As filed with the Securities and Exchange Commission on July 31, 1995
File No. 811-8642
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(617) 423-0800
James B. Craver, 6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to: Steven K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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JPM450A
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JPM450A
EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940, as amended. However,
beneficial interests in the Registrant are not being registered under the
Securities Act of 1933 (the "1933 Act") because such interests will be issued
solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Investments in the
Registrant may only be made by other 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. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any beneficial interests in the
Registrant.
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JPM450A
PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
The New York Total Return Bond Portfolio (the "Portfolio") is a
no-load, non-diversified, open-end management investment company which was
organized as a trust under the laws of the State of New York on June 16, 1993.
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, as amended (the "1933 Act").
Investments in the Portfolio may only be made by other 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. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any "security" within
the meaning of the 1933 Act.
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York ("Morgan
Guaranty" or the "Advisor") or any other bank. Interests in the Portfolio are
not federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other governmental agency. An investment in the Portfolio
is subject to risk, as the net asset value of the Portfolio will fluctuate with
changes in the value of the Portfolio's holdings. There can be no assurance that
the investment objective of the Portfolio will be achieved.
The Portfolio is advised by Morgan Guaranty.
Part B contains more detailed information about the Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio, (ii) the Trustees, officers, Advisor and administrator of the
Portfolio, (iii) portfolio transactions, (iv) rights and liabilities of
investors and (v) the audited financial statements of the Portfolio at March 31,
1995.
The investment objective of the Portfolio is described below, together
with the policies employed to attempt to achieve this objective. Additional
information about the investment policies of the Portfolio appears in Part B,
under Item 13.
The Portfolio's investment objective is to provide a high
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after tax total return for New York residents consistent with moderate risk of
capital. Total return will consist of income plus capital gains and losses.
The Portfolio is designed for investors who seek a high after tax total
return and who are willing to receive some taxable income and capital gains to
achieve that return.
The Portfolio's primary investments are municipal securities issued by
New York State and its political subdivisions and by agencies, authorities and
instrumentalities of New York and its political subdivisions. These securities
earn income exempt from federal and New York State and local income taxes but,
in certain circumstances, may be subject to alternative minimum tax. In
addition, the Portfolio may invest in municipal securities issued by states
other than New York, by territories and possessions of the United States and
their political subdivisions, agencies and instrumentalities. These securities
earn income exempt from federal income taxes but subject to New York State and
local income taxes. In order to seek to enhance the Portfolio's after tax
return, the Advisor may also invest in securities which earn income subject to
New York and/or federal income taxes. These securities include U.S. government
securities, corporate securities and municipal securities issued on a taxable
basis. For more information regarding tax matters, see Item 20 in Part B. Since
the Portfolio limits its purchases to investment grade securities, it may not
obtain the higher current income available from lower rated securities. See
"Quality Information" below.
The Advisor actively manages the Portfolio's duration, the allocation
of securities across market sectors and the selection of securities to seek to
achieve a high after tax total return. Based on fundamental economic and capital
markets research, the Advisor adjusts the duration of the Portfolio in light of
the Advisor's interest rate outlook. For example, if interest rates are expected
to rise, the duration may be shortened to lessen the Portfolio's exposure to the
expected decrease in bond prices. If interest rates are expected to remain
stable, the Advisor may lengthen the duration in order to enhance the
Portfolio's yield.
Duration is a measure of the weighted average maturity of the bonds
held in the Portfolio and can be used as a measure of the sensitivity of the
Portfolio's market value to changes in interest rates. The longer the duration
of the Portfolio, the greater its price sensitivity. Under normal market
conditions, the Advisor believes the Portfolio will have a duration of three to
seven years. The maturity of individual securities in the Portfolio may vary
widely, however.
The Advisor also attempts to enhance after tax total return by
allocating the Portfolio's assets among market sectors. Specific securities
which the Advisor believes are undervalued are selected for purchase within
sectors using advanced quantitative tools, analysis of credit risk, the
expertise of a dedicated trading desk and the judgment of fixed income portfolio
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managers and analysts.
In seeking to achieve the Portfolio's investment objective, the Advisor
attempts to consider the tax consequences to investors of all portfolio
transactions. The Advisor will sell and purchase securities to change the
Portfolio's duration, sector allocation or securities holdings only if it
believes that the expected benefit to the Portfolio will be greater than the
capital gains or income taxes investors' shareholders would incur as a result of
these sales and purchases. The success of this strategy depends on the Advisor's
ability to forecast accurately changes in interest rates and assess the value of
fixed income securities.
The Advisor intends to manage the Portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may engage in short-term
trading consistent with its objective. The estimated portfolio turnover rate for
the Portfolio generally should not exceed 100%. Portfolio transactions may incur
taxable long term or short term capital gains which will be distributed and
taxable to investors.
In addition, to the extent the Portfolio engages in short-term trading, it may
incur increased transactions costs. See Item 20 in Part B. Annual portfolio
turnover rate is expected to be less than 100%.
MUNICIPAL SECURITIES
Under normal circumstances, the Portfolio will invest at least 65% of
its total assets in municipal securities issued by New York State and its
political subdivisions and their agencies, authorities and instrumentalities.
The Portfolio may also invest in debt obligations of municipal issuers other
than New York. The municipal securities in which the Portfolio invests are
primarily municipal bonds and municipal notes.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on
behalf of New York State, other states, territories and possessions of the
United States and their political subdivisions, agencies, authorities and
instrumentalities. These obligations may be general obligation bonds secured by
the issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest, or they may be revenue bonds payable from specific
revenue sources, but not generally backed by the issuer's taxing power.
MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of
various types, including notes issued in anticipation of receipt of taxes, the
proceeds of the sale of bonds, other revenues or grant proceeds, as well as
municipal commercial paper and municipal demand obligations such as variable
rate demand notes and master demand obligations. The interest rate on
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variable rate demand notes is adjustable at periodic intervals as specified in
the notes. Master demand obligations permit the investment of fluctuating
amounts at periodically adjusted interest rates. They are governed by agreements
between the municipal issuer and Morgan Guaranty acting as agent, for no
additional fee, in its capacity as Advisor to the Portfolio and as fiduciary for
other clients. Although master demand obligations are not marketable to third
parties, the Portfolio considers them to be liquid because they are payable on
demand. There is no specific percentage limitation on these investments. For
more information about municipal notes, see Item 13 in Part B.
NEW YORK MUNICIPAL SECURITIES. Because of the Portfolio's significant
investment in New York municipal securities, its performance will be affected by
the condition of New York's economy, as well as the fiscal condition of the
State, its agencies and municipalities. The New York State economy generally
remains weak, despite some signs of growth. Compounding this effect is the
presence of a persistent budget deficit and the significant claims placed on the
State's budget by education, social service, and infrastructure needs. In
addition, the New York City economy and fiscal condition have profound
influences upon the market for most New York debt obligations. The Advisor
currently views the New York economy and financial condition as fundamentally
stable. However, the possibility of a disruption to economic and financial
conditions which would adversely affect the creditworthiness and marketability
of New York municipal securities continues to exist. For a more detailed
discussion of the risks associated with investing in New York municipal
securities, see Item 13 in Part B.
NON-MUNICIPAL SECURITIES.
The Portfolio may invest in non-municipal securities including
obligations of the U.S. government and its agencies and instrumentalities, bank
obligations, debt securities of corporate issuers, asset backed and mortgage
related securities and repurchase agreements. The Portfolio will invest in
non-municipal securities when, in the opinion of the Advisor, these securities
will enhance the after tax total return to investors' shareholders who are
subject to federal and New York State income taxes in the highest tax bracket.
Under normal circumstances, the Portfolio's holdings of non-municipal securities
and municipal securities of tax-exempt issuers outside New York State will not
exceed 35% of its total assets.
QUALITY INFORMATION.
The Portfolio will not purchase a security unless it is rated at least
Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or better by
Standard & Poor's Ratings Group ("Standard & Poor's"), or a security is unrated
and
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in the Advisor's opinion is of comparable quality. Securities rated Baa by
Moody's or BBB by Standard & Poor's are considered investment grade, but have
some speculative characteristics. These standards must be satisfied at the time
an investment is made. If the quality of the investment later declines, the
Portfolio may continue to hold the investment. See Item 13 in Part B for more
detailed information on these ratings.
NON-DIVERSIFICATION.
The Portfolio is registered as a non-diversified investment company
which means that the Portfolio is not limited by the Investment Company Act of
1940, as amended (the "1940 Act"), in the proportion of its assets that may be
invested in the obligations of a single issuer. Thus, the Portfolio may invest a
greater proportion of its assets in the securities of a smaller number of
issuers and, as a result, will be subject to greater risk with respect to its
portfolio securities. The Portfolio, however, will comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company. See
"Investment Restrictions" below and Item 20 in Part B.
The Portfolio may also purchase municipal securities together with
puts, purchase securities on a when-issued or delayed delivery basis, enter into
repurchase and reverse repurchase agreements, purchase synthetic variable rate
instruments, loan its securities, purchase certain privately placed securities
and enter into certain futures and options transactions. For a discussion of
these transactions, see below.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and no interest or income accrues to the
Portfolio until settlement. At the time of settlement a when-issued security may
be valued at less than its purchase price. The Portfolio maintains with the
Custodian a separate account with a segregated portfolio of securities in an
amount at least equal to these commitments. When entering into a when-issued or
delayed delivery transaction, the Portfolio will rely on the other party to
consummate the transaction; if the other party fails to do so, the Portfolio may
be disadvantaged. It is the current policy of the Portfolio not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Portfolio's total assets less liabilities other than the obligations created
by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks
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that meet the credit guidelines established by the Trustees. In a repurchase
agreement, the Portfolio buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. The term of these agreements is
usually from overnight to one week. A repurchase agreement may be viewed as a
fully collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the disposition of
collateral may be delayed or limited. Investments in certain repurchase
agreements and certain other investments which may be considered illiquid are
limited. See "Illiquid Investments; Privately Placed and other Unregistered
Securities" below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment
restrictions, the Portfolio is permitted to lend its securities in an amount up
to 33 1/3% of the value of the Portfolio's net assets. The Portfolio may lend
its securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally five business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Portfolio and its respective investors. The Portfolio may pay reasonable
finders' and custodial fees in connection with a loan. In addition, the
Portfolio will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and the Portfolio will
not make any loans in excess of one year. The Portfolio will not lend its
securities to any officer, Trustee, Director, employee or other affiliate of the
Portfolio, the Advisor or the exclusive placement agent, unless otherwise
permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into
reverse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement. For
the purposes of the 1940 Act, it is considered as a form of borrowing by the
Portfolio and, therefore, is a form of leverage.
Leverage may cause any gains or losses of the Portfolio to be
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magnified. For more information, see Item 13 in Part B.
PUTS. The Portfolio may purchase without limit municipal bonds or notes
together with the right to resell them at an agreed price or yield within a
specified period prior to maturity. This right to resell is known as a put. The
aggregate price paid for securities with puts may be higher than the price which
otherwise would be paid. The principal risk of puts is that the put writer may
default on its obligation to repurchase. The Advisor will monitor each writer's
ability to meet its obligations under puts. The amortized cost method is used by
the Portfolio to value all municipal securities with maturities of less than 60
days; when these securities are subject to puts separate from the underlying
securities, no value is assigned to the puts. The cost of any such put is
carried as an unrealized loss from the time of purchase until it is exercised or
expires. See Part B for the valuation procedure if the Portfolio were to invest
in municipal securities with maturities of 60 days or more that are subject to
separate puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolio may invest in
certain synthetic variable rate instruments. Such instruments generally involve
the deposit of a long-term tax exempt bond in a custody or trust arrangement and
the creation of a mechanism to adjust the long-term interest rate on the bond to
a variable short-term rate and a right (subject to certain conditions) on the
part of the purchaser to tender it periodically to a third party at par. The
Advisor will review the structure of synthetic variable rate instruments to
identify credit and liquidity risks (including the conditions under which the
right to tender the instrument would no longer be available) and will monitor
those risks. In the event that the right to tender the instrument is no longer
available, the risk to the Portfolio will be that of holding the long-term bond.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. The Portfolio may not acquire any illiquid securities if, as a
result thereof, more than 15% of the market value of the Portfolio's net assets
would be in illiquid investments. Subject to this non-fundamental policy
limitation, the Portfolio may acquire investments that are illiquid or have
limited liquidity, such as private placements or investments that are not
registered under the 1933 Act and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Portfolio. The price the Portfolio pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.
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The Portfolio may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS
The Portfolio is permitted to enter into the futures and options
transactions described below for hedging and risk management purposes, but it
does not currently intend to do so.
The Portfolio may (a) purchase and sell exchange traded and
over-the-counter ("OTC") put and call options on fixed income securities and
indexes of fixed income securities, (b) purchase and sell futures contracts on
fixed income securities and indexes of fixed income securities and (c) purchase
and sell put and call options on futures contracts on fixed income securities
and indexes of fixed income securities.
The Portfolio may use futures contracts and options for hedging and
risk management purposes. See Item 13 in Part B. The Portfolio may not use
futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Portfolio's return. While the use of these
instruments by the Portfolio may reduce certain risks associated with owning its
portfolio securities, these techniques themselves entail certain other risks. If
the Advisor applies a strategy at an inappropriate time or judges market
conditions or trends incorrectly, options and futures strategies may lower the
Portfolio's return. Certain strategies limit the Portfolio's possibilities to
realize gains as well as limiting its exposure to losses. The Portfolio could
also experience losses if the
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prices of its options and futures positions were poorly correlated with its
other investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, the Portfolio will incur transaction
costs, including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Portfolio's turnover rate.
The Portfolio may purchase and sell put and call options on securities
and indexes of securities, or futures contracts or options on futures contracts,
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time to not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time to not exceed 5% of the
Portfolio's assets. In addition, the Portfolio will not purchase or sell (write)
futures contracts, options on futures contracts or commodity options for risk
management purposes if, as a result, the aggregate initial margin and options
premiums required to establish these positions exceed 5% of the net asset value
of the Portfolio.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
Portfolio obtains the right (but not the obligation) to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Portfolio pays the current market price for the option (known as the option
premium). Options have various types of underlying instruments, including
specific securities, indexes of securities, indexes of securities prices, and
futures contracts. The Portfolio may terminate its position in a put option it
has purchased by allowing it to expire or by exercising the option. The
Portfolio may also close out a put option position by entering into an
offsetting transaction, if a liquid market exists. If the option is allowed to
expire, the Portfolio will lose the entire premium it paid. If the Portfolio
exercises a put option on a security, it will sell the instrument underlying the
option at the strike price. If the Portfolio exercises an option on an index,
settlement is in cash and does not involve the actual sale of securities. If an
option is American style, it may be exercised on any day up to its expiration
date. A European style option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as
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those of put options, except that the purchaser of a call option obtains the
right to purchase, rather than sell, the instrument underlying the option at the
option's strike price. A call buyer typically attempts to participate in
potential price increases of the instrument underlying the option with risk
limited to the cost of the option if security prices fall. At the same time, the
buyer can expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolio assumes the
obligation to pay the strike price for the instrument underlying the option if
the other party to the option chooses to exercise it. The Portfolio may seek to
terminate its position in a put option it writes before exercise by purchasing
an offsetting option in the market at its current price. If the market is not
liquid for a put option the Portfolio has written, however, the Portfolio must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to post margin as discussed
below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange-traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolio may purchase and sell put and call
options and sell (write) covered put and call options on
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any securities index based on securities in which the Portfolio may invest.
Options on securities indexes are similar to options on securities, except that
the exercise of securities index options is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The Portfolio, in purchasing or selling index options, is subject to the risk
that the value of its portfolio securities may not change as much as an index
because the Portfolio's investments generally will not match the composition of
an index.
For a number of reasons, a liquid market may not exist and thus the
Portfolio may not be able to close out an option position that it has previously
entered into. When the Portfolio purchases an OTC option, it will be relying on
its counterparty to perform its obligations, and the Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase
a specified quantity of an underlying instrument at a specified future date or
to make a cash payment based on the value of a securities index. When the
Portfolio sells a futures contract, it agrees to sell a specified quantity of
the underlying instrument at a specified future date or to receive a cash
payment based on the value of a securities index. The price at which the
purchase and sale will take place is fixed when the Portfolio enters into the
contract. Futures can be held until their delivery dates or the position can be
(and normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the
futures contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, when the Portfolio buys or sells a futures contract
it will be required to deposit "initial margin" with the Custodian in a
segregated
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account in the name of its futures broker, known as a futures commission
merchant ("FCM"). Initial margin deposits are typically equal to a small
percentage of the contract's value. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments equal to the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. The Portfolio
may be obligated to make payments of variation margin at a time when it is
disadvantageous to do so. Furthermore, it may not always be possible for the
Portfolio to close out its futures positions. Until it closes out a futures
position, the Portfolio will be obligated to continue to pay variation margin.
Initial and variation margin payments do not constitute purchasing on margin for
purposes of the Portfolio's investment restrictions. In the event of the
bankruptcy of an FCM that holds margin on behalf of the Portfolio, the Portfolio
may be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to the
Portfolio.
The Portfolio will segregate liquid, high quality assets in connection
with its use of options and futures contracts to the extent required by the
staff of the Securities and Exchange Commission. Securities held in a segregated
account cannot be sold while the futures contract or option is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
For further information about the Portfolio's use of futures and
options and a more detailed discussion of associated risks, see "Investment
Objectives and Policies" in Part B.
INVESTMENT RESTRICTIONS
To allow investors in the Portfolio to qualify as regulated investment
companies under Subchapter M of the Code, the Portfolio limits its investments
so that at the close of each quarter of its taxable year (a) no more than 25% of
its total assets are invested in the securities of any one issuer, except
government securities, and (b) with regard to 50% of total assets, no more than
5% of total assets are invested in the securities of a single issuer, except
government securities.
The investment objective of the Portfolio, together with the investment
restrictions described below and in Part B, except as noted, are deemed
fundamental policies, i.e., they may be changed only with the approval of the
holders of a majority of the outstanding voting securities of the Portfolio.
The Portfolio may not (i) borrow money, except that the Portfolio may
(a) borrow money from banks for temporary or
<PAGE>
A-13
emergency purposes (not for leveraging purposes) and (b) enter into reverse
repurchase agreements for any purpose; provided that (a) and (b) in total do not
exceed 33 1/3% of the value of the Portfolio's total assets (including the
amount borrowed) less liabilities (other than borrowings). If at any time
borrowings come to exceed 33 1/3% of the value of the Portfolio's total assets,
the Portfolio will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation; or (ii) issue senior
securities except as permitted by the 1940 Act or any rule, order or
interpretation thereunder. See "Additional Investment Information and Risk
Factors -- Loans of Portfolio Securities" and "Additional Investment Information
and Risk Factors -- Reverse Repurchase Agreements."
For a more detailed discussion of the above investment restrictions, as
well as a description of certain other investment restrictions, see Item 13 in
Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIO.
The Board of Trustees provides broad supervision over the affairs of
the Portfolio. The Portfolio has retained the services of Morgan Guaranty as
investment adviser. The Portfolio has retained the services of Signature
Broker-Dealer Services, Inc. ("SBDS") as administrator (the "Administrator").
The Portfolio has not retained the services of a principal underwriter
or distributor, since interests in the Portfolio are offered solely in private
placement transactions. SBDS, acting as agent for the Portfolio, serves as
exclusive placement agent of interests in the Portfolio. SBDS receives no
additional compensation for serving as exclusive placement agent to the
Portfolio.
The Portfolio has entered into a Fund Services Agreement with Pierpont
Group, Inc. to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The fees to be paid under this
agreement approximate the reasonable cost of Pierpont Group, Inc. in providing
these services. Pierpont Group, Inc. was organized in 1989 at the request of the
Trustees of The Pierpont Funds (currently an investor in the Portfolio) for the
purpose of providing these services at cost to The Pierpont Funds. See Item 14
in Part B. The principal offices of Pierpont Group, Inc. are located at 461
Fifth Avenue, New York, New York 10017.
INVESTMENT ADVISOR. Morgan Guaranty, with principal offices at 60 Wall
Street, New York, New York 10260, is a New York trust company which conducts a
general banking and trust business. Morgan Guaranty is a wholly owned subsidiary
of J.P Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company
organized under the laws of Delaware. Through offices in New York City and
abroad, J.P. Morgan, through the Advisor and other subsidiaries, offers a wide
range of services to governmental, institutional,
<PAGE>
A-14
corporate and individual customers and acts as investment adviser to individual
and institutional clients with combined assets under management of over $145
billion (of which the Advisor advises over $30 billion). Morgan Guaranty
provides investment advice and portfolio management services to the Portfolio.
Subject to the supervision of the Portfolio's Trustees, Morgan Guaranty makes
the Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments.
See Item 16 in Part B.
The Advisor uses a sophisticated, disciplined, collaborative process
for managing all asset classes. For fixed income portfolios, this process
focuses on the systematic analysis of real interest rates, sector
diversification and quantitative and credit analysis. Morgan Guaranty has
managed portfolios of domestic fixed income securities on behalf of its clients
for over 50 years. The Portfolio managers making investments in domestic fixed
income securities work in conjunction with fixed income, credit, capital market
and economic research analysts, as well as traders and administrative officers.
The following persons are primarily responsible for the day-to-day
management and implementation of Morgan Guaranty's process for the Portfolio
(the inception date of each person's responsibility for the Portfolio and his or
her business experience for the past five years are indicated parenthetically):
Elbridge T. Gerry III, Vice President (since April, 1994; employed by Morgan
Guaranty since prior to 1989) and Elizabeth A. Augustin, Vice President (since
April, 1994; employed by Morgan Guaranty since prior to 1989).
As compensation for the services rendered and related expenses borne by
Morgan Guaranty under the Investment Advisory Agreement with the Portfolio, the
Portfolio has agreed to pay Morgan Guaranty a fee which is computed daily and
may be paid monthly at the annual rate of 0.30% of the Portfolio's average daily
net assets.
Morgan Guaranty also acts as Services Agent to the Portfolio. See
"Services Agent" below.
ADMINISTRATOR. Under an Administration Agreement with the Portfolio,
SBDS serves as the Administrator for the Portfolio and in that capacity
supervises the Portfolio's day-to-day operations other than management of the
Portfolio's investments. In this capacity, SBDS administers and manages all
aspects of the Portfolio's day-to-day operations subject to the supervision of
the Trustees, except as set forth under "Investment Advisor," "Services Agent"
and "Custodian." In connection with its responsibilities as Administrator, SBDS
(i) furnishes ordinary clerical and related services for day-to-day operations
including
<PAGE>
A-15
certain recordkeeping responsibilities; (ii) takes responsibility for compliance
with all applicable federal and state securities and other regulatory
requirements; and (iii) performs such administrative and managerial oversight of
the activities of the Portfolio's custodian and transfer agent as the Trustees
may direct from time to time. Under the terms of the Portfolio's Financial and
Fund Accounting Services Agreement with Morgan Guaranty, the fees of the
Administrator are covered by Morgan Guaranty's expense undertaking described
under "Services Agent" below.
Under the Portfolio's Administration Agreement, the annual
administration fee rate is calculated based on the aggregate average daily net
assets of the Portfolio, as well as all of the other portfolios (the "Master
Funds") in which series of The Pierpont Funds, The JPM Institutional Funds or
The JPM Advisor Funds invest. The fee is calculated in accordance with the
following schedule: 0.010% of the first $1 billion of these portfolios'
aggregate average daily net assets, 0.008% of the next $2 billion of these
portfolios' aggregate average daily net assets, 0.006% of the next $2 billion of
these portfolios' aggregate average daily net assets, and 0.004% of these
portfolios' aggregate average daily net assets in excess of $5 billion. This fee
is then applied to the net assets of the Portfolio and the Master Funds. The
Administrator may voluntarily waive a portion of its fees.
SBDS, a registered broker-dealer, also serves as the exclusive
placement agent for the Portfolio. SBDS is a wholly owned subsidiary of
Signature Financial Group, Inc. ("Signature"). Signature and its affiliates
currently provide administration and distribution services for a number of
registered investment companies through offices located in Boston, New York,
London, Toronto and George Town, Grand Cayman . The principal business address
of SBDS is 6 St. James Avenue, Boston, Massachusetts 02116.
SERVICES AGENT. Under a Financial and Fund Accounting Services
Agreement (the "Services Agreement") with the Portfolio, Morgan Guaranty acts as
Services Agent to the Portfolio and provides the following services to the
Portfolio. The Services Agreement provides that Morgan Guaranty is responsible
for certain financial and fund accounting services provided to the Portfolio,
including services related to tax returns and financial reports. The services to
be provided by Morgan Guaranty under the Services Agreement include, but are not
limited to, assisting the Administrator in preparing tax returns, reviewing
financial reports, coordinating annual audits, assisting in the development of
budgets, and overseeing preparation of tax information for investors; monitoring
the fund accounting activities and daily partnership allocation calculation; and
providing other related services.
In addition, as provided in the Services
<PAGE>
A-16
Agreement, Morgan Guaranty is responsible for the annual costs of certain usual
and customary expenses incurred by the Portfolio (the "Expense Undertaking").
The expenses covered by the Expense Undertaking include, but are not limited to,
transfer and registrar costs, legal and accounting expenses, fees of the
Administrator, insurance, the compensation and expenses of the Trustees, the
expenses of printing and mailing reports, notices, and other materials to
investors, and registration fees under federal or state securities laws. The
Portfolio will pay these expenses directly and such amounts will be deducted
from the fees to be paid to Morgan Guaranty under the Services Agreement. If
such amounts are more than the amount of Morgan Guaranty's fees under the
Services Agreement, Morgan Guaranty will reimburse the Portfolio for such excess
amounts. Under the Services Agreement, the following expenses are not included
in the Expense Undertaking: custodian fees, advisory fees, brokerage expenses,
the services agent fee, organization expenses and extraordinary expenses as
defined in the Services Agreement.
The Services Agreement provides for the Portfolio to pay Morgan
Guaranty a fee for these services which is computed daily and may be paid
monthly at the annual rate of 0.10% of the average daily net assets of the
Portfolio up to $200 million, 0.05% on the next $200 million of such assets, and
0.03% of such assets thereafter.
As noted above, the fee level of the Portfolio includes the Expense
Undertaking and reflects payments made directly to third parties by the
Portfolio for services rendered, as well as payments to Morgan Guaranty for
services rendered. The Trustees regularly review amounts paid to and accounted
for by Morgan Guaranty pursuant to the Services Agreement. Under the Services
Agreement, Morgan Guaranty may delegate one or more of its responsibilities to
other entities, including SBDS, at Morgan Guaranty's expense.
CUSTODIAN. State Street Bank and Trust Company, 40 King Street West,
Toronto, Ontario, Canada M5H 3Y8 serves as the Portfolio's custodian and
transfer agent (the "Custodian").
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolio 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 amount of its investment in the Portfolio. Investments in the
Portfolio may not be transferred, but an investor may withdraw all or any
portion of its investment at any time at net asset value. Investors in the
Portfolio (e.g., investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the
<PAGE>
A-17
Portfolio itself was unable to meet its obligations.
Investments in the Portfolio have no preemptive or conversion rights
and are fully paid and nonassessable, except as set forth below. The Portfolio
is not required and has no current intention of holding annual meetings of
investors, but the Portfolio will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote. Changes in fundamental policies will be submitted to investors
for approval. Investors have under certain circumstances (e.g., upon application
and submission of certain specified documents to the Trustees by a specified
percentage of the outstanding interests in the Portfolio) 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 percentage of the outstanding interests in the Portfolio.
Upon liquidation of the Portfolio, investors would be entitled to share pro rata
in the net assets of the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each business day
other than the holidays listed in Part B ("Portfolio Business Day"). This
determination is made once each Portfolio Business Day as of 4:00 p.m. New York
time (the "Valuation Time").
The "net income" of the Portfolio will consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Interest income
includes discount earned (including both original issue and market discount) on
discount paper accrued ratably to the date of maturity and any net realized
gains or losses on the assets of the Portfolio. All the net income of the
Portfolio is allocated pro rata among the investors in the Portfolio.
The end of the Portfolio's fiscal year is March 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
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
<PAGE>
A-18
Subchapter M of the Code, assuming that the investor invested all of its assets
in the Portfolio.
Investor inquiries may be directed to SBDS at 6 St. James Avenue,
Boston, Massachusetts 02116 (617) 423-0800.
ITEM 7. PURCHASE OF SECURITIES.
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 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio. The net asset value of the Portfolio
is determined on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because 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., monies credited to the account
of the Custodian by a Federal Reserve Bank).
The Portfolio and SBDS reserve the right to cease accepting investments
at any time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
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
reductions, which are to be effected as the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed 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 Valuation Time on such day plus or minus,
as the case may be, the amount of net additions to or reductions in the
investor's investment in the Portfolio effected as of the Valuation Time, and
(ii) the denominator of which is the aggregate net asset value of the Portfolio
as of the Valuation Time on such day, plus or minus, as the case may be, the
amount of net additions to or reductions in
<PAGE>
A-19
the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the Valuation Time on the following
Portfolio Business Day.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio. The proceeds of a
reduction will be paid by the Portfolio in federal funds normally on the next
Portfolio Business Day after the reduction is effected, but in any event within
seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange (the "NYSE") is closed
(other than weekends or holidays) or trading on the NYSE is restricted or, to
the extent otherwise permitted by the 1940 Act, if an emergency exists.
The Portfolio reserves the right under certain circumstances, such as
accommodating requests for substantial withdrawals or liquidations, to pay
distributions in kind to investors (i.e., to distribute portfolio securities as
opposed to cash). If securities are distributed, an investor could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Portfolio or the investor's
portfolio, as the case may be.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
<PAGE>
JPM450A
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS. PAGE
General Information and History . . . . . . . . . . . B-
Investment Objectives and Policies . . . . . . . . . B-
Management of the Portfolio . . . . . . . . . . . . . B-
Control Persons and Principal Holder
of Securities . . . . . . . . . . . . . . . . . . . . B-
Investment Advisory and Other Services . . . . . . . B-
Brokerage Allocation and Other Practices . . . . . . B-
Capital Stock and Other Securities . . . . . . . . . B-
Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . . . . . B-
Tax Status . . . . . . . . . . . . . . . . . . . . . B-
Underwriters . . . . . . . . . . . . . . . . . . . . B-
Calculations of Performance Data . . . . . . . . . . B-
Financial Statements . . . . . . . . . . . . . . . . B-
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
The investment objective of The New York Total Return Bond Portfolio
(the "Portfolio") is to provide a high after tax total return consistent with
moderate risk of capital. Total return will consist of income plus capital gains
and losses. The Portfolio attempts to achieve its investment objective by
investing primarily in municipal securities issued by New York State and its
political subdivisions and by agencies, authorities and instrumentalities of New
York and its political subdivisions.
These securities earn income exempt from federal and New York State and local
income taxes but, in certain circumstances, may be subject to alternative
minimum tax. In addition, the Portfolio may invest in municipal securities
issued by states other than New York, by territories and possessions of the
United States and by the District of Columbia and their political subdivisions,
agencies and instrumentalities. These securities earn income exempt from federal
income taxes but, in certain circumstances, may be subject to alternative
minimum tax. The Portfolio is advised by Morgan Guaranty Trust Company of New
York ("Morgan Guaranty" or the "Advisor"). In order to seek to enhance the
Portfolio's after tax return, the Portfolio
<PAGE>
B-2
may also invest in securities which earn income subject to New York and/or
federal income taxes. These securities include U.S. government securities,
corporate securities and municipal securities issued on a taxable basis.
The following discussion supplements the information regarding the
investment objective of the Portfolio and the policies to be employed to achieve
this objective as set forth above and in Part A.
MONEY MARKET INSTRUMENTS
As discussed in Part A, the Portfolio may invest in money market
instruments to the extent consistent with its investment objective and policies.
A description of the various types of money market instruments that may be
purchased by the Portfolio appears below. See "Quality and Diversification
Requirements" below.
U.S. TREASURY SECURITIES. The Portfolio may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Portfolio must look principally
to the federal agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitments.
Securities in which the Portfolio may invest that are not backed by the full
faith and credit of the United States include, but are not limited to,
obligations of the Tennessee Valley Authority, the Federal National Mortgage
Association, and the U.S. Postal Service, each of which has the right to borrow
from the U.S. Treasury to meet its obligations, and obligations of the Federal
Farm Credit System and the Federal Home Loan Banks, both of whose obligations
may be satisfied only by the individual credits of each issuing agency.
Securities which are backed by the full faith and credit of the United States
include obligations of the Government National Mortgage Association, the Farmers
Home Administration, and the Export-Import Bank.
BANK OBLIGATIONS. The Portfolio, unless otherwise noted in Part A or
below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
the laws of the United States or any state, (ii) foreign branches of these
<PAGE>
B-3
banks of equivalent size (Euros) and (iii) U.S. branches of foreign banks of
equivalent size (Yankees). The Portfolio may not invest in obligations of
foreign branches of foreign banks. The Portfolio will not invest in obligations
for which the Advisor, or any of its affiliated persons, is the ultimate obligor
or accepting bank.
COMMERCIAL PAPER. The Portfolio may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan Guaranty acting as agent, for no
additional fee, in its capacity as investment advisor to the Portfolios and as
fiduciary for other clients for whom it exercises investment discretion. The
monies loaned to the borrower come from accounts managed by the Advisor or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. The Advisor, acting as a fiduciary on
behalf of its clients, has the right to increase or decrease the amount provided
to the borrower under an obligation. The borrower has the right to pay without
penalty all or any part of the principal amount then outstanding on an
obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Treasury
Bill auction rate, the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends on the
ability of the borrower to pay the accrued interest and principal of the
obligation on demand which is continuously monitored by the Portfolios' Advisor.
Since master demand obligations typically are not rated by credit rating
agencies, the Portfolio may invest in such unrated obligations only if at the
time of an investment the obligation is determined by the Advisor to have a
credit quality which satisfies the Portfolio's quality restrictions. See
"Quality and Diversification Requirements" below. Although there is no secondary
market for master demand obligations, such obligations are considered by the
Portfolio to be liquid because they are payable upon demand. The Portfolio does
not have any specific percentage limitation on investments in master demand
obligations.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trustees. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Portfolio is invested in the agreement
and is not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by the
Portfolio to the seller. The period of these repurchase
<PAGE>
B-4
agreements will usually be short, from overnight to one week, and at no time
will the Portfolio invest in repurchase agreements for more than 13 months. The
securities which are subject to repurchase agreements, however, may have
maturity dates in excess of 13 months from the effective date of the repurchase
agreement.
The Portfolio will always receive securities as collateral whose market value
is, and during the entire term of the agreement remains, at least equal to 100%
of the dollar amount invested by the Portfolio in each agreement plus accrued
interest, and the Portfolio will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer to the account of the
Portfolio's custodian (the "Custodian").
If the seller defaults, the Portfolio might incur a loss if the value of the
collateral securing the repurchase agreement declines and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the Portfolio may be delayed or limited.
The Portfolio may make investments in other debt securities with
remaining effective maturities of not more than 13 months, including without
limitation corporate and foreign bonds, asset-backed securities and other
obligations described in Part A or this Part B. The Portfolio may not invest in
foreign bonds or asset-backed securities.
TAX EXEMPT OBLIGATIONS
As discussed in Part A, the Portfolio may invest in tax exempt
obligations to the extent consistent with the Portfolio's investment objective
and policies. A description of the various types of tax exempt obligations which
may be purchased by the Portfolio appears in Part A and below. See "Quality and
Diversification Requirements" below.
MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund outstanding
obligations and to meet general operating expenses. Public authorities issue
municipal bonds to obtain funding for privately operated facilities, such as
housing and pollution control facilities, for industrial facilities or for water
supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of
<PAGE>
B-5
principal and interest. Revenue bonds are payable from revenues derived from
particular facilities, from the proceeds of a special excise tax or from other
specific revenue sources. They are not generally payable from the general taxing
power of a municipality.
MUNICIPAL NOTES. Municipal notes are subdivided into three categories
of short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or institutions.
Municipal demand obligations are subdivided into two types: variable
rate demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which the Portfolio may invest are payable, or are
subject to purchase, on demand usually on notice of seven calendar days or less.
The terms of the notes provide that interest rates are adjustable at intervals
ranging from daily to six months, and the adjustments are based upon the prime
rate of a bank or other appropriate interest rate index specified in the
respective notes. Variable rate demand notes are valued at amortized cost; no
value is assigned to the right of the Portfolio to receive the par value of the
obligation upon demand or notice.
<PAGE>
B-6
Master demand obligations are tax exempt municipal obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. The interest on such obligations is, in the
opinion of counsel for the borrower, exempt from federal income tax. Although
there is no secondary market for master demand obligations, such obligations are
considered by the Portfolio to be liquid because they are payable upon demand.
The Portfolio has no specific percentage limitations on investments in master
demand obligations.
PUTS. The Portfolio may purchase without limit municipal bonds or notes
together with the right to resell the bonds or notes to the seller at an agreed
price or yield within a specified period prior to the maturity date of the bonds
or notes. Such a right to resell is commonly known as a "put." The aggregate
price for bonds or notes with puts may be higher than the price for bonds or
notes without puts. Consistent with the Portfolio's investment objective and
subject to the supervision of the Trustees, the purpose of this practice is to
permit the Portfolio to be fully invested in tax exempt securities while
preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions, and to purchase at a later date
securities other than those subject to the put. The principal risk of puts is
that the writer of the put may default on its obligation to repurchase. The
Advisor will monitor each writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of interests
in the Portfolio and from recent sales of portfolio securities are insufficient
to meet obligations or when the funds available are otherwise allocated for
investment. In addition, puts may be exercised prior to the expiration date in
order to take advantage of alternative investment opportunities or in the event
the Advisor revises its evaluation of the creditworthiness of the issuer of the
underlying security. In determining whether to exercise puts prior to their
expiration date and in selecting which puts to exercise, the Advisor considers
the amount of cash available to the Portfolio, the expiration dates of the
available puts, any future commitments for securities purchases, alternative
investment opportunities, the desirability of retaining the underlying
securities in the Portfolio and the yield, quality and maturity dates of the
underlying securities.
The Portfolio values any municipal bonds and notes subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Portfolio were to invest in municipal bonds and notes with maturities of 60 days
or more that are subject to puts separate from the underlying securities, the
puts and the underlying securities would be valued at fair value
<PAGE>
B-7
as determined in accordance with procedures established by the Board of
Trustees. The Board of Trustees would, in connection with the determination of
the value of a put, consider, among other factors, the creditworthiness of the
writer of the put, the duration of the put, the dates on which or the periods
during which the put may be exercised and the applicable rules and regulations
of the Securities and Exchange Commission (the "SEC"). Prior to investing in
such securities, the Portfolio, if deemed necessary based upon the advice of
counsel, will apply to the SEC for an exemptive order, which may not be granted,
relating to the valuation of such securities.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Portfolio's policy is to
enter into put transactions only with municipal securities dealers who are
approved by the Portfolio's Advisor. Each dealer will be approved on its own
merits, and it is the Portfolio's general policy to enter into put transactions
only with those dealers which are determined to present minimal credit risks. In
connection with such determination, the Trustees will review regularly the
Advisor's list of approved dealers, taking into consideration, among other
things, the ratings, if available, of their equity and debt securities, their
reputation in the municipal securities markets, their net worth, their
efficiency in consummating transactions and any collateral arrangements, such as
letters of credit, securing the puts written by them. Commercial bank dealers
normally will be members of the Federal Reserve System, and other dealers will
be members of the National Association of Securities Dealers, Inc. or members of
a national securities exchange. Other put writers will have outstanding debt
rated Aa or better by Moody's Investors Service, Inc. ("Moody's") or AA or
better by Standard & Poor's Ratings Group ("Standard & Poor's") or will be of
comparable quality in the Advisor's opinion or such put writers' obligations
will be collateralized and of comparable quality in the Advisor's opinion. The
Trustees have directed the Advisor not to enter into put transactions with any
dealer which in the judgment of the Advisor becomes more than a minimal credit
risk. In the event that a dealer should default on its obligation to repurchase
an underlying security, the Portfolio is unable to predict whether all or any
portion of any loss sustained could subsequently be recovered from such dealer.
The Portfolio has been advised by counsel that it will be considered
the owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Portfolio. Such advice of counsel is
based on certain assumptions concerning the terms of the puts and the attendant
circumstances.
FOREIGN INVESTMENTS
To the extent that the Portfolio invests in municipal bonds and notes
backed by credit support arrangements with foreign
<PAGE>
B-8
financial institutions, the risks associated with investing in foreign
securities may be relevant to the Portfolio.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Portfolio until settlement takes
place. At the time the Portfolio makes the commitment to purchase securities on
a when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, the Portfolio
will maintain with the Custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, the Portfolio will meet its obligations from maturities or sales
of the securities held in the segregated account and/or from cash flow. If the
Portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. It is the
current policy of the Portfolio not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Portfolio's total
assets, less liabilities other than the obligations created by when-issued
commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Portfolio to the extent permitted under the Investment
Company Act of 1940, as amended (the "1940 Act"). These limits require that, as
determined immediately after a purchase is made, (i) not more than 5% of the
value of the Portfolio's total assets will be invested in the securities of any
one investment company, (ii) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group, and (iii) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Portfolio. As a shareholder of another
investment company, the Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Portfolio bears directly in connection with its own operations.
<PAGE>
B-9
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. It may also be viewed as the borrowing of money by the Portfolio
and, therefore, is a form of leverage. The Portfolio will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the Portfolio will
enter into a reverse repurchase agreement only when the interest income to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The Portfolio will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The Portfolio may not enter into reverse repurchase
agreements exceeding in the aggregate one-third of the market value of its total
assets, less liabilities other than the obligations created by reverse
repurchase agreements. The Portfolio will establish and maintain with the
Custodian a separate account with a segregated portfolio of securities in an
amount at least equal to its purchase obligations under its reverse repurchase
agreements. See "Investment Restrictions" below.
LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend its securities if
such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally five business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. The Portfolio may pay reasonable finders' and custodial fees in
connection with a loan. In addition, the Portfolio will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and the Portfolio will not make any loans in excess of one year.
The Portfolio will not lend its securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolio, the Advisor or the exclusive
placement agent, unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolio may
invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in Part A.
As to illiquid investments, the Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net
<PAGE>
B-10
assets could be adversely affected. Where an illiquid security must be
registered under the Securities Act of 1933, as amended (the "1933 Act") before
it may be sold, the Portfolio may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolio may invest in
certain synthetic variable rate instruments as described in Part A. In the case
of some types of instruments credit enhancement is not provided, and if certain
events, which may include (a) default in the payment of principal or interest on
the underlying bond, (b) downgrading of the bond below investment grade or (c) a
loss of the bond's tax exempt status, occur, then (i) the put will terminate,
and (ii) the risk to the Portfolio will be that of holding a long-term bond.
QUALITY AND DIVERSIFICATION REQUIREMENTS
The Portfolio is registered as a non-diversified investment company and
is not limited by the 1940 Act in the proportion of its assets that may be
invested in the obligations of a single issuer. Thus, the Portfolio may invest a
greater proportion of its assets in the securities of a smaller number of
issuers and, as a result, will be subject to greater risk with respect to its
portfolio securities. The Portfolio, however, will comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), to allow investors in the Portfolio to qualify as
regulated investment companies under Subchapter M of the Code.
For purposes of diversification under the Code and concentration under
the 1940 Act, identification of the issuer of municipal bonds or notes depends
on the terms and conditions of the obligation. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of an industrial development
revenue bond or pollution control revenue bond, if the bond is backed only by
the assets and revenues of the nongovernmental user, the nongovernmental user is
regarded as the sole issuer. If in either case the creating government or
another entity guarantees an obligation, the guaranty is regarded as a separate
security and treated as an issue of such guarantor. Since securities issued or
guaranteed by states or municipalities are not voting securities, there is no
limitation on the percentage of a single issuer's securities which the Portfolio
may own so long as it does not invest more than 5% of its total assets that are
subject
<PAGE>
B-11
to the diversification limitation in the securities of such issuer, except
obligations issued or guaranteed by the U.S. Government. Consequently, the
Portfolio may invest in a greater percentage of the outstanding securities of a
single issuer than would an investment company which invests in voting
securities. See "Investment Restrictions" below.
The Portfolio invests principally in a diversified portfolio of
"investment grade" tax exempt securities. An investment grade bond is rated, on
the date of investment within the four highest ratings of Moody's, currently
Aaa, Aa, A and Baa, or of Standard & Poor's, currently AAA, AA, A and BBB, while
high grade debt is rated, on the date of the investment within the two highest
of such ratings. Investment grade municipal notes are rated, on the date of
investment, MIG-1 or MIG-2 by Standard & Poor's or SP-1 and SP-2 by Moody's.
Investment grade municipal commercial paper is rated, on the date of investment,
Prime 1 or Prime 2 by Moody's and A-1 or A-2 by Standard & Poor's. The Portfolio
may also invest up to 5% of its total assets in securities which are "below
investment grade". Such securities must be rated, on the date of investment, Ba
by Moody's or BB by Standard & Poor's. The Portfolio may invest in debt
securities which are not rated or other debt securities to which these ratings
are not applicable, if in the opinion of the Advisor, such securities are of
comparable quality to the rated securities discussed above. In addition, at the
time the Portfolio invests in any taxable commercial paper, bank obligation or
repurchase agreement, the issuer must have outstanding debt rated A or higher by
Moody's or Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
OPTIONS AND FUTURES TRANSACTIONS
EXCHANGE TRADED AND OVER-THE-COUNTER-OPTIONS. All options purchased or
sold by the Portfolio will be traded on a securities exchange or will be
purchased or sold by securities dealers (over -the-counter or OTC options) that
meet creditworthiness standards approved by the Board of Trustees. While
exchange-traded options are obligations of the Options Clearing Corporation, in
the case of OTC options, the Portfolio relies on the dealer from which it
purchased the option to perform if the option is exercised. Thus, when the
Portfolio purchases an OTC option, it relies on the dealer from which it
purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by
the
<PAGE>
B-12
Portfolio as well as loss of the expected benefit of the transaction.
The staff of the SEC has taken the position that, in general, purchased
OTC options and the underlying securities used to cover written OTC options are
illiquid securities. However, the Portfolio may treat as liquid the underlying
securities used to cover written OTC options, provided it has arrangements with
certain qualified dealers who agree that the Portfolio may repurchase any option
it writes for a maximum price to be calculated by a predetermined formula. In
these cases, the OTC option itself would only be considered illiquid to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In entering into
futures and options transactions the Portfolio may purchase or sell futures
contracts and purchase put and call options and sell (write) covered put and
call options on futures contracts. Futures contracts obligate the buyer to take
and the seller to make delivery at a future date of a specified quantity of a
financial instrument or an amount of cash based on the value of a securities
index. Currently, futures contracts are available on various types of fixed
income securities, including but not limited to U.S. Treasury bonds, notes and
bills, Eurodollar certificates of deposit and on indexes of fixed income
securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by the Portfolio are paid by the Portfolio into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the SEC's interpretations thereunder.
COMBINED POSITIONS. The Portfolio may purchase and write options in
combination with each other, or in combination with
<PAGE>
B-13
futures or forward contracts, to adjust the risk and return characteristics of
the overall position. For example, the Portfolio may purchase a put option and
write a call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to selling a
futures contract. Another possible combined position would involve writing a
call option at one strike price and buying a call option at a lower price, in
order to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the
Portfolio's current or anticipated investments exactly. The Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in the Portfolio's options
or futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed,
<PAGE>
B-14
it may be impossible for the Portfolio to enter into new positions or close out
existing positions. If the market for a contract is not liquid because of price
fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and could potentially require the Portfolio to continue
to hold a position until delivery or expiration regardless of changes in its
value. As a result, the Portfolio's access to other assets held to cover its
options or futures positions could also be impaired. (See "Exchange Traded and
Over -the-Counter Options" above for a discussion of the liquidity of options
not traded on an exchange.)
POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, the Portfolio or the Advisor may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The
Portfolio intends to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which the Portfolio can
commit assets to initial margin deposits and option premiums. In addition, the
Portfolio will comply with guidelines established by the SEC with respect to
coverage of options and futures contracts by mutual funds, and if the guidelines
so require, will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures contract or option is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
RISK MANAGEMENT
The Portfolio may employ non-hedging risk management techniques.
Examples of such strategies include synthetically altering the duration of its
portfolio or the mix of securities in its portfolio. For example, if the Advisor
wishes to extend maturities in a fixed income portfolio in order to take
advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying long-term securities, it might cause the Portfolio to
purchase futures contracts on long-term debt securities. Similarly, if the
Advisor wishes wished to decrease fixed income securities or purchase equities,
it could cause the Portfolio to sell futures contracts on debt securities and
purchase futures contracts on a stock index. Such non-hedging risk management
techniques are not speculative, but because they involve leverage include, as do
all leveraged transactions, the possibility of
<PAGE>
B-15
losses as well as gains that are greater than if these techniques involved the
purchase and sale of the securities themselves rather than their synthetic
derivatives.
SPECIAL FACTORS AFFECTING THE PORTFOLIO. The Portfolio intends to
invest a high proportion of its assets in municipal obligations of the State of
New York and its political subdivisions, municipalities, agencies,
instrumentalities and public authorities. Payment of interest and preservation
of principal is dependent upon the continuing ability of New York issuers and/or
obligators of state, municipal and public authority debt obligations to meet
their obligations thereunder.
The fiscal stability of New York State is related, at least in part, to
the fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State agencies,
authorities and localities, the State has had to provide special assistance in
recent years, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.
For further information concerning New York municipal obligations, see
"Additional Information Concerning New York Municipal Obligations" below. The
summary set forth above and below is included for the purpose of providing a
general description of New York State and New York City credit and financial
conditions. This summary is based on information from an official statement of
New York general obligation municipal obligations and does not purport to be
complete.
ADDITIONAL INFORMATION CONCERNING NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations. The sources of payment for such
obligations and the marketability thereof may be affected by financial or other
difficulties experienced by New York State and certain of its municipalities and
public authorities. It does not purport to be a complete description and is
based on information from an official statement relating to a general obligation
securities offering of a New York issuer.
NEW YORK STATE. The factors affecting the State's financial condition
are complex and the following description constitutes only a summary.
<PAGE>
B-16
RECENT DEVELOPMENTS
A national recession commenced in mid-1990. The downturn continued
throughout the State's 1990-91 fiscal year and was followed by a period of weak
economic growth during the 1991 calendar year. For calendar year 1992, the
national economy continued to recover, although at a rate below all post-war
recoveries. For calendar year 1993, the economy has grown faster than in 1992,
but still at a very moderate rate, as compared to other recoveries.
The recession has been more severe in the State, owing to a significant
retrenchment in the financial services industry, cutbacks in defense spending,
and an overbuilt real estate market. The forecast made by the Division of the
Budget for the overall rate of growth of the national economy during calendar
1993 is similar to the "consensus" of a widely followed survey of forecasters.
The Revised 1993-94 State Financial Plan is based on an economic
projection that the State will perform more poorly than the nation as a whole.
Although real gross domestic product grew modestly during the 1992 calendar
year, preliminary data indicate that the State's economy, as measured by
employment, began to grow during the first part of calendar year 1993. Many
uncertainties exist in forecasts of both the national and State economies,
including consumer attitudes toward spending, federal financial and monetary
policies, the availability of credit, and the condition of the world economy,
which could have an adverse effect on the State. There can be no assurance that
the State economy will not experience worse-than-predicted results in the
1993-94 fiscal year, with corresponding material and adverse effects on the
State's projections of receipts and disbursements.
Payments for principal and interest due on general obligation bonds,
interest due on bond anticipation notes and tax and revenue anticipation notes
and contractual-obligation and lease-purchase payments were $1.783 billion and
$2.045 billion in the aggregate, for the State's 1991-92 and 1992-93 fiscal
years, and are projected to be $2.326 billion in the aggregate for the 1993-94
fiscal year. These figures do not include interest payable on either the State's
General Obligation Refunding Bonds issued in July, 1992, to the extent that such
interest is to be paid from an escrow fund established with the proceeds of such
bonds or the State's installment payments relating to the issuance of
certificates of participation. The State has never defaulted on any of its
general obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees. There has never been a
default on any moral obligation debt of any Authority.
The Governor released the recommended Executive Budget for
<PAGE>
B-17
the 1993-94 fiscal year on January 19, 1993 and amended it on February 18, 1993.
The recommended 1993-94 State Financial Plan projected a balanced General Fund.
General Fund receipts and transfers from other funds were projected at $31.556
billion, including $184 million expected to be carried over from the 1993-94
fiscal year. Disbursements and transfers to other funds were projected at
$31.489 billion, not including a $67 million repayment to the State's Tax
Stabilization Reserve Fund.
The 1993-94 State Financial Plan projects General Fund receipts and
transfers from other funds at $32.367 billion and disbursements and transfers to
other funds at $32.300 billion. Excess receipts of $67 million will be used for
a required repayment to the State's Tax Stabilization Reserve Fund. In
comparison to the recommended 1993-94 Executive Budget, the 1993-94 State
budget, as enacted, reflects increases in both receipts and disbursements in the
General Fund of $811 million.
The $811 million increase in projected receipts reflects (i) an
increase of $487 million, from $184 million to $671 million, in the positive
year-end margin at March 31, 1993, which resulted primarily from improving
economic conditions and higher-than-expected tax collections, (ii) an increase
of $269 million in projected receipt, $211 million resulting from the improved
1992-93 results and the expectation of an improving economy and the balance from
improved auditing and enforcement measures and other miscellaneous items, (iii)
additional payments of $200 million from the federal government to reimburse the
State for the cost of providing indigent medical care, and (iv) the payment of
an additional $50 million of personal income tax refunds in the 1992-93 fiscal
year which would otherwise have been paid in fiscal year 1993-94; offset by (v)
$195 million of revenue-raising recommendations in the Executive Budget that
were not enacted and thus are not included in the 1993-94 State Financial Plan.
The $811 million increase in projected disbursements reflects (i) an
increase of $252 million in projected school-aid payments, after applying
projected receipts from the State Lottery allocated to school aid, (ii) an
increase of $194 million in projected payments for Medicaid assistance and other
social service programs, (iii) additional spending on the judiciary ($56
million) and criminal justice ($48 million), (iv) a net increase in projected
disbursements for all other programs and purposes, including mental hygiene and
capital projects, of $161 million, after reflecting certain reestimates in
spending, and (v) the transfer of $100 million to a newly established
contingency reserve.
The first quarterly update to the 1993-94 State Financial Plan was
released on September 1, 1993. The update shows a General Fund operating surplus
of $12 million. For all governmental funds, the update reflects an overall
surplus of $195 million, including the General Fund operating surplus of
<PAGE>
B-18
$12 million and operating surpluses of $43 million in Special Revenue
Funds, $79 million in Capital Projects Funds and $61 million in Debt Service
Funds.
The 1993-1994 State Financial Plan was last revised on October 29,
1993. The revision projects General Fund receipts, excluding transfers from
other funds, in the State's 1993-94 fiscal year at $30.925 billion. General Fund
disbursements, exclusive of transfers to other funds, are estimated to total
$30.491 billion in the State's 1993-94 fiscal year.
As a result of the U.S. Supreme Court decision in the case of State of
Delaware v. State of New York, which is described in more detail below in
"Litigation", the State may be required to make certain payments during the
1993-94 fiscal year. Although it is not possible to predict the amount of
payments that may be required in the 1993-94 fiscal year, that amount may be
significant. The Division of the Budget expects, however, that the State will
have the resources to meet reasonably anticipated payment requirements for the
1993-94 fiscal year resulting from this litigation.
There can be no assurance that the State will not face substantial
potential budget gaps in future years, including the 1993-94 fiscal year,
resulting from a significant disparity between tax revenues projected from a
lower recurring receipts base and the spending required to maintain State
programs at current levels. To address any potential budgetary imbalance, the
State may need to take significant actions to align recurring receipts and
disbursements in future fiscal years.
RATING AGENCIES ACTIONS
On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from Al to A. On March 26, 1990, S&P
changed its ratings of all of the State's outstanding general obligation bonds
from AA- to A. On January 13, 1992, S&P changed its ratings of all of the
State's outstanding general obligation bonds from A to A-. Ratings reflect only
the respective views of such organizations, and an explanation of the
significance of such ratings must be obtained from the rating agency furnishing
the same. There is no assurance that a particular rating will continue for any
given period of time or that any such rating will not be revised downward or
withdrawn entirely if, in the judgment of the agency originally establishing the
rating, circumstances so warrant. A downward revision or withdrawal of such
ratings, or either of them, may have an effect on the market price of the bonds.
AUTHORITIES
The fiscal stability of the State is related to the fiscal stability of
its Authorities, which generally have responsibility for financing, constructing
and operating revenue-producing
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B-19
public benefit facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. As of September 30, 1992, the latest data
available, there were 18 Authorities that had outstanding debt of $100 million
or more. The aggregate outstanding debt, including refunding bonds, of these 18
Authorities was $62.2 billion as of September 30, 1992, of which approximately
$8.2 billion was moral obligation debt and approximately $17.1 billion was
financed under lease-purchase or contractual-obligation financing arrangements.
The State provided $947.4 million and $955.5 million in financial assistance to
the 18 Authorities during the State's 1991-92 and 1992-93 fiscal years,
respectively, and expects to provide approximately $1,096.6 million in financial
assistance to these Authorities in its 1993-94 fiscal year. Over this time
period, the Metropolitan Transportation Authority ("MTA") received or will
receive more than 90% of this financial assistance. The amounts set forth above
exclude amounts provided for capital construction and pursuant to lease-purchase
or contractual-obligation (including service contract debt) financing
arrangements.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain Authorities for operating and other expenses and,
in fulfillment of its commitments on moral obligation indebtedness or otherwise,
for debt service. This assistance is expected to continue to be required in
future years.
The State's experience has been that if an Authority suffers serious
financial difficulties both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency and the New York State Urban Development
Corporation have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain statutory arrangements provide
for State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State funds.
Metropolitan Transportation Authority: The MTA continues to
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experience financial difficulties requiring financial assistance from the State.
The MTA oversees the operation of New York City's (the "City") bus and subway
lines by the New York City Transit Authority and the Manhattan and Bronx Surface
Transit Operating Authority (collectively the "Transit Authority" or the "TA")
and through its several subsidiaries, operates certain commuter rail, bus and
rapid transit lines in Staten Island and the New York metropolitan area. The MTA
has depended and will continue to depend upon operating support from federal,
State and local government sources and from an MTA affiliate, the Triborough
Bridge and Tunnel Authority ("TBTA").
Over the past several years the State has enacted several
taxes--including a surcharge on the profits of banks, insurance corporations and
general business corporations doing business in the 12-county Metropolitan
Transportation Region served by the MTA and a special one-quarter of 1 percent
regional sales and use tax--that provide revenues for mass transit purposes,
including assistance to the MTA. The surcharge, which expires in November 1995,
yielded approximately $507 million in calendar year 1992, of which the MTA was
entitled to receive approximately 90%, or approximately $456 million. In
addition, in March 1987, legislation was enacted that creates an additional
source of recurring revenues for the MTA. This legislation requires that the
proceeds of a one-quarter of 1% mortgage recording tax paid on certain mortgages
in the Metropolitan Transportation Region that heretofore had been paid to the
State of New York Mortgage Agency be deposited in a special MTA fund. These tax
proceeds may be used by the MTA for either operating or capital (including debt
service) expenses.
For 1993, the TA originally projected a budget gap of approximately
$266 million. The MTA Board approved an increase in TBTA tolls which took effect
January 31, 1993. Since the TBTA operating surplus helps subsidize TA
operations, the January toll increase on TBTA facilities, and other
developments, reduced the projected gap to approximately $241 million.
Legislation passed in April 1993 relating to the MTA's 1992-1996
Capital Program reflected a plan for closing this gap without raising fares. A
major element of the plan provides that the TA receive a significant share of
the petroleum business tax which will be paid directly to MTA for its agencies.
The plan also relies on certain City actions that have not yet been taken.
The plan also relies on MTA and TA resources projected to be available to help
close the gap.
If any of the assumptions used in making these projections prove
incorrect, the TA's gap could grow, and the TA would be required to seek
additional State assistance, raise fares or take other actions.
Two serious accidents in December 1990 and August 1991, which caused
fatalities and many injuries, have given rise to
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B-21
substantial claims for damages against both the TA and the City.
A subway fire on December 28, 1990 and a subway derailment on August
28, 1991, each of which caused fatalities and many injuries, have given rise to
substantial claims for damages against both the TA and the City.
RATING AGENCIES' ACTIONS: In 1991, S&P and Moody's downgraded the
outstanding TBTA mortgage recording tax bonds from A to BBB+ and from A to Baa,
respectively. On May 1, 1991, S&P placed the MTA's nearly $1.7 billion of
transit facilities revenue and commuter facilities revenue bonds on "S&P
CreditWatch", with negative implications and assigned it a rating of BBB+. On
April 14, 1992, Moody's lowered its rating of the MTA transit bonds to Baa from
Baal.
LOCALITIES
THE CITY: The fiscal health of the State is closely related to the
fiscal health of its localities, particularly the City which has required and
continues to require significant State financial assistance. There can be no
assurance that in the future State assistance will enable the City to make up
its budget deficits.
The City's independently audited operating results for each of its 1981
through 1992 fiscal years, which end on June 30, show a General Fund surplus
reported in accordance with GAAP. The City has eliminated the cumulative deficit
in its net General Fund position. In addition, the City's financial statements
for the 1992 fiscal year received an unqualified opinion from the City's
independent auditors, the tenth consecutive year the City has received such an
opinion.
In response to the City's fiscal crisis in 1975, the State took a
number of steps to assist the City in returning to fiscal stability. Among these
actions, the State created MAC to provide financing assistance to the City. The
State also enacted the New York State Financial Emergency Act for The City of
New York (the "Financial Emergency Act") which, among other things, established
the New York State Financial Control Board (the "Control Board") to oversee the
City's financial affairs. The state also established the Office of the State
Deputy Comptroller for the City of New York ("OSDC") to assist the Control Board
in exercising its powers and responsibilities.
The City operates under a four-year financial plan which is prepared
annually and is periodically updated. On June 30, 1986, the Control Board's
powers of approval over the City's financial plan were suspended pursuant to the
Financial Emergency Act. However, the Control Board, MAC and OSDC continue to
exercise various monitoring functions relating to the City's financial position.
The City submits its financial plans as well as the periodic updates to the
Control Board for its review.
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B-22
Estimates of the City's revenues and expenditures are based on numerous
assumptions and are subject to various uncertainties. If expected federal or
State aid is not forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically sensitive taxes or
necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from the State.
1994-1997 FINANCIAL PLAN
In August 1993, the City submitted to the Control Board the 1994-1997
Financial Plan, which relates to the City, the Board of Education ("BOE") and
the City University of New York ("CUNY"). The 1994-1997 Financial Plan projects
revenues and expenditures for the 1994 fiscal year balanced in accordance with
GAAP. The 1994-1997 Financial Plan sets forth actions to close a previously
projected gap of approximately $2.0 billion in the 1994 fiscal year. The
gap-closing actions for the 1994 fiscal year include agency actions aggregating
$666 million, including productivity savings and savings from restructuring the
delivery of City services; service reductions aggregating $274 million; the sale
of delinquent real property tax receivables for $215 million; discretionary
transfers from the 1993 fiscal year of $110 million; reduced debt service costs
aggregating $187 million, resulting from refinancing and other actions; $150
million in proposed increased federal assistance; a continuation of the personal
income tax surcharge, resulting in revenues of $143 million; $80 million in
proposed increased State aid, which is subject to approval by the Governor; and
revenue actions aggregating $173 million. The projected expenditures for the
1994 fiscal year reflect the $131 million of expenditure reductions announced
subsequent to the adoption of the budget on June 14, 1993, including a $50
million reduction in BOE expenditures, a $30 million reduction in personal
service costs and a $25 million reduction in other than personal services.
The Financial Plan also sets forth projections for the 1995 through
1997 fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $1.3 billion, $1.8 billion and $2.0 billion for the 1995 through
1997 fiscal years, respectively. The projections include $150 million of
increased federal assistance in each of the 1995 through 1997 fiscal years and
$131 million, $291 million and $291 million of increased State assistance in the
1995, 1996 and 1997 fiscal years, respectively, which could include savings from
the proposed State assumption of certain Medicaid costs or various
<PAGE>
B-23
proposed mandate relief measures and include the continuation of the personal
income tax surcharge, resulting in revenues of $420, $446 and $471 million in
the 1995, 1996 and 1997 fiscal years, respectively. The proposed gap-closing
actions include City actions aggregating $287 million, $564 million and $645
million in the 1995 through 1997 fiscal years, respectively; $100 million and
$200 million in proposed additional federal assistance in the 1996 and 1997
fiscal years, respectively; savings from various proposed mandate relief
measures and the proposed reallocation of State education aid among various
localities, aggregating $175 million, $325 million and $475 million in the 1995
through 1997 fiscal years, respectively; and other unspecified federal, State or
City actions of $800 million, $800 million and $700 million in the 1995 through
1997 fiscal years, respectively.
Various actions proposed in the Financial Plan, including the proposed
continuation of the personal income tax surcharge beyond December 31, 1995 and
the proposed increase in State aid, are subject to approval by the Governor and
the State Legislature, and the proposed increase in federal aid is subject to
approval by Congress and the President. The State Legislature has in previous
legislative sessions failed to approve proposals for the State assumption of
certain Medicaid costs, mandate relief and reallocation of State education aid,
thereby increasing the uncertainty as to the receipt of the State assistance
included in the Financial Plan. If these actions cannot be implemented, the City
will be required to take other actions to decrease expenditures or increase
revenues to maintain a balanced financial plan. The Financial Plan has been the
subject of extensive public comment and criticism particularly regarding the
sale of delinquent property tax receivables, the sale of the New York City
OffTrack Betting Corporation ("OPTB"), the amount of State and federal aid
included in the Financial Plan and the inclusion of nonrecurring actions.
The City plans to submit the first quarter modification to the
Financial Plan by November 24, 1993. Excluding BOE operations, the modification
is expected to reflect the use of approximately $200 million in additional
resources in the 1994 fiscal year. These resources will be derived primarily
from additional surplus funds that were identified in the audit for the 1993
fiscal year, a reduction in prior years' accrued expenditures, and reestimates
of spending for the 1994 fiscal year. These resources are expected to offset
increased costs in the 1994 fiscal year for overtime in the uniformed forces,
pay increments in the uniformed forces and social welfare programs, without
recourse to the $281 million general reserve for the 1994 fiscal year currently
contained in the Financial Plan. The modification may also include changes in
forecast collections of miscellaneous revenues in the 1994 fiscal year. The
anticipated changes for the 1994 fiscal year are expected to increase the
forecast gaps for each of the 1995 through 1997 fiscal years by an amount less
than the $200 million of resources utilized in the 1994 fiscal year.
<PAGE>
B-24
In addition, the modification is expected to provide for implementation
of the Memorandum of Understanding recently entered into between the City and
BOE. The Memorandum addresses $394 million in additional BOE needs through a
combination of expenditure reductions, reallocations, additional
intergovernmental aid and approximately $110 million of resources derived from a
reduction of prior years' accrued expenditures. The Memorandum provides BOE with
a net increase of $106 million in new spending authority in the 1994 fiscal year
without the use of any additional tax levy funding in the 1994 fiscal year.
Approximately $129 million of the resources utilized in the 1994 fiscal year are
not recurring and, therefore, the forecasted gaps in the 1995 through 1997
fiscal years will increase accordingly. However, the Memorandum of Understanding
does not restrict the City's ability to include BOE in Citywide budget reduction
programs affecting the 1995 through 1997 fiscal years. In addition, the
modification may restate as gap closing actions certain projected revenues which
are currently included in the baseline revenue projections. This change would
result in an increase in the projected gaps for each of the 1995 through 1997
fiscal years.
The present Mayor and City Comptroller are leaving their respective
offices on December 31, 1993. Early next year, the Mayor-elect is expected to
prepare a preliminary Budget for the City's 1995 fiscal year and a modification
to the Financial Plan for the City's 1994 through 1997 fiscal years. The
modification to the Financial Plan will reflect changes proposed by the
Mayor-elect, and will be required to project balanced operating results for the
City in the 1994 fiscal year and to set forth measures to be taken to achieve
balanced operating results in the 1995 fiscal year, based on then current
financial and other data.
On August 4, 1993, the City Comptroller issued a report on the
financial plan submitted to the Control Board on August 6, 1993 that identified
risks of $340 million, $1.5 billion, $2.0 billion and $2.2 billion in fiscal
years 1994 through 1997, respectively.
BORROWINGS AND RATINGS AGENCIES ACTIONS
The City requires certain amounts of financing for seasonal and capital
spending purposes. The City has issued $1.75 billion of notes for seasonal
financing purposes during its 1994 fiscal year and expects this amount will be
sufficient for the year. The City's capital financing program projects long-term
financing requirements of approximately $21.4 billion for the City's fiscal
years 1993 through 1997 for the construction and rehabilitation of the City's
infrastructure and other fixed assets. The major capital requirements include
expenditures for the City's water supply system, sewage and waste disposal
systems, roads, bridges, mass transit, schools and housing. In addition to
financing for new purposes, the City and the New York City Municipal Water
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B-25
Finance Authority have issued refunding bonds totalling $3.6 billion in fiscal
year 1993.
On February 11, 1991, Moody's lowered its rating of the City's general
obligation bonds to Baal from A. The Baal rating has since been reaffirmed
several times, with the most recent confirmation on November 15, 1993. Moody's
has stated that audited results indicate a modest operating surplus for fiscal
1993, continuing the city's extended record of balancing annual operations as
required by law. The city has achieved this performance despite continuing
expenditure pressures and an unbudgeted increase in labor costs resulting from a
collective bargaining settlement. Increased receipts of non-property taxes,
savings in debt service costs, and reductions in hiring helped to offset the
added expenditures. The City has used the 1993 surplus to prepay certain
expenditures for fiscal 1994. The audit indicates that the surplus is somewhat
larger than initially estimated, providing additional resources for the current
year. The fiscal 1994 budget is nominally balanced, in part through reliance on
one-shot revenues, but contains a number of risks. As in prior years, one-shot
revenues represent a substantial portion of the plan to close a baseline gap
estimated at over $2 billion. Although the use of one-shots is greater in this
budget than in those of the prior two years, it is less than in fiscal 1990 or
1991. The gap-closing plan relies on additional state and federal aid, the sale
of property tax receivables, savings from debt refundings, and
as-yet-unspecified expenditure reductions. Some of these measures are subject to
a degree of uncertainty, as are certain other elements of the budget, and it is
likely that further gaps will appear as the fiscal year progresses. The
Financial Plan for fiscal 1995 and beyond shows an ongoing imbalance between the
City's expenditures and revenues.
S&P has rated the City's general obligation bonds A- since November 19,
1987. The most recent confirmation of the A- rating occurred on November 17,
1993. S&P has stated that the A- rating reflects a broad based economy that
remains under recessionary stress, a relatively high debt burden, and a history
of balanced financial operations. The outlook for future balanced budgets
remains under stress based on projected deficits of $1.5 billion, $2.0 billion,
current taxation levels and maintenance of spending programs. The City recently
elected a new mayor and comptroller; it is too early to assess any policy
changes that may result from the new leadership, although the Mayor-elect
indicated that he would seek to dramatically reduce the City's work force and
attempt to reduce the City's high tax burden. Given the City's current financial
outlook, these goals are aggressive. The City still faces a potential budget gap
of $300 million to $400 million for the current year, and the January 1994
financial plan is likely to give the first real indications of how the new mayor
will address the City's chronic budget imbalance.
Such ratings reflect only the views of Moody's and S&P from
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B-26
which an explanation of the significance of such ratings may be obtained. There
is no assurance that such ratings will continue for any given period of time or
that they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of such
securities.
LOCALITIES OTHER THAN THE CITY: Certain localities other than New York
City could have financial problems leading to requests for additional State
assistance during the State's 1993-94 fiscal year and thereafter. The potential
impact on the State of such requests by localities is not included in
projections of State revenues and expenditures in the State's 1993-94 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board of the City of Yonkers
(the "Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the Governor
or the State Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
Moody's stated in its January 6, 1992 downgrade of certain State
obligations that while such action did not directly affect the bond ratings of
local governments in New York State, the impact of the State's fiscal stringency
on local government bond ratings will be assessed on a case-by-case basis. With
S&P's January 13, 1992 downgrade of certain State obligations, under S&P's
minimum rating approach New York local school district debt will now carry a
minimum rating of A- rather than A and school districts currently rated A were
placed on CreditWatch with negative implications.
Certain Municipal Indebtedness: Municipalities and school districts
have engaged in substantial short-term and long-term borrowings. In 1991, the
total indebtedness of all localities in the State was approximately $32.2
billion, of which $16.8 billion was debt of the City (excluding $5.9 billion in
MAC debt); a small portion (approximately $39.0 million) of the $32.2 billion of
indebtedness represents borrowing to finance budgetary deficits and was issued
pursuant to enabling State legislation. State law requires the Comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Fifteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal years ending in 1991. Certain proposed federal expenditure
reductions could reduce, or in some cases eliminate, federal funding of some
local programs and accordingly might impose substantial increased expenditure
requirements on affected localities to increase local revenues to sustain those
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B-27
expenditures. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
In 1992, an unusually large number of local government units requested
authorization for deficit financings. According to the Comptroller, ten local
government units were authorized to issue deficit financing in the aggregate
amount of $131.1 million, including Nassau County for $65 million in six-year
deficit bonds and Suffolk County for $36 million in six-year deficit bonds. The
current session of the Legislature may receive as many or more requests for
deficit-financing authorizations as a result of deficits previously incurred by
local governments. Although the Comptroller has indicated that the level of
deficit financing requests in unprecedented, such developments are not expected
to have a material adverse effect on the financial condition of the State.
LITIGATION
The legal proceedings noted below involve State finances in which the
State is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State in the
1993-94 fiscal year or thereafter.
Adverse developments in these proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced 1993-94
State Financial Plan. An adverse decision in any of these proceedings could
exceed the amount of the 1993-94 State Financial Plan reserve for the payment of
judgments and, therefore, could affect the ability of the State to maintain a
balanced 1993-94 State Financial Plan. In its audited financial statements for
the 1991-92 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments as $489 million. The State believes that
the 1993-94 State Financial Plan includes sufficient reserves for the payment of
judgments that may be required during the 1993-94 fiscal year.
Although other litigation is pending against the State, except as
described below, no current litigation involves the State's authority, as a
matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects the State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
<PAGE>
B-28
In addition to the proceedings noted below, the State is party to other
claims and litigation which its legal counsel has advised are not probable of
adverse court decisions. Although the amounts of potential losses, if any, are
not presently determinable, it is the State's opinion that its ultimate
liability in these cases is not expected to have a material adverse effect on
the State's financial position in the 1993-94 fiscal year or thereafter.
ABANDONED PROPERTY LAW
On May 31, 1988, the Supreme Court of the United States took
jurisdiction of a claim of the State of Delaware that certain unclaimed
dividends, interest and other distributions made by issuers of securities and
held by New York-based brokers incorporated in Delaware, for beneficial owners
who cannot be identified or located, had been, and was being, wrongfully taken
by the State of New York pursuant to New York's Abandoned Property Law (State of
Delaware v. State of New York, U.S. Supreme Court). Texas intervened, claiming a
portion of such distributions and similar property taken by the State of New
York from New York-based banks and depositories incorporated in Delaware. All
other states and the District of Columbia moved to intervene. In a decision
dated March 30, 1993, the U.S. Supreme Court granted all pending motions of the
states and the District of Columbia to intervene and remanded the case to a
Special Master for further proceedings consistent with the Court's decision. The
Court determined that the abandoned property should be remitted first to the
state of the beneficial owner's last known address, if ascertainable, and, if
not, then to the state of incorporation of the intermediary bank, broker or
depository. The State anticipates that, as a result of final resolution of this
proceeding, payment, in an amount which may be significant, may be required
during the State's 1993-94 fiscal year or thereafter.
INSURANCE LAW
Several cases challenge provisions of Section 2807-c of the Public
Health Law, which impose a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans, and portions of Chapter
55 of the Laws of 1992 which require hospitals to impose and remit to the State
an 11% surcharge on hospital bills paid by commercial insurers and which require
health maintenance organizations to remit to the State a surcharge of up to 9%.
In The Travelers Insurance Company v. Cuomo, et al, commenced June 2, 1992, and
The Health Insurance Association of America, et al v. Chassin, et al, commenced
July 20, 1992, both in the U.S. District Court for the Southern District of New
York and consolidated, plaintiffs allege that the surcharges are preempted by
federal law. In that consolidated case, by order dated February 3, 1993, the
District Court has granted plaintiffs' motion for summary judgment and has
enjoined
<PAGE>
B-29
enforcement of the 13%, 11% and 9% surcharges. Defendants' appeal is pending in
the U.S. Court of Appeals for the Second Circuit. In Matter of Hospital
Association of New York State v. Chassin, et al. (Supreme Court, Albany County),
by decision dated November 2, 1992 the Supreme Court upheld as constitutional
the legislation which authorizes the 11 % surcharge; plaintiff's appeal is
pending in the Appellate Division, Third Department.
In Trustees of and The Pension, Hospitalization Benefit Plan of the
Electrical Industry, et al v. Cuomo, et al, commenced November 25, 1992 in the
U.S. District Court for the Eastern District of New York, plaintiff employee
welfare benefit plans seek a declaratory judgment nullifying on the ground of
federal preemption provisions of Section 2807-c of the Public Health Law and
implementing regulations which impose a bad debt and charity care allowance on
all hospital bills and a 13% surcharge on inpatient bills paid by employee
welfare benefit plans.
PUBLIC AUTHORITY FINANCING PROGRAMS
In a proceeding commenced on April 29, 1991, petitioners challenge the
constitutionality of, and seek to enjoin, specified bonding and other financing
programs authorized by Chapter 190 of the Laws of 1990 and seek the recall and
refunding of bonds issued pursuant to such legislation (Schulz, et al v. State
of New York, et al., Supreme Court, Albany County). The challenged statutory
provisions include authorization pursuant to which the New York State Urban
Development Corporation issued bonds to purchase the Attica Correctional
Facility, the New York State Thruway Authority issued bonds to purchase
Interstate Route 287, and the New York State Housing Finance Agency has issued
and would issue bonds to finance various housing programs. Petitioners contend
that State lease-purchase and contractual obligation agreements pursuant to
which the State would pay debt service on bonds issued under certain of the
authorized programs constitute State debt and a gift or loan of State credit in
violation of Sections 8 and 11 of Article VII and Section 5 of Article X of the
State Constitution. By order dated June 18, 1991, the State's motion to dismiss
the proceeding on procedural grounds was denied, and the State was ordered to
serve an answer. By order dated May 7, 1992, the Appellate Division, Third
Department, reversed the order of the Supreme Court and granted the State's
motion to dismiss. By opinion dated May 11, 1993, the Court of Appeals held that
petitions have standing as voters pursuant to Section 11 of Article VII of the
State Constitution, but affirmed the order of the Appellate Division dismissing
the proceeding on the ground of laches.
In a proceeding commenced on August 6, 1991 (Schulz, et al v. State of
New York, et al, Supreme Court, Albany County), petitioners challenge the
constitutionality of two bonding programs of the New York State Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991. Petitioners
argue that cooperative highway contractual agreements and service contracts
<PAGE>
B-30
to be entered into by the State and the Thruway Authority in connection
with the bonding programs constitute State debt and a gift or loan of State
credit in violation of Sections 8 and 11 of Article VII and Section 5 of Article
X of the State Constitution. In addition, petitioners challenge the fiscal year
1991-92 Judiciary budget as having been enacted in violation of Sections 1 and 2
of Article VII of the State Constitution. The defendants' motion to dismiss the
action on procedural grounds was denied by order of the Supreme Court dated
January 2, 1992. By order dated November 5, 1992, the Appellate Division, Third
Department, reversed the order of the Supreme Court and granted defendants'
motion to dismiss on grounds of standing and mootness. The proceeding is
pending.
In an action commenced on February 6, 1992 (Schulz, et al v. State of
New York, et al, Supreme Court, Albany County), plaintiffs seek a judgment
declaring unconstitutional Sections 1, 2, 3 and 10 of Chapter 220 of the Laws of
1990 (the "Act"), which relate to the creation and operation of the New York
Local Government Assistance Corporation ("LGAC"). Plaintiffs allege that the
creation of, and issuance of bonds by, LGAC involve the issuance of State debt
without voter approval and for multiple purposes in violation of Section 11 of
Article VII of the State Constitution. On March 3, 1992 the Supreme Court,
Albany County, granted defendants' motion for summary judgment in all respects
and dismissed the complaint. On July 23, 1992 the Appellate Division, Third
Department, modified and affirmed the judgment of the Supreme Court, holding
that the plaintiffs lacked standing. By opinion dated May 11, 1993, the Court of
Appeals denied plaintiffs' motion for leave to appeal and dismissed the
litigation. The Court noted that plaintiffs had failed to plead standing as
voters pursuant to Section 11 of Article VII of the State Constitution, and,
thus, the motion for leave to appeal did not directly involve a substantial
constitutional question.
In Schulz, et al v. State of New York, et al, commenced May 24, 1993,
Supreme Court, Albany County, petitioners challenge, among other things, the
constitutionality of, and seek to enjoin certain highway, bridge and mass
transportation bonding programs of the New York State Thruway Authority and the
Metropolitan Transportation Authority authorized by Chapter 56 of the Laws of
1993. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Sections 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and federal constitutions. By order dated
July 27, 1993, the Supreme Court granted defendants' motions for summary
judgment, dismissed the complaint, and vacated the temporary restraining order
previously issued. By decision dated October 21, 1993, the Appellate Division,
Third Department, affirmed the judgment of the Supreme Court. Plaintiffs' appeal
of the decision of the Appellate Division is pending in the Court of Appeals.
<PAGE>
B-31
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Portfolio.
Except where otherwise noted, these investment restrictions are "fundamental"
policies which, under the 1940 Act, may not be changed without the vote of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Portfolio. A "majority of the outstanding voting securities" is defined in
the 1940 Act as the lesser of (a) 67% or more of the voting securities present
at a security holders meeting if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy, or (b) more than 50% of
the outstanding voting securities. The percentage limitations contained in the
restrictions below apply at the time of the purchase of securities.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof, are amended or modified, the Portfolio may not:
1. Purchase any security if, as a result, more than 25% of the value of
the Portfolio's total assets would be invested in securities of issuers
having their principal business activities in the same industry. This
limitation shall not apply to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
2. Borrow money, except that the Portfolio may (i) borrow money from banks
for temporary or emergency purposes (not for leveraging purposes) and
(ii) enter into reverse repurchase agreements for any purpose; provided
that (i) and (ii) in total do not exceed 33 1/3% of the value of the
Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings). If at any time any borrowings come
to exceed 33 1/3% of the value of the Portfolio's total assets, the
Portfolio will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase of debt
obligations, loans of portfolio securities, and participation in
repurchase agreements;
4. Purchase or sell physical commodities or contracts thereon, unless
acquired as a result of the ownership of securities or instruments, but
the Portfolio may purchase or sell futures contracts or options
(including options on futures contracts, but excluding options or
futures contracts on physical commodities) and may enter into foreign
currency forward contracts;
5. Purchase or sell real estate, but the Portfolio may purchase or sell
securities that are secured by real estate or issued
<PAGE>
B-32
by companies (including real estate investment trusts) that invest or
deal in real estate;
6. Underwrite securities of other issuers, except to the extent the
Portfolio, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act; and
7. Issue senior securities, except as permitted under the 1940 Act or any
rule, order or interpretation thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Portfolio and may be changed
by the Trustees. These non-fundamental investment policies require that the
Portfolio may not:
1. Acquire securities of other investment companies, except as permitted
by the 1940 Act or any rule, order or interpretation thereunder, or in
connection with a merger, consolidation, reorganization, acquisition of
assets or an offer of exchange;
2. Acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 15% of
the market value of the Portfolio's total assets would be in
investments that are illiquid;
3. Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or
unless it covers such short sales as required by the current rules or
positions of the SEC or its staff. Transactions in futures contracts
and options shall not constitute selling securities short;
4. Purchase securities on margin, but the Portfolio may obtain such short
term credits as may be necessary for the clearance of transactions;
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees and officers of the Portfolio and their addresses and
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. An asterisk indicates that a Trustee
is an "interested person" (as defined in the 1940 Act) of the Portfolio.
<PAGE>
B-33
TRUSTEES AND OFFICERS
FREDERICK S. ADDY -- Trustee; Retired; Executive Vice President and
Chief Financial Officer from January 1990 to April 1994, Amoco Corporation;
Director, Ensearch Corp. (natural gas), since 1994. His address is 19129 RR 2147
W. Horseshoe Bay, TX 78654.
WILLIAM G. BURNS -- Trustee; Retired; Limited Partner, Galen Partners
L.P. and Vice Chairman, Galen Associates, since 1990; Chief Executive Officer,
Galen Associates and General Partner, Galen Partners L.P., until 1991. His
address is 4241 S.W. Parkgate Blvd., Palm City, FL 34990.
ARTHUR C. ESCHENLAUER -- Trustee; Retired; Senior Vice President,
Morgan Guaranty Trust Company of New York until 1987. His address is 14 Alta
Vista Drive, RD #2, Princeton, NJ 08540.
MATTHEW HEALEY(*) -- Trustee ; Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since 1989; Chairman and Chief Executive
Officer, Execution Services, Inc. until October 1991 . His address is Pine Tree
Club Estates, 10286 Saint Andrew Road, Boynton Beach, FL 33436.
MICHAEL P. MALLARDI -- Trustee; Senior Vice President, Capital
Cities/ABC, Inc., President, Broadcast Group, since 1986. His address is 77 West
66th Street, New York, NY 10017.
Each Trustee is paid an annual fee as follows for serving as Trustee of
the Portfolio, The Pierpont Funds, The JPM Institutional Funds , The Series
Portfolio and each registered investment company in which series of the Pierpont
Funds or JPM Institutional Funds invest, and is
<PAGE>
B-34
reimbursed for expenses incurred in connection with service as a Trustee. The
compensation paid to the Trustees in calendar 1994 is set forth below. The
Trustees may hold various other directorships unrelated to the Portfolio.
<TABLE>
<CAPTION>
AGGREGATE PENSION TOTAL COMPENSATION FROM
COMPENSATION OR RETIREMENT THE PORTFOLIO, THE
FROM THE BENEFITS ESTIMATED PIERPONT FUNDS AND THE JPM
PORTFOLIO ACCRUED AS PART ANNUAL BENEFITS INSTITUTIONAL FUND PAID
DURING 1994 OF FUND EXPENSES UPON RETIREMENTS TO TRUSTEES DURING 1994
<S> <C> <C> <C> <C>
Frederick S. Addy, $4,372 None None $55,000
Trustee
William G. Burns, Trustee $4,372 None None $55,000
Arthur C. Eschenlauer, Trustee $4,372 None None $55,000
Matthew Healey, Trustee(*),
Chairman and Chief Executive
Officer $4,372 None None $55,000
Michael P. Mallardi, Trustee $4,372 None None $55,000
<FN>
(*) During 1994, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $130,000, contributed
$19,500 to a defined contribution plan on his behalf and paid $20,000 in
insurance premiums for his benefit.
</FN>
</TABLE>
As of April 1, 1995 the annual fee paid to each Trustee for serving as
a Trustee of the Trust, each of the Portfolios, The Series Portfolio and The
Pierpont Funds was adjusted to $65,000.
In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Portfolio and The Pierpont Funds and The JPM
Institutional Funds up to and including creating a separate board of trustees.
The Trustees of the Portfolio, in addition to reviewing actions of the
Portfolio's various service providers, decide upon matters of general policy.
The Portfolio has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. Pierpont Group, Inc. was organized
in July 1989 to provide services for The Pierpont Funds
<PAGE>
B-35
(currently an investor in the Portfolio). The Portfolio has agreed to pay
Pierpont Group, Inc. a fee in an amount representing its reasonable costs in
performing these services. These costs are periodically reviewed by the
Trustees. For the period April 11, 1994 (commencement of operations) through
March 31, 1995 the aggregate fees paid to Pierpont Group, Inc. were $4,140. The
Portfolio has no employees; its executive officers (listed below) other than the
Chief Executive Officer are provided and compensated by Signature Broker-Dealer
Services, Inc. ("SBDS"), a wholly owned subsidiary of Signature Financial Group,
Inc. ("Signature"). The Portfolio's officers conduct and supervise the business
operations of the Portfolio.
The officers of the Portfolio and their principal occupations during
the past five years are set forth below. The business address of each of the
officers unless otherwise noted is Signature Broker-Dealer Services, Inc., 6 St.
James Avenue, Boston, Massachusetts 02116.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
Inc., since 1989; Chairman and Chief Executive Officer, Execution Services, Inc.
until October 1991. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436.
PHILIP W. COOLIDGE; President; Chairman, Chief Executive Officer and
President, Signature since December 1988 and SBDS since April 1989.
JAMES B. CRAVER; Treasurer and Secretary; Senior Vice President and
General Counsel, Signature since January 1991; Secretary, SBDS since February
1991; Partner, Baker & Hostetler prior to January 1991.
DAVID G. DANIELSON; Assistant Treasurer; Assistant Manager, Signature
since May 1991; Graduate Student, Northeastern University from April 1990 to
March 1991.
LINDA T. GIBSON; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since June 1991; Assistant Secretary, SBDS since November
1992; law student, Boston University School of Law prior to May 1992.
JAMES E. HOOLAHAN; Vice President; Senior Vice President, Signature
since December 1989.
<PAGE>
B-36
SUSAN JAKUBOSKI; Assistant Secretary and Assistant Treasurer of the
Portfolios only; Manager and Senior Fund Administrator, SFG and Signature
(Cayman) (since August 1994); Assistant Treasurer, SBDS (since September 1994);
Fund Compliance Administrator, Concord Financial Group, Inc. (from November 1990
to August 1994); Senior Fund Accountant, Neuberger & Berman Management
Incorporated (since prior to 1990). Her address is P.O. Box 2494, Elizabethan
Square, George Town, Grand Cayman , Cayman Islands, B.W.I.
JAMES S. LELKO; Assistant Treasurer ; Assistant Manager, Signature
since January 1993; Senior Tax Compliance Accountant, Putnam Companies since
prior to December 1992.
THOMAS M. LENZ; Assistant Secretary; Vice President and Associate
General Counsel, Signature since November 1989; Assistant Secretary, SBDS since
February 1991.
MOLLY S. MUGLER; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since December 1988; Assistant Secretary, SBDS since April
1989.
ANDRES E. SALDANA; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since November 1992; Assistant Secretary, SBDS since
September 1993; Attorney, Ropes & Gray from September 1990 to November 1992.
DANIEL E. SHEA; Assistant Treasurer; Assistant Manager of Fund
Administration, Signature since November 1993; Supervisor and Senior Technical
Advisor, Putnam Investments since prior to 1990.
<PAGE>
B-37
Messrs. Coolidge, Craver, Danielson, Hoolahan, Lelko, Lenz, Saldana and
Shea and Mss. Gibson, Mugler and Jakuboski hold similar positions for other
investment companies for which SBDS or an affiliate serves as principal
underwriter.
The Portfolio's Declaration of Trust provides that it will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in wilful 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 wilful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of July 25, 1995, The JPM Institutional New York Total Return Bond
Fund and The Pierpont New York Total Return Bond Fund (the "Funds"), series of
The JPM Institutional Funds and The Pierpont Funds, respectively, owned 42.2%
and 57.6%, respectively, of the outstanding interests in the Portfolio. So long
as each of these Funds controls the Portfolio, it may take actions without the
approval of any other investors.
Each of the Funds has informed the Portfolio that whenever it is
requested to vote on matters pertaining to the Portfolio (other than a vote by a
Fund to continue the operation of the Portfolio upon the withdrawal of another
investor in the Portfolio), it will hold a meeting of its shareholders and will
cast its vote as instructed by those shareholders.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISOR. The investment advisor to the Portfolio is Morgan
Guaranty, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P.
Morgan"), a bank holding company organized under the laws of the State of
Delaware. Morgan Guaranty, whose principal offices are at 60 Wall Street, New
York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan Guaranty is subject to regulation by the New
York State Banking Department and is a
<PAGE>
B-38
member bank of the Federal Reserve System. Through offices in New York City and
abroad, Morgan Guaranty offers a wide range of services, primarily to
governmental, institutional, corporate and high net worth individual customers
in the United States and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of $150 billion (of which the Advisor advises over $30 billion).
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of Morgan Guaranty's investment process is fundamental
investment research as the firm believes that fundamentals should determine an
asset's value over the long term. J.P. Morgan currently employs over 100 full
time research analysts, among the largest research staffs in the money
management industry, in its investment management divisions located in New York,
London, Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries
and countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The Advisor's fixed income investment process is based on analysis of real
rates, sector diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. See Item
17 below.
J.P. Morgan Investment Management Inc., a wholly owned subsidiary of
J.P. Morgan , is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
<PAGE>
B-39
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc., which provides securities trading and
investment research services for Morgan Guaranty's investment advisory and
fiduciary accounts. See Item 17 below for a description of services provided to
the Portfolio by J.P. Morgan Investment Management Inc.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.30% of the
Portfolio's average daily net assets. For the period April 11, 1994
(commencement of operations) through March 31, 1995 the Portfolio paid Morgan
Guaranty $120,281 in advisory fees.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
annually thereafter (i) by a vote of the holders of a majority of the
Portfolio's outstanding securities or by its Trustees and (ii) by a vote of a
majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" as defined by the 1940 Act cast in person at a meeting
called for the purpose of voting on such approval. The Investment Advisory
Agreement will terminate automatically if assigned and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Portfolio or by a
vote of the holders of a majority of the Portfolio's voting securities on 60
days' written notice to the Advisor and by the Advisor on 90 days' written
notice to the Portfolio.
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as Morgan Guaranty from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously
<PAGE>
B-40
engaged in the issuance of its shares, such as the Portfolio. The interpretation
does not prohibit a holding company or a subsidiary thereof from acting as
investment advisor and custodian to such an investment company. Morgan Guaranty
believes that it may perform the services for the Portfolio contemplated by the
Advisory Agreement without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. State laws on this issue may differ from
the interpretation of relevant federal law, and banks and financial institutions
may be required to register as dealers pursuant to state securities laws.
However, it is possible that future changes in either federal or state statutes
and regulations concerning the permissible activities of banks or trust
companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
Morgan Guaranty from continuing to perform such services for the Portfolio.
If Morgan Guaranty were prohibited from acting as investment advisor to
the Portfolio, it is expected that the Trustees of the Portfolio would recommend
to investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Morgan Guaranty also receives compensation from the Portfolio in its
capacity as Services Agent to the Portfolio.
ADMINISTRATOR. SBDS serves as the Portfolio's Administrator and in that
capacity administers and manages all aspects of the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth under
"Investment Advisor," "Services Agent" and "Custodian." In connection with its
responsibilities as Administrator, SBDS (i) furnishes ordinary clerical and
related services for day-to-day operations including certain record keeping
responsibilities; (ii) takes responsibility for compliance with all applicable
federal and state securities and other regulatory requirements including,
without limitation, preparing and mailing and filing (but not paying for)
registration statements, and information statements and all required reports to
the Portfolio's investors, the SEC, and state securities commissions, if any,
(but not the Portfolio's federal and state tax returns); (iii) performs such
administrative and managerial oversight of the activities of the Portfolio's
custodian, as the Trustees may direct from time to time.
Under the Portfolio's Administration Agreement, the annual
administration fee rate is calculated based on the aggregate average daily net
assets of the Portfolio, as well as all of the other portfolios (the "Master
Funds") in which series of The Pierpont Funds, The JPM Institutional Funds or
The JPM Advisor Funds invest. The fee is calculated in accordance with the
following schedule: 0.010% of the first
<PAGE>
B-41
$1 billion of these portfolios' aggregate average daily net assets, 0.008% of
the next $2 billion of these portfolios' aggregate average daily net assets,
0.006% of the next $2 billion of these portfolios' aggregate average daily net
assets, and 0.004% of these portfolios' aggregate average daily net assets in
excess of $5 billion. This fee is then applied to the net assets of the
Portfolio and the Master Funds. The Administrator may voluntarily waive a
portion of its fees. For the period April 11, 1994 (commencement of operations)
through March 31, 1995 the Portfolio paid SBDS $2,563 in administration fees.
The Administration Agreement may be renewed or amended by the Trustees
without a investor vote. The Administration Agreement is terminable at any time
without penalty by a vote of a majority of the Trustees of the Portfolio, as
applicable, on not more than 60 days' written notice nor less than 30 days'
written notice to the other party. The Administrator may subcontract for the
performance of its obligations under the Administration Agreement only if the
Trustees approve such subcontract and find the subcontracting party to be
qualified to perform the obligations sought to be subcontracted, provided,
however, that unless the Portfolio, as applicable, expressly agrees in writing,
the Administrator shall be fully responsible for the acts and omissions of any
subcontractor as it would for its own acts or omissions.
SERVICES AGENT. The Portfolio has entered into a Financial and Fund
Accounting Services Agreement (the "Services Agreement") with Morgan Guaranty
pursuant to which Morgan Guaranty performs two types of services for the
Portfolio. First, Morgan Guaranty is responsible for certain financial and fund
accounting services provided to the Portfolio. The services to be provided by
Morgan Guaranty under this Services Agreement include, but are not limited to,
monitoring the fund accounting activities of the Portfolio's Custodian,
assisting the Administrator in the preparation of the Portfolio's annual audits,
assisting in the development the Portfolio's budget and establishing their rates
of expense accruals, monitoring the activities of the Portfolio's custodian in
certain matters such as daily income accruals, trade reporting, pricing, and
performance calculations, and providing other related services.
Second, Morgan Guaranty is responsible for the annual costs to the
Portfolio of certain usual and customary services costs incurred by the
Portfolio (the "Expense Undertaking"). The expenses covered by the Expense
Undertaking include, but are not limited to, transfer, registrar, legal and
accounting expenses, the fees of the Administrator, the cost of any liability
insurance or fidelity bonds, the compensation and expenses of its Trustees, the
expenses of printing and mailing reports, notices, and information statements to
Portfolio investors, interest charges, membership dues in the Investment Company
Institute, and investor meeting fees. The Portfolio will pay these expenses
directly and such amounts will be deducted from the fee to be
<PAGE>
B-42
paid to Morgan Guaranty under this Services Agreement. If such amounts are more
than the amount of Morgan Guaranty's fees under the Services Agreement, Morgan
Guaranty will reimburse the Portfolio for such excess amounts.
The administration and operation expenses of the Portfolio not covered
by the Expense Undertaking, and for which the Portfolio is responsible, include
the fees of Pierpont Group, Inc., the services agent fee, custodian fees,
advisory fees or expenses otherwise incurred in connection with the management
and reinvestment of the Portfolio's assets, expenses connected with the
execution, recording, and settlement of portfolio security transactions,
organization expenses and extraordinary expenses as defined in such Services
Agreement.
Under the Portfolio's Services Agreement, the Portfolio has agreed to
pay Morgan Guaranty for these services a fee, computed daily and which may be
paid monthly, equal to the following annual percentage rate of the average daily
net assets of the Portfolio: 0.10% on the first $200 million in assets, 0.05% on
the next $200 million in assets, and 0.03% thereafter. For the period April 11,
1994 (commencement of operations) through March 31, 1995 the Portfolio was
reimbursed $11,830 by Morgan Guaranty for expenses in excess of its fees paid
under the Services Agreement. As noted immediately above, both of these fee
levels reflect payments made directly to third parties by the Portfolio for
expenses covered by the Expense Undertaking, as well as payments to Morgan
Guaranty for services rendered under the Services Agreement. The Trustees
regularly review amounts paid to and accounted for by Morgan Guaranty pursuant
to this Services Agreement. Under the Services Agreement, Morgan Guaranty may
delegate one or more of its responsibilities to other entities, including SBDS,
at Morgan Guaranty's expense. The Services Agreement may be terminated at any
time, without penalty, by the Trustees or Morgan Guaranty, in each case on not
more than 60 days' nor less than 30 days' written notice to the other party.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 40
King Street West, Toronto, Ontario, Canada M5H 3Y8, serves as the Portfolio's
Custodian and Transfer Agent. Pursuant to the Custodian Contract with the
Portfolio, State Street is responsible for maintaining the books and records of
portfolio transactions and holding the portfolio securities and cash. The
Custodian has also entered into subcustodian agreements with Bankers Trust
Company for the purpose of holding TENR Notes and with Bank of New York and
Chemical Bank, N.A. for the purpose of holding certain variable rate demand
notes. In the case of foreign assets held outside the United States, the
Custodian employs various subcustodians who were approved by the Trustees of the
Portfolio in accordance with the regulations of the SEC.
<PAGE>
B-43
As Transfer Agent, State Street is responsible for maintaining account
records detailing the ownership of interests in the Portfolio. The Portfolio is
responsible for the fees of the Custodian and Transfer Agent for the Portfolio.
INDEPENDENT ACCOUNTANTS. Price Waterhouse L.L.P., 1177 Avenue of the
Americas, New York, New York 10036, serves as the Portfolio's independent
accountants providing audit and accounting services including (i) conducting an
annual audit of the financial statements of the Portfolio, (ii) assisting in the
preparation and/or review of the Portfolio's federal and state income tax
returns and (iii) consulting with the Portfolio as to matters of accounting and
federal and state income taxation.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
J.P. Morgan Investment Management Inc., acting as agent for Morgan
Guaranty, places orders for the Portfolio for all purchases and sales of
portfolio securities. Morgan Guaranty enters into repurchase agreements and
reverse repurchase agreements for the Portfolio and executes loans of portfolio
securities on behalf of the Portfolio. See Item 13 above.
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
Portfolio transactions for the Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolio may engage in short term trading
consistent with its objective. The Portfolio expects its annual portfolio
turnover rates will be less than 100%. In connection with portfolio transactions
for the Portfolio, J.P. Morgan Investment Management Inc. intends to seek best
price and execution on a competitive basis for both purchases and sales of
securities.
For the period April 11, 1994 (commencement of operations) through
March 31, 1995 the Portfolio's portfolio turnover rate was 63%. A rate of 100%
indicates that the equivalent of all of the Portfolio's assets have been sold
and reinvested in a year. High portfolio turnover may result in the realization
of substantial net capital gains or losses.
Subject to the overriding objective of obtaining the best
<PAGE>
B-44
possible execution of orders, J.P. Morgan Investment Management Inc., or Morgan
Guaranty as the case may be, may allocate a portion of the Portfolio's portfolio
brokerage transactions to affiliates of Morgan Guaranty. In order for affiliates
of Morgan Guaranty to effect any portfolio transactions for the Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of the Portfolio, including
a majority of the Trustees who are not "interested persons," have adopted
procedures which are reasonably designed to provide that any commissions, fees,
or other remuneration paid to such affiliates are consistent with the foregoing
standard.
The Portfolio's portfolio securities will not be purchased from or
through or sold to or through the Portfolio's Administrator, Exclusive Placement
Agent or Advisor or any "affiliated person" as defined in the 1940 Act, of the
Administrator, Exclusive Placement Agent or Advisor when such entities are
acting as principals, except to the extent permitted by law. In addition, the
Portfolio will not purchase securities during the existence of any underwriting
group relating thereto of which the Advisor or an affiliate of the Advisor is a
member, except to the extent permitted by law.
On those occasions when Morgan Guaranty deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other
investors, J.P. Morgan Investment Management Inc., to the extent permitted by
applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by J.P. Morgan Investment Management Inc., or Morgan
Guaranty as the case may be, in the manner it considers to be most equitable and
consistent with Morgan Guaranty's fiduciary obligations to the Portfolio. In
some instances, this procedure might adversely affect the Portfolio.
If the Portfolio effects a closing purchase transaction with respect to
an option written by it, normally such transaction will be executed by the same
broker-dealer who executed the sale of the option. The writing of options by the
Portfolio will be subject to limitations established by each of the exchanges
governing the maximum number of options in each class which may be written by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges or are held or
written in one or more accounts or through one or more brokers. The number of
options
<PAGE>
B-45
which the Portfolio may write may be affected by options written by the Advisor
for other investment advisory clients. An exchange may order the liquidation of
positions found to be in excess of these limits, and it may impose certain other
sanctions.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share pro rata in the Portfolio's net assets available for distribution to its
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Investments in the Portfolio may not be transferred. Certificates
representing an investor's beneficial interest in the Portfolio are issued only
upon the written request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees if they choose to do so
and in such event the other investors in the Portfolio would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual meetings of investors but the Portfolio will hold special meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. No material amendment may be
made to the Portfolio's Declaration of Trust without the affirmative majority
vote of investors (with the vote of each being in proportion to the amount of
its investment).
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds of its
investors (with the vote of each being in proportion to its percentage of the
beneficial interests in the Portfolio), except that if the Trustees recommend
such sale of assets, the approval by vote of a majority of the investors (with
the vote of each being in proportion to its percentage of the beneficial
interests of the Portfolio) will be sufficient. The Portfolio may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment) or (ii) by the Trustees by written
notice to its investors.
The Portfolio is organized as a trust under the laws of the State of
New York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject,
<PAGE>
B-46
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 (for example, 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.
The Portfolio's Declaration of Trust further provides that obligations
of the Portfolio are not binding upon the Trustees individually but only upon
the property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
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 1933 Act.
Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are valued
using prices supplied daily by an independent pricing service or services that
(i) are based on the last sale price on a national securities exchange or, in
the absence of recorded sales, at the readily available closing bid price on
such exchange or at the quoted bid price in the over-the-counter market, if such
exchange or market constitutes the broadest and most representative market for
the security and (ii) in other cases, take into account various factors
affecting market value, including yields and prices of comparable securities,
indication as to value from dealers and general market conditions. If such
prices are not supplied by the Portfolio's independent pricing service, such
securities are priced in accordance with procedures adopted by the Trustees. All
portfolio securities with a remaining maturity of less than 60 days are valued
by the amortized cost method. Securities listed on a foreign exchange are valued
at the last quoted sale price available before the time when net assets are
valued. Because of the large number of municipal bond issues outstanding and the
varying maturity dates, coupons and risk factors applicable to each issuer's
books, no readily available market quotations exist for most municipal
securities.
If the Portfolio determines that it would be detrimental to
<PAGE>
B-47
the best interest of the remaining investors in the Portfolio to make payment
wholly or partly in cash, payment of the redemption price may be made in whole
or in part by a distribution in kind of securities from the Portfolio, in lieu
of cash, in conformity with the applicable rule of the SEC. If interests are
redeemed in kind, the redeeming investor might incur transaction costs in
converting the assets into cash. The method of valuing portfolio securities is
described above and such valuation will be made as of the same time the
redemption price is determined. The Portfolio has elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Portfolio is obligated to redeem
interests solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Portfolio during any 90 day period for any one investor. The
Portfolio will not redeem in kind except in circumstances in which an investor
is permitted to redeem in kind.
ITEM 20. TAX STATUS.
The Portfolio is organized as a New York trust. The Portfolio is not
subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts. However each investor in the Portfolio will be
taxable on its share (as determined in accordance with the governing instruments
of the Portfolio) of the Portfolio's ordinary income and capital gain in
determining its income tax liability. The determination of such share will be
made in accordance with the Code, and regulations promulgated thereunder.
Although, as described above, the Portfolio will not be subject to
federal income tax, it will file appropriate income tax returns.
It is intended that the Portfolio's assets will be managed in such a
way that an investor in the Portfolio will be able to satisfy the requirements
of Subchapter M of the Code.
The Portfolio intends to qualify to allocate tax exempt interest to its
investors by having, at the close of each quarter of its taxable year, at least
50% of the value of its total assets consist of tax exempt securities. Tax
exempt interest is that part of income earned by the Portfolio which consists of
interest received by the Portfolio on tax exempt securities. In view of the
Portfolio's investment policies, it is expected that a substantial portion of
all income will be tax exempt income, although the Portfolio may from time to
time realize net short-term capital gains and may invest limited amounts in
taxable securities under certain circumstances.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon.
<PAGE>
B-48
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
If an option written by the Portfolio lapses or is terminated through a closing
transaction, such as a repurchase by the Portfolio of the option from its
holder, the Portfolio will realize a short-term capital gain or loss, depending
on whether the premium income is greater or less than the amount paid by the
Portfolio in the closing transaction. If securities are purchased by the
Portfolio pursuant to the exercise of a put option written by it, the Portfolio
will subtract the premium received from its cost basis in the securities
purchased.
Forward currency contracts, options and futures contracts entered into
by the Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, the Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes--i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
FOREIGN INVESTORS. Allocations of U.S. source dividend income to an
investor who, as to the United States, is a foreign trust, foreign corporation
or other foreign investor will be subject to United States withholding tax at
the rate of 30% (or lower treaty rate). Allocations of Portfolio interest or
short term or net long term capital gains to foreign investors will not be
subject to United States tax.
STATE AND LOCAL TAXES. The Portfolio may be subject to state or local
taxes in jurisdictions in which the Portfolio is deemed to be doing business. In
addition, the treatment of the Portfolio and its investors in those states which
have income tax laws might differ from treatment under the federal income tax
laws. Investors should consult their own tax advisors with respect to any state
or local taxes.
FOREIGN TAXES. The Portfolio may be subject to foreign
<PAGE>
B-49
withholding taxes with respect to income received from sources within foreign
countries.
OTHER TAXATION. The investment by an investor in the Portfolio does not
cause the investor to be liable for any income or franchise tax in the State of
New York. Investors are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in the Portfolio.
ITEM 21. UNDERWRITERS.
The exclusive placement agent for the Portfolio is SBDS, which receives
no additional compensation for serving in this capacity. Other investment
companies, insurance company separate accounts, common and commingled trust
funds and similar organizations and entities may continuously invest in the
Portfolio.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The Portfolio's current report to investors filed with the SEC pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder is hereby
incorporated herein by reference. A copy of such report will be provided,
without charge, to each person receiving this Part B.
<PAGE>
B-50
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA have the highest ratings assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in
a small degree.
A - Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more
<PAGE>
B-51
susceptible to the adverse effects of changes in circumstances
and economic conditions than debts in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debts in this
category than for debts in higher rated categories.
BB - Debt rated BB is regarded as having less near-term
vulnerability to default than other speculative issues. However,
it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding
timely payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a
satisfactory capacity to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge". Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
<PAGE>
B-52
Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well established access to a range of financial markets
and assured sources of alternate liquidity.
<PAGE>
B-53
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing,
or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
<PAGE>
JPM450A
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The financial statements included in Part B, Item 23 of this
Registration Statement are as follows:
Schedule of Investments as March 31, 1995
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the period ended March 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements at March 31, 1995
(B) EXHIBITS
1 Declaration of Trust of the Registrant.2
2 By-Laws of the Registrant.2
5 Investment Advisory Agreement between the Registrant
and Morgan Guaranty Trust Company of New York
("Morgan Guaranty").2
8 Custodian Contract between the Registrant and State
Street Bank and Trust Company ("State Street").1
9(a) Administration Agreement between the Registrant and
Signature Broker-Dealer Services, Inc.1
9(b) Transfer Agency and Service Agreement between the
<PAGE>
C-2
Registrant and State Street.2
9(c) Restated Financial and Fund Accounting Services
Agreement between the Registrant and Morgan
Guaranty.2
9(d) Fund Services Agreement between the Registrant and
Pierpont Group, Inc.1
13 Investment representation letters of initial
investors.1
1Incorporated herein by reference from the Registrant's
registration statement on form N-1A as filed with the
Securities and Exchange Commission on April 1, 1994.
2Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
TITLE OF CLASS: Beneficial Interests
NUMBER OF RECORD HOLDERS : 2 (as of July 25, 1995)
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an Exhibit herewith.
The Trustees and officers of the Registrant and the personnel of the
Registrant's 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Morgan Guaranty is a New York trust company which is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated. Morgan Guaranty conducts a general
banking and trust business.
To the knowledge of the Registrant, none of the directors, except those
set forth below, or executive officers of Morgan Guaranty is or has been during
the past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain officers and directors
of Morgan Guaranty also hold various positions with, and engage in business for,
J.P. Morgan & Co. Incorporated, which owns all the
<PAGE>
C-3
outstanding stock of Morgan Guaranty. Set forth below are the names, addresses,
and principal business of each director of Morgan Guaranty who is engaged in
another business, profession, vocation or employment of a substantial nature.
Martin Feldstein: President and Chief Executive Officer, National
Bureau of Economic Research, Inc.; Professor of Economics, Harvard University
Research Institution (Academic Institution). His address is 1050 Massachusetts
Ave, Cambridge, MA 02138.
Howard Goldfeder: Retired Chairman and Chief Executive Officer,
Federated Department Stores Inc. (Retailing). His address is 7 West 7th Street,
Cincinnati, OH 45202.
Hanna H. Gray: President, The University of Chicago (Academic
Institution). Her address is 5801 Ellis Avenue, Chicago, IL 60637.
James R. Houghton: Chairman and Chief Executive Officer, Corning
Incorporated (Glass products). His address is Corning, NY 14831.
James L. Ketelsen: Retired Chairman and Chief Executive Officer,
Tenneco Inc. ( Oil, pipe-lines, and manufacturing). His address is Tenneco
Building, P.O. Box 2511, Houston, TX 77001.
William S. Lee: Chairman, President and Chief Executive Officer, Duke
Power Company (Utility). His address is 422 South Church Street, Charlotte, NC
28242.
Lee R. Raymond: Chairman of the Board and Chief Executive Officer,
Exxon Corporation (Oil, natural gas, and other petroleum products). His address
is 1251 Avenue of the Americas, New York, NY 10020.
<PAGE>
C-4
Richard D. Simmons: President, International Herald Tribune
(Newspaper). His address is 1150 Fifteenth Street NW, Washington, DC 20071.
John G. Smale: Chairman of the Board General Motors Corporation and
Retired Chairman of the Board and Executive Officer, The Proctor and Gamble
Company (Automobiles; Household Products). His address is P.O. Box 599,
Cincinnati, OH 54201.
Douglas C. Yearley: Chairman, President and Chief Executive Officer,
Phelps Dodge Corporation (Chemicals). His address is 2600 N. Central Avenue,
Phoenix, AZ 85007.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Pierpont Group, Inc., 461 Fifth Avenue , New York, New York 10017.
(records relating to its assisting the Trustees in carrying out their duties in
supervising the Trust's affairs).
Morgan Guaranty Trust Company of New YorK, 60 Wall Street, New York, NY
10260-0060 or 9 West 57th Street, New York, NY 10019. (records relating to its
functions as investment adviser and services agent).
State Street Bank and Trust Company, 40 King Street West, Toronto,
Ontario , Canada M5H 3Y8. (records relating to its functions as custodian and
transfer agent).
Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston, MA
02116. (records relating to its functions as administrator and exclusive
placement agent)
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
<PAGE>
C-5
ITEM 32. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston and Commonwealth of Massachusetts, on the 27th day of July, 1995.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
By /s/THOMAS M. LENZ
________________________________
Thomas M. Lenz
Assistant Secretary
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
1 Declaration of Trust of the Registrant.
2 By-Laws of the Registrant.
5 Investment Advisory Agreement between the Registrant and Morgan
Guaranty Trust Company of New York.
9(b) Transfer Agency and Service Agreement between the Registrant and
State Street.
9(c) Restated Financial and Fund Accounting Services Agreement between
the Registrant and Morgan Guaranty.
JPM70
THE US$ SHORT DURATION TAX EXEMPT PORTFOLIO
DECLARATION OF TRUST
Dated as of June 16, 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.................................................5
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 MANAGEMENT AND ADMINISTRATION AND PLACEMENT
AGENT ARRANGEMENTS........................................9
Section 4.1 Investment Management and Other
Arrangements.........................................10
Section 4.2 Parties to Contract.......................................10
ARTICLE V--LIABILITY OF HOLDERS; LIMITATIONS OF LIABILITY OF
TRUSTEES, OFFICERS, ETC..................................10
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.................................11
i
<PAGE>
PAGE
Section 5.5 No Bond Required of Trustees..............................12
Section 5.6 No Duty of Investigation; Notice in
Trust Instruments, etc.............................12
Section 5.7 Reliance on Experts, etc..................................13
ARTICLE VI--INTERESTS.........................................................14
Section 6.1 Interests.................................................14
Section 6.2 Non-Transferability.......................................14
Section 6.3 Register of Interests.....................................14
ARTICLE VII--INCREASES, DECREASES, AND REDEMPTIONS OF INTERESTS...............14
ARTICLE VIII--DETERMINATION OF BOOK CAPITAL ACCOUNT BALANCES,
AND DISTRIBUTIONS.......................................15
Section 8.1 Book Capital Account Balances.............................15
Section 8.2 Allocations and Distributions to Holders..................15
Section 8.3 Power to Modify Foregoing Procedures......................15
ARTICLE IX--HOLDERS...........................................................15
Section 9.1 Rights of Holders.........................................15
Section 9.2 Meetings of Holders.......................................16
Section 9.3 Notice of Meetings........................................16
Section 9.4 Record Date for Meetings, Distributions,
etc.................................................16
Section 9.5 Proxies, etc..............................................17
Section 9.6 Reports...................................................17
Section 9.7 Inspection of Records.....................................17
Section 9.8 Holder Action by Written Consent..........................17
Section 9.9 Notices...................................................18
ARTICLE X--DURATION; TERMINATION; AMENDMENT; MERGERS; ETC.....................18
Section 10.1 Duration..................................................18
Section 10.2 Termination...............................................19
Section 10.3 Dissolution.............................................. 20
Section 10.4 Amendment Procedure.......................................20
Section 10.5 Merger, Consolidation and Sale of Assets..................21
Section 10.6 Incorporation.............................................21
ii
<PAGE>
PAGE
ARTICLE XI--MISCELLANEOUS.....................................................22
Section 11.1 Certificate of Designation;774 Agent for
Service of Process.......................................22
Section 11.2 Governing Law.............................................22
Section 11.3 Counterparts..............................................22
Section 11.4 Reliance by Third Parties.................................22
Section 11.5 Provisions in Conflict With Law or
Regulations..............................................23
iii
<PAGE>
JPM70
DECLARATION OF TRUST
OF
THE US$ SHORT DURATION TAX EXEMPT PORTFOLIO
This DECLARATION OF TRUST of the The US$ Short Duration Tax
Exempt Portfolio is made as of the 16th day of June, 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 trust fund under the
law of the State of New York for the investment and reinvestment of its assets;
and
WHEREAS, it is proposed that the trust assets be composed of
money and property contributed thereto by the holders of interests in the trust
entitled to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will
hold in trust all money and property contributed to the trust fund and will
manage and dispose of the same for the benefit of the holders of interests in
the Trust and subject to the provisions hereof, to wit:
ARTICLE I
THE TRUST
1.1. NAME. The name of the trust created hereby (the "Trust")
shall be The US Short Duration Tax Exempt Portfolio and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the word "Trust"
wherever hereinafter used) shall refer to the Trustees as Trustees, and not
individually, and shall not refer to the officers, employees, agents or
independent contractors of the Trust or holders of interests in the Trust.
1.2. DEFINITIONS. As used in this Declaration, the following
terms shall have the following meanings:
The term "Interested Person" shall have the meaning given it
in the 1940 Act.
"BOOK CAPITAL ACCOUNT" shall mean, for any Holder at any time,
the Book Capital Account of the Holder for such day, determined in accordance
with Section 8.1 hereof.
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"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.
"HOLDERS" shall mean as of any particular time all holders of
record of Interests in the Trust.
"INSTITUTIONAL INVESTOR(S)" shall mean any regulated
investment company, segregated asset account, foreign investment company, common
trust fund, group trust or other investment arrangement, whether organized
within or without the United States of America, other than an individual, S
corporation, partnership or grantor trust beneficially owned by any individual,
S corporation or partnership.
"INTEREST(S)" shall mean the interest of a Holder in the
Trust, including all rights, powers and privileges accorded to Holders by this
Declaration, which interest may be expressed as a percentage, determined by
calculating, at such times and on such basis as the Trustees shall from time to
time determine, the ratio of each Holder's Book Capital Account balance to the
total of all Holders' Book Capital Account balances. Reference herein to a
specified percentage of, or fraction of, Interests, means Holders whose combined
Book Capital Account balances represent such specified percentage or fraction of
the combined Book Capital Account balances of all, or a specified group of,
Holders.
"INVESTMENT MANAGER AND ADMINISTRATOR" shall mean any party
furnishing services to the Trust pursuant to any investment management or
administration contract described in Section 4.1 hereof.
"MAJORITY INTERESTS VOTE" shall mean the vote, at a meeting of
Holders, of (A) 67% or more of the Interests present or represented at such
meeting, if Holders of more than 50% of all Interests are present or represented
by proxy, or (B) more than 50% of all Interests, whichever is less.
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"PERSON" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"REDEMPTION" shall mean the complete withdrawal of an Interest
of a Holder the result of which is to reduce the Book Capital Account balance of
that Holder to zero, and the term "REDEEM" shall mean to effect a Redemption.
"TRUSTEES" shall mean each signatory to this Declaration, so
long as such signatory shall continue in office in accordance with the terms
hereof, and all other individuals who at the time in question have been duly
elected or appointed and have qualified as Trustees in accordance with the
provisions hereof and are then in office, and reference in this Declaration to a
Trustee or Trustees shall refer to such individual or individuals in their
capacity as Trustees hereunder.
"TRUST PROPERTY" shall mean as of any particular time any and
all property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees.
The "1940 ACT" shall mean the United States Investment Company
Act of 1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE II
TRUSTEES
2.1. NUMBER AND QUALIFICATION. The number of Trustees shall be
fixed from time to time by action of the Trustees taken as provided in Section
2.5 hereof; provided, however, that the number of Trustees so fixed shall in no
event be less than three or more than 15. Any vacancy created by an increase in
the number of Trustees may be filled by the appointment of an individual having
the qualifications described in this Section 2.1 made by action of the Trustees
taken as provided in Section 2.5 hereof. Any such appointment shall not become
effective, however, until the individual named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office. Whenever
a vacancy occurs, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees continuing in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A Trustee shall be an individual
at least 21 years of age who is not under legal disability.
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2.2. TERM AND ELECTION. Each Trustee named herein, or elected
or appointed prior to the first meeting of Holders, shall (except in the event
of resignations, retirements, removals or vacancies pursuant to Section 2.3 or
Section 2.4 hereof) hold office until a successor to such Trustee has been
elected at such meeting and has qualified to serve as Trustee, as required under
the 1940 Act. Subject to the provisions of Section 16(a) of the 1940 Act and
except as provided in Section 2.3 hereof, each Trustee shall hold office during
the lifetime of the Trust and until its termination as hereinafter provided.
2.3. RESIGNATION, REMOVAL AND RETIREMENT. Any Trustee may
resign his or her trust (without need for prior or subsequent accounting) by an
instrument in writing executed by such Trustee and delivered or mailed to the
Chairman, if any, the President or the Secretary of the Trust and such
resignation shall be effective upon such delivery, or at a later date according
to the terms of the instrument. Any Trustee may be removed by the affirmative
vote of Holders of two-thirds of the Interests or (provided the aggregate number
of Trustees, after such removal and after giving effect to any appointment made
to fill the vacancy created by such removal, shall not be less than the number
required by Section 2.1 hereof) with cause, by the action of two-thirds of the
remaining Trustees. Removal with cause includes, but is not limited to, the
removal of a Trustee due to physical or mental incapacity or failure to comply
with such written policies as from time to time may be adopted by at least
two-thirds of the Trustees with respect to the conduct of the Trustees and
attendance at meetings. Any Trustee who has attained a mandatory retirement age,
if any, established pursuant to any written policy adopted from time to time by
at least two-thirds of the Trustees shall, automatically and without action by
such Trustee or the remaining Trustees, be deemed to have retired in accordance
with the terms of such policy, effective as of the date determined in accordance
with such policy. Any Trustee who has become incapacitated by illness or injury
as determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the date of
such Trustee's retirement. Upon the resignation, retirement or removal of a
Trustee, or a Trustee otherwise ceasing to be a Trustee, such resigning,
retired, removed or former Trustee shall execute and deliver such documents as
the remaining Trustees shall require for the purpose of conveying to the Trust
or the remaining Trustees any Trust Property held in the name of such resigning,
retired, removed or former Trustee. Upon the death of any Trustee or upon
removal, retirement or resignation due to any Trustee's incapacity to serve as
Trustee, the legal representative of such deceased, removed, retired or
resigning Trustee shall execute and deliver on behalf of such deceased, removed,
retired or resigning Trustee such documents as the remaining Trustees shall
require for the purpose set forth in the preceding sentence.
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2.4. VACANCIES. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
retirement, adjudicated incompetence or other incapacity to perform the duties
of the office, or removal, of a Trustee. No such vacancy shall operate to annul
this Declaration or to revoke any existing agency created pursuant to the terms
of this Declaration. In the case of a vacancy, Holders of at least a majority of
the Interests entitled to vote, acting at any meeting of Holders held in
accordance with Section 9.2 hereof, or, to the extent permitted by the 1940 Act,
a majority vote of the Trustees continuing in office acting by written
instrument or instruments, may fill such vacancy, and any Trustee so elected by
the Trustees or the Holders shall hold office as provided in this Declaration.
2.5. MEETINGS. Meetings of the Trustees shall be held from
time to time upon the call of the Chairman, if any, the President, the
Secretary, an Assistant Secretary or any two Trustees. 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.
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
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other and participation in a meeting by means of such communications equipment
shall constitute presence in person at such meeting.
2.6. OFFICERS; CHAIRMAN OF THE BOARD. The Trustees shall, from
time to time, elect a President, a Secretary and a Treasurer. The Trustees may
elect or appoint, from time to time, a Chairman of the Board who shall preside
at all meetings of the Trustees and carry out such other duties as the Trustees
may designate. The Trustees may elect or appoint or authorize the President to
appoint such other officers, agents or independent contractors with such powers
as the Trustees may deem to be advisable. The Chairman, if any, shall be and
each other officer may, but need not, be a Trustee.
2.7. BY-LAWS. The Trustees may adopt and, from time to time,
amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
POWERS OF TRUSTEES
3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and such
business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees may perform such acts as in their
sole discretion they deem proper for conducting the business of the Trust. The
enumeration of or failure to mention any specific power herein shall not be
construed as limiting such exclusive and absolute control. The powers of the
Trustees may be exercised without order of or resort to any court.
3.2. INVESTMENTS. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of 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,
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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 under any foreign laws; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of any kind and description, including, without limitation, the right to consent
and otherwise act with respect thereto, with power to designate one or more
Persons to exercise any of such rights, powers and privileges in respect of any
of such investments; and the Trustees shall be deemed to have the foregoing
powers with respect to any additional instruments in which the Trustees may
determine to invest.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
3.3. LEGAL TITLE. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have the
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name or
nominee name of any other Person on behalf of the Trust, on such terms as the
Trustees may determine.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each individual who may hereafter become a
Trustee upon his due election and qualification. Upon the resignation, removal
or death of a Trustee, such resigning, removed or deceased Trustee shall
automatically cease to have any right, title or interest in any Trust Property,
and the right, title and interest of such resigning, removed or deceased Trustee
in the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4. SALE AND INCREASES OF INTERESTS. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit any
Institutional Investor to purchase an Interest, or increase its Interest, for
such type of consideration, including cash or property, at such time or times
(including, without limitation, each business day), and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. Individuals,
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S corporations, partnerships and grantor trusts that are beneficially owned by
any individual, S corporation or partnership may not purchase Interests. A
Holder which has redeemed its Interest may not be permitted to purchase an
Interest until the later of 60 calendar days after the date of such Redemption
or the first day of the Fiscal Year next succeeding the Fiscal Year during which
such Redemption occurred.
3.5 DECREASES AND REDEMPTIONS OF INTERESTS. Subject to Article
VII hereof, the Trustees, in their discretion, may, from time to time, without a
vote of the Holders, permit a Holder to redeem its Interest, or decrease its
Interest, for either cash or property, at such time or times (including, without
limitation, each business day), and on such terms as the Trustees may deem best.
3.6. BORROW MONEY. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging, pledging
or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee, or undertake the
performance of any obligation, contract or engagement of any other Person.
3.7. DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive and absolute control over the Trust
Property and over the business of the Trust, to delegate from time to time to
such of their number or to officers, employees, agents or independent
contractors of the Trust the doing of such things and the execution of such
instruments in either the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
3.8. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; and to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust or the Trust Property; to foreclose any security
interest securing any obligation, by virtue of which any property is owed to the
Trust; and to enter into releases, agreements and other instruments.
3.9. EXPENSES. The Trustees shall have power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the Trust Property to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for special services, including legal and
brokerage services, as they in good faith may deem reasonable, and reimbursement
for expenses reasonably incurred by themselves on behalf of the Trust.
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3.10. MISCELLANEOUS POWERS. The Trustees shall have power to:
(a) employ or contract with such Persons as the Trustees may deem appropriate
for the transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies insuring the Investment
Manager and Administrator, placement agent, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not the Trust would
have the power to indemnify such Person against such liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
the Trustees, officers, employees or agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious, educational,
scientific, civic or similar purposes; (f) to the extent permitted by law,
indemnify any Person with whom the Trust has dealings, including the Investment
Manager and Administrator, placement agent, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust, to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the Fiscal Year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such a seal shall not impair the validity of any instrument executed
on behalf of the Trust.
3.11. FURTHER POWERS. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices, whether within or without the State of New York,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper, appropriate or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust which is made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration, the presumption shall be in favor
of a grant of power to the Trustees. The Trustees shall not be required to
obtain any court order in order to deal with Trust Property.
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ARTICLE IV
Investment Management and Administration
AND PLACEMENT AGENT ARRANGEMENTS
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4.1. INVESTMENT MANAGEMENT AND OTHER ARRANGEMENTS. The
Trustees may in their discretion, from time to time, enter into investment
management and administration contracts or placement agent agreements whereby
the other party to such contract or agreement shall undertake to furnish the
Trustees such investment management and 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 Manager and Administrator (subject to
such general or specific instructions as the Trustees may, from time to time,
adopt) to effect purchases, sales, loans or exchanges of Trust Property on
behalf of the Trustees or may authorize any officer, employee or Trustee to
effect such purchases, sales, loans or exchanges pursuant to recommendations of
any such Investment Manager and Administrator (all without any further action by
the Trustees). Any such purchase, sale, loan or exchange shall be deemed to have
been authorized by the Trustees.
4.2. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1 hereof or in the By-Laws of the Trust may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any individual holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust under
or by reason of any such contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when entered into
was reasonable and fair and not inconsistent with the provisions of this Article
IV or the By-Laws of the Trust. The same Person may be the other party to one or
more contracts entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any individual may be financially interested or otherwise affiliated
with Persons who are parties to any or all of the contracts mentioned in this
Section 4.2 or in the By-Laws of the Trust.
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ARTICLE V
Liability of Holders; Limitations of
LIABILITY OF TRUSTEES, OFFICERS, ETC.
5.1. LIABILITY OF HOLDERS; INDEMNIFICATION. Each Holder shall
be jointly and severally liable (with rights of contribution INTER SE in
proportion to their respective Interests in the Trust) for the liabilities and
obligations of the Trust in the event that the Trust fails to satisfy such
liabilities and obligations; provided, however, that, to the extent assets are
available in the Trust, the Trust shall indemnify and hold each Holder harmless
from and against any claim or liability to which such Holder may become subject
by reason of being or having been a Holder to the extent that such claim or
liability imposes on the Holder an obligation or liability which, when compared
to the obligations and liabilities imposed on other Holders, is greater than
such Holder's Interest (proportionate share), and shall reimburse such Holder
for all legal and other expenses reasonably incurred by such Holder in
connection with any such claim or liability. The rights accruing to a Holder
under this Section 5.1 shall not exclude any other right to which such Holder
may be lawfully entitled, nor shall anything contained herein restrict the right
of the Trust to indemnify or reimburse a Holder in any appropriate situation
even though not specifically provided herein. Notwithstanding the
indemnification procedure described above, it is intended that each Holder shall
remain jointly and severally liable to the Trust's creditors as a legal matter.
5.2. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS,
EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS TO THIRD PARTIES. No Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust shall be subject to any personal liability whatsoever to
any Person, other than the Trust or the Holders, in connection with Trust
Property or the affairs of the Trust; and all such Persons shall look solely to
the Trust Property for satisfaction of claims of any nature against a Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust arising in connection with the affairs of the Trust.
5.3. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS,
EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS TO TRUST, HOLDERS, ETC. No Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust shall be liable to the Trust or the Holders for any
action or failure to act (including, without limitation, the failure to compel
in any way any former or acting Trustee to redress any breach of trust)
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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, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust (including any Person who serves at the Trust's request
as a director, officer or trustee of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred by
such Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to any
matter as to which such Person shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties; provided, however, that as to any matter disposed of by a
compromise payment by such Person, pursuant to a consent decree or otherwise, no
indemnification either for such payment or for any other expenses shall be
provided unless there has been a determination that such Person did not engage
in willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Person's office by the court or other
body approving the settlement or other disposition or by a reasonable
determination, based upon a review of readily available facts (as opposed to a
full trial-type inquiry), that such Person did not engage in such conduct by
written opinion from independent legal counsel approved by the Trustees. The
rights accruing to any Person under these provisions shall not exclude any other
right to which such Person may be lawfully entitled; provided that no Person may
satisfy any right of indemnity or reimbursement granted in this Section 5.4 or
in Section 5.2 hereof or to which such Person may be otherwise entitled except
out of the Trust Property. The Trustees may make advance payments in connection
with indemnification under this Section 5.4, provided that the indemnified
Person shall have given a written undertaking to reimburse the Trust in the
event it is subsequently determined that such Person is not entitled to such
indemnification.
5.5. NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as such,
be obligated to give any bond or surety or other security for the performance of
any of such Trustee's duties hereunder.
5.6. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender or other Person dealing with any Trustee, officer,
employee, agent or independent
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contractor of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by such Trustee, officer,
employee, agent or independent contractor or be liable for the application of
money or property paid, loaned or delivered to or on the order of such Trustee,
officer, employee, agent or independent contractor. Every obligation, contract,
instrument, certificate or other interest or undertaking of the Trust, and every
other act or thing whatsoever executed in connection with the Trust shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Trustees, officers, employees, agents or independent
contractors of the Trust. Every written obligation, contract, instrument,
certificate or other interest or undertaking of the Trust made or sold by any
Trustee, officer, employee, agent or independent contractor of the Trust, in
such capacity, shall contain an appropriate recital to the effect that the
Trustee, officer, employee, agent or independent contractor of the Trust shall
not personally be bound by or liable thereunder, nor shall resort be had to
their private property for the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made therein to the Declaration,
and may contain any further recital which they may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
Trustee, officer, employee, agent or independent contractor of the Trust.
Subject to the provisions of the 1940 Act, the Trust may maintain insurance for
the protection of the Trust Property, the Holders, and the Trustees, officers,
employees, agents and independent contractors of the Trust in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgment shall deem advisable.
5.7. RELIANCE ON EXPERTS, ETC. Each Trustee, officer,
employee, agent or independent contractor of the Trust shall, in the performance
of such Person's duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust (whether or not the
Trust would have the power to indemnify such Persons against such liability),
upon an opinion of counsel, or upon reports made to the Trust by any of its
officers or employees or by any Investment Manager and Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
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ARTICLE VI
INTERESTS
6.1. INTERESTS. The beneficial interest in the Trust Property
shall consist of non-transferable Interests except as provided in Section 6.2
hereof. The Interests shall be personal property giving only the rights in this
Declaration specifically set forth. The value of an Interest shall be equal to
the Book Capital Account balance of the Holder of the Interest.
6.2. NON-TRANSFERABILITY. A Holder may not transfer, sell or
exchange its Interest except as part of a merger or similar plan of
reorganization of a Holder as permitted by the Trustees.
6.3. REGISTER OF INTERESTS. A register shall be kept at the
Trust under the direction of the Trustees which shall contain the name, address
and Book Capital Account balance of each Holder. Such register shall be
conclusive as to the identity of the Holders. No Holder shall be entitled to
receive payment of any distribution, nor to have notice given to it as herein
provided, until it has given its address to such officer or agent of the Trust
as is keeping such register for entry thereon.
ARTICLE VII
INCREASES, DECREASES AND REDEMPTIONS OF INTERESTS
Subject to applicable law, to the provisions of this
Declaration and to such restrictions as may from time to time be adopted by the
Trustees, each Holder shall have the right to vary its investment in the Trust
at any time without limitation by increasing (through a capital contribution) or
decreasing (through a capital withdrawal) or by a Redemption of its Interest. An
increase in the investment of a Holder in the Trust shall be reflected as an
increase in the Book Capital Account balance of that Holder and a decrease in
the investment of a Holder in the Trust or the Redemption of the Interest of a
Holder shall be reflected as a decrease in the Book Capital Account balance of
that Holder. The Trust shall, upon appropriate and adequate notice from any
Holder increase, decrease or redeem such Holder's Interest for an amount
determined by the application of a formula adopted for such purpose by
resolution of the Trustees; provided that (a) the amount received by the Holder
upon any such decrease or Redemption shall not exceed the decrease in the
Holder's Book Capital Account balance effected by such decrease or Redemption of
its Interest, and (b) if so authorized by the Trustees, the Trust may, at any
time and from time to time, charge fees for effecting any such decrease or
Redemption, at such rates as the Trustees may establish, and may, at any time
and from time to time, suspend such right of decrease or Redemption. The
procedures for effecting
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decreases or Redemptions shall be as determined by the Trustees from
time to time.
ARTICLE VIII
Determination of Book Capital Account
BALANCES AND DISTRIBUTIONS
8.1. BOOK CAPITAL ACCOUNT BALANCES. The Book Capital Account
balance of each Holder shall be determined on such days and at such time or
times as the Trustees may determine. The Trustees shall adopt resolutions
setting forth the method of determining the Book Capital Account balance of each
Holder. The power and duty to make calculations pursuant to such resolutions may
be delegated by the Trustees to the Investment Manager and 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 in cash or in kind. Except as
provided in Section 6.2, a holder may not transfer, sell or exchange its Book
Capital Account balance.
8.2. ALLOCATIONS AND DISTRIBUTIONS TO HOLDERS. The Trustees
shall, in compliance with the Code, the 1940 Act and generally accepted
accounting principles, establish the procedures by which the Trust shall make
(i) the allocation of unrealized gains and losses, taxable income and tax loss,
and profit and loss, or any item or items thereof, to each Holder, (ii) the
payment of distributions, if any, to Holders, and (iii) upon liquidation, the
final distribution of items of taxable income and expense. Such procedures shall
be set forth in writing and be furnished to the Trust's accountants. The
Trustees may amend the procedures adopted pursuant to this Section 8.2 from time
to time. The Trustees may retain from the net profits such amount as they may
deem necessary to pay the liabilities and expenses of the Trust, to meet
obligations of the Trust, and as they may deem desirable to use in the conduct
of the affairs of the Trust or to retain for future requirements or extensions
of the business.
8.3. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the net
income of the Trust, the allocation of income of the Trust, the Book Capital
Account balance of each Holder, or the payment of distributions to the Holders
as they may deem necessary or desirable to enable the Trust to comply with any
provision of the 1940 Act or any order of exemption issued by the Commission or
with the Code.
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ARTICLE IX
HOLDERS
9.1. RIGHTS OF HOLDERS. The ownership of the Trust Property
and the right to conduct any business described herein are vested exclusively in
the Trustees, and the Holders shall have no right or title therein other than
the beneficial interest conferred by their Interests and they shall have no
power or right to call for any partition or division of any Trust Property.
9.2. MEETINGS OF HOLDERS. Meetings of Holders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting shall be held within or without the
State of New York and within or without the United States of America on such day
and at such time as the Trustees shall designate. Holders of one-third of the
Interests, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the 1940
Act, other applicable law, this Declaration or the By-Laws of the Trust. If a
quorum is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the Holders
present, either in person or by proxy, at such meeting constitutes the action of
the Holders, unless a greater number of affirmative votes is required by the
1940 Act, other applicable law, this Declaration or the By-Laws of the Trust.
All or any one of more Holders may participate in a meeting of Holders by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other and participation
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting.
9.3. NOTICE OF MEETINGS. Notice of each meeting of Holders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at least 10
days and not more than 60 days before the meeting. Notice of any meeting may be
waived in writing by any Holder either before or after such meeting. The
attendance of a Holder at a meeting shall constitute a waiver of notice of such
meeting except in the situation in which a Holder attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting was not lawfully called or convened. At any meeting, any
business properly before the meeting may be considered whether or not stated in
the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
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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 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. When an
Interest is held jointly by several Persons, any one of them may vote at any
meeting in person or by proxy in respect of such Interest, but if more than one
of them is present at such meeting in person or by proxy, and such joint owners
or their proxies so present disagree as to any vote to be cast, such vote shall
not be received in respect of such Interest. A proxy purporting to be executed
by or on behalf of a Holder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger.
9.6. REPORTS. The Trustees shall cause to be prepared and
furnished to each Holder, at least annually as of the end of each Fiscal Year, a
report of operations containing a balance sheet and a statement of income of the
Trust prepared in conformity with generally accepted accounting principles and
an opinion of an independent public accountant on such financial statements. The
Trustees shall, in addition, furnish to each Holder at least semi-annually
interim reports of operations containing an unaudited balance sheet as of the
end of such period and an unaudited statement of income for the period from the
beginning of the then-current Fiscal Year to the end of such period.
9.7. INSPECTION OF RECORDS. The records of the Trust
shall be open to inspection by Holders during normal business hours
for any purpose not harmful to the Trust.
9.8. HOLDER ACTION BY WRITTEN CONSENT. Any action which
may be taken by Holders may be taken without a meeting if Holders
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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.
ARTICLE X
Duration; Termination;
AMENDMENT; MERGERS; ETC.
10.1. DURATION. Subject to possible termination or dissolution
in accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration of 20
years after the death of the last survivor of the initial Trustees named herein
and the following named persons:
Date of
NAME ADDRESS BIRTH
Nicole Catherine Rumery 18 Rio Vista Street 12/21/91
North Billerica, MA 01862
Nelson Stewart Ruble 65 Duck Pond Road 04/10/91
Glen Cove, NY 11542
Shelby Sara Wyetzner 8 Oak Brook Lane 10/18/90
Merrick, NY 11566
Amanda Jehan Sher Coolidge 483 Pleasant Street, #9 08/16/89
Belmont, MA 02178
David Cornelius Johnson 752 West End Avenue, Apt. 10J 05/02/89
New York, NY 10025
Conner Leahy McCabe 100 Parkway Road, Apt. 3C 02/22/89
Bronxville, NY 10708
Andrea Hellegers 530 East 84th Street, Apt. 5H 12/22/88
New York, NY 10028
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Emilie Blair Ruble 65 Duck Pond Road 02/24/89
Glen Cove, NY 11542
Brian Patrick Lyons 152-48 Jewel Avenue 01/20/89
Flushing, NY 11367
Caroline Bolger Cima 11 Beechwood Lane 12/23/88
Scarsdale, NY 10583
Katherine Driscoll Cima 11 Beechwood Lane 04/05/92
Scarsdale, NY 10583
10.2. TERMINATION.
(a) The Trust may be terminated (i) by the affirmative vote of
Holders of not less than two-thirds of all Interests at any meeting of Holders
or by an instrument in writing without a meeting, executed by a majority of the
Trustees and consented to by Holders of not less than two-thirds of all
Interests, or (ii) by the Trustees by written notice to the Holders. Upon any
such termination,
(i) the Trust shall carry on no business except
for the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust have been
wound up, including the power to fulfill or discharge the contracts of
the Trust, collect the assets of the Trust, sell, convey, assign,
exchange or otherwise dispose of all or any part of the Trust Property
to one or more Persons at public or private sale for consideration
which may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay the liabilities of the Trust,
and do all other acts appropriate to liquidate the business of the
Trust; provided that any sale, conveyance, assignment, exchange or
other disposition of all or substantially all the Trust Property shall
require approval of the principal terms of the transaction and the
nature and amount of the consideration by the vote of Holders holding
more than 50% of all Interests; and
(iii) after paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for their
protection, the Trustees shall distribute the remaining Trust Property,
in cash or in kind or partly each, among the Holders according to their
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respective rights as set forth in the procedures established pursuant
to Section 8.2 hereof.
(b) Upon termination of the Trust and distribution to the
Holders as herein provided, a majority of the Trustees shall execute and file
with the records of the Trust an instrument in writing setting forth the fact of
such termination and distribution. Upon termination of the Trust, the Trustees
shall thereupon be discharged from all further liabilities and duties hereunder,
and the rights and interests of all Holders shall thereupon cease.
10.3. DISSOLUTION. Upon the bankruptcy of any Holder, or upon
the Redemption of any Interest, the Trust shall be dissolved effective 120 days
after the event. However, the Holders (other than such bankrupt or redeeming
Holder) may, by a unanimous affirmative vote at any meeting of such Holders or
by an instrument in writing without a meeting executed by a majority of the
Trustees and consented to by all such Holders, agree to continue the business of
the Trust even if there has been such a dissolution.
10.4. AMENDMENT PROCEDURE.
(a) This Declaration may be amended by the vote of Holders of
more than 50% of all Interests at any meeting of Holders or by an instrument in
writing without a meeting, executed by a majority of the Trustees and consented
to by the Holders of more than 50% of all Interests. Notwithstanding any other
provision hereof, this Declaration may be amended by an instrument in writing
executed by a majority of the Trustees, and without the vote or consent of
Holders, for any one or more of the following purposes: (i) to change the name
of the Trust, (ii) to supply any omission, or to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, (iii) to conform this
Declaration to the requirements of applicable federal law or regulations or the
requirements of the applicable provisions of the Code, (iv) to change the state
or other jurisdiction designated herein as the state or other jurisdiction whose
law shall be the governing law hereof, (v) to effect such changes herein as the
Trustees find to be necessary or appropriate (A) to permit the filing of this
Declaration under the law of such state or other jurisdiction applicable to
trusts or voluntary associations, (B) to permit the Trust to elect to be treated
as a "regulated investment company" under the applicable provisions of the Code,
or (C) to permit the transfer of Interests (or to permit the transfer of any
other beneficial interest in or share of the Trust, however denominated), and
(vi) in conjunction with any amendment contemplated by the foregoing clause (iv)
or the foregoing clause (v) to make any and all such further changes or
modifications to this Declaration as the Trustees find to be necessary or
appropriate, any finding of the Trustees referred to in the foregoing clause (v)
or the foregoing clause (vi) to be conclusively evidenced by the execution
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of any such amendment by a majority of the Trustees; provided, however, that
unless effected in compliance with the provisions of Section 10.4(b) hereof, no
amendment otherwise authorized by this sentence may be made which would reduce
the amount payable with respect to any Interest upon liquidation of the Trust
and; provided, further, that the Trustees shall not be liable for failing to
make any amendment permitted by this Section 10.4(a).
(b) No amendment may be made under Section 10.4(a) hereof
which would change any rights with respect to any Interest by reducing the
amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of Holders of two-thirds of all Interests.
(c) A certification in recordable form executed by a majority
of the Trustees setting forth an amendment and reciting that it was duly adopted
by the Holders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when filed with the records of the
Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees at any meeting of
Trustees or by an instrument executed by a majority of the Trustees.
10.5. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including good will, upon such terms and conditions and for such
consideration when and as authorized at any meeting of Holders called for such
purpose by the affirmative vote of Holders of not less than two-thirds of all
Interests, or by an instrument in writing without a meeting, consented to by
Holders of not less than two-thirds of all Interests, and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the State of New York.
10.6. INCORPORATION. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the law of any jurisdiction or a trust, partnership,
association or other organization to take over the Trust Property or to carry on
any business in which the Trust directly or indirectly has any interest, and to
sell, convey and transfer the Trust Property to any such corporation, trust,
partnership, association or other organization in exchange for the equity
interests thereof or otherwise, and to lend money to,
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subscribe for the equity interests of, and enter into any contract with any such
corporation, trust, partnership, association or other organization, or any
corporation, trust, partnership, association or other organization in which the
Trust holds or is about to acquire equity interests. The Trustees may also cause
a merger or consolidation between the Trust or any successor thereto and any
such corporation, trust, partnership, association or other organization if and
to the extent permitted by law. Nothing contained herein shall be construed as
requiring approval of the Holders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to one or more of such organizations or entities.
ARTICLE XI
MISCELLANEOUS
11.1. CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF
PROCESS. The Trust shall file, with the Department of State of the State of New
York, a certificate, in the name of the Trust and executed by an officer of the
Trust, designating the Secretary of State of the State of New York as an agent
upon whom process in any action or proceeding against the Trust may be served.
11.2. GOVERNING LAW. This Declaration is executed by the
Trustees and delivered in the State of New York and with reference to the law
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed in accordance with the
law of the State of New York and reference shall be specifically made to the
trust law of the State of New York as to the construction of matters not
specifically covered herein or as to which an ambiguity exists.
11.3. COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any one such original
counterpart.
11.4. RELIANCE BY THIRD PARTIES. Any certificate executed by
an individual who, according to the records of the Trust or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or Holders, (b)
the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Holders, (d) the fact that
the number of Trustees or Holders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (e) the form
of any By-Laws adopted by or the identity of any officer elected by the
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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.
IN WITNESS WHEREOF, the undersigned have executed this
instrument as of the day and year first above written.
/S/JAMES B. CRAVER
James B. Craver
As Trustee and not individually
/S/THOMAS M. LENZ
Thomas M. Lenz
As Trustee and not individually
/S/ANDRES E. SALDANA
Andres E. Saldana
As Trustee and not individually
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<PAGE>
AMENDMENT NO. 1 TO DECLARATION OF TRUST OF
THE US$ SHORT DURATION TAX EXEMPT PORTFOLIO
DATED AS OF JUNE 24, 1993
The undersigned, being all the Trustees of The US$ Short Duration Tax
Exempt Portfolio, a New York Trust (the "Trust), acting pursuant to the last
paragraph of Section 10.4 of the Declaration of Trust dated as of June 16, 1993,
hereby amend in its entirety paragraph (a) of Section 10.4 of the Trust's
Declaration of Trust as follows:
(a) This Declaration may be amended by the vote of Holders of more than
50% of all Interests at any meeting of Holders or by an instrument in writing
without a meeting, executed by a majority of the Trustees and consented to by
the Holders of more than 50% of all Interests. Notwithstanding any other
provision hereof, this Declaration may be amended by an instrument in writing
executed by a majority of the Trustees, and without the vote or consent of
Holders, for any one or more of the following purposes: (i) to change the name
of the Trust, (ii) to supply any omission, or to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, (iii) to conform this
Declaration to the requirements of applicable federal law or regulations or the
requirements of the applicable provisions of the Code, (iv) to change the state
or other jurisdiction designated herein as the state or other jurisdiction whose
law shall be the governing law hereof, (v) to effect such changes herein as the
Trustees find to be necessary or appropriate (A) to permit the filing of this
Declaration under the law of such state or other jurisdiction applicable to
trusts or voluntary associations, (B) to permit the Trust to elect to be treated
as a "regulated investment company" under the applicable provisions of the Code,
(C) to permit the Trust to comply with fiscal or other statutory or official
requirements of any government authority, or (D) to permit the transfer of
Interests (or to permit the transfer of any other beneficial interest in or
share of the Trust, however denominated), and (vi) in conjunction with any
amendment, contemplated by the foregoing clause (iv) or the foregoing clause (v)
to make any and all such further changes or modifications to this Declaration as
the Trustees find to be necessary or appropriate, any finding of the Trustees
referred to in the foregoing clause (v) or the foregoing clause (vi) to be
conclusively evidenced by the execution of any such amendment by a majority of
the Trustees; provided, however, that unless effected in compliance with the
provisions of Section 10.4(b) hereof, no amendment otherwise authorized by this
sentence may be made which would reduce the amount payable with respect to any
Interest upon liquidation of the Trust and; provided, further, that the Trustees
shall not be liable for failing to make any amendment permitted by this Section
10.4(a).
The undersigned have executed this amendment as of the year and first
written above.
/S/JAMES B. CRAVER /S/THOMAS M. LENZ /S/ANDRES E. SALDANA
James B. Craver Thomas M. Lenz Andres E. Saldana
As Trustee and not As Trustee and not As Trustee and not
Individually Individually Individually
<PAGE>
JPM190
AMENDMENT NO. 2 TO DECLARATION OF TRUST OF
THE NEW YORK MUNICIPAL BOND PORTFOLIO
(formerly The US$ Short Duration Tax Exempt Portfolio)
DATED AS OF DECEMBER 16, 1993
The undersigned, being all the Trustees of The US$ Short Duration Tax
Exempt Portfolio, a New York Trust (the "Trust"), acting pursuant to Section
10.4(a)(i) of the Declaration of Trust dated as of June 16, 1993 (the
"Declaration"), hereby change the name of the Trust to "The New York Municipal
Bond Portfolio".
The undersigned have executed this amendment to the Declaration as of
the year and date first written above.
/S/JAMES B. CRAVER /S/THOMAS M. LENZ /S/ANDRES E. SALDANA
- ------------------------ ------------------------ ------------------------
James B. Craver Thomas M. Lenz Andres E. Saldana
As Trustee and not As Trustee and not As Trustee and not
Individually Individually Individually
<PAGE>
JPM190
AMENDMENT NO. 3 TO DECLARATION OF TRUST OF
THE NEW YORK BOND PORTFOLIO
(formerly The New York Municipal Bond Portfolio)
DATED AS OF JANUARY 31, 1994
The undersigned, being all the Trustees of The New York Municipal Bond
Portfolio, a New York Trust (the "Trust"), acting pursuant to Section 10.4(a)(i)
of the Declaration of Trust dated as of June 16, 1993 (the "Declaration"),
hereby change the name of the Trust to "The New York Bond Portfolio".
The undersigned have executed this amendment to the Declaration as of
the year and date first written above.
/S/JAMES B. CRAVER /S/THOMAS M. LENZ /S/ANDRES E. SALDANA
- ------------------------ ------------------------ ------------------------
James B. Craver Thomas M. Lenz Andres E. Saldana
As Trustee and not As Trustee and not As Trustee and not
Individually Individually Individually
<PAGE>
JPM190
AMENDMENT NO. 4 TO DECLARATION OF TRUST OF
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
(formerly The New York Bond Portfolio)
DATED AS OF FEBRUARY 16, 1994
The undersigned, being all the Trustees of The New York Bond Portfolio,
a New York Trust (the "Trust"), acting pursuant to Section 10.4(a)(i) of the
Declaration of Trust dated as of June 16, 1993 (the "Declaration"), hereby
change the name of the Trust to "The New York Total Return Bond Portfolio".
The undersigned have executed this amendment to the Declaration as of
the year and date first written above.
/S/JAMES B. CRAVER /S/THOMAS M. LENZ /S/ANDRES E. SALDANA
- ------------------------ ------------------------ ------------------------
James B. Craver Thomas M. Lenz Andres E. Saldana
As Trustee and not As Trustee and not As Trustee and not
Individually Individually Individually
<PAGE>
JPM408
AMENDMENT NO. 5 TO DECLARATION OF TRUST OF
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
DATED AS OF APRIL 13, 1995
The undersigned, being all the Trustees of The New York Total Return
Bond Portfolio, a trust organized under the laws of the State of New York (the
"Trust), acting pursuant to the last paragraph of Section 10.4 of the
Declaration of Trust dated as of June 16, 1993, as amended, hereby amend in its
entirety paragraph Section 6.2 of the Trust's Declaration of Trust as follows:
6.2. NON-TRANSFERABILITY. A Holder may not transfer, sell or exchange
its Interest except as part of a merger or similar plan of reorganization of a
Holder that qualifies under Section 368 of the Code as permitted by the
Trustees.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 13th day of April, 1995. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by all of the
Trustees.
/S/FREDERICK S. ADDY /S/WILLIAM G. BURNS
Frederick S. Addy William G. Burns
/S/ARTHUR C. ESCHENLAUER /S/MATTHEW HEALEY
Arthur C. Eschenlauer Matthew Healey
/S/MICHAEL P. MALLARDI
Michael P. Mallardi
<PAGE>
JPM345
BY-LAWS
OF
EACH HUB TRUST LISTED ON SCHEDULE I
AND
EACH SPOKE TRUST LISTED ON SCHEDULE II
ARTICLE I
DEFINITIONS
Each Trust listed on Schedule I is referred to in these By-Laws as a
"HUB TRUST".* Each Trust listed on Schedule II is referred to in these By-Laws
as a "SPOKE TRUST".*
In the case of each Hub Trust and each Spoke Trust, unless otherwise
specified, capitalized terms have the respective meanings given them in the
Declaration of Trust of such Trust dated as of the date set forth in Schedule I
or II, as amended from time to time. In the case of each Spoke Trust, the term
"Holder" has the meaning given the term "Shareholder" in the Declaration.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. In the case of each Hub Trust, the
principal office of the Trust shall be in such place as the Trustees may
determine from time to time, PROVIDED THAT the principal office shall be outside
the United States of America if the Trustees determine that the Trust is
intended to be operated so that it is not engaged in United States trade or
business for United States federal income tax purposes. In the case of each
Spoke Trust, until changed by the Trustees, the principal office of the Trust in
the Commonwealth of Massachusetts shall be in the City of Boston, County of
Suffolk.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the state of its organization and the United
States of America as the Trustees may from time to time determine.
- --------
*"Hub" and "Spoke" are service marks of Signature
Financial Group, Inc.
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ARTICLE III
HOLDERS
SECTION 1. 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 the case of each Hub Trust or 10% of the Shares issued and
outstanding and entitled to vote thereat in the case of each Spoke Trust, 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
organization of the Trust and within, or, if applicable, in the case of a Hub
Trust only without, the United States of America on such day and at such time as
the Trustees shall designate. Holders of one third of the Interests in the case
of each Hub Trust or one third of the Shares issued and outstanding and entitled
to vote thereat in the case of each Spoke Trust, present in person or by proxy,
shall constitute a quorum for the transaction of any business, except as may
otherwise be required by the 1940 Act, other applicable law, the Declaration or
these 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 in the case of each Hub Trust, or 50% of the total Shares issued and
outstanding and entitled to vote thereat in the case of each Spoke Trust,
present, either in person or by proxy, at such meeting constitutes the action of
the Holders, unless a greater number of affirmative votes is required by the
1940 Act, other applicable law, the Declaration or these By-Laws.
All or any one or 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.
In the case of The Series Portfolio or any Spoke Trust, whenever a
matter is required to be voted by Holders of the Trust in the aggregate under
Section 9.1 and Section 9.2 of the Declaration of The Series Portfolio or
Section 6.8 and Section 6.9 and Section 6.9(g) of the Declaration of the Spoke
Trust, the Trust may either hold a meeting of Holders of all series, as defined
in Section 1.2 of the Declaration of The Series Portfolio or Section 6.9 of the
Declaration of the Spoke Trust, to vote on such matter, or hold separate
meetings of Holders of each of the individual series to vote
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<PAGE>
on such matter, PROVIDED THAT (i) such separate meetings shall be held within
one year of each other, (ii) a quorum consisting of the Holders of one third of
the outstanding Interests or Shares, as the case may be, of the individual
series entitled to vote shall be present at each such separate meeting except as
may otherwise be required by the 1940 Act, other applicable law, the Declaration
or these ByLaws and (iii) a quorum consisting of the Holders of one third of all
Interests or Shares, as the,case may be, of the Trust entitled to vote, except
as may otherwise be required by the 1940 Act, other applicable law, the
Declaration or these By-Laws, 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.
SECTION 2. NOTICE OF MEETINGS. Notice of each meeting of Holders,
stating the time, place and purpose of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at least 10
days and not more than 60 days before the meeting. Notice of any meeting may be
waived in writing by any Holder either before or after such meeting. The
attendance of a Holder at a meeting shall constitute a waiver of notice of such
meeting except in the situation in which a Holder attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting was not lawfully called or convened. At any meeting, any
business properly before the meeting may be considered whether or not stated in
the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
In the case of The Series Portfolio and each Spoke Trust, where
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, as
provided in Article III, Section 1 above, notice of each such separate meeting
shall be provided in the manner described above in this Section 2.
SECTION 3. RECORD DATE FOR MEETINGS. For the purpose of determining the
Holders who are entitled to notice of and to vote at any meeting, the Trustees
may from time to time fix a date, not more than 90 days prior to the date of any
meeting of Holders as a record date for the determination of the Persons to be
treated as Holders for such purpose.
In the case of The Series Portfolio and each Spoke Trust, where
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, as
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provided in Article III, Section 1 above, the record date of each such separate
meeting shall be determined in the manner described above in this Section 3.
SECTION 4. VOTING, PROXIES, INSPECTORS OF ELECTION. 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. No proxy shall be valid after one year from the date
of its execution, unless a longer period is expressly stated in the proxy.
In the case of each Hub Trust, only Holders on the record date shall be
entitled to vote and each such Holder shall be entitled to a vote proportionate
to its Interest. In the case of each Spoke Trust, (i) only Holders on the record
date shall be entitled to vote; (ii) each whole Share shall be entitled to vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted; (iii) Shares shall be voted by
individual series on any matter submitted to a vote of the Holders of the Trust
except as provided in Section 6.9(g) of the Declaration; and (iv) at any meeting
of Holders of the Trust or of any series of the Trust, a Shareholder Servicing
Agent may vote any Shares as to which such Shareholder Servicing Agent is the
agent of record.
The Chairman of the meeting may, and upon the request of the Holders of
10% of the Interests or Shares, as the case may be, entitled to vote at such
election shall, appoint one or three inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election certify the result of the vote taken. No
candidate for Trustee shall be appointed such inspector. If there are three
inspectors of election, the decision, act or certification of a majority is
effective in all respects as the decision, act or certificate of all.
At every meeting of the Holders, all proxies shall be required and
taken in charge of and all ballots shall be
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required and canvassed by the Secretary of the meeting, who shall decide all
questions touching the qualification of voters, the validity of the proxies, the
acceptance or rejection of votes and any other questions related to the conduct
of the vote with fairness to all Holders, unless inspectors of election shall
have been appointed, in which event the inspectors of election shall decide all
such questions. On request of the Chairman of the meeting, or of any Holder or
his proxy, the Secretary shall make a report in writing of any question
determined and shall execute a certificate of facts found, unless inspectors of
election shall have been appointed, in which event the inspectors of election
shall do so.
When an Interest is held or Shares are held jointly by several Persons,
any one of them may vote at any meeting in person or by proxy in respect of such
Interest or Shares, 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 or Shares. A proxy purporting to be executed by or on behalf of a
Holder shall be deemed valid unless challenged at or prior to its exercise, and
the burden of proving invalidity shall rest on the challenger.
SECTION 5. HOLDER ACTION BY WRITTEN CONSENT. In the case of each Hub
Trust, any action which may be taken by Holders may be taken without a meeting
if Holders 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.
In the case of each Spoke Trust, any action which may be taken by Holders may be
taken without a meeting if Holders holding a majority of Shares entitled to vote
on the matter (or such larger proportion thereof as shall be required by law,
the Declaration or these By-Laws for approval of such matter) 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.
SECTION 6. CONDUCT OF MEETINGS. The meetings of the Holders shall be
presided over by the Chairman, or if he is
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not present, by a Chairman to be elected at the meeting. The Secretary of the
Trust, if present, shall act as secretary of such meetings, or if he is not
present, an Assistant Secretary shall so act; if neither the Secretary nor any
Assistant Secretary is present, then the meeting shall elect its secretary.
ARTICLE IV
TRUSTEES
SECTION 1. PLACE OF MEETING, ETC. The Trustees may hold their meetings,
have one or more offices, and keep the books of the Trust, inside or outside the
state of organization of the Trust or the United States of America, at any
office of the Trust or at any other place as they may from time to time
determine, or in the case of meetings, as they may from time to time determine
or as shall be specified or fixed in the respective notices or waivers of notice
thereof.
SECTION 2. MEETINGS. Meetings of the Trustees shall be held from time
to time upon the call of the Chairman or any two Trustees. The President, the
Secretary or an Assistant Secretary may call meetings only upon the written
direction of the Chairman or two Trustees. The Trustees shall hold an annual
meeting for the election of officers and transaction of other business which may
come before such meeting. Regular meetings of the Trustees may be held without
call or notice at a time and place fixed by 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. Notice shall be given of any proposed action to be taken by
written consent. Notice of a meeting or proposed action to be taken by written
consent may be given by telegram (which term shall include a cablegram), by
telecopier or delivered personally (which term shall include by telephone), as
well as by mail. 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.
Neither the business to be transacted at, nor the purpose of, any meeting of the
Trustees need be stated in the notice or waiver of notice of such meeting.
SECTION 3. QUORUM. A quorum for all meetings of the Trustees shall be a
majority of the Trustees. Unless provided otherwise in the Declaration, the 1940
Act or other applicable law, any action of the Trustees may be taken at a
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meeting by vote of a majority of the Trustees present (a quorum being present).
In the absence of a quorum, a majority of the Trustees present may adjourn the
meeting from time to time until a quorum shall be present. Notice of an
adjourned meeting need not be given.
With respect to actions 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 and shall be entitled to vote to the extent
permitted by the 1940 Act.
SECTION 4. COMMITTEES. The Trustees, by the majority vote of all the
Trustees then in office, may appoint from the Trustees committees which shall in
each case consist of such number of Trustees (not less than two) and shall have
and may exercise such powers as the Trustees may determine in the resolution
appointing them. Unless provided otherwise in the Declaration or by the
Trustees, a majority of all the members of any such committee may determine its
actions and fix the time and place of its meetings. With respect to actions of
any committee, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes and
shall be entitled to vote to the extent permitted by the 1940 Act. The Trustees
shall have power at any time to change the members and powers of any such
committee, to fill vacancies and to discharge any such committee. Each committee
shall keep regular minutes of its meetings and cause them to be filed with the
minutes of the proceedings of the Trustees.
SECTION 5. TELEPHONE MEETINGS. 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 participating
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting. Any conference telephone meeting shall be deemed to
have been held at a place designated by the Trustees at the meeting.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Trustees or any committee thereof may be taken
without a meeting, if a written consent to such action is signed either by all
the Trustees or all members of such committee then in office or by an 80%
majority of the Trustees or an 80% majority of members of such committee,
PROVIDED THAT no action by 80% majority consent shall be effective unless and
until (i) each Trustee or committee member signing such consent shall have been
advised in writing of the following
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information: the identity of any Trustee or committee member not signing such
consent and the reasons for his not signing; and (ii) after receiving such
information signing Trustees or committee members who represent an 80% majority
then in office indicate in writing that the consent shall become effective by
80% majority, rather than unanimous, consent. All such effective written
consents shall be filed with the minutes of the proceedings of the Trustees and
treated as a vote for all purposes.
SECTION 7. COMPENSATION. The Trustees shall be entitled to receive such
compensation from the Trust for their services as may from time to time be voted
by the Trustees.
SECTION 8. CHAIRMAN. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to serve until his successor
shall have been duly elected and qualified; the Chairman may serve on committees
of the Trustees. The Chairman shall not be an officer of the Trust solely by
virtue of his serving as Chairman. The Chairman shall preside at all meetings of
the Trustees at which he is present, shall serve as the liaison between the
Trustees and the officers of the Trust and between the Trustees and their staff
and shall have such other duties as from time to time may be assigned to him by
the Trustees.
SECTION 9. TRUSTEES' STAFF; COUNSEL FOR THE TRUST AND TRUSTEES, ETC.
The Trustees may employ or contract with one or more Persons to serve as their
staff and to provide such services related thereto as may be determined from
time to time. The Trustees may employ attorneys as counsel for the Trust and/or
the Trustees and may engage such other experts or consultants as may be
determined from time to time.
ARTICLE V
OFFICERS
SECTION 1. GENERAL PROVISIONS. The Trustees may elect or appoint such
officers or agents as the business of the Trust may require, including without
limitation a Chief Executive Officer, a President, one or more Vice Presidents,
a Treasurer, a Secretary, one or more Assistant Treasurers and one or more
Assistant Secretaries. The Trustees may delegate to any officer or committee the
power to appoint any subordinate officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration or these ByLaws, each of the principal
executive officer described in Section 4 below, the Treasurer and the Secretary
shall hold
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office until a successor shall have been duly elected and qualified, and any
other officers shall hold office at the pleasure of the Trustees. Any two or
more offices may be held by the same Person, PROVIDED THAT at least two
different individuals shall serve as officers. Any officer may be, but does not
need be, a Trustee.
SECTION 3. REMOVAL. The Trustees may remove any officer with or without
cause by a vote of a majority of the Trustees. Any subordinate officer or agent
appointed by any officer or committee may be removed with or without cause by
such appointing officer or committee.
SECTION 4. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER; PRESIDENT.
The Chief Executive Officer, if any, shall be the principal executive officer of
the Trust. Subject to the control of the Trustees, the Chief Executive Officer
shall (i) at all times exercise general supervision and direction over the
affairs of the Trust, (ii) have the power to grant, issue, execute or sign such
documents as may be deemed advisable or necessary in the ordinary course of the
Trust's business and (iii) have such other powers and duties as from time to
time may be assigned by the Trustees.
If there is no Chief Executive Officer, the President shall be the
principal executive officer of the Trust and shall have the powers and duties
set forth above in this Section 4. If there is a Chief Executive Officer and a
President, the President shall have such powers and duties as from time to time
may be assigned by the Trustees or the Chief Executive Officer.
SECTION 5. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, any Vice President designated by the Trustees or
the President shall perform all the duties, and may exercise any of the powers,
of the President. Each Vice President shall perform such other duties as from
time to time may be assigned to him by the Trustees or the Chief Executive
Officer.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to the Trust's
custodian. The Treasurer shall render a statement of condition of the finances
of the Trust to the Trustees as often as they shall require the same and shall
in general perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Trustees.
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SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Holders in proper books provided for that
purpose; shall keep the minutes of all meetings of the Trustees; shall have
custody of the seal of the Trust, if any; and shall have charge of the Holder
lists and records unless the same are in the charge of the Transfer Agent. The
Secretary shall attend to the giving and serving of notices by the Trust in
accordance with the provisions of these By-Laws and as required by law; and
subject to these By-Laws, shall in general perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Trustees.
SECTION 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS. Subject to any applicable law or
provision of the Declaration, any compensation of any officer may be fixed from
time to time by the Trustees. No officer shall be prevented from receiving any
such compensation as such officer by reason of the fact that he is also a
Trustee. If no such compensation is fixed for any officer, such officer shall
not be entitled to receive any compensation from the Trust.
SECTION 11. BOND AND SURETY. As provided in the Declaration, any
officer may be required by the Trustees to be bonded for the faithful
performance of his duties in the amount and with such sureties as the Trustees
may determine.
ARTICLE VI
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
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ARTICLE VII
FISCAL YEAR
The Trust may have different fiscal years for its separate and distinct
series, if applicable. The fiscal year(s) of the Trust shall be determined by
the Trustees, PROVIDED THAT the Trustees (or the Treasurer subject to
ratification by the Trustees) may from time to time change any fiscal year.
ARTICLE VIII
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times
employ one or more banks or trust companies having a capital, surplus and
undivided profits of at least $50,000,000 as custodian with authority as the
Trust's agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Declaration, these By-Laws and
the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same upon
written order; (ii) to receive and receipt for any monies due to the
Trust and deposit the same in its own banking department or elsewhere
as the Trustees may direct; (iii) to disburse such funds upon orders or
vouchers; (iv) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services; and
(v) if authorized by the Trustees, to compute the net income of the
Trust and the net asset value of the Trust or, in the case of each
Spoke Trust, Shares;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees. Subject to the
approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
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SECTION 2. SUCCESSOR CUSTODIAN. The Trust shall upon the resignation or
inability to serve of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian; (ii) require that the cash and
securities owned by the Trust be delivered directly to the successor
custodian; and (iii) in the event that no successor custodian can be
found, submit to the Holders before permitting delivery of the cash and
securities owned by the Trust otherwise than to a successor custodian,
the question whether the
Trust shall be liquidated or shall function without a custodian.
ARTICLE IX
INDEMNIFICATION
In the case of each Hub Trust, insofar as the conditional advancing of
indemnification monies under Section 5.4 of the Declaration for actions based
upon the 1940 Act may be concerned, such payments will be made only on the
following conditions:
(i) the advances must be limited to amounts used, or to be used, for
the preparation or presentation of a defense to the action, including
costs connected with the preparation of a settlement; (ii) advances may
be made only upon receipt of a written promise by, or on behalf of, the
recipient to repay the amount of the advance which exceeds the amount
to which it is ultimately determined that he is entitled to receive
from the Trust by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an
equivalent form of security which assures that any repayment may be
obtained by the Trust without delay or litigation, which bond,
insurance or other form of security must be provided by the recipient
of the advance, or (b) a majority of a quorum of the Trust's
disinterested, nonparty 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.
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ARTICLE X
AMENDMENTS, ADDITIONAL TRUSTS, ETC.
The Trustees shall have the power to alter, amend or repeal
these By-Laws or adopt new By-Laws at any time to the extent such power is not
reserved to the Holders by the 1940 Act, other applicable law or the
Declaration. Action by the Trustees with respect to these By-Laws shall be taken
by an affirmative vote of a majority of the Trustees. The Trustees shall in no
event adopt By-Laws which are in conflict with the Declaration.
One or more additional trusts may be added to Schedule I or Schedule II
by resolution of the trustees of such trust(s), PROVIDED THAT the trustees of
such trust(s) are identical to the Trustees of the Hub Trusts and the Spoke
Trusts immediately prior to such addition.
In the case of each Hub Trust, the Declaration refers to the Trustees
as Trustees, but not as individuals or personally; and no Trustee, officer,
employee or agent of the Trust shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Trust. In
the case of each Spoke Trust, the Declaration refers to the Trustees not
individually, but as Trustees under the Declaration, and no Trustee, officer,
employee or agent of the Trust shall be subject to any personal liability
whatsoever to any Person, other than the Trust or its Holders, in connection
with Trust Property or the affairs of the Trust, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless disregard for his duty
to such Person; and all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust.
JPM345
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SCHEDULE I
HUB TRUSTS
<TABLE>
<CAPTION>
STATE OF DATE OF DATE
ORGANIZA- DECLARA- BY-LAWS
TRUST TION TION ADOPTED
<S> <C> <C> <C>
The Treasury Money Market New York 11/4/92 10/13/94
Portfolio
The Money Market Portfolio New York 1/29/93 10/13/94
The Tax Exempt Money Market New York 1/29/93 10/13/94
Portfolio
The Short Term Bond Portfolio New York 1/29/93 10/13/94
The U.S. Fixed Income Portfolio New York 1/29/93 10/13/94
The Tax Exempt Bond Portfolio New York 1/29/93 10/13/94
The Selected U.S. Equity Portfolio New York 1/29/93 10/13/94
The U.S. Stock Portfolio New York 1/29/93 10/13/94
The U.S. Small Company Portfolio New York 1/29/93 10/13/94
The Non-U.S. Equity Portfolio New York 1/29/93 10/13/94
The Diversified Portfolio New York 1/29/93 10/13/94
The Non-U.S. Fixed Income New York 6/13/93 10/13/94
Portfolio
The Emerging Markets Equity New York 6/13/93 10/13/94
Portfolio
The New York Total Return Bond New York 6/13/93 10/13/94
Portfolio (name changed)
The Series Portfolio New York 6/14/94 10/13/94
</TABLE>
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<PAGE>
SCHEDULE II
SPOKE TRUSTS
STATE OF DATE OF DATE
ORGANIZATION DECLARA- BY-LAWS
TRUST TION ADOPTED
The Pierpont Funds Massachusetts 11/4/92 10/13/94
The JPM Institutional
Funds Massachusetts 11/4/92 10/13/94
The JPM Institutional
Plus Funds Massachusetts 11/4/92 10/13/94
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THE NEW YORK TOTAL RETURN BOND PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
Agreement, made this 28th day of March, 1994, between The New York
Total Return Bond Portfolio, a trust organized under the law of the State of New
York (the "Portfolio") and Morgan Guaranty Trust Company of New York, a New York
trust company authorized to conduct a general banking business (the "Advisor"),
WHEREAS, the Portfolio is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Portfolio desires to retain the Advisor to render
investment advisory services to the Portfolio, and the Advisor is willing to
render such services;
NOW, THEREFORE, this Agreement
W I T N E S S E T H:
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. The Portfolio hereby appoints the Advisor to act as
investment adviser to the Portfolio for the period and on the terms set forth in
this Agreement. The Advisor accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Subject to the general supervision of the Trustees of the
Portfolio, the Advisor shall manage the investment operations of the Portfolio
and the composition of the Portfolio's holdings of securities and investments,
including cash, the purchase, retention and disposition thereof and agreements
relating thereto, in accordance with the Portfolio's investment objectives and
policies as stated in the Registration Statement (as defined in paragraph 3(d)
of this Agreement) and subject to the following understandings:
(a) the Advisor shall furnish a continuous investment program
for the Portfolio and determine from time to time what investments or
securities will be purchased, retained, sold or lent by the Portfolio,
and what portion of the assets will be invested or held uninvested as
cash;
(b) the Advisor shall use the same skill and care in the
management of the Portfolio's investments as it uses in the
administration of other accounts for which it has investment
responsibility as agent;
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<PAGE>
(c) the Advisor, in the performance of its duties and
obligations under this Agreement, shall act in conformity with the
Declaration of Trust, By-Laws and Registration Statement of the
Portfolio and with the instructions and directions of the Trustees of
the Portfolio and will conform to and comply with the requirements of
the 1940 Act and all other applicable federal and state laws and
regulations;
(d) the Advisor shall determine the securities to be
purchased, sold or lent by the Portfolio and as agent for the Portfolio
will effect portfolio transactions pursuant to its determinations
either directly with the issuer or with any broker and/or dealer in
such securities; in placing orders with brokers and/or dealers the
Advisor intends to seek best price and execution for purchases and
sales; the Advisor shall also determine whether or not the Portfolio
shall enter into repurchase or reverse repurchase agreements;
On occasions when the Advisor deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
customers of the Advisor, the Advisor may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to,
aggregate the securities to be so sold or purchased in order to obtain
best execution, including lower brokerage commissions, if applicable.
In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the
Advisor in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Portfolio;
(e) the Advisor shall maintain books and records with respect
to the Portfolio's securities transactions and shall render to the
Portfolio's Trustees such periodic and special reports as the Trustees
may reasonably request; and
(f) the investment management services of the Advisor to the
Portfolio under this Agreement are not to be deemed exclusive, and the
Advisor shall be free to render similar services to others.
3. The Portfolio has delivered copies of each of the following
documents to the Advisor and will promptly notify and deliver to it all future
amendments and supplements, if any:
(a) Declaration of Trust of the Portfolio (such Declaration of
Trust, as presently in effect and as amended from time to time, is
herein called the "Declaration of Trust");
(b) By-Laws of the Portfolio (such By-Laws, as presently in
effect and as amended from time to time, are herein called the "By-Laws");
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<PAGE>
(c) Certified resolutions of the Trustees of the Portfolio
authorizing the appointment of the Advisor and approving the form of this
Agreement;
(d) The Portfolio's Notification of Registration on Form N-8A
and Registration Statement on Form N-1A (No. 811-8642) each under the 1940 Act
(the "Registration Statement") as filed with the Securities and Exchange
Commission (the "Commission") on April 1, 1994, all amendments thereto.
4. The Advisor shall keep the Portfolio's books and records
required to be maintained by it pursuant to paragraph 2(e). The Advisor agrees
that all records which it maintains for the Portfolio are the property of the
Portfolio and it will promptly surrender any of such records to the Portfolio
upon the Portfolio's request. The Advisor further agrees to preserve for the
periods prescribed by Rule 31a-2 of the Commission under the 1940 Act any such
records as are required to be maintained by the Advisor with respect to the
Portfolio by Rule 31a-1 of the Commission under the 1940 Act.
5. During the term of this Agreement the Advisor will pay all
expenses incurred by it in connection with its activities under this Agreement,
other than the cost of securities and investments purchased for the Portfolio
(including taxes and brokerage commissions, if any).
6. For the services provided and the expenses borne pursuant
to this Agreement, the Portfolio will pay to the Advisor as full compensation
therefor a fee at an annual rate equal to .30% of the Portfolio's average daily
net assets. This fee will be computed daily and payable as agreed by the
Portfolio and the Advisor, but no more frequently than monthly.
7. The Advisor shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Portfolio in connection with
the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
8. This Agreement shall continue in effect for a period of
more than two years from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act; provided, however, that this Agreement may be terminated by the
Portfolio at any time, without the payment of any penalty, by vote of a majority
of all the Trustees of the Portfolio or by vote of a majority of the outstanding
voting securities of the Portfolio on 60 days' written notice to the Advisor, or
by the Advisor at any time,
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<PAGE>
without the payment of any penalty, on 90 days' written notice to the Portfolio.
This Agreement will automatically and immediately terminate in the event of its
assignment (as defined in the 1940 Act).
9. The Advisor shall for all purposes herein be deemed to be
an independent contractor and shall, unless otherwise expressly provided herein
or authorized by the Trustees of the Portfolio from time to time, have no
authority to act for or represent the Portfolio in any way or otherwise be
deemed an agent of the Portfolio.
10. This Agreement may be amended by mutual consent, but the
consent of the Portfolio must be approved (a) by vote of a majority of those
Trustees of the Portfolio who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such amendment, and (b) by vote of a majority of the outstanding
voting securities of the Portfolio.
11. Notices of any kind to be given to the Advisor by the
Portfolio shall be in writing and shall be duly given if mailed or delivered to
the Advisor at 9 West 57th Street, New York, New York 10019, Attention: Managing
Director, Funds Management Division, or at such other address or to such other
individual as shall be specified by the Advisor to the Portfolio. Notices of any
kind to be given to the Portfolio by the Advisor shall be in writing and shall
be duly given if mailed or delivered to the Portfolio at 6 St. James Avenue,
Suite 900, Boston, Massachusetts 02116 or at such other address or to such other
individual as shall be specified by the Portfolio to the Advisor.
12. The Trustees have authorized the execution of this
Agreement in their capacity as Trustees and not individually and the Advisor
agrees that neither the shareholders nor the Trustees nor any officer, employee,
representative or agent of the Portfolio shall be personally liable upon, or
shall resort be had to their private property for the satisfaction of,
obligations given, executed or delivered on behalf of or by the Portfolio, that
the shareholders, trustees, officers, employees, representatives and agents of
the Portfolio shall not be personally liable hereunder, and that it shall look
solely to the property of the Portfolio for the satisfaction of any claim
hereunder.
13. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
14. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the 28th day
of March, 1994.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
By:/S/PHILIP W. COOLIDGE
Philip W. Coolidge
President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:/S/KATHLEEN H. TRIPP
Kathleen H. Tripp
Vice President
NYBIAHUB
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<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE PORTFOLIOS NAMED HEREIN
and
STATE STREET BANK AND TRUST COMPANY
JPM259A1
<PAGE>
TABLE OF CONTENTS
PAGE
Article 1 Terms of Appointment; Duties of the Bank.................. 1
Article 2 Fees and Expenses ....................................... 3
Article 3 Representations and Warranties of the Bank............... 4
Article 4 Representations and Warranties of the Portfolio(s)....... 5
Article 5 Data Access and Proprietary Information ................. 5
Article 6 Indemnification .......................................... 8
Article 7 Standard of Care.......................................... 11
Article 8 Covenants of the Portfolios and the Bank ................. 11
Article 9 Termination of Agreement ................................. 13
Article 10 Additional Parties to Agreement .......................... 14
Article 11 Assignment ............................................... 14
Article 12 Amendment ................................................ 15
Article 13 Massachusetts Law to Apply ............................... 15
Article 14 Merger of Agreement....................................... 15
Article 15 Limitations of Liability of the Trustees and the
Investors ............................................... 15
Article 16 Counterparts ............................................. 16
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 23rd day of December, 1992, by and between
each of the New York trusts executing this Agreement on the signature pages
hereto or becoming a party to this Agreement subsequent to the date hereof as
provided in Article 10 (each a "Portfolio"), and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, each Portfolio's assets are composed of money and property
contributed thereto by the holders of interests in the Portfolio ("Interest(s)")
entitled to ownership rights in the Portfolio ("Investors");
WHEREAS, each Portfolio desires to appoint the Bank as its transfer
agent and agent in connection with certain other activities, and the Bank
desires to accept such appointment;
WHEREAS, additional Portfolios may become subject to this Agreement in
accordance with Article 10; and
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.01 Subject to the terms and conditions set forth in this
Agreement, each Portfolio hereby employs and appoints the Bank to act as, and
the Bank agrees to act, as its transfer agent for the authorized Interests.
<PAGE>
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Portfolios and the Bank, the Bank shall:
(i) Receive orders for the purchase of Interests and
promptly deliver payment and appropriate documentation
thereof to the custodian of the applicable Portfolio
authorized pursuant to the Declaration of Trust of the
Portfolio (the "Custodian");
(ii) Pursuant to purchase orders, hold each Interest in the
appropriate Investor account;
(iii) Receive requests for purchases and withdrawals and
directions associated therewith and deliver the
appropriate documentation thereof to the Custodian;
(iv) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any
withdrawal, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the
withdrawing Investor;
(v) Maintain records of account for and advise the
Portfolios and their respective Investors as to the
foregoing; and
(vi) Record the Interest of each Investor and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the
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total number and value of Interests which have been
established, based upon data provided to it by the
applicable Portfolio.
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank shall perform the
customary services of a transfer agent, including but not limited to:
maintaining all Investor accounts and withholding taxes, as applicable, on
non-resident alien Investors.
(c) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by agreement between
the Portfolios and the Bank per the attached service responsibility schedule.
The Bank may at times perform only a portion of these services and the
Portfolios or their agents may perform these services on the Portfolios' behalf.
Article 2 FEES AND EXPENSES
2.01 For performance by the Bank pursuant to this Agreement,
each Portfolio agrees to pay the Bank an annual fee as agreed to from time to
time by the Bank and the Portfolios. Such fees and out-of-pocket expenses and
advances identified under Section 2.02 below may be changed from time to time
subject to mutual written agreement between the Portfolios and the Bank.
2.02 In addition to the fee paid under Section 2.01 above,
each Portfolio agrees to reimburse the Bank for out-of-pocket expenses,
including but not limited to confirmation production, postage, forms, telephone,
microfilm, microfiche,
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<PAGE>
tabulating information statements and/or proxies, records storage or advances
incurred by the Bank. In addition, any other expenses incurred by the Bank at
the request or with the consent of a Portfolio, will be reimbursed by such
Portfolio.
2.03 Each Portfolio agrees to pay all fees and reimbursable
expenses promptly following the receipt of the respective billing notice.
Procedures applicable to advance payment by the Portfolios to the Bank of
postage for mailing information statements and/or proxies, reports and other
mailings to Investor accounts may be established from time to time by agreement
between the Portfolios and the Bank. Article 3 REPRESENTATIONS AND WARRANTIES OF
THE BANK
The Bank represents and warrants to each Portfolio that:
3.01 It is a trust company duly organized and existing
and in good standing under the laws of the Commonwealth of
Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
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<PAGE>
Article 4 REPRESENTATIONS AND WARRANTIES OF THE PORTFOLIO(S)
Each Portfolio represents and warrants to the Bank that:
4.01 It is a common law trust duly organized and existing
under the laws of the State of New York.
4.02 It is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of
Trust and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
Article 5 DATA ACCESS AND PROPRIETARY INFORMATION
5.01 Each Portfolio acknowledges that the data bases, computer
programs, screen format, report formats, interactive design techniques, and
documentation manuals (collectively, "Proprietary Information") furnished to the
Portfolio by the Bank as part of the Portfolio's ability to access certain
Portfolio- related data ("Customer Data") maintained by the Bank on data bases
under the control and ownership of the Bank or other third party ("Data Access
Services") constitute copyrighted, trade secret, or other proprietary
information of substantial value to the Bank or other third party. In no event
shall Proprietary Information be deemed Customer Data. Each Portfolio agrees to
treat all Proprietary Information as proprietary to the Bank and further
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<PAGE>
agrees that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, each Portfolio agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as
may be designated in writing by the Bank and solely
in accordance with the Bank's applicable user
documentation;
(b) to refrain from copying or duplicating in any way
the Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
portion of the Proprietary Information, and if such
access is inadvertently obtained, to inform in a
timely manner of such fact and dispose of such
information in accordance with the Bank's
instructions;
(d) to refrain from causing or allowing third-party data
required hereunder from being retransmitted to any
other computer facility or other location, except
with the prior written consent of the Bank;
(e) that the Portfolio shall have access only to those
authorized transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by
the Bank to protect at the Bank's expense the
rights of the Bank in Proprietary Information at
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<PAGE>
common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its
employees of their obligations pursuant to this Article 5. The obligations of
this Article shall survive any earlier termination of this Agreement.
5.02 If a Portfolio notifies the Bank that any of the Data
Access Services do not operate in material compliance with the most recently
issued user documentation for such services, the Bank shall use its best efforts
to promptly correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible for the
contents of such data and each Portfolio agrees to make no claim against the
Bank arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS
AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS
IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Portfolios include
the ability to originate electronic instructions to the Bank in order to (i)
effect the transfer or movement of cash or (ii) transmit Investor information or
other information (such transactions are known as "Customer Originated
Electronic Financial Instructions" or "COEFI"), then in such event the Bank
shall be
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<PAGE>
entitled to rely on the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by the Bank from time to time.
Article 6 INDEMNIFICATION
6.01 The Bank shall not be responsible for, and each Portfolio
shall indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liability arising out of or attributable to any claim, demand, action or suit in
connection with:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Portfolio's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Portfolio hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Portfolio or any other person or firm
on behalf of the Portfolio.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the Portfolio.
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<PAGE>
(e) The offer or sale of Interests in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Interests be registered in such state
or in violation of any stop order or other determination or ruling by any
federal agency or any state with respect to the offer of Interests in such
state.
6.02 The Bank shall indemnify and hold each Portfolio harmless
from and against any and all losses, damages, costs, charges, reasonable counsel
fees, payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by the Bank as a result of the Bank's lack
of good faith, negligence or willful misconduct.
6.03 At any time the Bank may apply to any officer of a
Portfolio for instructions, and may consult with legal counsel with respect to
any matter arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the applicable Portfolio for any action taken
or omitted by it in reliance upon such instructions or upon the opinion of such
counsel. The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of a
Portfolio, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar
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<PAGE>
means authorized by the Portfolio, and shall not be held to have notice of any
change of authority of any person, until receipt of written notice thereof from
the Portfolio. The Bank, its agents and subcontractors shall also be protected
and indemnified in recognizing stock certificates which are reasonably believed
to bear the proper manual or facsimile signatures of the officers of a
Portfolio, and the proper countersignature of any former transfer agent or
former registrar, or of a co-transfer agent or co-registrar.
6.04 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes, provided that the Bank shall use its best efforts to
minimize the likelihood of all damage, loss of data, delays and errors resulting
from uncontrollable events, and if such damage, loss of data, delays or errors
occur, the Bank shall use its best efforts to mitigate the effects of such
occurrence.
6.05 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to act
hereunder.
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<PAGE>
6.06 In order that the indemnification provisions contained in
this Article 6 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 7 STANDARD OF CARE
7.01 The Bank shall at all times act in good faith and agrees
to use its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct or that of its employees.
Article 8 COVENANTS OF THE PORTFOLIOS AND THE BANK
8.01 Each of the Portfolios shall promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Trustees
of the Portfolio authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
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<PAGE>
(b) A copy of the Declaration of Trust and By-Laws of
the Portfolio and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Portfolios for
safekeeping of stock certificates, check forms and facsimile signature
imprinting devices, if any, and for the preparation or use, and for keeping
account of, such certificates, forms and devices. The forms and documents used
for a Portfolio or its Investors shall be acceptable to the Portfolio.
8.03 The Bank shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable and as
may be reasonably acceptable to the Portfolios. To the extent required by
Section 31 of the 1940 Act and the Rules thereunder, the Bank agrees that all
such records prepared or maintained by the Bank relating to the services to be
performed by the Bank hereunder are the property of the Portfolios and will be
preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to each Portfolio on and in accordance
with its request.
8.04 The Bank and the Portfolios agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law. Notice shall be
given to the other party a reasonable time in advance of any such
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<PAGE>
disclosure. In addition, in the case of any request or demand for the inspection
of the Investor records of a Portfolio, the Bank will notify the Portfolio
promptly of receipt of such request or demand and request instructions from an
authorized officer of the Portfolio as to such inspection. The Portfolio will
within two business days furnish instructions to the Bank. Pending receipt of
such instructions, the Bank will not disclose such Investor records and upon
receipt the Bank will abide by such instructions. Notwithstanding any other
provision of this Agreement, in the event that (a) the Portfolio instructs the
Bank not to disclose such Investor records and the Bank has furnished the
Portfolio with an opinion of counsel that the Bank may be held liable for the
failure to disclose such Investor records, the Portfolio will indemnify the Bank
for any such liability, or (b) the Bank discloses such Investor records without
proper instructions from the Portfolio, the Bank shall indemnify and hold the
Portfolio harmless from and against any and all losses, damages, costs, charges,
reasonable counsel fees, payments, expenses and liability arising out of or
attributable to such disclosure. The provision of Section 6.06 shall govern such
indemnification.
Article 9 TERMINATION OF AGREEMENT
9.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
9.02 Should a Portfolio exercise its ight to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Portfolio. Additionally, the
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Bank reserves the right to charge for any other reasonable expenses associated
with such termination.
Article 10 ADDITIONAL PARTIES TO AGREEMENT
10.01 In the event that the Board of Trustees of the
Portfolio(s) organizes one or more separate New York trusts in addition to the
Portfolio executing this Agreement on the date hereof with respect to which it
desires to have the Bank render services as transfer agent under the terms
hereof, the Bank shall be so notified in writing by the officers of such trust,
and if the Bank agrees in writing to provide such services, such trust shall
become a party to this Agreement and shall be referred to as a Portfolio
hereunder.
Article 11 ASSIGNMENT
11.01 Except as provided in Section 11.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of any
Portfolio, subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as
a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly
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registered as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS
affiliate; provided, however, that the Bank shall be as fully responsible to the
Portfolio for the acts and omissions of any subcontractor as it is for its own
acts and omissions.
Article 12 AMENDMENT
12.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Trustees of the Portfolio(s).
Article 13 MASSACHUSETTS LAW TO APPLY
13.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 14 MERGER OF AGREEMENT
14.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
Article 15 LIMITATIONS OF LIABILITY OF THE TRUSTEES AND THE INVESTORS
15.01 A copy of the Declaration of Trust of each Portfolio is
on file at the principal business address of the Portfolio, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the
Portfolio(s) as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or Investors individually
but are binding only upon the assets and property of the Portfolio(s).
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Article 16 COUNTERPARTS
16.01 This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
THE TREASURY MONEY MARKET PORTFOLIO
BY: /S/JAMES B. CRAVER
Secretary and Treasurer
STATE STREET BANK AND TRUST COMPANY
BY: /S/KENNETH LYNN
Executive Vice President
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STATE STREET BANK AND TRUST COMPANY
SERVICE RESPONSIBILITIES*
RESPONSIBILITY
SERVICE PERFORMED BANK PORTFOLIO
1. Receives orders for the purchase of
Interests. X
2. Hold Interests in Investor accounts. X
3. Receive requests for withdrawals. X
4. Effect transactions 1-3 above
directly with broker-dealers. N/A
5. Pay over monies to withdrawing
Investors. X
6. Effect transfers of Interests. N/A
7. Prepare and transmit distributions. N/A
8. Issue Replacement Certificates. N/A
9. Reporting of abandoned property. N/A
10. Maintain records of account. X
11. Maintain and keep a current and
accurate control book for each issue
of securities. X
12. Mail information statements and/or
proxies. X
13. Mail Investor reports. X
14. Mail offering documents to
prospective Investors. X
15. Withhold taxes on non-resident alien
accounts. X
16. Prepare and file U.S. Treasury
Department forms. X
17. Prepare and mail account and
confirmation statements for
Investors. X
-17-
<PAGE>
RESPONSIBILITY
SERVICE PERFORMED BANK PORTFOLIO
18. Provide Investor account
information. X
19. Blue sky reporting. X
* Such services are more fully described in Article 1.02 (a) and
(b) of the Agreement.
THE TREASURY MONEY MARKET PORTFOLIO
BY: /S/JAMES B. CRAVER
Secretary and Treasurer
STATE STREET BANK AND TRUST COMPANY
BY: /S/KENNETH LYNN
Executive Vice President
-18-
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO THE SELECTED U.S. EQUITY PORTFOLIO
6 St. James Avenue THE U.S. SMALL COMPANY PORTFOLIO
BOSTON, MASSACHUSETTS 02116 THE NON-U.S. EQUITY PORTFOLIO
617) 423-0800 THE SHORT TERM BOND PORTFOLIO
THE U.S. STOCK PORTFOLIO
THE DIVERSIFIED PORTFOLIO
P.O. Box 268, George Town
February 1, 1993 Grand Cayman, Cayman Islands, BWI
(809) 945-1824
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
RE: TRANSFER AGENCY AND SERVICE AGREEMENT
This is to advise you that the Board of Trustees of The Treasury Money Market
Portfolio has organized the following ten additional New York trusts:
The Money Market Portfolio The Selected U.S. Equity Portfolio
The Tax Exempt Money Market Portfolio The U.S. Stock Portfolio
The Short Term Bond Portfolio The U.S. Small Company Portfolio
The U.S. Fixed Income Portfolio The Non-U.S. Equity Portfolio
The Tax Exempt Bond Portfolio The Diversified Portfolio
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 between The Treasury Money
Market Portfolio and State Street Bank and Trust Company, each of the ten
Portfolios hereby requests that you act as Transfer Agent of the Portfolio under
the terms of the agreement.
Please indicate your acceptance of the foregoing by executing two copies of this
letter
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO THE SELECTED U.S. EQUITY PORTFOLIO
THE NEW YORK TOTAL RETURN BOND PORTFOLIO THE U.S. SMALL COMPANY PORTFOLIO
6 St. James Avenue THE NON-U.S. EQUITY PORTFOLIO
BOSTON, MASSACHUSETTS 02116 THE SHORT TERM BOND PORTFOLIO
617) 423-0800 THE U.S. STOCK PORTFOLIO
THE DIVERSIFIED PORTFOLIO
The Emerging Markets Equity Portfolio
The Non-U.S. Fixed Income Portfolio
The Series Portfolio
P.O. Box 268, George Town
July 8, 1994 Grand Cayman, Cayman Islands, BWI
(809) 945-1824
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
RE: TRANSFER AGENCY AND SERVICE AGREEMENT
This is to advise you that the Board of Trustees has organized the following
additional New York trust: The Series Portfolio (the "Trust") (the Trust is
comprised initially of three separate and distinct investment portfolios--The
Asia Growth Portfolio, The European Equity Portfolio and The Japan Equity
Portfolio (each a "Series")).
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 as amended between the
other Portfolios referenced above and State Street Bank and Trust Company, the
Trust hereby requests that you act as Transfer Agent for each Series under the
terms of the agreement.
Please indicate your acceptance of the foregoing by executing the four originals
of this letter agreement, returning two to the Portfolios and the Trust and
retaining two for your records.
Very truly yours,
THE TREASURY MONEY MARKET PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE MONEY MARKET PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE TAX EXEMPT MONEY MARKET PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE SHORT TERM BOND PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE U.S. FIXED INCOME PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE TAX EXEMPT BOND PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE SELECTED U.S. EQUITY PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE U.S. STOCK PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE U.S. SMALL COMPANY PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE NON-U.S. EQUITY PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
Agreed to this 8th day of July, 1994
STATE STREET BANK AND TRUST COMPANY
By /S/LAURA R. YOUNG
Executive Vice President
THE DIVERSIFIED PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE EMERGING MARKETS EQUITY PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE NON-U.S. FIXED INCOME PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE NEW YORK TOTAL RETURN BOND
PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
THE SERIES PORTFOLIO
By /S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
RESTATED FINANCIAL AND FUND ACCOUNTING SERVICES AGREEMENT
FINANCIAL AND FUND ACCOUNTING SERVICES AGREEMENT, originally dated as
of March 28, 1994, restated as of July 7, 1994, by and between The New York
Total Return Bond Portfolio, a New York trust (the "Portfolio"), and Morgan
Guaranty Trust Company of New York, a New York trust company ("Morgan").
W I T N E S S E T H:
WHEREAS, the Portfolio 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 Portfolio wishes to engage Morgan to provide certain
financial and fund accounting services, and Morgan is willing to provide such
services to 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 MORGAN. Subject to the general direction and control of
the Board of Trustees of the Portfolio, Morgan shall perform such financial,
fund accounting and related services as may from time to time be reasonably
requested by the Portfolio, which shall include without limitation:
a) preparing the Portfolio's tax returns and financial statements and other
financial reports for review by the Portfolio's independent auditors; b)
coordinating the Portfolio's annual audit; c) developing the Portfolio's budget
and establishing its rate of expense accrual; d) preparing the tax information
necessary for investors that is derived from the operation of the HandS software
licensed from Signature Financial Group, Inc. including the calculation of the
allocated amount of income attributable to each investor, if any, which has been
subject to withholding or other tax assessments or other governmental charges by
non-United States tax jurisdictions; e) calculating the daily partnership
allocation for the Portfolio derived through the operation of the HandS software
system from the financial information furnished to it by the Portfolio's
custodian; f) overseeing the Portfolio's custodian and transfer agent, including
monitoring the daily income accrual and collection, expense accrual and
disbursement, and computation of the Portfolio's net asset value; verifying the
calculation of performance data for the Portfolio and its reporting to the
appropriate tracking services; monitoring the trade reporting for Portfolio
securities transactions; monitoring the pricing of Portfolio securities and
compliance with amortized cost procedures, if applicable; computing the amount
and monitoring the frequency of distributing the Portfolio's income and capital
gains and confirming that they have been properly distributed to the holders of
record; g) being responsible for the Portfolio's usual and customary expenses as
defined in Paragraph 4 of this Agreement; and h) providing such other related
services as the Portfolio may reasonably request, to the extent permitted by
applicable law. Morgan shall provide all personnel and facilities necessary in
order for it to provide the services contemplated by this paragraph.
<PAGE>
2
Morgan assumes no responsibilities under this Agreement other than to render the
services called for hereunder, on the terms and conditions provided herein. In
the performance of its duties under this Agreement, Morgan will comply with the
provisions of the Declaration of Trust and By-Laws of the Portfolio and the
Portfolio's stated investment objective, policies and restrictions, and will use
its best efforts to safeguard and promote the welfare of the Portfolio, and to
comply with other policies which the Board of Trustees may from time to time
determine.
2. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Morgan hereby agrees that all records which it maintains for
the Portfolio are the property of the Portfolio and further agrees to surrender
promptly to the Portfolio any such records upon the Portfolio's request.
3. LIAISON WITH ACCOUNTANTS.
3.1 Morgan shall act as liaison with the Portfolio's independent public
accountants and shall provide, upon request, account analyses, fiscal year
summaries and other audit-related schedules. Morgan shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their opinion, as such may be required by the Portfolio from time
to time.
3.2 REPORTS TO PORTFOLIO BY INDEPENDENT PUBLIC ACCOUNTANTS. Morgan
shall provide the Portfolio, on behalf of the Portfolio at such times as the
Portfolio may reasonably require, with reports by independent public accountants
on the accounting system, internal accounting control, relating to the services
provided by Morgan under Sections 1(d) and 1(e) of this Agreement; such reports,
shall be of sufficient scope and in sufficient detail, as may reasonably be
required by the Portfolio to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
4. ALLOCATION OF CHARGES AND EXPENSES.
4.1 Morgan shall bear all of the expenses incurred in connection with
carrying out its duties hereunder. In addition, Morgan is responsible for
certain usual and customary expenses incurred by the Portfolio. These expenses
include compensation of Trustees; federal and state governmental fees; interest
charges; taxes; membership dues in the Investment Company Institute allocable to
the Portfolio; fees and expenses of the Portfolio's administrator, independent
auditors, legal counsel and of any transfer agent, registrar or dividend
disbursing agent of the Portfolio; expenses of preparing, printing and mailing
reports, notices, proxy statements and reports to investors and governmental
offices and commissions; expenses of preparing and mailing agendas and
supporting documents for meetings of Trustees and committees of Trustees;
insurance premiums; expenses of calculating the net asset value of interests in
the Portfolio; expenses of meetings of investors in the Portfolio; and expenses
relating to the issuance, registration and qualification of interests in the
Portfolio.
When such services are provided by third parties and the Portfolio pays
for the services directly, such amounts will be deduced from the fee to be paid
Morgan under this Agreement. If such amounts are more than the amount of
Morgan's fee under this Agreement, Morgan will reimburse the Portfolio for such
excess amounts.
<PAGE>
3
Morgan will report to the Trustees regularly on the payments it has
made pursuant to this Section 4.1.
4.2 The Portfolio will pay the fees and expenses of Morgan pursuant to
the Investment Advisory Agreement and this Agreement, the fees and expenses of
Pierpont Group, Inc. pursuant to the Portfolio Fund Services Agreement, the fees
and expenses of the Portfolio's custodian for all services to the Portfolio,
including safekeeping of funds and securities and maintaining required books and
accounts, and brokerage expenses.
4.3 The Portfolio will pay the extraordinary expenses not incurred in
the ordinary course of the Portfolio's business including but not limited to
litigation and indemnification expenses; and material increases in Portfolio
expenses due to occurrences such as significant increases in the fee schedules
of the Portfolio's custodian or transfer agent, or a significant decrease in the
Portfolio's asset level due to changes in tax or other laws or regulations, or
other such extraordinary occurrences outside of the ordinary course of the
Portfolio's business.
5. COMPENSATION OF MORGAN. For the services to be rendered and the fees
and expenses to be borne by Morgan hereunder, the Portfolio shall pay Morgan a
fee at an annual rate equal to (i) .10% of the Portfolio's average daily net
assets up to and including $200 million; (ii) .05% of the Portfolio's average
daily net assets up to and including $400 million; and (iii) .03% of the
Portfolio's average daily net assets in excess of $400 million. This fee will be
computed daily and payable as agreed by the Portfolio and Morgan, but no more
frequently than monthly.
6. LIMITATION OF LIABILITY OF MORGAN. Morgan shall not be liable for
any error of judgment or mistake of law or for any act or omission in the
performance of its duties hereunder, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder.
7. ACTIVITIES OF MORGAN. The services of Morgan to the Portfolio are
not to be deemed to be exclusive, Morgan being free to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
8. TERMINATION. This Agreement may be terminated at any time, without
the payment of any penalty, by the Board of Trustees of the Portfolio or by
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
9. SUBCONTRACTING BY MORGAN. Morgan may subcontract for the performance
of its obligations hereunder with any one or more persons; PROVIDED, HOWEVER,
that, unless the Portfolio otherwise expressly agrees in writing, Morgan shall
be as fully responsible to the Portfolio for the acts and omissions of any
subcontractor as it would be for its own acts or omissions.
10. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
<PAGE>
4
11. AMENDMENTS. This Agreement may be amended only by mutual written
consent.
12. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law.
13. NOTICE. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to Morgan at Morgan Guaranty Trust Company
of New York, 9 West 57th Street, New York, New York 10019, Attention: Managing
Director, Funds Management Division; or (2) to the Portfolio c/o Signature
Broker-Dealer Services, Inc., 6 St. James Avenue, 9th Floor, Boston,
Massachusetts 02116.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
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 officer of the Portfolio has executed this Agreement not
individually, but as an officer of the Portfolio under the Portfolio's
Declaration of Trust, dated June 13, 1993 as amended, and the obligations of
this Agreement are not binding upon any of the Trustees or investors of the
Portfolio individually, but bind only the trust estate.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
By /S/PHILIP W. COOLIDGE
Philip W. Coolidge, President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By /S/KATHLEEN H. TRIPP
Kathleen H. Tripp, Vice President
RNYTRBFF
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Fianacial Data extracted from the New York
Total Return Bond Portfolio Annual Report dated March 31, 1995 and is qualified
in its entirety by reference to such Annual Report.
</LEGEND>
<CIK>0000921224
<NAME> THE NEW YORK TOTAL RETURN BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> FEB-28-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 56,939,533
<INVESTMENTS-AT-VALUE> 57,923,548
<RECEIVABLES> 962,119
<ASSETS-OTHER> 9,478
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,895,145
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,838
<TOTAL-LIABILITIES> 63,838
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 58,831,307
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,034,388
<OTHER-INCOME> 0
<EXPENSES-NET> 194,153
<NET-INVESTMENT-INCOME> 1,840,235
<REALIZED-GAINS-CURRENT> (125,677)
<APPREC-INCREASE-CURRENT> 984,015
<NET-CHANGE-FROM-OPS> 2,698,573
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 58,731,207
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 205,983
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
