereof) with cause by the action of
two-thirds of the remaining Trustees. Removal with cause includes, but is not
limited to, the removal of a Trustee for failure to comply with such written
policies as may from time to time be adopted by at least two-thirds of the
Trustees with respect to the conduct of the Trustees and attendance at
meetings. Any Trustee who has attained a mandatory retirement age, if any,
established pursuant to any written policy adopted from time to time by a
majority of the Trustees shall, automatically and without action by such
Trustee or the remaining Trustees, be deemed to have retired in accordance with
the terms of such policy, effective as of the date determined in accordance
with such policy. Any Trustee who has become physically or mentally
incapacitated as determined by a majority of the other Trustees, may be retired
by written instrument executed by a majority of the other Trustees, specifying
the date of such Trustee's retirement. Upon the resignation, retirement or
removal of a Trustee, or a Trustee otherwise ceasing to be a Trustee, such
resigning, retired, removed or former Trustee shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust Property held in the name of
such resigning, retired, removed or former Trustee. Upon the death of any
<PAGE>
Trustee or upon removal, retirement or resignation due to any Trustee's
incapacity to serve as Trustee, the legal representative of such deceased,
removed, retired or resigning Trustee shall execute and deliver on behalf of
such deceased, removed, retired or resigning Trustee such documents as the
remaining Trustees shall require for the purpose set forth in the preceding
sentence.
2.4. Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, retirement or
removal of a Trustee. No such vacancy shall operate to annul this Declaration
or to revoke any existing agency created pursuant to the terms of this
Declaration. In the case of a vacancy, Holders of at least a majority of the
Interests entitled to vote, acting at any meeting of Holders held in accordance
with Section 9.2 hereof, or, to the extent permitted by the 1940 Act, a
majority vote of the Trustees continuing in office acting by written instrument
or instruments, may fill such vacancy, and any Trustee so elected by the
Trustees or the Holders shall hold office as provided in this Declaration. The
Trustees may appoint a new Trustee as provided above in anticipation of a
vacancy expected to occur because of the retirement, resignation or removal of
a Trustee, or an increase in number of Trustees, provided that such appointment
shall become effective only when or after the expected vacancy occurs. Subject
to the foregoing sentence, as soon as any Trustee has accepted such appointment
in writing, the Trust estate shall vest in the new Trustee, together with the
continuing Trustees, without any further act or CONVEYANCE, AND he or she shall
be deemed a Trustee hereunder. The power of appointment is subject to Section
16(a) of the 1940 Act.
2.5. Meetings. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, if any, the President, the Secretary, an
Assistant Secretary or any two Trustees. Regular meetings of the Trustees may
be held without call or notice at a time and place fixed by the By-Laws or by
resolution of the Trustees. Notice of any other meeting shall be mailed or
otherwise given not less than 24 hours before the meeting but may be waived in
writing by any Trustee either before or after such meeting. The attendance of a
Trustee at a meeting shall constitute a waiver of notice of such meeting except
in the situation in which a Trustee attends a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
was not lawfully called or convened. The Trustees may act with or without a
meeting. A quorum for all meetings of the Trustees shall be a majority of the
Trustees. Unless provided otherwise in this Declaration, any action of the
Trustees may be taken at a meeting by vote of a majority of the Trustees
present (a quorum being present) or without a meeting by written consent of a
majority of the Trustees.
Any committee of the Trustees, including an executive committee, if any,
may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or
without a meeting by written consent of a majority of the members.
<PAGE>
Any notice, waiver or written consent hereunder may be provided and
delivered to the Trust or a Trustee by facsimile or other similar electronic
mechanism.
With respect to actions of the Trustees and any committee of the Trustees,
Trustees who are Interested Persons of the Trust or otherwise interested in any
action to be taken may be counted for quorum purposes under this Section 2.5
and shall be entitled to vote to the extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all individuals participating in the
meeting can hear each other and participation in a meeting by means of such
communications equipment shall constitute presence in person at such meeting.
2.6. Officers; Chairman of the Board. The Trustees shall, from time to
time, elect a President, a Secretary and a Treasurer. The Trustees may elect or
appoint, from time to time, a Chairman of the Board who shall preside at all
meetings of the Trustees and carry out such other duties as the Trustees may
designate. The Trustees may elect or appoint or authorize the President to
appoint such other officers, agents or independent contractors with such powers
as the Trustees may deem to be advisable. The Chairman, if any, shall be and
each other officer may, but need not, be a Trustee.
2.7. BY-Laws. The Trustees may adopt and, from time to time, amend or
repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
Powers of Trustees
3.1. General. The Trustees shall have exclusive and absolute control over
the Trust Property and over the business of the Trust and each Series to the
same extent as if the Trustees were the sole owners of the Trust Property and
such business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees may perform such acts as in their
sole discretion they deem proper for conducting the business of the Trust and
any Series. The enumeration of or failure to mention any specific power herein
shall not be construed as limiting such exclusive and absolute control. The
powers of the Trustees may be exercised without order of or resort to any
court.
The Trustees shall have full power and authority to do any and all acts
and to make and execute any and all contracts and instruments that they may
consider necessary or appropriate in connection with the management of the
Trust. The Trustees shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purposes of this Trust.
3.2. Investments. The Trustees shall have the power with respect to the
Trust and each Series to:
<PAGE>
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of United States and foreign currencies and
related instruments including forward contracts, and securities, including
common and preferred stock, warrants, bonds, debentures, time notes and all
other evidences of indebtedness, negotiable or non-negotiable instruments,
obligations, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, reverse repurchase agreements, convertible securities,
forward contracts, options, futures contracts, and other securities, including,
without limitation, those issued, guaranteed or sponsored by any state,
territory or possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities, or by the United
States Government, any foreign government, or any agency, instrumentality or
political subdivision of the United States Government or any foreign
government, or any international instrumentality, or by any bank, savings
institution, corporation or other business entity organized under the laws of
the United States or any state or under any foreign laws; and to exercise any
and all rights, powers and privileges of ownership or interest in respect of
any and all such investments of any kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto, with
power to designate one or more Persons to exercise any of such rights, powers
and privileges in respect of any of such investments; and the Trustees shall be
deemed to have the foregoing powers with respect to any additional instruments
in which the Trustees may determine to invest;
(c) definitively interpret the investment objectives, policies and
limitations of any Series.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3. Legal Title. Legal title to all Trust Property shall be vested in the
Trustees as joint tenants except that the Trustees shall have the power to cause
legal title to any Trust Property to be held by or in the name of one or more of
the Trustees, or in the name of the Trust or any Series, or in the name or
nominee name of any other Person on behalf of the Trust or any Series, on such
terms as the Trustees may determine.
The right, title and interest of the Trustees in the Trust Property shall
vest automatically in each individual who may hereafter become a Trustee upon
his due election and qualification. Upon the resignation, removal or death of a
Trustee, such resigning, removed or deceased Trustee shall automatically cease
to have any right, title or interest in any Trust Property, and the right,
title and interest of such resigning, removed or deceased Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered.
<PAGE>
3.4. Sale and Increases of Interests. The Trustees, in their discretion,
may, from time to time, without a vote of the Holders, permit any Institutional
Investor to purchase an Interest in a Series, or increase such Interest, for
such type of consideration, including cash or property, at such time or times
(including, without limitation, each business day), and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. Individuals, S corporations, partnerships and
grantor trusts that are beneficially owned by any individual, S corporation or
partnership may not purchase Interests. The Trustees, in their discretion, may
refuse to sell an Interest in a Series to any person without any cause or
reason therefor. A Holder which has redeemed its Interest in a Series may not
be permitted to purchase an Interest in such Series until the later of 60
calendar days after the date of such Redemption or the first day of the Fiscal
Year next succeeding the Fiscal Year during which such Redemption occurred.
3.5 Decreases and Redemptions of Interests. Subject to Article VII hereof,
the Trustees, in their discretion, may, from time to time, without a vote of
the Holders, permit a Holder to redeem its Interest in a Series, or decrease
such Interest, for either cash or property, at such time or times (including,
without limitation, each business day), and on such terms as the Trustees may
deem best.
3.6. Borrow Money. The Trustees shall have power on behalf of any Series
to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets belonging
to such Series, as appropriate, including the lending of portfolio securities,
and to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other Person.
3.7. Delegation: Committees. The Trustees shall have power, consistent
with their continuing exclusive and absolute control over the Trust Property
and over the business of the Trust and any Series, to delegate from time to
time to such of their number or to officers, employees, agents or independent
contractors of the Trust or any Series the doing of such things and the
execution of such instruments in either the name of the Trust or any Series or
the names of the Trustees or otherwise as the Trustees may deem expedient.
3.8. Collection and Payment. The Trustees shall have power to collect all
property due to the Trust; and to pay all claims, including taxes, against the
Trust Property on behalf of any Series; to prosecute, defend, compromise or
abandon any claims relating to the Trust or the Trust Property on behalf of any
Series; to foreclose any security interest securing any obligation, by virtue
of which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.
3.9. Expenses. The Trustees shall have power to incur and pay any expenses
from the Trust Property which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the Trust Property to themselves as Trustees.
Permitted expenses of the Trust include, but are not limited to, interest
<PAGE>
charges, taxes, brokerage fees and commissions; expenses of sales, increases,
decreases or redemptions of Interests; certain insurance premiums; applicable
fees, interest charges and expenses of third parties, including the Trust's
investment advisers, managers, administrators, placement agents, custodians
transfer agents and fund accountants; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
telecommunications expenses; costs of forming the Trust and its Series and
maintaining its and their existence; costs of preparing and printing the
registration statements and Holder reports of the Trust and each Series and
delivering them to Holders; expenses of meetings of Holders; costs of
maintaining books and accounts; costs of reproduction, stationery and supplies;
fees and expenses of the Trustees; compensation of the Trust's officers and
employees and costs of other personnel performing services for the Trust or any
Series; costs of Trustee meetings; Commission registration fees and related
expenses; state or foreign securities laws registration fees and related
expenses; and for such nonrecurring items as may arise, including litigation to
which the Trust or a Series (or a Trustee or officer of the Trust acting as
such) is a party, and for all losses and liabilities by them incurred in
administering the Trust. The Trustees shall have a lien on the assets belonging
to the appropriate Series, or in the case of an expense allocable to more than
one Series, on the assets of each such Series, prior to any rights or interests
of the Holders thereto, for the reimbursement to them of such expenses,
disbursements, losses and liabilities. The Trustees shall fix the compensation
of all officers, employees and Trustees. The Trustees may pay themselves such
compensation for special services, including legal and brokerage services, as
they in good faith may deem reasonable, and reimbursement for expenses
reasonably incurred by themselves on behalf of the Trust or any Series.
3.10. Miscellaneous Powers. The Trustees shall have power to: (a) employ
or contract with such Persons as the Trustees may deem appropriate for the
transaction of the business of the Trust or any Series and terminate such
employees or contractual relationships as they consider appropriate; (b) enter
into joint ventures, partnerships and any other combinations or associations;
(c) purchase, and pay for out of Trust Property insurance policies insuring the
Investment Adviser, Administrator, placement agent, Holders, Trustees,
officers, employees, agents or independent contractors of the Trust against all
claims arising by reason of holding any such position or by reason of any
action taken or omitted by any such Person in such capacity, whether or not the
Trust would have the power to indemnify such Person against such liability; (d)
establish pension, profit-sharing and other retirement, incentive and benefit
plans for the Trustees, officers, employees or agents of the Trust or any
Series; (e) prosecute, defend and settle lawsuits in the name of the Trust or
any Series and pay settlements and judgments out of the Trust Property; (f) to
the extent permitted by law, indemnify any Person with whom the Trust has
dealings, including the Investment Adviser, Administrator, placement agent,
Holders, Trustees, officers, employees, agents or independent contractors of
the Trust, to such extent as the Trustees shall determine; (9) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
Fiscal Year of the Trust or any Series and the method by which its accounts
shall be kept; and (i) adopt a seal for the Trust or any Series, but the
<PAGE>
absence of such a seal shall not impair the validity of any instrument executed
on behalf of the Trust or such Series.
3.11. Further Powers. The Trustees shall have power to conduct the
business of the Trust or any Series and carry on its operations in any and all
of its branches and maintain offices, whether within or without the State of
New York, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such other
things and execute all such instruments as they deem necessary, proper,
appropriate or desirable in order to promote the interests of the Trust or any
Series although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust or any Series which
is made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration, the presumption shall be in favor of a grant of
power to the Trustees. The Trustees shall not be required to obtain any court
order in order to deal with Trust Property.
ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements; Custodian
4.1. Investment Advisory and Other Arrangements. The Trustees may in their
discretion, from time to time, enter into investment advisory contracts,
administration contracts, placement agent agreements or other service
agreements whereby the other party to such contract or agreement shall
undertake to furnish with respect to one or more particular Series such
investment advisory, administration, placement agent and/or other services as
the Trustees shall, from time to time, consider appropriate or desirable and
all upon such terms and conditions as the Trustees may in their sole discretion
determine. Notwithstanding any provision of this Declaration, the Trustees may
authorize any Investment Adviser (subject to such general or specific
instructions as the Trustees may, from time to time, adopt) to employ one or
more subadvisers and to effect purchases, sales, loans or exchanges of Trust
Property on behalf of any Series or may authorize any officer, employee or
Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of any such Investment Adviser (all without any further action
by the Trustees).
4.2. Parties to Contract. Any contract of the character described in
Section 4.1 or Section 4.3 hereof or in the By-Laws of the Trust may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any
such relationship, nor shall any individual holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust or
any Series under or by reason of any such contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
<PAGE>
when entered into was reasonable and fair and not inconsistent with the
provisions of this Article IV or the By-Laws. The same Person may be the other
party to one or more contracts entered into pursuant to Section 4.1 or Section
4.3 hereof or the By-Laws, and any individual may be financially interested or
otherwise affiliated with Persons who are parties to any or all of the
contracts mentioned in this Section 4.2 or in the By-Laws.
4.3 Custodian. The Trustees shall at all times place and maintain the
securities and similar investments of the Trust on behalf of each Series in
custody meeting the requirements of Section 17(f) of the 1940 Act and the rules
thereunder. The Trustees, on behalf of the Trust or any Series, may enter into
an agreement with a custodian on terms and conditions acceptable to the
Trustees, providing for the custodian, among other things, (a) to hold the
securities owned by the Trust on behalf of any Series and deliver the same upon
written order or oral order confirmed in writing, (b) to receive and receipt
for any moneys due to the Trust on behalf of any Series and deposit the same in
its own banking department or elsewhere, (c) to disburse such funds upon orders
or vouchers, and (d) to employ one or more subcustodians.
4.4. 1940 Act Governance. Any contract referred to in Section 4.1 hereof
shall be consistent with and subject to the applicable requirements of Section
15 of the 1940 Act and the rules and orders thereunder with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal. No amendment to a contract referred to in
Section 4.1 hereof shall be effective unless assented to in a manner consistent
with the requirements of Section 15 of the 1940 Act, and the rules and orders
thereunder.
ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
5.1. Lability of Holders; Indemnification. Each Holder of an Interest in a
Series shall be jointly and severally liable with every other Holder of an
Interest in that Series (with rights of contribution inter se in proportion to
their respective Interests in the Series) for the liabilities and obligations
of that Series (and of no other Series) in the event that the Trust fails to
satisfy such liabilities and obligations from the assets of that Series;
provided, however, that, to the extent assets of that Series are available in
the Trust, the Trust shall indemnify and hold each Holder harmless from and
against any claim or liability to which such Holder may become subject by
reason of being or having been a Holder of an Interest in that Series to the
extent that such claim or liability imposes on the Holder an obligation or
liability which, when compared to the obligations and liabilities imposed on
other Holders of Interests in that Series, is greater than such Holder's
Interest (proportionate share), and shall reimburse such Holder for all legal
and other expenses reasonably incurred by such Holder in connection with any
such claim or liability. The rights accruing to a Holder under this Section 5.1
shall not exclude any other right to which such Holder may be lawfully
<PAGE>
entitled, nor shall anything contained herein restrict the right of the Trust
to indemnify or reimburse a Holder in any appropriate situation even though not
specifically provided herein. Notwithstanding the indemnification procedure
described above, it is intended that each Holder of an Interest in a Series
shall remain jointly and severally liable to the creditors of that Series as a
legal matter. The liabilities of a particular Series and the right to
indemnification granted hereunder to Holders of Interests in such Series shall
not be enforceable against any other Series or Holders of Interests in any
other Series.
5.2. Limitations of Liability of Trustees, Officers, Employees, Agents,
Independent Contractors to Third Parties. No Trustee, officer, employee, agent
or independent contractor (except in the case of an agent or independent
contractor to the extent expressly provided by written contract) of the Trust
or any Series shall be subject to any personal liability whatsoever to any
Person, other than the Trust or the Holders, in connection with Trust Property
or the affairs of the Trust; and all such Persons shall look solely to the
Trust Property for satisfaction of claims of any nature against a Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust arising in connection with the affairs of the Trust.
5.3. Limitations of Liability of Trustees, Officers or Employees to Trust,
Holders, etc. No Trustee, officer or employee of the Trust shall be liable to
the Trust or the Holders for any action or failure to act (including, without
limitation, the failure to compel in any way any former or acting Trustee to
redress any breach of trust) except for such Person's own bad faith, willful
misfeasance, gross negligence or reckless disregard of such Person's duties.
5.4. Mandatory Indemnification. The Trust shall indemnify, to the fullest
extent permitted by law (including the 1940 Act), each Trustee, officer or
employee of the Trust (including any Person who serves at the Trust's request
as a director, officer or trustee of another organization in which the Trust
has any interest as a shareholder, creditor or otherwise) against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by such Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, in which such Person may
be involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to any
matter as to which such Person shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties, such liabilities and expenses being liabilities only of the
Series out of which such claim for indemnification arises; provided, however,
that as to any matter disposed of by a compromise payment by such Person,
pursuant to a consent decree or otherwise, no indemnification either for such
payment or for any other expenses shall be provided unless there has been a
determination that such Person did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Person's office (i) by the court or other body approving the
<PAGE>
settlement or other disposition; or (ii) based upon a review of readily
available facts (as opposed to a full trial-type inquiry), by written opinion
from independent legal counsel approved by the Trustees; or (iii) by a majority
of the Trustees who are neither Interested Persons of the Trust nor parties to
the matter, based upon a review of readily available facts (as opposed to a
full trial-type inquiry). The rights accruing to any Person under these
provisions shall not exclude any other right to which such Person may be
lawfully entitled; provided that no Person may satisfy any right of indemnity
or reimbursement granted in this Section 5.4 or in Section 5.2 hereof or to
which such Person may be otherwise entitled except out of the Trust Property.
The rights of indemnification provided herein may be insured against by
policies maintained by the Trust. The Trustees may make advance payments in
connection with indemnification under this Section 5.4, provided that the
indemnified Person shall have given a written undertaking to reimburse the
Trust in the event it is subsequently determined that such Person is not
entitled to such indemnification, and provided further that either (i) such
Person shall have provided appropriate security for such undertaking, or (ii)
the Trust is insured against losses arising out of any such advance payments,
or (iii) either a majority of the Trustees who are neither Interested Persons
of the Trust nor parties to the matter, or independent legal counsel in a
written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full investigation),
that there is reason to believe that such Person will not be disqualified from
indemnification under this Section 5.4.
5.5. No Bond Required of Trustees. No Trustee shall, as such, be obligated
to give any bond or surety or other security for the performance of any of such
Trustee's duties hereunder.
5.6. No Duty of Investigation; Notice in Trust instruments, etc. No
purchaser, lender or other Person dealing with any Trustee, officer, employee,
agent or independent contractor of the Trust or any Series shall be bound to
make any inquiry concerning the validity of any transaction purporting to be
made by such Trustee, officer, employee, agent or independent contractor or be
liable for the application of money or property paid, loaned or delivered to or
on the order of such Trustee, officer, employee, agent or independent
contractor. Every obligation, contract, instrument, certificate or other
interest or undertaking of the Trust or any Series, and every other act or
thing whatsoever executed in connection with the Trust or any series shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Trustees, officers, employees, agents or independent
contractors of the Trust or any Series. Every written obligation, contract,
instrument, certificate or other interest or undertaking of the Trust or any
Series made or sold by any Trustee, officer or employee of the Trust or any
Series, in such capacity, shall contain an appropriate recital to the effect
that the Trustee, officer or employee of the Trust or any Series shall not
personally be bound by or liable thereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder,
and appropriate references shall be made therein to the Declaration, and may
contain any further recital which they may deem appropriate, but the omission
of such recital shall not operate to impose personal liability on any Trustee,
<PAGE>
officer or employee of the Trust or any Series. Subject to the provisions of
the 1940 Act, the Trust may maintain insurance for the protection of the Trust
Property, the Holders, and the Trustees, officers or employees of the Trust and
any Series in such amount as the Trustees shall deem adequate to cover possible
tort liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
5.7. Reliance on Experts, etc. Each Trustee, officer or employee of the
Trust and any Series shall, in the performance of such Person's duties, be
fully and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of account
or other records of the Trust or any Series (whether or not the Trust or any
Series would have the power to indemnify such Persons against such liability),
upon an opinion of counsel, or upon reports made to the Trust or any Series by
any of its officers or employees or by any Investment Adviser or Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust or any Series,
regardless of whether such counsel or expert may also be a Trustee.
5.8. No Repeal or Modification. Any repeal or modification of this Article
V by the Holders, or adoption or modification of any other provision of this
Declaration or the By-Laws inconsistent with this Article V, shall be
prospective only, to the extent that such repeal or modification would, if
applied retrospectively, adversely affect any limitation on the liability of
any Person or indemnification available to any indemnified Person with respect
to any act or omission which occurred prior to such repeal, modification or
adoption.
ARTICLE VI
Interests
6.1. Interests. The beneficial interest in the Trust Property shall
consist of non-transferable Interests. Interests may be sold only to
Institutional Investors, as may be approved by the Trustees, for cash or other
consideration acceptable to the Trustees, subject to the requirements of the
1940 Act. The Interests shall be personal property giving only the rights in
this Declaration specifically set forth. The value of an Interest shall be
equal to the Book Capital Account balance of the Holder of the Interest.
The Trustees shall have authority, from time to time, to establish Series,
each of which shall be a separate subtrust and the Interests in which shall be
separate and distinct from the Interests in any other Series. The Series shall
include, without limitation, those Series specifically established and
designated pursuant to Section 6.2 hereof, and such other Series as the
Trustees may deem necessary or desirable. The Trustees shall have exclusive
power without the requirement of Holder approval to establish and designate
such separate and distinct Series, and, subject to the provisions of this
Declaration and the 1940 Act, to fix and determine the rights of Holders of
Interests in such Series, including with respect to the price, terms and manner
of purchase and redemption, dividends and other distributions, rights on
<PAGE>
liquidation, sinking or purchase fund provisions, conversion rights and
conditions under which the Holders of the several Series shall have separate
voting rights or no voting rights.
6.2. Establishment and Designation of Series. The establishment and
designation of any Series shall be effective upon the execution by the
Secretary or an Assistant Secretary of the Trust, pursuant to authorization by
a majority of the Trustees, of an instrument setting forth such establishment
and designation and the relative rights and preferences of the Interests in
such Series, or as otherwise provided in such instrument. At any time that
there are no Interests outstanding of any particular Series previously
established and designated, the Trustees may by resolution adopted by a
majority of their number, and evidenced by an instrument executed by the
Secretary or an Assistant Secretary of the Trust, abolish that Series and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration of Trust.
Without limiting the authority of the Trustees set forth above to
establish and designate further Series, the Trustees hereby establish and
designate the Series set forth on Schedule A hereto. The Interests in each of
these Series and any Interests in any further Series that may from time to time
be established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Series at the time of
establishing and designating the same) have the following relative rights and
preferences:
(a) Assets Belonging to Series. All consideration received by the
Trust for the issue or sale of Interests in a particular Series, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be, shall be held by the Trustees in a separate trust for the benefit of the
Holders of Interests in that Series and shall irrevocably belong to that Series
for all purposes, and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred TO AS "ASSETS
BELONGING TO" that Series. No Series shall have any right to or interest in the
assets belonging to any other Series, and no Holder shall have any right or
interest with respect to the assets belonging to any Series in which it does
not hold an Interest.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged with the liabilities in respect of that
Series and all expenses, costs, charges and reserves attributable to that
Series. The liabilities, expenses, costs, charges and reserves so charged to a
Series are herein referred to as "liabilities belonging to" that Series. No
Series shall be liable for or charged with the liabilities belonging to any
other Series, and no Holder shall be subject to any liabilities belonging to
any Series in which it does not hold an Interest.
<PAGE>
(c) Voting. On each matter submitted to a vote of the Holders, each
Holder shall be entitled to a vote proportionate to its Interest as recorded on
the books of the Trust. Each Series shall vote as a separate class except as to
voting for Trustees, as otherwise required by the 1940 Act, or if determined by
the Trustees to be a matter which affects all Series. As to any matter which
does not affect the interest of all Series, only the Holders in the one or more
affected Series shall be entitled to vote. On each matter submitted to a vote
of the Holders, a Holder may apportion its vote with respect to a proposal in
the same proportion as its own shareholders voted with respect to that
proposal.
6.3. Non-Transferabilitv. A Holder may not transfer its Interest.
6.4. Register of Interests. A register shall be kept at the Trust under
the direction of the Trustees which shall contain the name, address and Book
Capital Account balance of each Holder in each Series. Such register shall be
conclusive as to the identity of the Holders. No Holder shall be entitled to
receive payment of any distribution, nor to have notice given to it as herein
provided, until it has given its address to such officer or agent of the Trust
as is keeping such register for entry thereon.
ARTICLE VII
Increases. Decreases And Redemptions of Interests
Subject to applicable law, to the provisions of this Declaration and to
such restrictions as may from time to time be adopted by the Trustees, each
Holder may vary its Interest in any Series at any time by increasing (through a
capital contribution) or decreasing (through a capital withdrawal) or by a
Redemption of its Interest. An increase in the Interest of a Holder in a Series
shall be reflected as an increase in the Book Capital Account balance of that
Holder in that Series and a decrease in the Interest of a Holder in a Series or
the Redemption of the Interest of that Holder shall be reflected as a decrease
in the Book Capital Account balance of that Holder in that Series. The Trust
shall, upon appropriate and adequate notice from any Holder, increase, decrease
or redeem such Holder's Interest for an amount determined by the application of
a formula adopted for such purpose by resolution of the Trustees; provided that
(a) the amount received by the Holder upon any such decrease or Redemption
shall not exceed the decrease in the Holder's Book Capital Account balance
effected by such decrease or Redemption of its Interest, and (b) if so
authorized by the Trustees, the Trust may, at any time and from time to time,
charge fees for effecting any such decrease or Redemption, at such rates as the
Trustees may establish, and may, at any time and from time to time, suspend
such right of decrease or Redemption. The procedures for effecting decreases or
Redemptions shall be as determined by the Trustees from time to time.
<PAGE>
ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
8.1. Book Capital Account Balances. The Book Capital Account balance of
Holders with respect to a particular Series shall be determined on such days
and at such time or times as the Trustees may determine. The Trustees shall
adopt resolutions setting forth the method of determining the Book Capital
Account balance of each Holder. The power and duty to make calculations
pursuant to such resolutions may be delegated by the Trustees to the Investment
Adviser or Administrator, custodian, or such other Person as the Trustees may
determine. Upon the Redemption of an Interest, the Holder of that Interest
shall be entitled to receive the balance of its Book Capital Account. A Holder
may not transfer its Book Capital Account balance.
8.2. Allocations and Distributions to Holders. The Trustees shall, in
compliance with the Code, the 1940 Act and generally accepted accounting
principles, establish the procedures by which the Trust shall make with respect
to each Series (i) the allocation of unrealized gains and losses, taxable
income and tax loss, and profit and loss, or any item or items thereof, to each
Holder, (ii) the payment of distributions, if any, to Holders, and (iii) upon
liquidation, the final distribution of items of taxable income and expense.
Such procedures shall be set forth in writing and be furnished to the Trust's
accountants. The Trustees may amend the procedures adopted pursuant to this
Section 8.2 from time to time. The Trustees may retain from the net profits of
each Series such amount as they may deem necessary to pay the liabilities and
expenses of that Series.
8.3. Power to Modify Foregoing Procedures. Notwithstanding any of the
foregoing provisions of this Article VIII, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the net income
and net assets of the Trust and of each Series, the allocation of income of the
Trust and of each Series, the Book Capital Account balance of each Holder, or
the payment of distributions to the Holders as they may deem necessary or
desirable to enable the Trust or a Series to comply with any provision of the
1940 Act or any order of exemption issued by the Commission or with the Code.
ARTICLE IX
Holders
9.1. Rights of Holders. The ownership of the Trust Property and the right
to conduct any business described herein are vested exclusively in the
Trustees, and the Holders shall have no right or TITLE THEREIN other than the
beneficial interest conferred by their Interests and they shall have no power
or right to call for any partition or division of any Trust Property.
The Trust shall be entitled to treat a Holder of record as the holder in
fact and shall not be bound to recognize any equitable or other claim of
<PAGE>
interest in such Holder's Interest on the part of any other entity except as
may be otherwise expressly provided by law.
In addition, the Holders shall have power to vote only with respect to (a)
the election of Trustees as provided in Article II, Section 2.4; (b) the
removal of Trustees as provided in Article II, Section 2.3; (c) any investment
advisory contract as provided in Article IV, Section 4.1; (d) any dissolution
of a Series as provided in Article X, Section 10.2; (e) the amendment of this
Declaration to the extent and as provided in Article X, Section 10.4; (f) any
merger, consolidation or sale of assets as provided in Article X, Section 10.5;
and (9) such additional matters relating to the Trust as may be required or
authorized by law, by this Declaration or the By-Laws or any registration
statement of the Trust filed with the Commission, or as the Trustees may
consider desirable.
9.2. Meetings of Holders. Meetings of Holders may be called at any time by
a majority of the Trustees and shall be called by any Trustee upon written
request of Holders holding, in the aggregate, not less than 10% of the
Interests in one or more Series (if the meeting relates solely to such Series),
or not less than 10% of the Interests in the Trust (if the meeting relates to
the Trust and not solely to one or more particular Series), such request
specifying the purpose or purposes for which such meeting is to be called. Any
such meeting shall be held within or without the State of New York and within
or without the United States of America on such day and at such time as the
Trustees shall designate. Holders of at least one-third of the Interests in one
or more Series (if the meeting relates solely to such one or more Series) or
Holders of at least one-third of the Interests in the Trust (if the meeting
relates to the Trust and not solely to one or more particular Series), present
in person or by proxy, shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act, other applicable
law, this Declaration or the By-Laws. If a quorum is present at a meeting, an
affirmative vote of the Holders present, in person or by proxy, holding more
than 50% of the total Interests of the Holders present in a Series or the
Trust, as applicable, either in person or by proxy, at such meeting constitutes
the action of the Holders in such Series or the Trust, as applicable, unless a
greater number of affirmative votes is required by the 1940 Act, other
applicable law, this Declaration or the By-Laws, and except that a plurality of
the total Interests of the Holders present shall elect a Trustee. All or any
one of more Holders may participate in a meeting of Holders by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and participation in a
meeting by means of such communications equipment shall constitute presence in
person at such meeting.
9.3. Notice of Meetings. Notice of each meeting of Holders, stating the
time, place and purposes of the meeting, shall be given by the Trustees by mail
to each Holder of the Series or the Trust, as the case may be, at its
registered address, mailed at least 10 days and not more than 60 days before
the meeting. Notice of any meeting may be waived in writing by any Holder
either before or after such meeting. The attendance of a Holder at a meeting
<PAGE>
shall constitute a waiver of notice of such meeting except in the situation in
which a Holder attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting was not lawfully
called or convened. At any meeting, any business properly before the meeting
may be considered whether or not stated in the notice of the meeting. Any
adjourned meeting may be held as adjourned without further notice.
9.4. Record Date for Meetings, Distributions, etc. For the purpose of
determining the Holders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time fix a date, not more than 90 days
prior to the date of any meeting of Holders or the payment of any distribution
or the taking of any other action, as the case may be, as a record date for the
determination of the Persons to be treated as Holders of the Series or the
Trust, as the case may be, for such purpose.
9.5. Proxies, etc. At any meeting of Holders, any Holder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Secretary, or with such other
officer or agent of the Trust as the Secretary may direct, for verification
prior to the time at which such vote is to be taken. A proxy may be revoked by
a Holder at any time before it has been exercised by placing on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary
may direct, a later dated proxy or written revocation. Pursuant to a resolution
of a majority of the Trustees, proxies may be solicited in the name of the
Trust or of one or more Trustees or of one or more officers of the Trust. Only
Holders on the record date shall be entitled to vote. Each such Holder shall be
entitled to a vote proportionate to its Interest in the Series or the Trust, as
the case may be. When an Interest is held jointly by several Persons, any one
of them may vote at any meeting in person or by proxy in respect of such
Interest, but if more than one of them is present at such meeting in person or
by proxy, and such joint owners or their proxies so present disagree as to any
vote to be cast, such vote shall not be received in respect of such Interest. A
proxy purporting to be executed by or on behalf of a Holder, including proxies
received via telecopy, shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the
challenger.
9.6. Reports. As to each Series, the Trustees shall cause to be prepared
and furnished to each Holder thereof, at least annually as of the end of each
Fiscal Year, a report of operations containing a balance sheet and a statement
of income of such Series prepared in conformity with generally accepted
accounting principles and an opinion of an independent public accountant on
such financial statements. The Trustees shall, in addition, with respect to
each Series furnish to each Holder of such Series at least semi-annually
interim reports of operations containing an unaudited balance sheet as of the
end of such period and an unaudited statement of income for the period from the
beginning of the then-current Fiscal Year to the end of such period.
<PAGE>
9.7. Inspection of Records. The records of the Trust shall be open to
inspection by Holders during normal business hours for any purpose not harmful
to the Trust.
9.8. Holder Action by Written Consent. ANY ACTION which may be taken on
behalf of the Trust or any Series by Holders and which has been approved by
vote at a meeting or by written consent of two-thirds of the Trustees then in
office may be taken without a meeting if Holders holding more than 50% of all
Interests entitled to vote (or such larger proportion thereof as shall be
required by any express provision of this Declaration or of applicable law)
consent to the action in writing and the written consents are filed with the
records of the meetings of Holders. Any action which may be taken on behalf of
the Trust or any Series by Holders and which has not been so approved by
Trustees may be taken without a meeting if Holders holding 100% of all
Interests entitled to vote consent to the action in writing and the written
consents are filed with the records of the meetings of Holders. Such consents
shall be treated for all purposes as a vote taken at a meeting of Holders. Each
such written consent shall be executed by or on behalf of the Holder delivering
such consent and shall bear the date of such execution. No such written consent
shall be effective to take the action referred to therein unless, within one
year of the earliest dated consent, written consents executed by a sufficient
number of Holders to take such action are filed with the records of the
meetings of Holders.
9.9. Notices. Any and all communications, including any and all notices to
which any Holder may be entitled, shall be deemed duly served or given if
mailed, postage prepaid, addressed to a Holder at its last known address as
recorded on the register of the Trust or if delivered to a Holder by courier or
by facsimile or other similar electronic mechanism.
ARTICLE X
Duration; Termination; Dissolution;
Amendment; Mergers; Etc.
10.1. Duration. Subject to possible dissolution or termination in
accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration of
20 years after the death of the last survivor of the initial Trustees named
herein and the following named persons:
Date of
Name Address Birth
---- ------- --------
Michelle Muriel Rumery 18 Rio Vista Street 07/11/93
North Billerica, MA 01862
Nicole Catherine Rumery 18 Rio Vista Street 12/21/91
North Billerica, MA 01862
<PAGE>
Shelby Sara Wyetzner 8 Oak Brook Lane 10/18/90
Merrick, NY 11566
Amanda Jehan Sher Coolidge 483 Pleasant Street, No. 9 08/16/89
Belmont, MA 02178
Caroline Bolger Cima 11 Beechwood Lane 12/23/88
Scarsdale, NY 10583
Adriana L. Saldana 58 Newell Road 3/22/88
Newton, MA 02166
10.2. Dissolution. Any Series shall be dissolved (i) by the affirmative
vote of the Holders of not less than two-thirds of the Interests in the Series
at any meeting of the Holders or by an instrument in writing, without a
meeting, signed by a majority of the Trustees and consented to by the Holders
of not less than two-thirds of such Interests, (ii) by the Trustees by written
notice of dissolution to the Holders of the Interests in the Series, or (iii)
upon the bankruptcy or expulsion of a Holder of an Interest in the Series,
unless the remaining Holders of Interests in such Series, 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.
10.3. Termination.
(a) Upon an event of dissolution of the Trust or a Series, unless the
Trust or Series is continued in accordance with the proviso to Section 10.2
above, the Trust or Series, as applicable, shall be terminated in accordance
with the following provisions:
(i) the Trust or Series, as applicable, shall carry on no
business except for the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the
Trust or Series, as applicable, and all of the powers of the Trustees
under this Declaration shall continue until the affairs of the Trust
or Series have been wound up, including the power to fulfill or
discharge the contracts of the Trust or Series, collect the assets of
the Trust of Series, sell, convey, assign, exchange or otherwise
dispose of all or any part of the Trust Property affected to one or
more Persons at public or private sale for consideration which may
consist in whole or in part of cash, securities or other property of
any kind, discharge or pay the liabilities of the Trust or Series,
and do all other acts appropriate to liquidate the business of the
Trust or Series; provided that any sale, conveyance, assignment,
exchange or other disposition of all or substantially all the Trust
Property or substantially all of the assets belonging to a particular
Series, other than for cash, shall require approval of the principal
terms of the transaction and the nature and amount of the
consideration by the vote of Holders holding more than 50% of the
total Interests in the Trust or Series, as applicable; and
<PAGE>
(iii) after paying or adequately providing for the payment of all
liabilities of the Trust or of the Series being terminated, and upon
receipt of such releases, indemnities and refunding agreements as
they deem necessary for their protection, the Trustees shall
distribute the remaining Trust Property of the Trust or Series, as
applicable, in cash or in kind or partly each, among the Holders
according to their respective rights as set forth in the procedures
established pursuant to Section 8.2 hereof.
(b) Upon termination of the Trust or Series and distribution to the
Holders as herein provided, a majority of the Trustees shall execute and file
with the records of the Trust an instrument in writing setting forth the fact
of such termination and distribution. Upon termination of the Trust, the
Trustees shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Holders shall thereupon cease.
10.4. Amendment Procedure.
(a) The Trustees may, without any vote of Holders, amend or otherwise
supplement this Declaration by an instrument in writing executed by a majority
of the Trustees, provided that Holders shall have the right to vote on any
amendment (a) which would affect the voting rights of Holders granted in
Article IX, Section 9.1, (b) to this Section 10.4, (c) required to be approved
by Holders by law or by the Trust's registration statement filed with the
Commission, or (d) submitted to them by the Trustees. Any amendment submitted
to Holders which the Trustees determine would affect the Holders of certain but
not all Series shall be authorized by vote of the Holders of such Series
affected and no vote shall be required of Holders of a Series not affected. Any
amendment applicable to the Trust as a whole, unless otherwise required by law
or by this Declaration or the By-Laws, shall be authorized by vote of the
Holders of the Trust. Notwithstanding anything else herein, any amendment to
Article V which would have the effect of reducing the indemnification and other
rights provided thereby and any repeal or amendment of this sentence shall each
require the affirmative vote of the Holders of two-thirds of the Interests
entitled to vote thereon.
(b) No amendment may be made under Section 10.4(a) hereof which would
change any rights with respect to any Interest by reducing the amount payable
thereon upon liquidation of the Trust or any Series or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of Holders of two-thirds of all Interests which would be so affected by
such amendment.
(c) A certification in recordable form executed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by
the Holders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when filed with the records of the
Trust.
<PAGE>
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees at any meeting of
Trustees or by an instrument executed by a majority of the Trustees.
10.5. Merger, Consolidation and Sale of Assets. The Trust or any Series
may merge or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the Trust Property, or assets belonging to such Series, as applicable,
including good will, upon such terms and conditions and for such consideration
when and as authorized at any meeting of Holders called for such purpose by
Majority Interests Vote of Interests in the Series affected by such action, or
by an instrument in writing without a meeting, consented to by Holders of not
less than a majority of the Interests in the Series affected by such action,
and any such merger, consolidation, sale, lease or exchange shall be deemed for
all purposes to have been accomplished under and pursuant to the law of the
State of New York, provided however that no such vote shall be required where
by reorganization, purchase of assets or otherwise, the Trust or any affected
Series is the surviving entity.
10.6. Incorporation. Upon a Majority Interests Vote, the Trustees may
cause to be organized or assist in organizing a corporation or corporations
under the law of any jurisdiction or a trust, partnership, association or other
organization to take over the Trust Property or to carry on any business in
which the Trust directly or indirectly has any interest, and to sell, convey
and transfer the Trust Property to any such corporation, trust, partnership,
association or other organization in exchange for the equity interests thereof
or otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contract with any such corporation, trust, partnership,
association or other organization, or any corporation, trust, partnership,
association or other organization in which the Trust holds or is about to
acquire equity interests. The Trustees may also cause a merger or consolidation
between the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted
by law. Nothing contained herein shall be construed as requiring approval of
the Holders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to one or
more of such organizations or entities.
ARTICLE XI
Miscellaneous
11.1. Certificate of Designation; Agent for Service of Process. If
required by New York law, the Trust shall file, with the Department of State of
the State of New York, a certificate, in the name of the Trust and executed by
an officer of the Trust, designating the Secretary of State of the State or New
York as an agent upon whom process in any action or proceeding against the
Trust or any Series may be served.
<PAGE>
11.2. Governing Law. This Declaration is executed by the Trustees and
delivered in the State of New York and with reference to the law thereof, and
the rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed in accordance with the law of the
State of New York and reference shall be specifically made to the trust law of
the State of New York as to the construction of matters not specifically
covered herein or as to which an ambiguity exists.
11.3. Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any one such original counterpart.
11.4. Reliance by Third Parties. Any certificate executed by an individual
who, according to the records of the Trust or of any recording office in which
this Declaration may be recorded, appears to be a Trustee hereunder, certifying
to: (a) the number or identity of Trustees or Holders, (b) the due
authorization of the execution of any instrument or writing, (c) the form of
any vote passed at a meeting of Trustees or Holders, (d) the fact that the
number of Trustees or Holders present at any meeting or executing any written
instrument satisfies the requirements of this Declaration, (e) the form of any
By-Laws adopted by or the identity of any officer elected by the Trustees, or
(f) the existence of any fact or facts which in any manner relate to the
affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees.
11.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, or with other applicable law and
regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Declaration of
Trust of The Premium Portfolios as of the day and year first above written.
Philip W. Coolidge
-------------------------------
Philip W. Coolidge
As Trustee and not individually
Elliott J. Berv
-------------------------------
Elliott J. Berv
As Trustee and not individually
Mark T. Finn
-------------------------------
Mark T. Finn
As Trustee and not individually
Walter E. Robb III
-------------------------------
Walter E. Robb III
As Trustee and not individually
LM3063
<PAGE>
SCHEDULE A
THE PREMIUM PORTFOLIOS
Initial Series
U.S. Government Income Portfolio
Global Governments Portfolio
Intermediate Income Portfolio
Long-Term U.S. Government Income Portfolio
International Equity Portfolio
Equity Portfolio
Balanced Portfolio
Exhibit a(2)
THE PREMIUM PORTFOLIOS
AMENDMENT TO
DECLARATION OF TRUST
The undersigned, constituting a majority of the Trustees of The Premium
Portfolios (the "Trust"), a trust organized under the laws of the State of New
York, pursuant to a Declaration of Trust dated September 13, 1993, as amended
(the "Declaration"), subject to approval by a majority of the investors in
Equity Portfolio and Small Cap Equity Portfolio, each a series of the Trust, do
hereby amend Sections 1.2, 3.2 and 5.1 of the Declaration as follows:
By deleting the definition of "Institutional Investor(s)" contained in
Section 1.2 of the Declaration and replacing it with the following:
"Institutional Investor(s)" shall mean, when used with respect to
each Series of the Trust other than the Series designated as Balanced
Portfolio, Government Income Portfolio, International Equity Portfolio and
Emerging Asian Markets Equity Portfolio, any regulated investment company,
segregated asset account, foreign investment company, common trust fund,
group trust or other investment arrangement, whether organized within or
without the United States of America, other than an individual, S
corporation or partnership or a grantor trust beneficially owned by any
individual, S corporation or partnership, unless, in the case of a
partnership or a grantor trust beneficially owned by a partnership, the
interests in the partnership are held by entities that otherwise meet the
definition of Institutional Investor. When used with respect to those
Series of the Trust designated as Balanced Portfolio, Government Income
Portfolio, International Equity Portfolio and Emerging Asian Markets
Equity Portfolio, Institutional Investor(s) shall mean any regulated
investment company, segregated asset account, foreign investment company,
common trust fund, group trust or other investment arrangement, whether
organized within or without the United States of America, other than an
individual, S corporation, partnership or grantor trust beneficially owned
by any individual, S corporation or partnership.
By adding the following paragraph (d) immediately after paragraph (c) of
Section 3.2:
(d) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without
any requirement of approval by investors to either invest all or a portion
of the Trust Property of each Series of the Trust (other than the Series
<PAGE>
designated as Balanced Portfolio, Government Income Portfolio,
International Equity Portfolio and Emerging Asian Markets Equity
Portfolio), or sell all or a portion of such Trust Property and invest the
proceeds of such sales, in one or more investment companies to the extent
not prohibited by the 1940 Act and exemptive orders granted under such
Act.
By deleting Section 5.1 of the Declaration in its entirety and replacing
it with the following:
5.1. Liability of Holders; Indemnification. (a) As to the Series of
the Trust designated as Balanced Portfolio, Government Income Portfolio,
International Equity Portfolio and Emerging Asian Markets Equity
Portfolio, each Holder of an Interest in such Series shall be jointly and
severally liable with every other Holder of an Interest in that Series
(with rights of contribution inter se in proportion to their respective
Interests in the Series) for the liabilities and obligations of that
Series (and of no other Series) in the event that the Trust fails to
satisfy such liabilities and obligations from the assets of that Series.
To the extent assets of a Series named in the preceding sentence are
available in the Trust, the Trust shall indemnify and hold each Holder of
an Interest in that Series harmless from and against any claim or
liability to which such Holder may become subject by reason of being or
having been a Holder of an Interest in that Series to the extent that such
claim or liability imposes on the Holder an obligation or liability which,
when compared to the obligations and liabilities imposed on other Holders
of Interests in that Series, is greater than such Holder's proportionate
share of such claim or liability, and shall reimburse such Holder for all
legal and other expenses reasonably incurred by such Holder in connection
with any such claim or liability.
(b) Notwithstanding any other provision of this Declaration, each
Holder of an Interest in a Series of the Trust other than Balanced
Portfolio, Government Income Portfolio, International Equity Portfolio and
Emerging Asian Markets Equity Portfolio shall not be subject to any
personal liability whatsoever to any Person in connection with the Trust
Property or the acts, obligations or affairs of the Trust with respect to
that Series; and if any such Holder is made a party to any suit or
proceeding to enforce any such liability, such Holder shall not, on
account thereof, be held to any personal liability. To the extent assets
of a Series enumerated in the preceding sentence are available in the
Trust, the Trust shall indemnify and hold each Holder of an Interest in
that Series harmless from and against any claim or liability to which such
Holder may become subject by reason of being or having been a Holder of an
Interest in that Series, and shall reimburse such Holder for all legal and
other expenses reasonably incurred by such Holder in connection with any
such claim or liability.
(c) The rights accruing to a Holder under this Section 5.1 shall not
exclude any other right to which such Holder may be lawfully entitled, nor
shall anything contained herein restrict the right of the Trust to
<PAGE>
indemnify or reimburse a Holder in any appropriate situation even though
not specifically provided herein. The liabilities of a particular Series
and the right to indemnification granted hereunder to Holders of Interests
in such Series shall not be enforceable against any other Series or
Holders of Interests in any other Series.
IN WITNESS WHEREOF, the undersigned have executed this instrument at
Tucker's Town, Bermuda as of the 8th day of August, 1997.
/s/ Elliott J. Berv /s/ Mark T. Finn
- -------------------------------- --------------------------------
Elliott J. Berv Mark T. Finn
As Trustee and Not Individually As Trustee and Not Individually
/s/ Philip W. Coolidge /s/ Walter E. Robb, III
- -------------------------------- --------------------------------
Philip W. Coolidge Walter E. Robb, III
As Trustee and Not Individually As Trustee and Not Individually
<PAGE>
THE PREMIUM PORTFOLIOS
AMENDED AND RESTATED
ESTABLISHMENT AND DESIGNATION OF SERIES OF
BENEFICIAL INTERESTS (WITHOUT PAR VALUE)
Pursuant to Section 6.2 of the Declaration of Trust, dated September 13,
1993, as amended (the "Declaration of Trust"), of The Premium Portfolios (the
"Trust"), the undersigned, being a majority of the Trustees of the Trust, do
hereby amend and restate the Trust's existing Establishment and Designation of
Series of Beneficial Interests (without par value) in order to establish four
series of Interests (as defined in the Declaration of Trust). No changes to the
special and relative rights of the existing series are intended by this
amendment and restatement.
1. The series shall be as follows:
The new series shall be designated as:
"High Yield Portfolio;"
"U.S. Fixed Income Portfolio;"
"Foreign Fixed Income Portfolio;" and
"S&P 500 Index Portfolio."
The remaining series are as follows:
Large Cap Growth Portfolio;
Small Cap Growth Portfolio;
Balanced Portfolio;
Government Income Portfolio;
International Equity Portfolio;
Emerging Asian Markets Equity Portfolio; and
Growth & Income Portfolio.
2. Each series shall be authorized to hold cash, invest in securities,
instruments and other property and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Investment Company Act of 1940, as amended, to the extent pertaining
to the offering of Interests of such series. Each Interest of each series shall
have such redemption, voting and liquidation rights and shall represent such
proportionate ownership in the series as provided generally in the Declaration
of Trust. The proceeds of sales of Interests of each series, together with any
<PAGE>
income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to such series, unless otherwise required by law.
3. Investors in each series shall vote separately as a class on any matter to
the extent required by, and any matter shall have been deemed effectively acted
upon with respect to such series as provided in, Rule 18f-2, as from time to
time in effect, under the Investment Company Act of 1940, as amended, or any
successor rule, and the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated to each series
as set forth in Section 6.2 of the Declaration of Trust.
5. Subject to the provisions of Section 6.2 and Article X of the Declaration
of Trust, the Trustees (including any successor Trustees) shall have the right
at any time and from time to time to change the designation of any series now
or hereafter created, or to otherwise change the special and relative rights of
any series.
IN WITNESS WHEREOF, the undersigned have executed this instrument at Paget,
Bermuda as of the 7th day of August, 1998.
/s/ Elliott J. Berv /s/ Mark T. Finn
- -------------------------------- --------------------------------
Elliott J. Berv Mark T. Finn
As Trustee and Not Individually As Trustee and Not Individually
/s/ Philip W. Coolidge /s/ C. Oscar Morong, Jr.
- -------------------------------- --------------------------------
Philip W. Coolidge C. OSCAR MORONG, JR.
As Trustee and Not Individually As Trustee and Not Individually
/s/ Walter E. Robb, III
- --------------------------------
Walter E. Robb, III
As Trustee and Not Individually
Exhibit b
THE PREMIUM PORTFOLIOS
BY-LAWS
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing THE PREMIUM PORTFOLIOS, dated September 13,
1993, as from time to time amended (hereinafter called the "Declaration"). All
words and terms capitalized in these By-Laws shall have the meaning or meanings
set forth FOR SUCH WORDS OR terms in the Declaration.
ARTICLE I
Holders Meeting
1.1 Chairman. The Chairman, if any, shall act as chairman at all
meetings of the Holders; in his absence, the President shall act as chairman;
and in the absence of the Chairman and the President, the Trustee or Trustees
present at each meeting may elect a temporary chairman for the meeting, who may
be one of themselves.
1.2 Proxies; Voting. Holders may vote either in person or by duly
executed proxy and each Holder of record shall be entitled to a vote
proportionate to its interest in the Series or the Trust, as the case may be
(each Holder's proportionate interest, an "Interest"). No proxy shall be valid
after eleven (11) months from the date of its execution, unless a longer period
is expressly stated in such proxy.
1.3 Fixing Record Dates. For the purpose of determining the Holders
who are entitled to notice of or to vote or act at a meeting, including any
adjournment thereof, or who are entitled to participate in any distributions,
or for any other proper purpose, the Trustees may from time to time fix a
record date in the manner provided in Section 9.4 of the Declaration. If the
Trustees do not, prior to any meeting of Holders, so fix a record date, then
the date of mailing notice of the meeting shall be the record date.
1.4 Inspectors of Election. In advance of any meeting of Holders, the
Trustees may appoint Inspectors of Election to act at the meeting or any
adjournment thereof. If Inspectors of Election are not so appointed, the
Chairman, if any, of any meeting of Holders may, and on the request of any
Holder or his proxy shall, appoint Inspectors of Election of the meeting. The
number of Inspectors shall be either one or three. If appointed at the meeting
on the request of one or more Holders or proxies, a majority of Interests
present shall determine whether one or three Inspectors are to be appointed,
but failure to allow such determination by the Holders shall not affect the
validity of the appointment of Inspectors of Election. In case any person
appointed as Inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment made by the Trustees in advance of the convening
of the meeting or at the meeting by the person acting as Chairman. The
<PAGE>
Inspectors of Election shall determine the proportion of Interests represented
at the meeting, the existence of a quorum, the authenticity, validity and
effect of proxies, shall receive votes, ballots or consents, shall hear and
determine all challenges and questions in any way arising in connection with
the right to vote, shall count and tabulate all votes or consents, determine
the results, and do such other acts as may be proper to conduct the election or
vote with fairness to all Holders. If there are three Inspectors of Election,
the decision, act or certificate of a majority is effective in all respects as
the decision, act or certificate of all. On request of the Chairman, if any, of
the meeting, or of any Holder or his proxy, the Inspectors of Election shall
make a report in writing of any challenge or question or matter determined by
them and shall execute a certificate of any facts found by them.
1.5 Records at Holder Meetings. At each meeting of the Holders there
shall be open for inspection the minutes of the last previous meeting of
Holders of the Trust and a list of the Holders of the Trust, certified to be
true and correct by the Secretary or other proper agent of the Trust, as of the
record date of the meeting. Such list of Holders shall contain the name of each
Holder in alphabetical order and the address and the proportion of Interests
owned by such Holder. Holders shall have the right to inspect books and records
of the Trust during normal business hours and for any purpose not harmful to
the Trust.
1.6 Series Holders Meetings. Whenever a matter is required to be
voted by Holders of the Trust in the aggregate under Section 9.1 and 9.2 of the
Declaration, the Trust may either hold a meeting of Holders of all series to
vote on such matter, or hold separate meetings of Holders of each of the
individual series to vote on such matter provided that (i) such separate
meetings shall be held within one year of each other, (ii) a quorum of the
individual series entitled to vote in person or by proxy shall be present at
each such separate meeting, and (iii) a quorum shall be present in the
aggregate at such separate meetings, and the votes of Holders at all such
separate meetings shall be aggregated in order to determine if sufficient votes
have been cast for such matter to be voted.
When separate meetings are held for Holders of each of the individual
series to vote on a matter required to be voted on by Holders of the Trust in
the aggregate, the record date of each separate meeting shall be determined in
the manner described above in Section 1.3.
ARTICLE II
Trustees
2.1 Annual and Regular Meetings. The Trustees shall hold an annual
meeting for the election of officers and the transaction of other business
which may come before such meeting. Regular meetings of the Trustees may be
held without call or notice at such place or places and times as the Trustees
may by resolution provide from time to time.
<PAGE>
2.2 Special Meetings. Special Meetings of the Trustees shall be held
upon the call of the Chairman, if any, the President, the Secretary or any two
Trustees, at such time, on such day and at such place, as shall be designated
in the notice of the meeting.
2.3 Notice. Notice of a meeting shall be given by mail or by telegram
(which term shall include a cablegram) or delivered personally. If notice is
given by mail, it shall be mailed not later than 48 hours preceding the meeting
and if given by telegram or personally, such telegram shall be sent or delivery
made not later than 48 hours preceding the meeting. Notice by telephone shall
constitute personal delivery for these purposes. Notice of a meeting of
Trustees may be waived before or after any meeting by signed written waiver.
Neither the business to be transacted at nor the purpose of, any meeting of the
Board of Trustees need be stated in the notice or waiver of notice of such
meeting, and no notice need be given of action proposed to be taken by
unanimous written consent. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except where a Trustee attends a
meeting for the express purpose of objecting, at the commencement of such
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
2.4 Chairman: Records. The Chairman, if any, shall act as chairman at
all meetings of the Trustees; in his absence the President shall act as
chairman; and, in the absence of the Chairman and the President, the Trustees
present shall elect one of their number to act as temporary chairman. The
results of all actions taken at a meeting of the Trustees, or by unanimous
written consent of the Trustees, shall be recorded by the Secretary.
ARTICLE III
Officers
3.1 Officers of the Trust. The officers of the Trust shall consist of
a Chairman, if any, a President, a Secretary, a Treasurer and such other
officers or assistant officers, including Vice Presidents, as may be elected by
the Trustees. Any two or more of the offices may be held by the same person,
except that the same person may not be both President and Secretary. The
Trustees may designate a Vice President as an Executive Vice President and may
designate the order in which the other Vice Presidents may act. The Chairman
and the President shall be Trustees, but no other officer of the Trust need be
a Trustee.
3.2 Election and Tenure. At the initial organization meeting and
thereafter at each annual meeting of the Trustees, the Trustees shall elect the
Chairman, if any, President, Secretary, Treasurer and such other officers as
the Trustees shall deem necessary or appropriate in order to carry out the
business of the Trust. Such officers shall hold office until the next annual
meeting of the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill any vacancy in office or add any additional
officers at any time.
<PAGE>
3.3 Removal of Officers. Any officer may be removed at any time, with
or without cause, by action of a majority of the Trustees. This provision shall
not prevent the making of a contract of employment for a definite term with any
officer and shall have no effect upon any cause of action which any officer may
have as a result of removal in breach of a contract of employment. Any officer
may resign at any time by notice in writing signed by such officer and
delivered or mailed to the Chairman, if any, President, or Secretary, and such
resignation shall take effect immediately, or at a later date according to the
terms of such notice in writing.
3.4 Bonds and Surety. Any officer may be required by the Trustees to
be bonded for the faithful performance of his duties in such amount and with
such sureties as the Trustees may determine.
3.5 Chairman, President, and Vice Presidents. The Chairman, if any,
shall, if present, preside at all meetings of the Holders and of the Trustees
and shall exercise and perform such other powers and duties as may be from time
to time assigned to him by the Trustees. Subject to such supervisory powers, if
any, as may be given by the Trustees to the Chairman, if any, the President
shall be the chief executive officer of the Trust and, subject to the control
of the Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of President of a
corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Holders and the Trustees. The President shall
be, ex officio, a member of all standing committees. Subject to direction of
the Trustees, the Chairman, if any, and the President shall each have power in
the name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages, and other instruments in writing, and
to employ and discharge employees and agents of the Trust. Unless otherwise
directed by the Trustees, the Chairman, if any, and the President shall each
have full authority and power, on behalf of all of the Trustees, to attend and
to act and to vote, on behalf of the Trust at any meetings of business
organizations in which the Trust holds an interest, or to confer such powers
upon any other persons, by executing any proxies duly authorizing such persons.
The Chairman, if any, and the President shall have such further authorities and
duties as the Trustees shall from time to time determine. In the absence or
disability of the President, the Vice Presidents in order of their rank or the
Vice President designated by the Trustees, shall perform all of the duties of
President, and when so acting shall have all the powers of and be subject to
all of the restrictions upon the President. Subject to the direction of the
President, each Vice President shall have the power in the name and on behalf
of the Trust to execute any and all loan documents, contracts, agreements,
deeds, mortgages and other instruments in writing, and, in addition, shall have
such other duties and powers as shall be designated from time to time by the
Trustees or by the President.
3.6 Secretary. The Secretary shall keep the minutes of all meetings
of, and record all votes of, Holders, Trustees and the Executive Committee, if
any. He shall be custodian of the seal of the Trust, if any, and he (and any
other person so authorized by the Trustees) shall affix the seal or, if
<PAGE>
permitted, a facsimile thereof, to any instrument executed by the Trust which
would be sealed by a New York corporation executing the same or a similar
instrument and shall attest the seal and the signature or signatures of the
officer or officers executing such instrument on behalf of the Trust. The
Secretary shall also perform any other duties commonly incident to such office
in a New York business corporation, and shall have such other authorities and
duties as the Trustees shall from time to time determine.
3.7 Treasurer. Except as otherwise directed by the Trustees, the
Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable and other valuable papers and documents of the Trust, and
shall have and exercise under the supervision of the Trustees and of the
President all powers and duties normally incident to his office. He may endorse
for deposit or collection all notes, checks and other instruments payable to
the Trust or to its order. He shall deposit all funds of the Trust as may be
ordered by the Trustees or the President. He shall keep accurate account of the
books of the Trust's transactions which shall be the property of the Trust, and
which together with all other property of the Trust in his possession, shall be
subject at all times to the inspection and control of the Trustees. Unless the
Trustees shall otherwise determine, the Treasurer shall be the principal
accounting officer of the Trust and shall also be the principal financial
officer of the Trust. He shall have such other duties and authorities as the
Trustees shall from time to time determine. Notwithstanding anything to the
contrary herein contained, the Trustees may authorize any adviser,
administrator or manager to maintain bank accounts and deposit and disburse
funds on behalf of the Trust.
3.8 Other Officers and Duties. The Trustees may elect such other
officers and assistant officers as they shall from time to time determine to be
necessary or desirable in order to conduct the business of the Trust. Assistant
officers shall act generally in the absence of the officer whom they assist and
shall assist that officer in the duties of his office. Each officer, employee
and agent of the Trust shall have such other duties and authority as may be
conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
Miscellaneous
4.1 Depositories. In accordance with Section 4.3 of the Declaration,
the funds of the Trust shall be deposited in such depositories as the Trustees
shall designate and shall be drawn out on checks, drafts or other orders signed
by such officer, officers, agent or agents (including any adviser,
administrator or manager), as the Trustees may from time to time authorize.
4.2 Signatures. All contracts and other instruments shall be executed
on behalf of the Trust by such officer, officers, agent or agents, as provided
in these By-Laws or as the Trustees may from time to time by resolution
provide.
<PAGE>
4.3 Seal. The seal of the Trust, if any, may be affixed to any
document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same
effect as if done by a New York business corporation.
4.4 Indemnification. Insofar as the conditional advancing of
indemnification monies under Section 5.4 of the Declaration of Trust, for
actions based upon the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions: (i) the advances must
be limited to amounts used, or to be used, for the preparation or presentation
of a defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise
by, or on behalf of, the recipient to repay that amount of the advance which
exceeds that amount to which it is ultimately determined that he is entitled to
receive from the Trust by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an equivalent
form of security which assures that any repayments may be obtained by the Trust
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Trust's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be found
entitled to indemnification.
ARTICLE V
Interest Non-Transferability
5.1 Non-Transferability of Interests. Interests shall not be
transferable. Except as otherwise provided by law, the Trust shall be entitled
to recognize the exclusive right of a person in whose name any Interests stand
on the record of Holders as the owner of such Interests for all purposes,
including, without limitation, the rights to receive distributions, and to vote
as such owner, and the Trust shall not be bound to recognize any equitable or
legal claim to or interest in any such Interests on the part of any other
person.
5.2 Regulations. The Trustees may make such additional rules and
regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the issue of Interests of the Trust. They may appoint, or authorize
any officer or officers to appoint, one or more registrars.
5.3 Registrars and the Like. As provided in Section 2.6 of the
Declaration, the Trustees shall have authority to employ and compensate such
registrars with respect to the Interests of the Trust as the Trustees shall
deem necessary or desirable. In addition, the Trustees shall have power to
employ and compensate such distribution disbursing agents, warrant agents and
agents for the reinvestment of distributions as they shall deem necessary or
desirable. Any of such agents shall have such power and authority as is
delegated to any of them by the Trustee.
<PAGE>
ARTICLE VI
Amendment of By-Laws
6.1 Amendment and Repeal of By-Laws. In accordance with Section 2.7
of the Declaration, the Trustees shall have the power to alter, amend or repeal
the By-Laws or adopt new By-Laws al any lime. Action by the Trustees with
respect to the By-Laws shall be taken by an al affirmative vote of a majority
of the Trustees. The Trustees shall in no event adopt By-Laws which are in
conflict with the Declaration, and any apparent inconsistency shall be
construed in favor of the related provisions in the Declaration.
The Declaration establishing The Premium Portfolios provides that the
name The Premium Portfolios refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
officer, employee or agent of The Premium Portfolios shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of said The Premium Portfolios but the Trust Property only shall be
liable.
EXHIBIT D
INVESTMENT ADVISORY AGREEMENT
THE PREMIUM PORTFOLIOS
GOVERNMENT INCOME PORTFOLIO
INVESTMENT ADVISORY AGREEMENT, dated as of September 13, 1993, by and
between The Premium Portfolios, a New York trust (the "Trust"), and CITIBANK,
N.A., a national banking association ("Citibank" or the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an openend investment company
registered under the Investment Company Act of 1940 (collectively with the
rules and regulations promulgated thereunder, the "1940 Act"), and
WHEREAS, the Trust wishes to engage the Adviser to provide certain
investment advisory services for the series of the Trust designated as
Government Income Portfolio (the "Portfolio"), and the Adviser is willing to
provide such investment advisory services for the Portfolio on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Adviser. The Adviser shall provide the Portfolio with
such investment advice and supervision as the Trust may from time to time
consider necessary for the proper supervision of the Portfolio's investment
assets. Citibank shall act as the Adviser for the Portfolio and as such
shall furnish continuously an investment program and shall determine from
time to time what securities shall be purchased, sold or exchanged and what
portion of the assets of the Portfolio shall be held uninvested, subject
always to the restrictions of the Trust's Declaration of Trust, dated
September 13, 1993, and Bylaws, as each may be amended from time to time
(respectively, the "Declaration" and the "By-Laws"), to the provisions of
the 1940 Act, and to the then-current Registration Statement of the Trust
with respect to the Portfolio. The Adviser shall also make recommendations
as to the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Portfolio's securities shall
be exercised. Should the Board of Trustees of the Trust at any time,
however, make any definite determination as to investment policy applicable
to the Portfolio and notify the Adviser thereof in writing, the Adviser
shall be bound by such determination for the period, if any, specified in
such notice or until similarly notified that such determination has been
revoked. The Adviser shall take, on behalf of the Portfolio, all actions
which it deems necessary to implement the investment policies determined as
<PAGE>
provided above, and in particular to place all orders for the purchase or
sale of securities for the Portfolio's account with the brokers or dealers
selected by it, and to that end the Adviser is authorized as the agent of
the Trust to give instructions to the custodian of the Portfolio as to
deliveries of securities and payments of cash for the account of the
Portfolio. 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 brokerdealers who
have furnished statistical, research and other information or services to
the Adviser or the Portfolio, subject to any applicable laws, rules and
regulations. In making purchases or sales of securities or other property
for the account of the Portfolio, the Adviser may deal with itself or with
the Trustees of the Trust or the Trust's exclusive placing agent, to the
extent such actions are permitted by the 1940 Act.
2. Allocation of Charges and Expenses. The Adviser shall furnish at
its own expense all necessary services, facilities and personnel in
connection with its responsibilities under Section 1 above. It is
understood that the Trust will pay from the assets of the Portfolio all of
its own expenses allocable to the Portfolio including, without limitation,
compensation of Trustees not "affiliated" with the Adviser; governmental
fees; interest charges; taxes; membership dues in the Investment Company
Institute allocable to the Trust; fees and expenses of independent
auditors, of legal counsel and of any transfer agent, administrator,
distributor, shareholder servicing agent, registrar or dividend disbursing
agent of the Trust; expenses of issuing and redeeming interests and
servicing investor accounts; expenses of preparing, printing and mailing,
notices, proxy statements and reports to governmental officers and
commissions and to investors in the Portfolio; expenses connected with the
execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the
Portfolio, including safekeeping of funds and securities and maintaining
required books and accounts; expenses of calculating the net asset value
of the Portfolio; and expenses of meetings of the Portfolio's investors.
3. Compensation of the Adviser. For the services to be rendered,
the Trust shall pay to the Adviser from the assets of the Portfolio an
investment advisory fee computed and paid monthly at an annual rate equal
to 0.35% of the Portfolio's average daily net assets for the Portfolio's
then-current fiscal year. If Citibank serves as Adviser for less than the
whole of any period specified in this Section 3, the compensation to
Citibank, as Adviser, shall be prorated.
4. Covenants of the Adviser. The Adviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's
principal underwriter or distributor, as principals in making purchases or
sales of securities or other property for the account of the Portfolio,
except as permitted by the 1940 Act, will not take a long or short
<PAGE>
position in shares of the Portfolio except as permitted by the Declaration,
and will comply with all other provisions of the Declaration and ByLaws
and the thencurrent Registration Statement applicable to the Portfolio
relative to the Adviser and its Directors and officers.
5. Limitation of Liability of the Adviser. The Adviser shall not
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 securities transactions for the Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder. As used in this Section 5, the term "Adviser" shall include
Directors, officers and employees of the Adviser as well as Citibank
itself.
6. Activities of the Adviser. The services of the Adviser to the
Portfolio are not to be deemed to be exclusive, Citibank being free to
render investment advisory and/or other services to others. It is
understood that Trustees, officers, and investors of the Trust are or may
be or may become interested in the Adviser, as Directors, officers,
employees, or otherwise and that Directors, officers and employees of the
Adviser are or may become similarly interested in the Trust and that the
Adviser may be or may become interested in the Trust as an investor or
otherwise.
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written and shal
govern the relations between the parties hereto thereafter, and shall
remain in force indefinitely, provided that its continuance is
"specifically approved at least annually" (a) by the vote of a majority of
the Trustees of the Trust who are not "interested persons" of the Trust who
are not "interested persons" of the Trust or of the Adviser at a meeting
specifically called for the purpose of voting on such approval, and (b) by
the Board of Trustees of the Trust or by "vote of a majority of the
outstanding voting securities" of the Portfolio.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Portfolio, or by the Adviser, in each case on not more than
60 days' nor less than 30 days' written notice to the other party. This
Agreement shall automatically terminate in the event of its "assignment".
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Portfolio.
The terms "specifically approved at least annually", "vote of a majority
of the outstanding voting securities", "assignment", "affiliated person", and
"interested persons", when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
<PAGE>
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
Each party acknowledges and agrees that all obligations of the Trust under
this Agreement are binding only with respect to the Portfolio; that any
liability of the Trust under this Agreement with respect to the Portfolio, or
in connection with the transactions contemplated herein with respect to the
Portfolio, shall be discharged only out of the assets of the Portfolio; and
that no other series of the Trust shall be liable with respect to this
Agreement or in connection with the transactions contemplated herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
The undersigned Trustee or officer of the Trust has executed this
Agreement not individually, but as Trustee or officer under the Trust's
Declaration of Trust, dated September 13, 1993, as amended, and the obligations
of this Agreement are not binding upon any of the Trustees or officers of the
Trust individually.
THE PREMIUM PORTFOLIOS CITIBANK, N.A.
By: /s/ Philip Coolidge By: /s/ Robert P. Wallace
------------------------- -------------------------
Title: President Title: Vice President
Exhibit e
PLACEMENT AGENCY AGREEMENT
September 13, 1993
The Landmark Funds Broker-Dealer Services, Inc.
c/o Signature Financial Group (Cayman), Ltd.
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, THE PREMIUM PORTFOLIOS (the "Portfolio"), an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), organized as a New
York trust, has agreed that The Landmark Funds Broker-Dealer Services, Inc.
("LFBDS") shall be the exclusive placement agent (the "Placement Agent") of
beneficial interests of the Portfolio and of each of its series ("Portfolio
Interests").
SERVICES AS PLACEMENT AGENT.
1.1 LFBDS will act as exclusive Placement Agent of the Portfolio Interests
covered by each registration statement then in effect under the 1940 Act.
In acting as Placement Agent under this Placement Agent Agreement, neither
LFBDS nor its employees nor any agents thereof shall make any offer or
sale of Portfolio Interests in a manner which would require the Interests
to be registered under the Securities Act of 1933, as amended (the "1933
Act").
1.2 All activities by LFBDS and its agents and employees as Placement Agent of
Portfolio Interests shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations
adopted pursuant to the 1940 Act by the Securities and Exchange Commission
(the "Commission").
1.3 LFBDS shall perform such specified activities and conduct all of its
activities as Placement Agent of Portfolio Interests, including any
activities described herein, as set forth in the Operating Policies and
Procedures (the "Operating Procedures") of the Portfolio (in such form as
may be approved from time to time by the Portfolio's Board of Trustees).
To the extent that any provision of this Agreement shall conflict with any
provision of the Operating Procedures, the applicable provision of the
Operating Procedures shall be deemed to govern.
1.4 Nothing herein shall be construed to require the Portfolio to accept any
offer to purchase any Portfolio Interests, all of which shall be subject
to approval by the Portfolio's Board of Trustees.
<PAGE>
1.5 The Portfolio shall furnish from time to time for use in connection with
the sale of Portfolio Interests such information with respect to the
Portfolio and Portfolio Interests as LFBDS may reasonably request. The
Portfolio shall also furnish LFBDS upon request with: (a) unaudited
semiannual statements of the Portfolio's books and accounts prepared by
the Portfolio, and (b) from time to time such additional information
regarding the Portfolio's financial or regulatory condition as LFBDS may
reasonably request.
1.6 The Portfolio represents to LFBDS that all registration statements filed
by the Portfolio with the Commission under the 1940 Act with respect to
Portfolio Interests have been prepared in conformity with the requirements
of such statute and the rules and regulations of the Commission
thereunder. As used in this Agreement the term "registration statement"
shall mean any registration statement filed with the Commission as
modified by any amendments thereto that at any time shall have been filed
with the Commission by or on behalf of the Portfolio or by the Portfolio
on behalf of any series thereof. The Portfolio represents and warrants to
LFBDS that any registration statement will contain all statements required
to be stated therein in conformity with both such statute and the rules
and regulations of the Commission; that all statements of fact contained
in any registration statement will be true and correct in all material
respects at the time of filing of such registration statements or
amendments thereto; and that no registration statement will include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading to a purchaser of Portfolio Interests. The Portfolio may
but shall not be obligated to propose from time to time such amendment to
any registration statement as in the light of future developments may, in
the opinion of the Portfolio's counsel, be necessary or advisable. If the
Portfolio shall not propose such amendment and/or supplement within
fifteen days after receipt by the Portfolio of a written request from
LFBDS to do so, LFBDS may, at its option, terminate this Agreement. The
Portfolio shall not file any amendment to any registration statement
without giving LFBDS reasonable notice thereof in advance; provided,
however, that nothing contained in this Agreement shall in any way limit
the Portfolio's right to file at any time such amendment to any
registration statement as the Portfolio may deem advisable, such right
being in all respects absolute and unconditional.
1.7 The Portfolio agrees to indemnify, defend and hold LFBDS, its several
officers and directors, and any person who controls LFBDS within the
meaning of Section 15 of the 1933 Act or Section 20 of the Securities and
Exchange Act of 1934 (the "1934 Act") (for purposes of this paragraph 1.7,
collectively, "Covered Persons") free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which any Covered Person
may incur under the 1933 Act, the 1934 Act, common law or otherwise,
arising out of or based on any untrue statement of a material fact
contained in any registration statement, private placement memorandum or
<PAGE>
other offering material ("Offering Material") or arising out of or based
on any omission to state a material fact required to be stated in any
Offering Material or necessary to make the statements in any Offering
Material not misleading; provided, however, that the Portfolio's agreement
to indemnify Covered Persons shall not be deemed to cover any claims,
demands, liabilities or expenses arising out of any financial and other
statements as arc furnished in writing to the Portfolio by LFBDS in its
capacity as Placement Agent for use in the answers to any items of any
registration statement or in any statements made in any Offering Material,
or arising out of or based on any omission or alleged omission to state a
material fact in connection with the giving of such information required
to be stated in such answers or necessary to make the answers not
misleading; and further provided that the Portfolio's agreement to
indemnify LFBDS and the Portfolio's representations and warranties herein
before set forth in paragraph 1.6 shall not be deemed to cover any
liability to the Portfolio or its investors to which a Covered Person
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of a
Covered Person's reckless disregard of its obligations and duties under
this Agreement. The Portfolio shall be notified of any action brought
against a Covered Person, such notification to be given by letter or by
telegram addressed to the Portfolio, c/o Roger P. Joseph, Esq., gingham,
Dana & Gould, 15() Federal Street, Boston, Massachusetts 02110, with a
copy to Philip W. Coolidge, 6 St. James Avenue, 9th floor. Boston,
Massachusetts 02116 promptly after the summons or other first legal
process shall have been duly and completely served upon such Covered
Person. The failure to so notify the Portfolio of any such action shall
not relieve the Portfolio from any liability except to the extent that the
Portfolio shall have been prejudiced by such failure, or from any
liability that the Portfolio may have to the Covered Person against whom
such action is brought by reason of any such untrue statement or omission,
otherwise than on account of the Portfolio's indemnity agreement contained
in this paragraph. The Portfolio will be entitled to assume the defense of
any suit brought to enforce any such claim, demand or liability, but in
such case such defense shall be conducted by counsel of good standing
chosen by the Portfolio and approved by LFBDS, which approval shall not be
unreasonably withheld. In the event the Portfolio elects to assume the
defense of any such suit and retain counsel of good standing approved by
LFBDS, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case
the Portfolio does not elect to assume the defense of any such suit, or in
case LFBDS reasonably does not approve of counsel chosen by the Portfolio,
the Portfolio will reimburse the Covered Person named as defendant in such
suit, for the fees and expenses of any counsel retained by LFBDS or such
Covered Person. The Portfolio's indemnification agreement contained in
this paragraph and the Portfolio's representations and warranties in this
Agreement shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of Covered Persons, and shall
survive the delivery of any Portfolio Interests. This agreement of
indemnity will inure exclusively to Covered Persons and their successors.
The Portfolio agrees to notify LFBDS promptly of the commencement of any
<PAGE>
litigation or proceedings against the Portfolio or any of its officers or
Trustees in connection with the issue and sale of any Portfolio Interests.
1.8 LFBDS agrees to indemnify, defend and hold the Portfolio, its several
officers and trustees, and any person who controls the Portfolio within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
(for purposes of this paragraph 1.8, collectively, "Covered Persons") free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the costs of investigating or defending such claims,
demands, liabilities and any counsel fees incurred in connection
therewith) that Covered Persons may incur under the 1933 Act, the 1934
Act, or common law or otherwise, but only to the extent that such
liability or expense incurred by a Covered Person resulting from such
claims or demands shall arise out of or be based on any untrue statement
of a material fact contained in information furnished in writing by LFBDS
in its capacity as Placement Agent to the Portfolio for use in the answers
to any of the items of any registration statement or in any statements in
any Offering Material or shall arise out of or be based on any omission to
state a material fact in connection with such information furnished in
writing by LFBDS to the Portfolio required to be stated in such answers or
necessary to make such information not misleading. LFBDS shall be notified
of any action brought against a Covered Person, such notification to be
given by letter or telegram addressed to LFBDS at 6 St. James Avenue,
Boston, Massachusetts 02116, Attention: Philip W. Coolidge, promptly after
the summons or other first legal process shall have been duly and
completely served upon such Covered Person. LFBDS shall have the right of
first control of the defense of the action with counsel of its own
choosing satisfactory to the Portfolio if such action is based solely on
such alleged misstatement or omission on LFBDS's part, and in any other
event each Covered Person shall have the right to participate IN the
defense or preparation of the defense of any such action. The failure to
so notify LFBDS of any such action shall not relieve LFBDS from any
liability except to the extent that LFBDS shall have been prejudiced by
such failure, or from any liability that LFBDS may have to Covered Persons
by reason of any such untrue or alleged untrue statement, or omission or
alleged omission, otherwise than on account of LFBDS's indemnity agreement
contained in this paragraph.
1.9 No Portfolio Interests shall be offered by either LFBDS or the Portfolio
under any of the provisions of this Agreement and no orders for the
purchase or sale of Portfolio interests hereunder shall be accepted by the
Portfolio if and so long as the effectiveness of the registration
statement or any necessary amendments thereto shall be suspended under any
of the provisions of the 1940 Act; provided, however, that nothing
contained in this paragraph shall in any way restrict or have an
application to or bearing on the Portfolio's obligation to redeem
Portfolio Interests from any investor in accordance with the provisions of
the Portfolio's registration statement or Declaration of Trust, as amended
from time to time.
<PAGE>
1.10 The Portfolio agrees to advise LFBDS as soon as reasonably practical by a
notice in writing delivered to LFBDS or its counsel:
(a) of any request by the Commission for amendments to the registration
statement then in effect or for additional information;
(b) in the event of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement then in effect
or the initiation by service of process on the Portfolio of any proceeding
for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the registration statement then in effect or that
requires the making of a change in such registration statement in order to
make the statements therein not misleading; and
(d) of all action of the Commission with respect to any amendment to any
registration statement that may from time to time be filed with the
Commission.
For purposes of this paragraph 1.10, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
1.11 LFBDS agrees on behalf of itself and its employees to treat confidentially
and as proprietary information of the Portfolio all records and other
information not otherwise publicly available relative to the Portfolio and
its prior, present or potential investors and not to use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Portfolio, which approval shall not be unreasonably
withheld and may not be withheld where LFBDS may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so
requested by the Portfolio.
1.12 In addition to LFBDS's duties as Placement Agent, the Portfolio
understands that LFBDS may, in its discretion, perform additional
functions in connection with transactions in Portfolio Interests.
The processing of Portfolio Interest transactions may include, but is not
limited to, compilation of all transactions from LFBDS's various offices;
creation of a transaction tape and timely delivery of it to the Portfolio or
its designated agent for processing; reconciliation of all transactions
delivered to the Portfolio or its designated agent and the recording and
reporting of these transactions executed by the Portfolio or its designated
agent in customer statements; rendering of periodic customer statements; and
the reporting of IRS Form 1099 information at year end if required.
LFBDS may also provide other investor services, such as communicating with
Portfolio investors and other functions in administering customer accounts for
Portfolio investors.
<PAGE>
LFBDS understands that these services may result in cost savings to the
Portfolio or to the Portfolio's investment manager and neither the Portfolio
nor the Portfolio's investment manager will compensate LFBDS for all or a
portion of the costs incurred in performing functions in connection with
transactions in Portfolio Interests. Nothing herein is intended, nor shall be
construed, as requiring LFBDS to perform any of the foregoing functions.
2. TERM.
This Agreement shall become effective on the date first above written and,
unless sooner terminated as provided herein, shall continue until September
13,1994 and thereafter shall continue automatically for successive annual
periods, provided such continuance is specifically approved at least annually
by (i) the Portfolio's Board of Trustees or (ii) by a vote of a majority (as
defined in the 1940 Act) of the Portfolio's outstanding voting securities,
provided that in either event the continuance is also approved by the majority
of the Portfolio's Trustees who are not interested persons (as defined in the
1940 Act) of the Portfolio and who have no direct or indirect financial
interest in this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable without
penalty, on not less than 60 days' notice, by the Portfolio's Board of
Trustees, by vote of a majority (as defined in the 1940 Act) of the Portfolio's
outstanding voting securities, or by LFBDS. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act and
the rules thereunder).
3. REPRESENTATIONS AND WARRANTIES.
LFBDS and the Portfolio each hereby represents and warrants to the other that
it has all requisite authority to enter into, execute, deliver and perform its
obligations under this Agreement and that, with respect to it, this Agreement
is legal, valid and binding, and enforceable in accordance with its terms.
4. CONCERNING APPLICABLE PROVISIONS OF LAW, ETC.
This Agreement shall be subject to all applicable provisions of law, including
the applicable provisions of the 1940 Act and to the extent that any provisions
herein contained conflict with any such applicable provisions of law, the
latter shall control.
This Agreement is executed and delivered at a location or locations outside the
United States, and the laws of the Commonwealth of Massachusetts shall, except
to the extent that any applicable provisions of Federal Law shall be
controlling, govern the construction, validity and effect of this Agreement,
without reference to principles of conflicts of law.
If the contract set forth herein is acceptable to you, please so indicate by
executing the enclosed copy of this Agreement and returning the same to the
undersigned, whereupon this Agreement shall constitute a binding contract
between the parties hereto effective at the closing of business on the date
hereof.
<PAGE>
The undersigned Trustee or officer of the Trust has executed this Agreement not
individually, but as Trustee or officer under the Trust's Declaration of Trust,
dated September 13, 1993, as amended, and the obligations of this Agreement are
not binding upon any of the Trustees or officers of the Trust individually.
Yours very truly,
THE PREMIUM PORTFOLIOS
By: James B. Craver
-----------------------
Accepted:
THE LANDMARK FUNDS BROKER-DEALER SERVICES, INC.
By: James B. Craver
----------------------
<PAGE>
The Premium Portfolios
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
December 31, 1997
The Landmark Funds Broker-Dealer Services, Inc.
c/o Signature Financial Group (Cayman), Ltd.
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
Re: The Premium Portfolios - Placement
Agency Agreement
Ladies and Gentlemen:
This letter serves as notice that Growth & Income Portfolio (the "Fund")
is added to the list of series of The Premium Portfolios (the "Trust") to which
The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") renders services as
placement agent pursuant to the terms of the Placement Agency Agreement dated
as of September 13, 1993 (the "Agreement") between the Trust and LFBDS.
Please sign below to acknowledge your receipt of this notice adding the
Fund as beneficiary under the Agreement.
THE PREMIUM PORTFOLIOS
By: Philip Coolidge
Title: President
Acknowledgment:
THE LANDMARK FUNDS BROKER-DEALER SERVICES, INC.
By: Philip Coolidge
Title: CEO
Exhibit h(1)
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT, dated as of September 13, 1993, by
and between THE PREMIUM PORTFOLIOS, a New York trust (the "Trust"), and
SIGNATURE FINANCIAL GROUP (GRAND CAYMAN) LTD., a Cayman Islands company (the
"Administrator").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (collectively with
the rules and regulations promulgated thereunder, the "1940 Act");
WHEREAS, the beneficial interests of the Trust ("Interests") are
divided into separate series (together with any series which may in the future
be established, the "Portfolios");
WHEREAS, the Board of Trustees of the Trust has adopted an
Administrative Services Plan, dated as of September 13, 1993, (as amended and
in effect from time to time, the "Plan"), which is incorporated herein by
reference and pursuant to which the Trust desires to enter into this
Administrative Services Agreement; and
WHEREAS, the Trust wishes to engage the Administrator, or an
affiliated company, to provide certain administrative and management services,
and the Administrator is willing to provide such administrative and management
services to the Trust, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
1. Duties of the Administrator. Subject to the direction and
control of the Board of Trustees of the Trust, the Administrator shall
perform such administrative and management services as may from time
to time be reasonably requested by the Trust, which shall include
without limitation: (a) providing office space, equipment and clerical
personnel necessary for maintaining the organization of the Trust and
for performing the administrative and management functions herein set
forth; (b) arranging, if desired by the Trust, for Directors, officers
and employees of the Administrator to serve as Trustees, officers or
agents of the Trust if duly elected or appointed to such positions and
subject to their individual consent and to any limitations imposed by
law; (c) supervising the overall administration of the Trust,
including negotiation of contracts and fees with and the monitoring of
performance and billings of the Trust's transfer agent, if any,
shareholder servicing agents, custodian and other independent
contractors or agents; (d) preparing and, if applicable, filing all
<PAGE>
documents required for compliance by the Trust with applicable laws
and regulations, including registration statements, semi-annual and
annual reports to the Trust's investors, proxy statements and tax
returns; (e) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees and the
Trust's investors; and (f) arranging for maintenance of books and
records of the Trust. The Administrator shall perform such specified
activities and shall conduct all of its activities as administrator of
the Trust, including any activities described in this Agreement, as
set forth in the Operating Policies and Procedures (the "Operating
Procedures") of the Trust (in such form as may be approved from time
to time by the Trust's Board of Trustees). To the extent that any
provision of this Agreement shall conflict with any provision of the
Operating Procedures, the applicable provision of the Operating
Procedures shall be deemed to govern. Notwithstanding the foregoing,
the Administrator shall not be deemed to have assumed any duties with
respect to, and shall not be responsible for, the management of the
Trust's assets or the rendering of investment advice and supervision
with respect thereto or the sale of Interests, nor shall the
Administrator be deemed to have assumed or have any responsibility
with respect to functions specifically assumed by any transfer agent,
custodian or shareholder servicing agent of the Trust.
2. Allocation of Charges and Expenses. The Administrator shall pay
the entire salaries and wages of all of the Trust's Trustees, officers
and agents who devote part or all of their time to the affairs of the
Administrator or its affiliates, and the wages and salaries of such
persons shall not be deemed to be expenses incurred by the Trust for
purposes of this Section 2. Except as provided in the foregoing
sentence, the Trust will pay all of its own expenses including,
without limitation, compensation of Trustees not affiliated with the
Administrator; governmental fees; interest charges; taxes; membership
dues in the Investment Company Institute allocable to the Trust; fees
and expenses of the Trust's independent auditors, of legal counsel and
of any transfer agent, distributor, registrar or dividend disbursing
agent of the Trust; expenses of preparing, printing and mailing
reports, notices, proxy statements and reports to the Trust's
investors and governmental officers and commissions; expenses
connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the Trust's
custodian for all services to the Trust, including safekeeping of
funds and securities and maintaining required books and accounts;
expenses of calculating the net asset value of shares of the Trust;
expenses of meetings of investors in the Trust; and expenses relating
to the issuance, registration and qualification of shares of the
Trust.
3. Compensation of the Administrator. For the services to be
rendered and the facilities to be provided by the Administrator
hereunder, the Trust shall pay to the Administrator an administrative
fee computed and paid monthly at an annual rate of 0.05% of the
<PAGE>
average daily net assets of each Portfolio for its then-current fiscal
year. If the Administrator serves as administrator for less than the
whole of any period specified in this Section 3, the compensation to
the Administrator, shall be prorated. For purposes of computing the
fees payable to the Administrator hereunder, the value of the net
assets of each Portfolio shall be computed in the manner specified in
the Trust's then-current Registration Statement under the 1940 Act
with respect to such Portfolio.
4. Limitation of Liability of the Administrator. The Administrator
shall not 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
or the performance of its duties hereunder, except for willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of the reckless disregard of its obligations and
duties hereunder. As used in this Section 4, the term "Administrator"
shall include Signature Financial Group (Grand Cayman) Ltd. and/or any
of its affiliates and the Directors, officers and employees of
Signature Financial Group (Grand Cayman) Ltd. and/or any of its
affiliates.
5. Activities of the Administrator. The services of the
Administrator to the Trust are not to be deemed to be exclusive, the
Administrator being free to render administrative and/or other
services to other parties. It is understood that Trustees, officers,
and shareholders of the Trust are or may become interested in the
Administrator and/or any of its affiliates, as Directors, officers,
employees, or otherwise, and that Directors, officers and employees of
the Administrator and/or any of its affiliates are or may become
similarly interested in the Trust and that the Administrator and/or
any of its affiliates may be or become interested in the Trust as an
investor or otherwise.
6. Subcontracting by the Administrator. The Administrator may
subcontract for the performance of the Administrator' obligations
hereunder with any one or more persons; provided, however, that the
Administrator shall not enter into any such subcontract unless the
Trustees of the Trust shall have found the subcontracting party to be
qualified to perform the obligations sought to be subcontracted; and
provided, further, that, unless the Trust otherwise expressly agrees
in writing, the Administrator shall be as fully responsible to the
Trust for the acts and omissions of any subcontractor as it would be
for its own acts or omissions.
7. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above
written and shall govern the relations between the parties hereto
thereafter, and shall remain in force until September 13, 1995 on
which date it will terminate unless its continuance after September
13, 1995 is "specifically approved at least annually" (a) by the vote
<PAGE>
of a majority of the Board of Trustees of the Trust who are not
"interested persons" of the Trust or of the Administrator at a meeting
specifically called for the purpose of voting on such approval, and
(b) by the Board of Trustees of the Trust or by the "vote of a
majority of the outstanding voting securities" of the Portfolio as to
which this Agreement is to continue.
This Agreement may be terminated with respect to the Trust or to any
Portfolio at any time, without the payment of any penalty, by the Board of
Trustees of the Trust or by the "vote of a majority of the outstanding voting
securities" of the Trust or such Portfolio, or by the Administrator, in each
case on not more than 60 days' nor less than 30 days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
"assignment", provided, however, that the term "assignment" shall include
(without limitation) any sale, transfer or conversion of a controlling interest
of any class of voting securities of the Administrator or of any entity which
holds a controlling interest of any class of voting securities of the
Administrator or another such entity.
The terms "specifically approved at least annually", "vote of a
majority of the outstanding voting securities", "assignment", and "interested
persons", when used in this Agreement, shall have the respective meanings
specified in, and shall be construed in a manner consistent with, the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered at a location or locations outside the United States
in their names and on their behalf by the undersigned, thereunto duly
authorized, all as of the day and year first above written. The undersigned
Trustee or officer of the Trust has executed this Agreement not individually,
but as Trustee or officer under the Trust's Declaration of Trust, dated
September 13, 1993, as amended, and the obligations of this Agreement are not
binding upon any of the Trustees or officers of the Trust individually.
THE PREMIUM PORTFOLIOS SIGNATURE FINANCIAL GROUP
(GRAND CAYMAN) LTD.
By: Philip Coolidge By: Philip Coolidge
------------------------ ---------------------
Title: President Title: CEO
------------------------ ---------------------
Exhibit h(2)
AMENDED AND RESTATED
ADMINISTRATIVE SERVICES PLAN
ADMINISTRATIVE SERVICES PLAN, dated as of September 13, 1993, and
amended and restated as of May 6, 1994 of The Premium Portfolios, a New York
trust (the "Trust").
WITNESSETH:
WHEREAS, the beneficial interests of the Trust (the "Interests") are
divided into one or more separate series (together with any series which may in
the future be established, the "Portfolios"); and
WHEREAS, each of the Portfolios is engaged in business as an open-end
management investment company and is registered under the Investment Company
Act of 1940 (collectively with the rules and regulations promulgated
thereunder, the "1940 Act"); and
WHEREAS, the Trust desires to adopt this Administrative Services Plan
(the "Plan") in order to provide for certain administrative services to the
Trust and holders of Interests in each Portfolio; and
WHEREAS, the Trust desires, at such time as may be deemed necessary or
convenient to do so, to enter into a transfer agency agreement (in such form as
may from time to time be approved by the Board of Trustees of the Trust (the
"Transfer Agency Agreement")) with a financial institution, as transfer agent
for the Trust (the "Transfer Agent"), whereby the Transfer Agent will provide
transfer agency services to the Trust; and
WHEREAS, the Trust desires to enter into a custodian agreement (in
such form as may from time to time be approved by the Board of Trustees of the
Trust (the "Custodian Agreement")) with a financial institution, as custodian
for the Trust (the "Custodian"), whereby the Custodian will provide custodial
services to the Trust with respect to each Portfolio; and
WHEREAS, the Trust desires to enter into an accounting services
agreement (in such form as may from time to time be approved by the Board of
Trustees of the Trust (the "Accounting Services Agreement")) with a provider of
accounting services (the "Accounting Services Agent"), whereby the Accounting
Services Agent will provide certain fund accounting services to the Trust; and
WHEREAS, the Trust desires to enter into an administrative services
agreement (in such form as may from time to time be approved by the Board of
Trustees of the Trust (the "Administrative Services Agreement")) with Signature
Financial Group (Cayman), Ltd., a Cayman Islands company, or an affiliated
company, as administrator of the Trust (the "Administrator"), whereby the
Administrator will provide certain administrative and management services to
the Trust; and
<PAGE>
WHEREAS, the Board of Trustees of the Trust, in considering whether
the Trust should adopt and implement this Plan, has evaluated such information
as it deemed necessary to an informed determination as to whether this Plan
should be adopted and implemented and has considered such pertinent factors as
it deemed necessary to form the basis for a decision to use assets of each
Portfolio for such purposes, and has determined that there is a reasonable
likelihood that the adoption and implementation of this Plan will benefit the
Trust and each Portfolio and the holders of Interests;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Plan for the Trust, on the following terms and conditions:
1. As specified in the Transfer Agency Agreement, if any, the
Transfer Agent shall act as dividend disbursing agent for the Trust
and perform other transfer agency functions for each Portfolio. The
Trust shall pay to the Transfer Agent, if any, such compensation from
the assets of each Portfolio as may from time to time be agreed to by
the Trust and the Transfer Agent.
2. As specified in the Custodian Agreement, the Custodian shall
safeguard and control the cash and securities of each Portfolio,
handle receipt and delivery of securities for each Portfolio,
determine income and collect interest on the investments of each
Portfolio, and, in general, act as the custodian of the Trust's assets
pertaining to each Portfolio, but the Custodian shall have no power to
determine the investment policies of the Trust or to determine which
securities the Trust will buy or sell on behalf of any Portfolio. The
Trust shall pay to the Custodian such compensation from the assets of
each Portfolio as may from time to time be agreed to by the Trust and
the Custodian.
3. As specified in the Accounting Services Agreement, the
Accounting Services Agent shall maintain books of original entry for
Portfolio and Trust accounting and other required books and accounts
and calculate the daily net asset value of, and net income on, the
Interests. As consideration for services performed under the
Accounting Services Agreement, the Trust shall periodically pay to the
Accounting Services Agent such compensation from the assets of each
Portfolio as may from time to time be agreed to by the Trust and the
Accounting Services Agent.
4. As specified in the Administrative Services Agreement, the
Administrator shall perform certain administrative and management
services on behalf of the Trust, including, but not necessarily
limited to: providing office space, equipment and clerical personnel
necessary for maintaining the organization of the Trust and for
providing the administrative and management services to be performed
by the Administrator; arranging, if desired by the Trust, for
Directors, officers and employees of the Administrator to serve as
Trustees, officers or agents of the Trust if duly elected or appointed
to such positions and subject to their individual consent and to any
<PAGE>
limitations imposed by law; supervising the overall administration of
the Trust, including negotiation of contracts and fees with and the
monitoring of performance and billings of the Trust's Transfer Agent,
Custodian and other independent contractors or agents; preparing and,
if applicable, filing all documents required for compliance by the
Trust with applicable laws and regulations, including registration
statements, semi-annual and annual reports to the Trust's investors,
proxy statements and tax returns; preparation of agendas and
supporting documents for and minutes of meetings of Trustees,
committees of Trustees and the Trust's investors; arranging for
computation of performance statistics with respect to each Portfolio
and arranging for maintenance of books and records of the Trust and
each Portfolio. The Administrator shall perform such specified
activities and shall conduct all of its activities as administrator of
the Trust, including any activities described above or in the
Administrative Services Agreement, as set forth in the Operating
Policies and Procedures (the "Operating Procedures") of the Trust (in
such form as may be approved from time to time by the Trust's Board of
Trustees). To the extent that any provision of the Administrative
Services Agreement shall conflict with any provision of the Operating
Procedures, the applicable provision of the Operating Procedures shall
be deemed to govern. As consideration for services performed under the
Administrative Services Agreement, the Trust shall periodically pay to
the Administrator a fee at an annual rate of 0.05% of the average
daily net assets of each Portfolio for its then-current fiscal year.
5. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject
or by which it is bound, or to relieve or deprive the Board of
Trustees of the Trust of the responsibility for and control of the
conduct of the affairs of the Trust.
6. This Plan shall become effective upon (a) approval by a vote of
at least a "majority of the outstanding voting securities" of each
Portfolio, and (b) approval by a vote of the Board of Trustees of the
Trust and vote of a majority of the Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any of the agreements
related to the Plan (the "Qualified Trustees"), such votes to be cast
in person at a meeting called for the purpose of voting on this Plan.
7. This Plan shall continue in effect indefinitely, provided that
such continuance is subject to annual approval by a vote of the Board
of Trustees of the Trust and a majority of the Qualified Trustees,
such votes to be cast in person at a meeting called for the purpose of
voting on continuance of this Plan. If such annual approval is not
obtained, this Plan shall expire on the date which is 15 months after
the date of the last approval.
<PAGE>
8. This Plan may be amended at any time by the Board of Trustees of
the Trust, provided that (a) any amendment to increase materially the
amount to be expended from the assets of any Portfolio for the
services described herein shall be effective only upon approval by a
vote of a "majority of the outstanding voting securities" of such
Portfolio, and (b) any material amendment of this Plan shall be
effective only upon approval by a vote of the Board of Trustees of the
Trust and a majority of the Qualified Trustees, such votes to be cast
in person at a meeting called for the purpose of voting on such
amendment. This Plan may be terminated at any time by vote of a
majority of the Qualified Trustees or by a vote of a "majority of the
outstanding voting securities" of such Portfolio.
9. The Treasurer of the Trust shall provide the Board of Trustees
of the Trust, and the Board of Trustees of the Trust shall review, at
least quarterly, a written report of the amounts expended under the
Plan and the purposes for which such expenditures were made.
10. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
11. For the purposes of this Plan, the terms "interested person"
and "majority of the outstanding voting securities" are used as
defined in the 1940 Act. In addition, for purposes of determining the
fees payable to the Administrator, the value of a Portfolio's net
assets shall be computed in the manner specified in the Trust's
then-current Registration Statement for such Portfolio under the 1940
Act.
12. The Trust shall preserve copies of this Plan, and each
agreement related hereto and each report referred to in paragraph 8
hereof (collectively the "Records"), for a period of six years from
the end of the fiscal year in which such Record was made and each such
Record shall be kept in an easily accessible place for the first two
years of said record-keeping.
13. This Plan shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the 1940 Act.
14. If any provision of this Plan shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Plan shall not be affected thereby.
<TABLE> <S> <C>
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<NAME> GOVERNMENT INCOME PORTFOLIO
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 83,369,009
<INVESTMENTS-AT-VALUE> 83,384,503
<RECEIVABLES> 786,083
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<NET-CHANGE-FROM-OPS> 4,331,818
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<NUMBER-OF-SHARES-SOLD> 48,935,387
<NUMBER-OF-SHARES-REDEEMED> (30,418,418)
<SHARES-REINVESTED> 0
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