As filed with the Securities and Exchange Commission on October 2, 1995.
File No. 811-8602
EQUITY MARKET PORTFOLIO; BOND MARKET PORTFOLIO; SMALL CAP PORTFOLIO
BALANCED PORTFOLIO; EQUITY GROWTH PORTFOLIO; VALUE EQUITY INCOME PORTFOLIO;
EQUITY PORTFOLIO; INCOME PORTFOLIO; TOTAL RETURN BOND PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
ST. JAMES PORTFOLIOS
(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
Thomas M. Lenz
Signature Financial Group, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
Marianne K. Smythe
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037
UST153A
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UST153A
EXPLANATORY NOTE
This registration statement on Form N-1A has of the Investment Company Act
of 1940, as amended (the "1940 Act"). However, beneficial interests in the
Registrant are not being registered under the Securities Act of 1933, as amended
(the "1933 Act"), because such interests will be issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may only
be made by 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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UST153A
PART A
ST. JAMES PORTFOLIOS
EQUITY MARKET PORTFOLIO
BOND MARKET PORTFOLIO
SMALL CAP PORTFOLIO
BALANCED PORTFOLIO
EQUITY GROWTH PORTFOLIO
VALUE EQUITY INCOME PORTFOLIO
EQUITY PORTFOLIO
INCOME PORTFOLIO
TOTAL RETURN BOND PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
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.
St. James Portfolios (the "Portfolio Series") is a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on May 11, 1994. Beneficial interests of the Portfolio
Series are divided into twelve series, ten of which, Equity Market Portfolio,
Bond Market Portfolio, Small Cap Portfolio, Balanced Portfolio, Equity Growth
Portfolio, Value Equity Income Portfolio, Income Portfolio, Total Return Bond
Portfolio, Equity Portfolio and Income and Growth Portfolio (each, a
"Portfolio"; collectively the "Portfolios") are described herein. The two other
series of the Portfolio Series are presently inactive. Additional series may be
established in the future. Beneficial interests in each Portfolio are issued
solely in private placement transactions which do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Investments in a
Portfolio may only be made by 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.
Investment Objectives and Policies
Introduction
Unless otherwise stated, all of the investment objectives, policies and
strategies discussed herein and in Part B are deemed "non-fundamental," i.e.,
the approval of the investors in a Portfolio is not required to change that
Portfolio's investment objective or any of the Portfolio's investment policies
and strategies.
United States Trust Company of The Pacific Northwest ("U.S. Trust Pacific")
is the investment adviser for the Portfolios listed below. U.S. Trust Pacific
has delegated the daily management of the security holdings of the following
Portfolios to the investment managers named below, acting as subadvisers.
Equity Market Portfolio,
Bond Market Portfolio,
and Small Cap Portfolio. . . . . United States Trust Company of New
York ("U.S. Trust")
Balanced Portfolio . . . . . . . Becker Capital Management, Inc.
Equity Growth Portfolio. . . . . Luther King Capital Management
Value Equity Income Portfolio. . Spare, Kaplan , Bischel &
Associates
International Equity Portfolio . Harding, Loevner Management, L.P.
U.S. Trust is the investment adviser for the Equity, Income and Total
Return Bond Portfolios. U.S. Trust Pacific, U.S. Trust and the subadvisers are
referred to collectively as the "investment managers."
Investment Objectives
The investment objective of EQUITY PORTFOLIO is to provide long-term
capital appreciation. Equity Portfolio seeks to achieve its investment objective
by investing in companies believed to represent good long-term values not
currently recognized in the market prices of their securities.
The investment objective of INCOME PORTFOLIO is to provide as high a level
of current interest income as is consistent with moderate risk of capital and
maintenance of liquidity. Income Portfolio seeks to achieve its investment
objective by investing principally in a broad range of investment-grade fixed
income securities, including bonds, notes, debentures and preferred stock, as
well as money market instruments.
The investment objective of TOTAL RETURN BOND PORTFOLIO is to maximize the
total rate of return consistent with moderate risk of capital and maintenance of
liquidity. Total Return Bond Portfolio seeks to achieve its investment objective
by investing principally in a broad range of investment-grade fixed income
securities, including bonds, notes, debentures and preferred stock, as well as
money market instruments. In selecting investment opportunities, Total Return
Bond Portfolio will balance yield, average maturity and risk in seeking to
provide maximum preservation of purchase power.
The investment objective of EQUITY MARKET PORTFOLIO is to provide
investment results that correspond to the investment performance of the
Standard & Poor's 500 Composite Stock Price Index1 (the "S&P 500 Index"), an
index emphasizing large capitalization stocks. Equity Market Portfolio seeks to
achieve its investment objective by replicating the yield and total return of
the equity securities composing the S&P 500 Index. The S&P 500 is a broad-based
index of the common stocks of 500 companies from several industrial sectors
representing a significant portion of the market value of all common stocks
publicly traded in the United States.
The investment objective of BOND MARKET PORTFOLIO is to provide investment
results that correspond to the investment performance of the Lehman Brothers
Aggregate Bond Index (the "Aggregate Bond Index"), a broad market-weighted index
which encompasses U.S. Treasury and agency securities, corporate investment
grade bonds, and mortgage-backed securities, each with maturities greater than
one year. Bond Market Portfolio seeks to achieve its investment objective by
replicating the yield and total return of the Aggregate Bond Index through a
statistically selected sample of fixed income securities. The Aggregate Bond
Index is a broad market-weighted index of U.S. investment grade fixed income
securities.
The investment objective of SMALL CAP PORTFOLIO is to provide a high total
return from a diversified portfolio of equity securities of small capitalization
companies. Small Cap Portfolio seeks to achieve its investment objective by
investing in equity securities from the Russell 2000 Index. The Portfolio
invests in index securities whose risk characteristics and industry group
representation are similar to the universe of securities in the Russell 2000
Index; however, the Portfolio's security holdings, taken together, will have a
lower aggregate price/earnings ratio than index securities generally. The
Russell 2000 Index is a broad index of equity securities of U.S. companies with
common stock market capitalizations below $600 million.
The investment objective of BALANCED PORTFOLIO is to provide a high total
return from a diversified portfolio of equity and fixed income securities.
Balanced Portfolio seeks to achieve this investment objective by investing in
equity and fixed income securities, as described more fully below.
The investment objective of EQUITY GROWTH PORTFOLIO is to provide a high
level of capital appreciation through investment in a diversified portfolio of
common stocks with potential for above-average growth in earnings and dividends.
Equity Growth Portfolio seeks to achieve this investment objective by investing
primarily in the common stocks of medium and large capitalization companies
which, in the opinion of its subadviser, will present an opportunity for
significant increases in earnings and/or value, without consideration for
current income.
The investment objective of VALUE EQUITY INCOME PORTFOLIO is to provide
capital appreciation and a high level of current income by investing principally
in a diversified portfolio of equity securities selected for their potential to
generate current income or long-term growth of capital. Value Equity Income
Portfolio seeks to achieve this investment objective by investing primarily in
equity securities which produce a current dividend yield which generally exceeds
the published composite yield of the securities comprising the S&P 500. The
published composite yield of the S&P 500 was 2.45% for the calendar quarter
ended June 30, 1995.
The investment objective of INTERNATIONAL EQUITY PORTFOLIO is to provide
long-term capital appreciation through investment in a diversified portfolio of
marketable foreign securities. International Equity Portfolio seeks to achieve
its investment objective by investing primarily in foreign equity securities of
issuers that the subadviser believes to have strong balance sheets, sustainable
internal growth, superior financial results, capable and forthright management
and enduring competitive advantages.
Additional information about the investment policies and strategies of each
Portfolio appears in Part B. There can be no assurance that the investment
objective of any Portfolio will be achieved.
U.S. Trust's Investment Philosophy and Strategies
U.S. Trust, the adviser for the Equity, Income and Total Return Bond
Portfolios, and the sub-adviser for the Equity Market, Bond Market and Small Cap
Portfolios, was founded in 1853, and offers a variety of specialized fiduciary
and financial services to high net worth individuals, institutions and
corporations. As one of the largest institutions of its type, U.S. Trust prides
itself in offering an attentive and high level of service to each of its
clients.
Equity Portfolio
Investment Philosophy. In managing investments for the Equity Portfolio,
U.S. Trust follows a long-term investment philosophy which generally does not
change with the short-term variability of financial markets or fundamental
conditions. U.S. Trust's approach begins with the conviction that all worthwhile
investments are grounded in value. U.S. Trust believes that an investor can
identify fundamental values that eventually should be reflected in market
prices. U.S. Trust believes that over time a disciplined search for fundamental
value will achieve better results than attempting to take advantage of
short-term price movements.
Implementation of this long-term value philosophy consists of searching
for, identifying and obtaining the benefits of present or future investment
values. For example, such values may be found in a company's future earnings
potential or in its existing resources and assets. Accordingly, U.S. Trust in
managing investments for the Equity Portfolio is constantly engaged in
assessing, comparing and judging the worth of companies, particularly in
comparison to the price the markets place on such companies' shares.
Strategies. In order to translate its investment philosophy into more
specific guidance for selection of investments, U.S. Trust uses three specific
strategies. These strategies, while identified separately, may overlap so that
more than one may be applied in an investment decision.
U.S. Trust's "problem/opportunity strategy" seeks to identify industries
and companies with the capabilities to provide solutions to or benefit from
complex problems such as the changing demographics and aging of the U.S.
population or the need to enhance industrial productivity. U.S. Trust's second
strategy is a "transaction value" comparison of a company's real underlying
asset value with the market price of its shares and with the sale prices for
similar assets changing ownership in public market transactions. Differences
between a company's real asset value and the price of its shares often are
corrected over time by restructuring of the assets or by market recognition of
their value. U.S. Trust's third strategy involves identifying "early life cycle"
companies whose products are in their earlier stages of development or that seek
to exploit new markets. Frequently such companies are smaller companies, but
early life cycle companies may also include larger established companies with
new products or new markets for existing products. U.S. Trust believes that over
time the value of such companies should be recognized in the market.
Themes. To complete U.S. Trust's investment philosophy, the three
portfolio strategies discussed above are applied in concert with several
"longer-term investment themes" to identify investment opportunities. U.S. Trust
believes these longer-term themes represent strong and inexorable trends. U.S.
Trust also believes that understanding the instigation, catalysts and effects of
these longer-term trends should help to identify companies that are
beneficiaries of these trends.
Income Portfolio and Total Return Bond Portfolio
Investment Philosophy. Generally, investors in fixed income securities are
best served in the long term by seeking to maximize total return. However, some
investors need to balance preservation of purchase power against the need for
current income.
As a result, the Portfolio Series is offering both objectives to investors.
In the Total Return Bond Portfolio, U.S. Trust will employ a total return
strategy that balances yield, average maturity and risk in seeking to provide
maximum preservation of purchase power. The Income Portfolio will seek to
provide investors with maximum current income commensurate with the credit
quality of the Portfolio and moderate risk of capital.
Equity Market Portfolio and Bond Market Portfolio
Investment Philosophy. The Equity Market Portfolio and Bond Market
Portfolio (collectively, the "Index Portfolios") are not managed pursuant to
traditional methods of active investment management, which involve the buying
and selling of securities based upon economic, financial, and market analyses
and investment judgment. Instead, the Index Portfolios, utilizing a passive or
indexing investment approach, will attempt to duplicate the investment
performance of their respective indexes.
The Bond Market Portfolio seeks to duplicate the investment performance of
the Aggregate Bond Index through statistical sampling procedures, that is, the
Portfolio will invest in a selected group - not the entire universe - of
securities in its corresponding index. This group of securities, when taken
together, is expected to perform similarly to the index as a whole. This
sampling technique is expected to enable the Bond Market Portfolio to track the
price movements and performance of its index, while minimizing brokerage,
custodial and accounting costs.
The Equity Market Portfolio seeks to replicate the investment results of
the S&P 500 Index by holding all 500 stocks included in the index in
approximately the same proportions as they are represented in the S&P 500 Index.
This indexing technique is known as complete replication. The Equity Market
Portfolio will generally select index stocks by reference to their weighting in
the index, starting with the stocks that are most heavily weighted. Thus, the
Portfolio intends that the percentage of its assets invested in each index stock
will approximate the weighting of that stock in the S&P 500 Index. The Portfolio
may, however, be unable fully to implement the strategy outlined above when its
assets total less than $25 million. At such times, the Portfolio may attempt to
approximate the performance of the index by utilizing a sampling approach.
The Portfolio Series expects that there will be a close correlation between
a Portfolio's performance and that of its index in both rising and falling
markets. Each Index Portfolio will attempt to maximize the correlation between
its performance and that of its corresponding index. Over the long term, the
investment managers of the Index Portfolios seek a correlation of 0.95 or
better. In the unlikely event that a correlation of 0.95 or better is not
achieved, the Board of Trustees of the Portfolio Series will review with the
investment managers methods for increasing such correlation, such as through
adjustments in securities holdings of an Index Portfolio. A correlation of 1.0
would indicate a perfect correlation, which would be achieved when a Portfolio's
net asset value, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in an
index. The investment managers of the Index Portfolios monitor the correlation
between the performance of each Index Portfolio and its corresponding index on a
regular basis. Factors such as the size of a Portfolio's securities holdings,
transaction costs, management fees and expenses, brokerage commissions and fees,
the extent and timing of cash flows into and out of a Portfolio, and changes in
the securities markets and the indexes themselves, are expected to account for
any differences between each Index Portfolio's performance and that of its
corresponding index.
Investment Policies
EQUITY PORTFOLIO seeks to provide long-term capital appreciation by
investing in companies believed to represent good long-term values not currently
recognized in the market prices of their securities. U.S. Trust uses the
investment philosophy, strategies and themes discussed above to identify such
investment values and to diversify the Portfolio's investments over a variety of
industries and types of companies.
Under normal market and economic conditions, the Portfolio will invest at
least 65% of its total assets in common stock, preferred stock and securities
convertible into common stock. Normally, not more than 35% of the Portfolio's
total assets may be invested in other securities and instruments including,
e.g., investment-grade debt securities, warrants, options, and futures
instruments as described in more detail below. See "Additional Investment
Strategies and Techniques; Risk Factors" below. The Portfolio may hold cash or
invest without limitation in U.S. Government securities, high quality money
market instruments and repurchase agreements collateralized by the foregoing
obligations, if deemed appropriate by U.S. Trust for temporary defensive
purposes or when U.S. Trust believes that suitable stocks or convertible
securities are unavailable. For a description of these securities, see "Bond
Market Portfolio - U.S. Government and Agency Securities" and "Additional
Investment Strategies and Techniques; Risk Factors - Short Term Instruments"
below, and in Part B.
In managing the Portfolio, U.S. Trust seeks to purchase securities having
value currently not recognized in the market price of a security, consistent
with the strategies discussed above.
Portfolio holdings will include common stocks of companies having
capitalizations of varying amounts, and the Portfolio will invest in the
securities of high growth, small companies where U.S. Trust expects earnings and
the price of the securities to grow at an above-average rate. See "Small Cap
Portfolio" below for a description of certain risks associated with the
securities of small companies. Certain securities owned by the Portfolio may be
traded only in the over-the-counter market or on a regional securities exchange,
may be listed only in the quotation service commonly known as the "pink sheets",
or may not be traded every day or in the volume typical of trading on a national
securities exchange. As a result, there may be a greater fluctuation in the net
asset value of the Portfolio, and the Portfolio may be required, in order to
meet withdrawals by investors or for other reasons, to sell these securities at
a discount from market prices, to sell during periods when such disposition is
not desirable, or to make many small sales over a period of time.
Equity Portfolio may invest in the securities of foreign issuers directly,
or indirectly through sponsored and unsponsored American Depository Receipts.
See "Additional Investment Strategies and Techniques; Risk Factors" below for
further information on foreign investments.
INCOME PORTFOLIO seeks as high a level of current interest income as is
consistent with moderate risk of capital and maintenance of liquidity. Income
Portfolio Income Portfolio will implement this objective by lengthening the
average maturity of its holdings and purchasing higher yielding (but relatively
stable) corporate bonds and government securities. The Portfolio invests
principally in a broad range of investment-grade income securities, including
bonds, notes, debentures and preferred stock, as well as money market
instruments. See "Total Return Bond Portfolio" below for a description of these
securities and a discussion of certain investment policies of Income Portfolio.
TOTAL RETURN BOND PORTFOLIO seeks to maximize the total rate of return
consistent with moderate risk of capital and maintenance of liquidity. In
selecting investment opportunities, Total Return Bond Portfolio will balance
yield, average maturity and risk in seeking to provide maximum preservation of
purchase power. Total Return Bond Portfolio invests principally in a broad range
of investment-grade income securities, including preferred stock, bonds, notes
and debentures, as well as money market instruments.
The Income and the Total Return Bond Portfolios may invest in the following
types of securities: corporate debt obligations such as bonds, debentures,
obligations convertible into common stocks and money market instruments;
preferred stocks; and obligations issued or guaranteed by the U.S. Government
and its agencies or instrumentalities. The Income and the Total Return Bond
Portfolios are also permitted to enter into repurchase agreements, and may from
time to time invest in debt obligations exempt from Federal income tax and
issued by or on behalf of the states, territories or possessions of the United
States, the District of Columbia, and their authorities, agencies,
instrumentalities and political subdivisions ("Municipal Bonds").
The purchase of Municipal Bonds may be advantageous when, as a result of
prevailing economic, regulatory or other circumstances, the performance of such
securities, on a pre-tax basis, is comparable to that of corporate or U.S.
Government debt obligations. The two principal classifications of Municipal
Bonds which may be held by the Income and the Total Return Bond Portfolios are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by the Portfolios are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity revenue bonds is usually directly related to
the credit standing of the corporate user of the facility involved.
The Income and the Total Return Bond Portfolios may also purchase "moral
obligation" securities, which are normally issued by special-purpose public
authorities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment, but not a legal obligation, of
the state or municipality which created the issuer. Subject to the quality and
diversification requirements specified below, there is no limitation on the
amount of moral obligation securities that may be held by the Income and the
Total Return Bond Portfolios. U.S. Trust will consider investments in Municipal
Bonds for the Income and the Total Return Bond Portfolios when U.S. Trust
believes that the total return on such securities is attractive relative to that
of taxable securities.
Under normal market conditions, at least 75% of the Income and the Total
Return Bond Portfolios' total assets will be invested in investment-grade debt
obligations rated within the four highest ratings of Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P") (or in
unrated obligations considered to be of investment grade by U.S. Trust) and in
U.S. Government obligations and money market instruments of the types listed at
"Bond Market Portfolio - U.S. Government and Agency Securities" and "Additional
Investment Strategies and Techniques; Risk Factors - Short Term Instruments"
below. When, in the opinion of a Portfolio, a defensive investment posture is
warranted, each of these Portfolios may invest temporarily and without
limitation in high quality, short-term money market instruments.
Unrated securities will be considered of investment grade if deemed to be
comparable in quality to instruments so rated, as determined pursuant to
procedures established by the Board of Trustees of the Portfolio Series. With
respect to securities rated Baa by Moody's or BBB by S&P, interest and principal
payments are regarded as adequate for the present; however, securities with
these rankings may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make interest and principal payments than is the case with higher grade
bonds. See the Appendix to Part B for a more detailed explanation of these
ratings.
The Income and the Total Return Bond Portfolios may invest up to 25% of
their respective total assets in (a) obligations rated below the four highest
ratings of S&P or Moody's with no minimum rating required, (b) preferred stocks,
and (c) U.S. dollar-denominated debt obligations of (i) foreign issuers,
including foreign corporations and foreign governments, and (ii) U.S. companies
issued outside the United States. See "Additional Investment Strategies and
Techniques; Risk Factors" below for further information on these investments.
The Income and the Total Return Bond Portfolios will not invest in common
stocks, and any common stocks received through conversion of convertible debt
obligations will be sold in an orderly manner as soon as possible.
EQUITY MARKET PORTFOLIO invests at least 80% of its assets in a portfolio
of equity securities consisting of all 500 common stocks in the S&P 500 Index of
large capitalization common stocks. The Portfolio intends to remain fully
invested, to the extent practicable, in a pool of securities which will match
the investment characteristics of the index. The inclusion of a stock in the S&P
500 Index in no way implies that Standard & Poor's Corporation ("S&P
Corporation") believes the stock to be an attractive investment.
S&P 500 Index. The S&P 500 Index is a well-known stock market index that
includes common stocks of 500 companies from several industrial sectors
representing a significant portion of the market value of all common stocks
publicly traded in the United States, in the following proportions: 400
industrials, 60 transportation and utility companies, and 40 financial services
companies. Stocks in the S&P 500 Index are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by the stock's
current price), with the 51 largest stocks currently composing 50% of the
index's value. Typically, companies included in the S&P 500 Index are the
largest and most dominant firms in their respective industries. As of June 30,
1995, the five largest companies in the Index were: General Electric (2.39%),
Exxon Corporation (2.19%), American Telephone & Telegraph (2.52%), Coca-Cola
(2.02%) and Royal Dutch Petroleum (1.63%). As of the same date, the largest
industry categories were: international oil companies (6.8%), telephone
companies (4.9%), electric power companies (3.8%), diversified health care
companies (3.8%) and major regional banks (3.6%). The investment managers of the
Portfolio believe that the performance of the S&P 500 Index is representative of
the performance of publicly traded common stocks in general. The composition of
the S&P 500 Index is determined by S&P Corporation and is based on such factors
as the market capitalization and trading activity of each stock and its
representation of a particular industry group, and may be changed from time to
time.
The Equity Market Portfolio is not sponsored, endorsed, sold or promoted by
S&P Corporation. S&P Corporation makes no representation or warranty, express or
implied, to investors in the Equity Market Portfolio or any member of the public
regarding the advisability of investing in securities generally or in the
Portfolio particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P Corporation's only relationship to the Portfolio
Series is the licensing of certain trademarks and trade names of S&P Corporation
and of the S&P 500 Index which is determined, composed and calculated by S&P
Corporation without regard to the Portfolio Series or the Equity Market
Portfolio. S&P Corporation has no obligation to take the needs of the Portfolio
Series or the investors in the Equity Market Portfolio into consideration in
determining, composing or calculating the S&P 500 Index. S&P Corporation is not
responsible for and has not participated in the determination of the net asset
value of beneficial interests in the Equity Market Portfolio or in the issuance
or the timing of the issuance or sale of beneficial interests in the Portfolio.
S&P Corporation does not guarantee the accuracy and/or the completeness of
the S&P 500 Index or any data included therein and S&P Corporation shall have no
liability for any errors, omissions, or interruptions therein. S&P Corporation
makes no warranty, express or implied, as to results to be obtained by the
Portfolio Series or investors in the Equity Market Portfolio or any person or
entity from the use of the S&P 500 Index or any data included therein. S&P
Corporation makes no express or implied warranties, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P 500 Index or any data included therein. Without limiting any
of the foregoing, in no event shall S&P Corporation have any liability for any
special, punitive, indirect, or consequential damages (including lost profits),
even if notified of the possibility of such damages.
- -------
1"Standard & Poor's,(R) "S&P(R)" and "Standard & Poor's 500{R}" are
trademarks of Standard & Poor's Corporation.
BOND MARKET PORTFOLIO invests at least 80% of its assets in a portfolio of
securities consisting of a representative selection of fixed income securities
included in the Lehman Brothers Aggregate Bond Index. The Portfolio intends to
remain fully invested, to the extent practicable, in a pool of securities that
match the yield and total return of the index.
Lehman Brothers Aggregate Bond Index. The Aggregate Bond Index is a broad
market-weighted index which encompasses three major classes of United States
investment grade fixed income securities with maturities greater than one year:
U.S. Treasury and agency securities, corporate bonds, and mortgage- backed
securities. The Index measures the total investment return (capital change plus
income) provided by a universe of fixed income securities, weighted by the
market value outstanding of each security. The securities included in the Index
generally meet the following criteria, as defined by Lehman Brothers: an
outstanding market value of at least $100 million for U.S. Government and agency
issues and $50 million for all other securities issuers (this limit was raised
to $100 million for all issuers at the end of 1994); and investment grade
quality, rated a minimum of Baa by Moody's or BBB by S&P. The Bond Market
Portfolio is managed without regard to tax ramifications. As of June 30, 1995,
the following classes of fixed income securities represented the stated
proportions of the total market value of the Aggregate Bond Index:
U.S. Treasury and government agency securities............................. 54%
Corporate bonds........................................................... 17%
Mortgage-backed securities................................................ 28%
Asset-backed securities................................................... 1%
Option-adjusted duration: 4.6 years
The Aggregate Bond Index is composed of the following kinds of securities:
public obligations of the U.S. Government; publicly issued debt of U.S.
Government agencies and quasi-federal corporations; corporate debt guaranteed by
the U.S. Government; fixed rate nonconvertible dollar-denominated corporate
debt; 15- and 30-year fixed rate securities backed by mortgage pools of the
Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage
Corporation (FHLMC), and the Federal National Mortgage Association (FNMA); and
asset-backed pass-through securities representing pools of credit card
receivables and auto or home equity loans.
U.S. Government and Agency Securities. The Bond Market Portfolio may
invest in U.S. Government securities and securities issued or guaranteed by
agencies or instrumentalities of the U.S. Government. Securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which differ only in their interest rates, maturities
and times of issuance: Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, such as Government National Mortgage Association pass-
through certificates, are supported by the full faith and credit of the U.S.
Treasury; other securities, such as those of the Federal Home Loan Banks, are
supported by the right of the issuer to borrow from the Treasury. Securities
issued by the Federal National Mortgage Association are supported by
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; other securities, such as those issued by the
Student Loan Marketing Association, are supported only by the credit of the
agency or instrumentality. While the U.S. Government provides financial support
to such U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by law. The
Bond Market Portfolio, its yields, and the value of beneficial interests in the
Portfolio, are not guaranteed by the U.S. Government or any federal agency or
instrumentality. For additional information on U.S. Government securities, see
Part B.
The Bond Market Portfolio may, from time to time, substitute one type of
investment grade bond for another. For instance, the Bond Market Portfolio may
hold more short-term corporate bonds (and fewer short U.S. Treasury bonds) than
represented in the Aggregate Bond Index so as to increase income.
Corporate Bonds. The Bond Market Portfolio may purchase debt securities of
United States corporations only if they are deemed investment grade, that is,
carry a rating of at least Baa from Moody's or BBB from S&P or, if not rated
by these rating agencies, are judged by the investment managers of the
Portfolio to be of comparable quality. With respect to securities rated Baa
by Moody's and BBB by S&P, interest and principal payments are regarded as
adequate for the present; however, securities with these ratings may have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make interest
and principal payments than is the case with higher grade bonds. The
Portfolio intends to dispose in an orderly manner of any security which is
downgraded below investment grade subsequent to its purchase. See the
Appendix to Part B for a more detailed explanation of these ratings.
Corporate bonds are subject to call risk during periods of falling
interest rates. Securities with high stated interest rates may be prepaid
(or called) prior to maturity, requiring the Bond Market Portfolio to invest
the proceeds at generally lower interest rates. Call provisions, common in
many corporate bonds, allow bond issuers to redeem bonds prior to maturity
(at a specific price). When interest rates are falling, bond issuers often
exercise these call provisions, paying off bonds that carry high stated
interest rates and often issuing new bonds at lower rates. For the Bond
Market Portfolio, the result would be that bonds with high interest rates are
called and must be replaced with lower-yielding instruments. In these
circumstances, the income of the Bond Market Portfolio would decline.
Mortgage Pass-Throughs and Collateralized Mortgage Obligations. The Bond
Market Portfolio may purchase mortgage and mortgage-related securities such
as pass-throughs and collateralized mortgage obligations that meet the Bond
Market Portfolio's selection criteria (collectively, "Mortgage Securities").
Mortgage pass-throughs are securities that pass through to investors an
undivided interest in a pool of underlying mortgages. These are issued or
guaranteed by U.S. government agencies such as GNMA, FNMA, and FHLMC. Other
mortgage pass-throughs consist of whole loans originated and issued by
private limited purpose corporations or conduits. Collateralized mortgage
obligation bonds are obligations of special purpose corporations that are
collateralized or supported by mortgages or mortgage securities such as
pass-throughs.
As a result of its investments in Mortgage Securities, the mortgage-backed
securities in the Bond Market Portfolio may be subject to a greater degree of
market volatility as a result of unanticipated prepayments of principal. During
periods of declining interest rates, the principal invested in mortgage-backed
securities with high interest rates may be repaid earlier than scheduled, and
the Bond Market Portfolio will be forced to reinvest the unanticipated payments
at generally lower interest rates. When interest rates fall and principal
prepayments are reinvested at lower interest rates, the income that the Bond
Market Portfolio derives from mortgage-backed securities is reduced. In
addition, like other fixed income securities, Mortgage Securities generally
decline in price when interest rates rise.
SMALL CAP PORTFOLIO seeks to provide a high total return from a portfolio
of equity securities of small capitalization companies. Total return will
consist of income plus realized and unrealized capital gains and losses. The
Portfolio will invest at least 65% of its total assets in equity securities
consisting of a selection of the stocks included in the Russell 2000 Index of
small capitalization stocks. The Portfolio intends to remain fully invested, to
the extent practicable, in securities with risk characteristics and industry
group representation similar to the securities in the Russell 2000 Index, but it
is anticipated that the Portfolio's securities, taken together, would have a
lower aggregate price/earnings ratio than index securities generally. To reduce
the risk associated with investments in individual securities, the Portfolio's
investments will be spread over a range of industries and issuers as opposed to
being concentrated in a few individual securities. Stocks of small
capitalization issuers generally have greater illiquidity and price volatility
than stocks of larger capitalization issuers.
The Russell 2000 Index consists of the smallest 2,000 companies from the
Russell 3000 Index (a portfolio of 3,000 securities of U.S. companies
representing approximately 98% of the U.S. equity market). Only common stocks
issued by corporations domiciled in the United States and its territories are
eligible for inclusion in the Russell 2000 Index. As of June 30, 1995, the
market capitalization of stocks in the index ranged in size from $28 million to
$1.07 billion.
The Portfolio invests in common stocks and other equity securities, such as
preferred stocks, rights and warrants. Because the Portfolio invests in equity
securities of small capitalization issuers, its price volatility may be greater
than if the Portfolio invested exclusively in equity securities of issuers which
have larger market capitalizations. Generally, equity securities of small
capitalization companies have historically been characterized by greater
volatility of returns, greater total returns, and lower dividend yields than
equity securities of large capitalization issuers. The greater price volatility
of equity securities of small capitalization issuers may result from the fact
that there may be less market liquidity, less publicly available information or
fewer investors who monitor the activities of these companies. In addition, the
market prices of these securities may exhibit more sensitivity to changes in
industry or general economic conditions.
BALANCED PORTFOLIO seeks to provide a high total return from a diversified
portfolio of equity and fixed income securities. Total return will consist of
income plus realized and unrealized capital gains and losses. The Portfolio
seeks to provide a total return that approaches that of the universe of equity
securities of large U.S. companies and that exceeds the return typical of a
portfolio of fixed income securities. The Portfolio attempts to achieve this
return by investing in equity and fixed income instruments, as described below.
The relative emphasis placed upon each asset class will vary based upon the
subadviser's assessment of their current attractiveness on a risk-adjusted
basis. The precise allocation will depend upon numerous factors, including the
Portfolio investment managers' evaluation of the economy and financial markets
as well as government fiscal and monetary policies. Normally, the commitment to
stocks will range between 35% and 65% of portfolio assets. Similarly, the bond
allocation will usually fall between 35% and 65% of portfolio assets. However,
at least 25% of the total assets of the Portfolio are always invested in fixed
income senior securities including debt securities and preferred stock. The
subadviser may allocate the Portfolio's investments between these asset classes
in a manner they believe consistent with the Portfolio's investment objective
and current market conditions. Stocks may be over-weighted over the long term
relative to bonds given that historically equity securities have provided
superior returns. Within a shorter time horizon, however, if stocks and bonds
appear equally attractive, fixed income securities may be favored given their
greater certainty of return and lower volatility.
The subadviser intends to manage the Portfolio actively in pursuit of its
investment objective. While the Portfolio has a long-term investment
perspective, it may take advantage of short-term trading opportunities that are
consistent with its objective. To the extent the Portfolio engages in short-term
trading, it may incur increased transaction costs. See Item 6 below.
Equity Investments. For the equity portion of the Portfolio, the
subadviser seeks to achieve a high total return through fundamental analysis,
systematic stock valuation and disciplined portfolio construction. The
Portfolio's equity investments will be primarily the common stock of large- and
medium-sized U.S. companies with market capitalizations above $1.5 billion,
including common stock of any class or series or any similar equity interest,
such as trust or limited partnership interests. The Portfolio's equity
investments may also include preferred stock, warrants and similar rights. The
Portfolio may also invest in the equity securities of small companies and of
foreign issuers. The small company holdings of the Portfolio are primarily
companies included in the Russell 2500 Index. The Russell 2500 Index consists of
the smallest 2,500 companies from the Russell 3000 Index. The Portfolio's equity
securities may or may not pay dividends and may or may not carry voting rights.
For a discussion of the risks of investments in small companies, see "Small Cap
Portfolio" above.
Fixed Income Investments. For the fixed income portion of the Portfolio,
the subadviser seeks to provide a high total return by actively managing the
duration of the Portfolio's fixed income securities, the allocation of
securities across market sectors, and the selection of securities within
sectors. Based on fundamental, economic and capital markets research, the
subadviser adjusts the duration of the Portfolio's fixed income investments in
light of market conditions. The subadviser also actively allocates the
Portfolio's fixed income investments among the broad sectors of the fixed income
market.
Duration is a measure of the weighted average time until receipt of the
payments expected to be generated by the fixed income securities 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. For example, and for illustrative
purposes only, a hypothetical fund with a duration of 10 years will decrease 10%
in value as a result of a 15% increase in interest rates. Under normal market
conditions, the duration of the fixed income portion of the Portfolio will range
between 80% and 120% of the Lehman Brothers Government/Corporate Bond Index,
which as of June 30, 1995 was approximately 5.1 years. The maturities of the
individual fixed income securities in the Portfolio may vary widely, however.
The Portfolio may purchase debt securities only if they are deemed
investment grade, that is, carry a rating of at least Baa from Moody's or BBB
from S&P or, if not rated by these rating agencies, are judged by the investment
managers to be of comparable quality. With respect to securities rated Baa by
Moody's and BBB by S&P, interest and principal payments are regarded as adequate
for the present; however, securities with these ratings may have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make interest and principal
payments than is the case with higher grade bonds. The Portfolio intends to
dispose in an orderly manner of any security which is downgraded below
investment grade subsequent to its purchase. See the Appendix to Part B for a
more detailed explanation of these ratings.
The Portfolio may invest in a broad range of debt securities of domestic
and foreign issuers. These include debt securities of various types and
maturities, e.g., debentures, notes, mortgage securities, equipment trust
certificates and other collateralized securities and zero coupon securities.
Collateralized securities are backed by a pool of assets such as loans or
receivables which generate cash flow to cover the payments due on the
securities. Collateralized securities are subject to certain risks, including a
decline in the value of the collateral backing the security, failure of the
collateral to generate the anticipated cash flow or in certain cases more rapid
prepayment because of events affecting the collateral, such as accelerated
prepayment of mortgages or other loans backing these securities or destruction
of equipment subject to equipment trust certificates. In the event of any such
prepayment the Portfolio will be required to reinvest the proceeds of
prepayments at interest rates prevailing at the time of reinvestment, which may
be lower. In addition, the value of zero coupon securities which do not pay
interest is more volatile than that of interest- bearing debt securities with
the same maturity. For more information on mortgage securities and associated
risks, see "Bond Market Portfolio - Mortgage Pass-Throughs and Collateralized
Mortgage Obligations" above.
The Portfolio may invest in U.S. Government securities and securities
issued or guaranteed by agencies or instrumentalities of the U.S. Government.
For a description of these securities, see "Bond Market Portfolio - U.S.
Government and Agency Securities" above and Part B. The Portfolio may also
invest in municipal obligations which may be general obligations of the issuer
or payable only from specific revenue sources. However, the Portfolio will
invest only in municipal obligations that have been issued on a taxable basis or
have an attractive total return potential excluding tax considerations. In
addition, the Portfolio may invest in debt securities of foreign governments and
governmental entities denominated, in all cases, in U.S. dollars. See
"Additional Investment Strategies and Techniques; Risk Factors" below for
further information on foreign investments.
EQUITY GROWTH PORTFOLIO seeks to provide a high level of capital
appreciation through investment in a diversified portfolio of common stocks with
potential for above-average growth in earnings and dividends. Equity Growth
Portfolio seeks to achieve this investment objective by investing primarily in
the common stocks of medium and large capitalization U.S. companies (i.e.,
companies with stock market capitalizations of more than $1 billion) which, in
the opinion of the subadviser, will present an opportunity for significant
increases in earnings and/or value. Current dividend income is incidental to the
Equity Growth Portfolio's investment objective of increasing the value of a
shareholder's investment. Investments will be selected based on their potential
for above-average growth in earnings and dividends, with no consideration given
to current income.
Under normal market conditions, the Portfolio will invest at least 65% of
its total assets in common stocks. The remainder of the Portfolio's assets will
be invested in other types of securities including convertible and
nonconvertible bonds, warrants and short-term obligations, preferred stocks,
debt securities, and repurchase agreements collateralized by these securities.
The Portfolio may purchase debt securities only if they are deemed investment
grade, that is, carry a rating of at least Baa from Moody's or BBB from S&P or,
if not rated by these rating agencies, are judged by the investment managers to
be of comparable quality. With respect to securities rated Baa by Moody's and
BBB by S&P, interest and principal payments are regarded as adequate for the
present; however, securities with these ratings may have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make interest and principal
payments than is the case with higher grade bonds. The Portfolio intends to
dispose in an orderly manner of any security which is downgraded below
investment grade subsequent to its purchase. See the Appendix to Part B for an
explanation of these ratings. The Portfolio may invest without limitation in
high quality money market instruments if deemed appropriate by the subadviser
for temporary defensive purposes. See "Short-Term Instruments" below. While the
Portfolio may invest in foreign securities, it currently has no intention of
purchasing foreign securities other than American Depository Receipts. See
"Investment Strategies and Techniques; Risk Factors - Foreign Investments" below
and "Foreign Securities - Equity Portfolios" in Part B. The Portfolio may vary
the percentage of assets invested in any one type of security in accordance with
the subadviser's interpretation of economic and market conditions, fiscal and
monetary policy, and underlying security values. The subadviser intends to
manage the Portfolio actively in pursuit of its investment objective. While the
Portfolio has a long-term investment perspective, it may take advantage of any
short-term trading opportunities that are consistent with its objective. To the
extent the Portfolio engages in short-term trading, it may incur increased
transaction costs.
VALUE EQUITY INCOME PORTFOLIO seeks to provide capital appreciation and a
high level of current income by investing principally in a diversified portfolio
of equity securities selected for their potential to generate current income or
long-term growth of capital. Over the long term, the Portfolio will seek to
maintain its dividend and interest income levels close to those of the S&P 500
Index. In making portfolio selections, the subadviser follows value philosophy:
to invest in companies with sound fundamentals, the securities of which are
trading at low price-to-earnings ratios. In addition, the subadviser follows an
equity income philosophy: to invest principally in common stocks that provide
high current income and a low level of volatility relative to the market while
seeking to obtain long-term growth of capital. To implement the Portfolio's
investment objective, the subadviser will attempt to (a) build a diversified
portfolio with significantly lower-than-market volatility that achieves superior
return over time, (b) maintain consistent portfolio characteristics, and
(c) provide protection over a falling market cycle.
Equity Investments. The Portfolio will invest primarily in equity
securities which produce a current dividend yield which generally exceeds the
published composite yield of the securities comprising the S&P 500 Index. The
published composite yield of the S&P 500 Index was 2.45% for the calendar
quarter ended June 30, 1995. The S&P 500 Index is a broad-based index of 500
companies listed on the New York Stock Exchange. The Portfolio invests primarily
in preferred stocks and common stocks listed on the New York Stock Exchange and
on other national securities exchanges and, to a lesser extent, in stocks that
are traded over-the-counter. Provided such securities meet the requirements set
forth below for fixed income investments, the Portfolio may also invest in
securities convertible into common or preferred stocks. The Portfolio allocates
its investments among different industries and companies, seeking to invest in
growing, financially stable and undervalued companies.
Under normal market conditions, the Portfolio will invest at least 65% of
its total assets in income producing equity securities. The remainder of the
Portfolio's assets may be invested in short-term instruments such as commercial
paper, bank obligations, U.S. government and agency securities maturing within
one year, notes and other debt securities of various maturities, and repurchase
agreements collateralized by these securities. The Portfolio may invest without
limitation in high quality money market instruments if deemed appropriate by the
subadviser for temporary defensive purposes. See "Short-Term Instruments" below.
While the Portfolio may invest in foreign securities, it currently has no
intention of purchasing foreign securities other than American Depository
Receipts. See "Investment Strategies and Techniques; Risk Factors - Foreign
Investments" below and "Foreign Securities - Equity Portfolios" in Part B.
Fixed Income Investments. The Portfolio may invest in a broad range of debt
securities of domestic and foreign issuers. These include debt securities of
various types and maturities, e.g., debentures, notes, mortgage securities,
equipment trust certificates and other collateralized securities and zero coupon
securities. For a more detailed description of these securities, see "Balanced
Portfolio - Fixed Income Investments" above. The Portfolio may purchase debt
securities only if they are deemed investment-grade, that is, carry a rating of
at least Baa from Moody's or BBB from S&P or, if not rated by these rating
agencies, are judged by the investment managers to be of comparable quality.
With respect to securities rated Baa by Moody's and BBB by S&P, interest and
principal payments are regarded as adequate for the present; however, securities
with these ratings may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make interest and principal payments than is the case with higher grade
bonds. The Portfolio intends to dispose in an orderly manner of any security
which is downgraded below investment-grade subsequent to its purchase. See the
Appendix to Part B for an explanation of these ratings.
U.S. Government and Agency Securities. The Portfolio may invest in U.S.
Government securities and securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government. For a description of these securities,
see "Bond Market Portfolio - U.S. Government and Agency Securities" above and
"U.S. Government and Agency Securities" in Part B.
Mortgage Pass-Throughs and Collateralized Mortgage Obligations. The Value
Equity Income Portfolio may purchase mortgage-related securities such as
mortgage pass-throughs, collateralized mortgage obligations, and mortgage
derivatives that meet the Portfolio's selection criteria. For a description of
these securities and associated risks, see "Bond Market Portfolio - Mortgage
Pass-Throughs and Collateralized Mortgage Obligations" above.
The subadviser intends to manage the Portfolio actively in pursuit of its
investment objective. While the Portfolio has a long-term investment
perspective, it may take advantage of any short-term trading opportunities which
may arise and are consistent with its objective. To the extent the Portfolio
engages in short-term trading, it may incur increased transaction costs.
INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation through
investment in a diversified portfolio of marketable foreign securities. The
Portfolio ordinarily will invest primarily in foreign equity securities of
issuers that the subadviser believes to have strong balance sheets, sustainable
internal growth, superior financial returns, capable and forthright management,
and enduring competitive advantages.
When evaluating foreign securities, the subadviser will seek to identify
superior companies with excellent long-term growth prospects and to select from
among them those whose shares appear to offer attractive absolute returns. The
subadviser's investment criteria therefore include both growth and value
considerations. Growth stocks are those that the subadviser believes have the
potential for above-average growth in earnings. Value stocks are those that the
investment subadviser believes are undervalued by the market based on the
investment managers' assessment of the company's current value and future
earnings prospects.
In determining investment strategy and allocating investments, the
subadviser will continuously analyze a broad range of international equity
securities. Country and sector portfolio weightings are expected to reflect the
results of a "bottom up" stock selection process, rather than the results of any
"top down" country or sector allocation process. The Portfolio generally will
sell securities if the subadviser believes that such securities have become
substantially overvalued relative to alternative investments or if the
subadviser believes that there is an unfavorable change in the issuer's
long-term business forecast.
The Portfolio's investments generally will be diversified among geographic
regions and countries. While there are no prescribed limits on geographic
distributions, the Portfolio normally will hold securities of issuers
collectively having their principal place of business in no fewer than three
foreign countries. The subadviser expects that the Portfolio's assets ordinarily
will be invested in securities of issuers located in the Pacific Basin (e.g.,
Japan, Hong Kong, Singapore, Malaysia), Europe, Australia, Latin America and
South Africa. The Portfolio also may invest, from time to time, in other
regions, seeking to capitalize on investment opportunities emerging in other
parts of the world. In purchasing foreign equity securities, the Portfolio will
look generally to large and small companies in mature foreign markets as well as
well-established companies in emerging markets. Under unusual economic and
market conditions, the Portfolio may restrict the securities markets in which
its assets are invested.
Under normal market and economic conditions, at least 75% of the
Portfolio's assets will be invested in foreign equity securities. For cash
management purposes, the Portfolio may invest up to 25% of its assets on a
continuous basis in cash or short term instruments such as commercial paper,
bank obligations, U.S. Government and agency securities maturing within one
year, notes and other debt securities of various maturities, and repurchase
agreements collateralized by these securities. The Portfolio also may invest
without limitation in any combination of high quality domestic or foreign money
market instruments if deemed appropriate by the subadviser for temporary
defensive purposes in response to unusual market and economic conditions. See
"Short-Term Instruments" below. To the extent described below under "Additional
Investment Strategies and Techniques; Risk Factors," the Portfolio also may
purchase shares of other investment companies and may engage in other investment
practices, including repurchase agreements, securities lending, forward currency
contracts and futures contracts and options.
Foreign equity securities purchased by the Portfolio may include common
stock, preferred stock, securities convertible into common or preferred stock,
and warrants issued by companies domiciled outside of the United States
("foreign issuers"), and shares of U.S registered investment companies that
invest primarily in foreign securities. The Portfolio may purchase when-issued
securities otherwise eligible for purchase by the Portfolio and may invest
indirectly in the securities of foreign issuers through sponsored and
unsponsored American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") and similar securities of foreign issuers.
Convertible debt securities purchased by the Portfolio will be rated
investment grade by Moody's or S&P if such a rating is available. If unrated, as
is the case with most foreign securities, convertible debt securities purchased
by the Portfolio will be deemed to be comparable in quality to securities rated
investment grade pursuant to procedures established by the Board of Trustees of
the Portfolio Series. With respect to securities rated Baa by Moody's or BBB by
S&P (the lowest of the top four investment rankings), or deemed to be comparable
in quality to such securities, interest and principal payments are regarded as
adequate for the present; however, these securities may have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make interest and principal
payments than is the case with higher grade bonds.
The Portfolio may purchase securities both on recognized stock exchanges
and in over-the-counter markets. Most portfolio transactions will be effected in
the primary trading market for the given security. The Portfolio also may invest
up to 5% of its total assets in gold bullion. Investments in gold will not
produce dividends or interest income, and the Portfolio can look only to price
appreciation for a return on such investments.
The relative performance of foreign currencies is an important element in
the Portfolio's performance. Although the subadviser does not expect to hedge
foreign currency exposure on a routine basis, it may do so when it has a strong
view on the prospects for a particular currency. Certain currency hedging
techniques that may be employed by the subadviser are described below in
"Additional Investment Strategies and Techniques; Risk Factors: Foreign Currency
and Exchange Transactions." Although such techniques may reduce the risk of loss
to the Portfolio from adverse movements in foreign exchange rates, they also may
limit possible gains from favorable movements in such rates.
Additional Investment Strategies and Techniques; Risk Factors
The Equity, Income, Total Return Bond, Small Cap, Balanced, Equity Growth,
Value Equity Income and International Equity Portfolios (collectively, the
"Managed Portfolios"), and the Equity Market and Bond Market Portfolios
(collectively, the "Index Portfolios"), may utilize the following investment
strategies and techniques, as described below.
Sampling and Trading in the Index Portfolios. The Bond Market Portfolio
does not expect to hold all of the individual issues which comprise the
Aggregate Bond Index because of the large number of securities involved.
Instead, the Portfolio will hold a representative sample of securities,
selecting one or two issues to represent entire classes or types of securities
in the index. This sampling technique is expected to be an effective means of
substantially duplicating the income and capital returns provided by the index.
To reduce transaction costs, the Index Portfolios' securities holdings will
not be automatically traded or re-balanced to reflect changes in an index. The
Index Portfolios will seek to buy round lots of stocks and may trade large
blocks of securities. These policies may cause a particular security to be over-
or under-represented in a Portfolio relative to its index weighing or result in
its continued ownership by a Portfolio after its deletion from the index,
thereby reducing the correlation between the Portfolio and the index. The Index
Portfolios are not required to buy or sell securities solely because the
percentage of their assets invested in index securities changes when their
market values increase or decrease. In addition, the Index Portfolios may omit
or remove index securities from their portfolios if the investment managers
believe the security to be insufficiently liquid or believe the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. Over the long term, the investment managers of the Index Portfolios
seek a correlation of 0.95 or better. See "U.S. Trust's Investment Philosophy
and Strategies -- Equity Market Portfolio and Bond Market Portfolio" above.
Investments Below Investment Grade. As discussed above, investments by the
Income and the Total Return Bond Portfolios in obligations rated below the four
highest ratings of S&P and Moody's (commonly called "junk bonds") have different
risks than investments in securities that are rated investment grade. Risk of
loss upon default by the borrower is significantly greater because lower-rated
securities are generally unsecured and are often subordinated to other creditors
of the issuer, and because the issuers frequently have high levels of
indebtedness and are more sensitive to adverse economic conditions, such as
recessions, individual corporate developments and increasing interest rates,
than are investment grade issuers. As a result, the market price of such
securities, and the net asset value of the Income and Total Return Bond
Portfolio, may be particularly volatile. Additional risks associated with
lower-rated fixed-income securities are (a) the relative youth and growth of the
market for such securities, (b) the sensitivity of such securities to interest
rate and economic changes, (c) the lower degree of protection of principal and
interest payments, (d) the relatively low trading market liquidity for the
securities, (e) the impact that legislation may have on the high yield bond
market (and, in turn, on the Portfolios' net asset value and investment
practices), (f) the operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates whereby a Portfolio may be
required to reinvest premature redemption proceeds in lower yielding portfolio
securities, and (g) the creditworthiness of the issuers of such securities.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. An economic downturn could also disrupt the market for lower-rated
bonds generally and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. If the issuer of a
lower-rated debt obligation held by a Portfolio defaulted, the Portfolio could
incur additional expenses to seek recovery. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower-rated securities, especially in a thinly traded
market. Finally, a Portfolio's trading in fixed-income securities to achieve
capital appreciation entails risks that capital losses rather than gains will
result.
Debt obligations rated "BB", "B" or "CCC" by S&P are regarded, on balance,
as predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" debt rating. The rating "C" is
applied to debt subordinated to a senior debt which is assigned an actual or
implied "CCC-" rating. The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are continued.
Debt obligations rated "D" are in default, and payments of interest and/or
repayment of principal are in arrears. The ratings from "AA" through "CCC" are
sometimes modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Moody's has a similar
classification scheme for non-investment grade debt obligations. Debt
obligations rated "Ba", "B", "Caa", "Ca" and "C" provide questionable protection
of interest and principal. The rating "Ba" indicates that a debt obligation has
some speculative characteristics. The rating "B" indicates a general lack of
characteristics of desirable investment. Debt obligations rated "Caa" are of
poor quality, while debt obligations rated "Ca" are considered highly
speculative. "C" represents the lowest rated class of debt obligations. Moody's
applies numerical modifiers 1, 2 and 3 in each generic classification from "Aa"
to "B" in its bond rating system. The modifier "1" indicates that a security
ranks in the higher end of its rating category; the modifier "2" reflects a
mid-range ranking; and the modifier "3" indicates that the security ranks at the
lower end of its generic rating category. See Part B for a more detailed
explanation of these ratings. Convertible Securities. The Managed Portfolios may
invest in investment grade convertible securities of domestic and foreign
issuers, although in the current fiscal year the Small Cap Portfolio has no
intention to invest in convertible securities of foreign issuers. See "Value
Equity Income Portfolio - Fixed Income Investments" for an explanation of
investment grade ratings of debt securities, including convertible securities.
The convertible securities in which the Portfolios may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
When-Issued and Delayed Delivery Securities. The Portfolios may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. These transactions involve a commitment by a
Portfolio to purchase or sell particular securities with payment and delivery
taking place in the future, beyond the normal settlement date, at a stated price
and yield. Securities purchased on a forward commitment or when-issued basis are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. When such transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. When-issued securities and forward commitments may be sold prior to
the settlement date, but a Portfolio will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. At the time the Portfolio enters into a
transaction on a when-issued or forward commitment basis, a segregated account
consisting of cash or high grade liquid debt securities equal to the value of
the when-issued or forward commitment securities will be established and
maintained. There is a risk that the securities may not be delivered and that
the Portfolio may incur a loss.
In addition, the Income and the Total Return Bond Portfolios may acquire
"stand-by commitments" with respect to Municipal Bonds held by them. Under a
stand-by commitment, a dealer agrees to purchase at a Portfolio's option
specified Municipal Bonds at a specified price. The Portfolios will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for speculative purposes. Stand-by
commitments acquired by a Portfolio will be valued at zero in determining the
Portfolio's net asset value.
Repurchase Agreements. Each of the Portfolios may engage in repurchase
agreement transactions with brokers, dealers or banks that meet the credit
guidelines established by the Trustees of the Portfolio Series. In a repurchase
agreement, a 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.
Reverse Repurchase Agreements. Each Portfolio may borrow funds, in an
amount up to one-third of the value of its total assets, for temporary or
emergency purposes, such as meeting larger than anticipated redemption requests,
and not for leverage. Each Portfolio may also agree to sell portfolio securities
to financial institutions such as banks and broker- dealers and to repurchase
them at a mutually agreed date and price (a "reverse repurchase agreement"). The
SEC views reverse repurchase agreements as a form of borrowing. At the time a
Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account cash, U.S. Government securities or high-grade debt
obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Portfolio may decline below the repurchase price
of those securities.
Investment Company Securities. In connection with the management of its
daily cash positions, each Portfolio may invest in securities issued by other
investment companies which invest in high quality, short-term debt securities
and which determine their net asset value per share based on the amortized cost
or penny-rounding method. The International Equity Portfolio may also purchase
shares of investment companies investing primarily in foreign securities,
including so-called "country funds" which have portfolios consisting primarily
of securities of issuers located in one foreign country. In addition to the
advisory fees and other expenses a Portfolio bears directly in connection with
its own operations, as a shareholder of another investment company, a Portfolio
would bear its pro rata portion of the other investment company's advisory fees
and other expenses. As such, the Portfolio's investors would indirectly bear the
expenses of the other investment company, some or all of which would be
duplicated. Securities of other investment companies may be acquired by the
Portfolios to the extent permitted under the 1940 Act, that is, a Portfolio may
invest a maximum of up to 10% of its total assets in securities of other
investment companies so long as not more than 3% of the total outstanding voting
stock of any one investment company is held by any Portfolio. In addition, not
more than 5% of the Portfolio's total assets may be invested in the securities
of any one investment company.
Foreign Investments. In accordance with their respective investment
objectives and policies, the Equity, Balanced, Equity Growth and Value Equity
Income Portfolios may invest, and the International Equity Portfolio will
invest, in common stocks of foreign corporations, and each of such Portfolios
and the Income and Total Return Bond Portfolios may invest in convertible
securities of foreign corporations as well as fixed income securities of foreign
government and corporate issuers. Other than the International Equity Portfolio,
which will invest under normal market and economic conditions at least 75% of
its total assets in foreign securities, none of the Portfolios expects to invest
more than 30% (25% in the case of the Income and Total Return Bond Portfolios)
of their respective total assets at the time of purchase in securities of
foreign issuers. All investments, domestic or foreign, involve certain risks.
Investment in securities of foreign issuers, and in obligations of foreign
branches or subsidiaries of domestic or foreign banks, may involve risks in
addition to those normally associated with investments in the securities of U.S.
issuers. Overall, there may be limited publicly available information with
respect to foreign issuers, and there may be less supervision of foreign stock
exchanges and market partcipants such as brokers and issuers. Moreover,
available information may not be as reliable as information regarding U.S.
companies, because foreign issuers often are not subject to uniform accounting,
auditing and financial standards and requirements comparable to those applicable
to U.S. companies.
Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes. To the extent that such taxes are not
offset by credits or deductions allowed to investors under the Federal income
tax laws, they may reduce the net return to investors. See Item 6 below.
Investors should realize that the value of a Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or changes in) exchange controls or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect a
Portfolio's operations. The economies of individual foreign nations may differ
from the U.S. economy in areas such as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position; it may also be more difficult to obtain and enforce a
judgment against a foreign issuer. Any foreign investments made by a Portfolio
must be made in compliance with U.S. and foreign currency restrictions and tax
laws restricting the amounts and types of foreign investments.
While the volume of transactions effected on foreign stock exchanges has
increased in recent years, in most cases it remains appreciably below that of
domestic security exchanges. Accordingly, a Portfolio's foreign investments may
be less liquid and their prices may be more volatile than comparable investments
in securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio liquidity.
The costs attributable to investing abroad are usually higher than those of
funds investing in domestic securities for several reasons, such as the higher
cost of investment research, higher cost of custody of foreign securities,
higher commissions paid on comparable transactions on foreign markets and
additional costs arising from delays in settlements of transactions involving
foreign securities.
The Portfolios may invest in securities of foreign issuers directly or in
the form of American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRS are receipts typically issued by a U.S. bank or trust company
which evidence ownership of the underlying foreign securities. Certain such
institutions issue ADRs which may not be sponsored by the issuer of the
underlying foreign securities. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to provide
under its contractual arrangements with the issuer of the underlying foreign
securities. EDRs are receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets.
Changes in foreign exchange rates will affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Portfolios. Exchange
rates are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events, many of
which may be difficult, if not impossible, to predict.
Foreign Currency Exchange Transactions. In accordance with their respective
investment objectives and policies, the Equity, Income, Total Return Bond,
Balanced, Equity Growth and Value Equity Income Portfolios may buy and sell, and
the International Equity Portfolio will buy and sell, securities (and receive
interest and dividends proceeds) in currencies other than the U.S. dollar.
Therefore, these Portfolios may enter from time to time into foreign currency
exchange transactions. The Portfolios will either enter into these transactions
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or use forward contracts to purchase or sell foreign
currencies. The cost of a Portfolio's spot currency exchange transactions will
generally be the difference between the bid and offer spot rate of the currency
being purchased or sold.
A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement, and is traded at a net
price without commission. The Portfolios will not enter into forward contracts
for speculative purposes. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Portfolio's
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
The Portfolios may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Portfolios may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, a
Portfolio would enter into a forward contract to sell the foreign currency
in which the investment is denominated or principally traded in exchange for
U.S. dollars or in exchange for another foreign currency. A Portfolio will only
enter into forward contracts to sell a foreign currency in exchange for another
foreign currency if its respective subadviser expects the foreign currency
purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they limit
any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause a Portfolio to assume the risk
of fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
Futures Contracts and Options. Each Portfolio may purchase put and call
options on securities, indices of securities and futures contracts. The
Portfolios may also purchase and sell futures contracts. Futures contracts on
securities and securities indices will be used primarily to accommodate cash
flows or in anticipation of taking a market position when, in the opinion of the
investment managers, available cash balances do not permit economically
efficient purchases of securities. Moreover, a Portfolio may sell futures and
options to "close out" futures and options it may have purchased or to protect
against a decrease in the price of securities it owns but intends to sell. The
Index Portfolios will not invest in futures or options as part of a defensive
strategy to protect against potential stock market declines. The Managed
Portfolios may use futures contracts and options for both hedging and risk
management purposes, although not for speculation. See "Futures Contracts and
Options on Futures Contracts" in Part B.
The Portfolios may (a) purchase exchange traded and over the counter (OTC)
put and call options on securities and indexes of securities, (b) purchase and
sell futures contracts on securities and indexes of securities and (c) purchase
put and call options on futures contracts on securities and indexes of
securities. In addition, the Portfolios may sell (write) exchange traded and OTC
put and call options on securities and indexes of securities and on futures
contracts on securities and indexes of securities. The staff of the SEC has
taken the position that OTC options are illiquid and, therefore, together with
other illiquid securities held by a Portfolio, cannot exceed 15% of the
Portfolio's net assets. The Portfolios intend to comply with this limitation.
The Portfolios may use options and futures contracts to manage their
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend
to hedge a 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 a Portfolio's overall
strategy in a manner deemed appropriate by the Portfolio's investment
managers and consistent with its 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 a Portfolio's return. While the use of these techniques
by a Portfolio may reduce certain risks associated with owning its portfolio
securities, these investments entail certain other risks. If Portfolio
investment managers apply a strategy at an inappropriate time or judge market
conditions or trends incorrectly, options and futures strategies may lower a
Portfolio's return. Certain strategies limit a Portfolio's possibilities to
realize gains as well as limit its exposure to losses. A Portfolio could also
experience losses if the 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, a 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. For more information
on these investment techniques, see Part B.
Each of the Portfolios may purchase and sell put and call options on
securities, indexes of securities and futures contracts, or purchase and sell
futures contracts, only 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
do not exceed 20% of a Portfolio's total net assets, and (ii) the aggregate
margin deposits required on all such futures or options thereon held at any time
do not exceed 5% of a Portfolio's total assets. None of the Portfolios has any
current intention of purchasing futures contracts or investing in put and call
options on securities, indexes of securities, or futures contracts if more than
5% of its net assets would be at risk from such transactions.
Illiquid Investments; Privately Placed and other Unregistered Securities.
Each Portfolio may acquire investments that are illiquid or have limited
liquidity, such as private placements or investments that are not registered
under the Securities Act of 1933, as amended (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 a 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.
Acquisitions of illiquid investments by the Portfolios are subject to the
following non-fundamental policies. Each Portfolio may not invest in additional
illiquid securities if, as a result, more than 15% of the market value of its
net assets would be invested in illiquid securities. Each of the Portfolios 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 Portfolio investment managers
and approved by the Trustees. The Trustees of the Portfolio Series will monitor
the implementation of these guidelines on a periodic basis. Because Rule 144A is
relatively new, it is not possible to predict how markets in Rule 144A
securities will develop. If trading in Rule 144A securities were to decline,
these securities could become illiquid after being purchased, increasing the
level of illiquidity of a Portfolio. As a result, a Portfolio holding these
securities might not be able to sell these securities when the investment
manager wishes to do so, or might have to sell them at less than fair value.
Short-Term Instruments. Each Portfolio may invest in short-term income
securities in accordance with its investment objective and policies as described
above. The Portfolios may also make money market investments pending other
investments or settlement, or to maintain liquidity to meet shareholder
redemptions. Although the Index Portfolios normally seek to remain substantially
fully invested in securities selected to match their corresponding index
consistent with seeking a correlation of 0.95 or better between an Index
Portfolio's performance and that of its corresponding index, an Index Portfolio
may invest temporarily up to 20% of its assets in certain short-term fixed
income securities. The Index Portfolios will not invest in short-term
instruments as part of a defensive strategy to protect against potential stock
market declines. Each of the Managed Portfolios is permitted to invest in
short-term instruments, although each intends to stay invested in the equity and
fixed income instruments described above to the extent practical in light of its
respective objective and long-term investment perspective. In addition, in
adverse market conditions and for temporary defensive purposes only, the Managed
Portfolios may temporarily invest their respective assets without limitation in
short-term investments. These securities include: obligations of the U.S.
Government and its agencies or instrumentalities; commercial paper and other
debt securities; variable and floating rate securities; bank obligations;
repurchase agreements collateralized by these securities; shares of other
investment companies that primarily invest in any of the above-referenced
securities; and, in the case of the International Equity Portfolio, cash and
bank instruments denominated in foreign currencies. Commercial paper consists of
short-term, unsecured promissory notes issued to finance short-term credit
needs. Other corporate obligations in which the Portfolios may invest consist of
high quality, U.S. dollar-denominated short-term bonds and notes (including
variable amount master demand notes) issued by domestic and foreign
corporations. The Portfolios may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) of the 1933 Act. Such commercial paper may be issued only to
finance current transactions and must mature in nine months or less. Trading of
such commercial paper is conducted primarily by institutional investors through
investment dealers, and individual investor participation in the commercial
paper market is very limited.
Each Portfolio may invest in U.S. dollar-denominated certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations
issued by domestic banks and domestic or foreign branches or subsidiaries of
foreign banks. Certificates of deposit are certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Such instruments include Yankee Certificates of Deposit ("Yankee CDs"),
which are certificates of deposit denominated in U.S. dollars and issued in the
United States by the domestic branch of a foreign bank. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Time deposits which may be held by the
Portfolios are not insured by the Federal Deposit Insurance Corporation or any
other agency of the U.S. Government. The Portfolios will not invest,
respectively, more than 15% of the value of their net assets in time deposits
maturing in longer than seven days and other instruments which are deemed
illiquid or not readily marketable. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the face amount of the instrument upon maturity. The other short-term
obligations may include uninsured, direct obligations which have either fixed,
floating or variable interest rates.
The Portfolios will limit their short-term investments to those U.S.
dollar-denominated instruments which are determined by or on behalf of the Board
of Trustees of the Portfolio Series to present minimal credit risks and which
are of "high quality" as determined by a major rating service (i.e., rated P-1
by Moody's or A-1 by S&P) or, in the case of instruments which are not rated,
are deemed to be of comparable quality pursuant to procedures established by the
Board of Trustees of the Portfolio Series. The Portfolios may invest in
obligations of banks which at the date of investment have capital, surplus and
undivided profits (as of the date of their most recently published financial
statements) in excess of $100 million. Investments in high quality short-term
instruments may, in many circumstances, result in a lower yield than would be
available from investments in instruments with a lower quality or longer term.
Securities Lending. The Portfolios may seek to increase their income by lending
securities to banks, brokers or dealers and other recognized institutional
investors. Such loans may not exceed 30% of the value of a Portfolio's total
assets. In connection with such loans, each Portfolio will receive collateral
consisting of cash, U.S. Government or other high quality securities,
irrevocable letters of credit issued by a bank, or any combination thereof. Such
collateral will be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. A Portfolio can increase
its income through the investment of such collateral. Such Portfolio continues
to be entitled to payments in amounts equal to the interest or dividends payable
on the loaned security, and in addition receives interest on the amount of the
loan. Such loans will be terminable at any time upon specified notice. A
Portfolio might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the
Portfolio.
Short Sales "Against the Box". In a short sale, a Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. A Portfolio may engage in short sales only if at the time of
the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box". A Portfolio may make a short sale as a
hedge, when it believes that the value of a security owned by the Portfolio (or
a security convertible or exchangeable for such security) may decline, or when
the Portfolio wants to sell the security at an attractive current price but
wishes to defer recognition of gain or loss for tax purposes. Not more than 40%
of a Portfolio's total assets would be involved in short sales "against the
box". Certain Other Obligations. Consistent with their respective investment
objectives, policies and restrictions, the Portfolios may also invest in
participation interests, guaranteed investment contracts and zero coupon
obligations. See Part B. In order to allow for investments in new instruments
that may be created in the future, upon the Portfolio Series supplementing this
Part A, a Portfolio may invest in obligations other than those listed
previously, provided such investments are consistent with the Portfolio's
investment objective, policies and restrictions.
Portfolio Turnover Rate. Although the Managed Portfolios generally seek to
invest for the long term, and the Index Portfolios are managed to reflect the
composition of their respective indexes, each Portfolio may sell securities
irrespective of how long such securities have been held. Ordinarily, securities
will be sold from an Index Portfolio only to reflect certain administrative
changes in its corresponding index (including mergers or changes in its
composition) or to accommodate cash flows into and out of an Index Portfolio
while maintaining the similarity of said Portfolio to its benchmark index. Each
Managed Portfolio may sell a portfolio investment immediately after its
acquisition if the investment managers believe that such a disposition is
consistent with the investment objective of the particular Portfolio. Portfolio
investments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such investments.
Portfolio turnover will not be a limiting factor in making portfolio
decisions for the Income Portfolio and the Total Return Bond Portfolio, whose
annual portfolio turnover rates are not expected to exceed 400%. The annual
portfolio turnover rate for each other Portfolio is not expected to exceed 100%.
A rate of 100% indicates that the equivalent of all of a Portfolio's assets have
been sold and reinvested in a calendar year. A high rate of portfolio turnover
may involve correspondingly greater brokerage commission expenses and other
transaction costs, which must be borne directly by a Portfolio. High portfolio
turnover may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for Federal income tax purposes.
See Item 6 below.
Investment Restrictions
As diversified investment companies, 75% of the assets of each Portfolio
are represented by cash and cash items (including receivables), government
securities, securities of other investment companies, and other securities which
for purposes of this calculation are subject to the following fundamental
limitations: (a) the Portfolio may not invest more than 5% of its total assets
in the securities of any one issuer, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer. In addition, each
Portfolio may not invest 25% or more of its assets in the securities of issuers
in any one industry, unless, for each of the Index Portfolios, the securities in
a single industry were to comprise 25% or more of its corresponding index, in
which case the Index Portfolio will invest 25% or more of its assets in that
industry. These are fundamental investment policies of each Portfolio which may
not be changed without investor approval.
Part B includes further discussion of investment strategies and techniques,
and a listing of other fundamental investment restrictions and non-fundamental
investment policies which govern the investment policies of each Portfolio.
Fundamental investment restrictions may not be changed without the approval of
the investors in that Portfolio. If a percentage restriction (other than a
restriction as to borrowing) or a rating restriction on investment or
utilization of assets is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the securities held by a Portfolio or a later change in the rating of a
security held by a Portfolio is not considered a violation of the policy.
Item 5. Management of the Portfolio Series.
The Board of Trustees of the Portfolio Series provides general supervision
over the affairs of the Portfolio Series. The Trustees decide upon matters of
general policy and review the actions of service providers such as the
investment managers, servicing agent, distributor, and others.
Investment Managers
United States Trust Company of The Pacific Northwest ("U.S. Trust Pacific")
is responsible for the management of the assets of the Portfolios pursuant to an
Investment Advisory Agreement (the "Advisory Agreement") with the Portfolio
Series on behalf of such Portfolios. U.S. Trust Pacific has delegated the daily
management of the security holdings of these Portfolios to the investment
managers named below, acting as subadvisers (the "Subadvisers"):
Equity Market Portfolio,
Bond Market Portfolio and
Small Cap Portfolio..................... United States Trust Company
of New York
Balanced Portfolio...................... Becker Capital Management, Inc.
Equity Growth Portfolio................. Luther King Capital Management
Value Equity Income Portfolio........... Spare, Kaplan , Bischel & Associates
International Equity Portfolio.......... Harding, Loevner Management, L.P.
Subject to the general guidance and policies set by the Trustees of the
Portfolio Series, U.S. Trust Pacific provides general supervision over the
investment management functions performed by each of the Subadvisers. U.S. Trust
Pacific closely monitors the Subadvisers' application of these Portfolios'
investment policies and strategies, and regularly evaluates the Subadvisers'
investment results and trading practices.
For its services under the Advisory Agreement, U.S. Trust Pacific is
entitled to receive from the Portfolios, for the respective Portfolio's current
fiscal year, fees accrued daily and paid monthly at an annual rate equal to the
percentages specified below of the Portfolio's average daily net assets: (a)
0.25% for the Equity Market Portfolio and Bond Market Portfolio, (b) 0.65% for
the Small Cap Portfolio, Balanced Portfolio, Equity Growth Portfolio and Value
Equity Income Portfolio; and (c) 1.00% for the International Equity Portfolio.
U.S. Trust Pacific, which has its principal offices at 4380 Southwest Macadam
Avenue, Suite 450, Portland, OR 97201, is a subsidiary of United States Trust
Company of New York. Although the advisory fee paid by the International Equity
Portfolio is higher than advisory fees currently being paid by most investment
companies in general, the advisory fee paid by the International Equity
Portfolio is similar to fees currently being paid by other investment companies
which also invest primarily in foreign issuers. U.S. Trust Pacific has agreed to
waive all investment advisory fees with respect to each Portfolio listed above.
While no such Portfolio pays investment advisory fees to U.S. Trust Pacific,
each shareholder in the Portfolio's investor enters into an asset management
services agreement with U.S. Trust Pacific and agrees to pay annual fees
calculated as a specified percentage of average net assets.
Pursuant to separate subadvisory agreements, the Subadvisers make the
day-to-day investment decisions and portfolio selections for the Equity Market,
Bond Market, Small Cap, Balanced, Equity Growth, Value Equity Income and
International Equity Portfolios, consistent with the general guidelines and
policies established by U.S. Trust Pacific and the Board of Trustees of the
Portfolio Series. For the investment management services they provide to the
Portfolios, the Subadvisers are compensated only by U.S. Trust Pacific, and
receive no fees directly from the Portfolio Series. For their services under the
subadvisory agreements, the Subadvisers receive from U.S. Trust Pacific, fees at
a maximum annual rate equal to the percentages specified below of the
Portfolio's average daily net assets: (a) 0.25% for the Equity Market Portfolio
and Bond Market Portfolio, (b) 0.65% for the Small Cap Portfolio, (c) 0.40% for
the Value Equity Income Portfolio and Equity Growth Portfolio, (d) 0.425% for
the Balanced Portfolio, and (e) 0.45% for the International Equity Portfolio.
The Subadvisers furnish at their own expense all services, facilities and
personnel necessary in connection with managing the Portfolios' investments and
effecting securities transactions for the Portfolios.
Balanced Portfolio, Equity Growth Portfolio, Value Equity Income Portfolio
and International Equity Portfolio
U.S. Trust Pacific has entered into separate Investment Subadvisory
Agreements with Becker Capital Management, Inc. ("Becker") with respect to the
Balanced Portfolio; Luther King Capital Management ("Luther King") with respect
to the Equity Growth Portfolio; Spare, Kaplan , Bischel & Associates ("Spare
Kaplan") with respect to the Value Equity Income Portfolio; and Harding, Loevner
Management, L.P. ("Harding Loevner") with respect to the International Equity
Portfolio.
Becker maintains its principal offices at 2185 Pacwest Center, Portland, OR
97204. As of June 30, 1995, Becker had $1.1 billion in assets under management.
The person primarily responsible for the day-to-day management of the Balanced
Portfolio is Donald L. Wolcott, C.F.A., Vice President and Portfolio Manager of
Becker. Mr. Wolcott joined Becker in 1987 and brings 19 years of experience in
investment management to his position.
Luther King maintains its principal offices at 301 Commerce Street,
Suite 1600, Forth Worth, TX 76102. As of June 30, 1995, Luther King had
$4.8 billion in assets under management. Emmett M. Murphy is primarily
responsible for the day-to-day management of Equity Growth Portfolio. Mr. Murphy
has been an investment manager with Luther King since 1981. He is also a
Chartered Financial Analyst.
Spare Kaplan maintains its principal offices at 44 Montgomery Street, San
Francisco, CA 94104. As of June 30, 1995, Spare Kaplan had $2.3 billion in
assets under management. The day-to-day management of Value Equity Income
Portfolio is performed by the Value Equity Income Strategy Team, which includes
Anthony E. Spare, Chief Executive Officer and Chief Investment Officer of Spare
Kaplan, and James G. McCluskey, Senior Portfolio Manager at Spare Kaplan.
Mr. Spare co-founded the Value Equity Income Strategy Team in 1975 and has
served as senior strategy team member since 1975; Mr. McCluskey has been with
Spare Kaplan since 1989.
Harding Loevner maintains its principal offices at 50 Division Street,
Suite 401, Somerville, NJ 08876. As of June 30, 1995, Harding Loevner had
$512 million in assets under management. All investment management decisions of
Harding Loevner are made by an investment group and not by portfolio managers
individually.
Equity Market Portfolio, Bond Market Portfolio and Small Cap Portfolio
U.S. Trust Pacific has entered into an Investment Subadvisory Agreement
with United States Trust Company of New York ("U.S. Trust") with respect to the
Equity Market Portfolio, Bond Market Portfolio and Small Cap Portfolio.
U.S. Trust is a state-chartered bank and trust company created by Special Act of
the New York Legislature in 1853. U.S. Trust provides trust and banking services
to individuals, corporations and institutions, both nationally and
internationally, including investment management, estate and trust
administration, financial planning, corporate trust and agency, and personal and
corporate banking. U.S. Trust is a member bank of the Federal Reserve System and
the Federal Deposit Insurance Corporation and is one of the twelve members of
the New York Clearing House Association. On June 30, 1995, U.S. Trust's Asset
Management Group had approximately $41.2 billion in assets under management.
U.S. Trust, which has its principal offices at 114 West 47th Street, New York,
NY 10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
Cyril M. Theccanat, Vice President of U.S. Trust, Structured Investment
Management Department, is primarily responsible for the day-to-day management of
the Bond Market Portfolio. Mr. Theccanat has been managing structured investment
portfolios at U.S. Trust since January, 1990. Prior to this, Mr. Theccanat was a
Vice President of Drexel Burnham & Lambert, responsible for interest rate and
foreign exchange risk management.
Peter Albanese, Financial Officer in the Structured Investments area of the
Institutional Investment Management Division, is primarily responsible for the
day-to-day management of the Equity Market Portfolio and Small Cap Portfolio.
Mr. Albanese has bee with U.S. Trust since December 1994. Prior to joining U.S.
Trust, he worked for Kidder, Peabody & co., Inc. from March 1991 to December
1994, as a Quantitative Analyst in Equity Research.
Equity Portfolio, Income Portfolio and Total Return Bond Portfolio
U.S. Trust is responsible for the management of the assets of the Equity
Portfolio, Income Portfolio, and Total Return Bond Portfolio, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement") with the Portfolio
Series on behalf of such Portfolios. With respect to these Portfolios, U.S.
Trust makes decisions with respect to and places orders for all purchases and
sales of portfolio securities, and maintains records relating to such purchases
and sales.
The following persons are primarily responsible for the day-to-day
management of the Portfolios:
Equity Portfolio........ Ross Taylor III, Director of Institutional Investments
(Equity) and Senior Portfolio Manager, U.S. Trust
(since 1987).
Income Portfolio........ Charles E. Rabus, Vice President and Senior Portfolio
Manager, U.S. Trust (since 1987).
Total Return Bond
Total Return Bond
Portfolio............... Henry M. Milkowicz, Senior Vice President and Senior
Portfolio Manager, U.S. Trust (since 1986).
For its services under the Advisory Agreement, U.S. Trust receives from the
Equity Portfolio, Income Portfolio and Total Return Bond Portfolio, a fee
accrued daily and paid monthly at an annual rate equal to 0.65% of each
Portfolio's average daily net assets. U.S. trust has agreed to waive all
investment advisory fees under the Advisory Agreement. While no such Portfolio
pays investment advisory fees to U.S. Trust, each shareholder of the Portfolio's
investor enters into an asset management services agreement with U.S. Trust
Pacific and agrees to pay annual fees calculated as a specified percentage of
average net assets.
U.S. Trust also serves as investment adviser to the following registered
investment companies: UST Equity Fund; UST Income and Growth Fund; UST Long-Term
Supply of Energy Fund; UST Productivity Enhancers Fund; UST
Environmentally-Related Products and Services Fund; UST Aging of America Fund;
UST Communication and Entertainment Fund; UST Business and Industrial
Restructuring Fund; UST Global Competitors Fund; UST Early Life Cycle Fund; UST
Money Fund; UST Government Money Fund; UST Treasury Money Fund; UST Short-Term
Tax-Exempt Fund; UST New York Intermediate-Term Tax-Exempt Fund; UST
International Fund; UST Emerging Americas Fund; UST Pacific/Asia Fund; UST Pan
European Fund; UST Short-Term Tax-Exempt Securities Fund; UST Intermediate-Term
Tax-Exempt Fund; UST Long-Term Tax-Exempt Fund; UST Short-Term Government
Securities Fund; UST Intermediate-Term Managed Income Fund; and UST Managed
Income Fund.
Investments in the Portfolios are not deposits or obligations of, or
guaranteed or endorsed by, United States Trust Company of New York or any other
bank.
Servicing Agent
Signature Financial Services, Inc. ("SFSI"), located at 89 South Street,
Boston, MA 02111, serves as servicing and fund accounting agent to the Portfolio
Series pursuant to an agreement between SFSI and the Portfolio Series (the
"Servicing Agent Agreement"). Pursuant to the Servicing Agent Agreement, SFSI
supervises the affairs of the Portfolio Series, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the various service providers of the Portfolio
Series; provides equipment and clerical personnel necessary for maintaining the
organization of the Portfolio Series; prepares and distributes all materials in
connection with meetings of Trustees and investors; prepares and files all
documents required for compliance by the Portfolio Series with applicable laws
and regulations; and arranges for the maintenance of fund accounting and
record-keeping of the Portfolio Series.
SFSI provides persons satisfactory to the Board of Trustees to serve as
officers of the Portfolio Series. Such officers, as well as certain other
employees and Trustees of the Portfolio Series, may be directors, officers or
employees of SFSI or its affiliates. SFSI provides similar services to other
mutual funds unrelated to the Portfolio Series.
As compensation for providing these services (other than fund accounting
services) and facilities to the Portfolio Series, SFSI receives a fee from the
Portfolio Series accrued daily and paid monthly at an annual rate of up to 0.07%
of the average daily net assets of the Portfolios. For its fund accounting
services, SFSI receives a per annum fee from each Portfolio equal to $50,000.
SFSI is a subsidiary of Signature Financial Group, Inc.
Custodian and Transfer Agent
U.S. Trust serves as custodian of the Portfolios' assets. Communications to
the custodian should be directed to United States Trust Company of New York,
Mutual Funds Service Division, 770 Broadway, New York, NY 10003. Investors Bank
& Trust Company, 79 Milk Street, Boston, MA 02205, has been retained to serve as
domestic and foreign subcustodian of the Portfolios' assets. Chase Global Fund
Services Mutual, 73 Tremont Street, Boston, MA 02108, serves as the transfer
agent for the Portfolios, providing transfer agency services. Chase Global Fund
Services is a subsidiary of Chase Manhattan Bank.
Expenses
The expenses of the Portfolio Series include the compensation of its
Trustees who are not affiliated with the investment managers or SFSI;
governmental fees; interest charges; taxes; fees and expenses of independent
auditors, of legal counsel and of any transfer agent, custodian, registrar or
dividend disbursing agent of the Portfolio Series; insurance premiums; and
expenses of calculating the net asset value of, and the net income on, interests
in the Portfolios.
Expenses of the Portfolio Series also include all fees under the Portfolio
Series' Servicing Agent Agreement; the expenses connected with the execution,
recording and settlement of security transactions; fees and expenses of the
Portfolio Series' custodian for all services to the Portfolios, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of preparing and mailing reports to investors and to governmental
officers and commissions; expenses of meetings of investors and Trustees; and
the advisory fees, if any, payable to U.S. Trust Pacific under the Advisory
Agreement.
Bank Regulatory Matters. The Glass-Steagall Act and applicable banking
laws and regulations generally prohibit certain financial institutions such as
U.S. Trust from engaging in the business of underwriting securities of open-end
investment companies such as the Portfolio Series. Based on advice of its
counsel, it is the position of U.S. Trust and U.S. Trust Pacific that the
investment advisory services performed by U.S. Trust Pacific or U.S. Trust under
the Advisory Agreements with the Portfolio Series and the activities performed
by U.S. Trust as subadviser and custodian for the Portfolios do not constitute
underwriting activities and are consistent with the requirements of the
Glass-Steagall Act. In addition, counsel has advised that this combination of
individually permissible activities is consistent with the Glass-Steagall Act
and other federal or state legal and regulatory precedent. There is presently no
controlling precedent regarding the performance of a combination of investment
advisory custodian activities by banks. State laws on this issue may differ from
the interpretations of relevant federal law and banks and financial institutions
may be required to register as dealers pursuant to state securities law. Future
changes in either federal statutes or regulations relating to the permissible
activities of banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing or investment
management activities.
Certain Relationships and Activities. U.S. Trust, U.S. Trust Pacific and
their affiliates may have deposit, loan and other commercial banking
relationships with the issuers of securities which may be purchased on behalf of
the Portfolios, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. U.S.
Trust, U.S. Trust Pacific and their affiliates deal, trade and invest for their
own accounts in such obligations and are among the leading dealers of various
types of such obligations. U.S. Trust and U.S. Trust Pacific have informed the
Portfolios that, in making investment decisions, they do not obtain or use
material inside information in their possession or in the possession of any of
their affiliates. In making investment recommendations for the Portfolios,
U.S. Trust and U.S. Trust Pacific will not inquire or take into consideration
whether an issuer of securities proposed for purchase or sale by a Portfolio is
a customer of U.S. Trust or U.S. Trust Pacific, their parents or their
subsidiaries or affiliates. When dealing with its customers, U.S. Trust,
U.S. Trust Pacific, their parents, subsidiaries, and affiliates will not inquire
or take into consideration whether securities of such customers are held by any
fund managed by U.S. Trust, U.S. Trust Pacific or any such affiliate.
Item 6. Capital Stock and Other Securities.
Each Portfolio is a series of the Portfolio Series, which is organized as a
series trust under the laws of the State of New York. Under the Declaration of
Trust, the Trustees are authorized to issue beneficial interests in one or more
series (each a "Portfolio"). Currently, there are ten active and two inactive
series of the Portfolio Series. The ten active series include: Equity Portfolio,
Income Portfolio, Total Return Bond Portfolio, Equity Market Portfolio, Bond
Market Portfolio, Small Cap Portfolio, Balanced Portfolio, Equity Growth
Portfolio, Value Equity Income Portfolio and International Equity Portfolio. The
two inactive series include: International Equity Portfolio and Socially
Responsible Portfolio. Investments in a 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 a Portfolio (e.g., investment companies, insurance
company separate accounts and common and commingled trust funds) will each be
liable for all obligations of that Portfolio (and of no other series). However,
the risk of an investor in a Portfolio incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations. Investments
in a Portfolio have no preemptive or conversion rights and are fully paid and
nonassessable, except as set forth below.
Each investor is entitled to a vote in proportion to the amount of its
investment in a Portfolio. Investors in each Portfolio will vote as a separate
class, except as to voting of Trustees, as otherwise required by the 1940 Act,
or if determined by the Trustees to be a matter which affects all series. As to
any matter which does not affect a particular series, only investors in the one
or more affected Portfolios are entitled to vote. The Portfolios are not
required and have no current intention of holding special meetings of investors,
but the Portfolios 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 under certain circumstances (e.g., upon application and
submission of certain specified documents to the Trustees by a specified number
of investors) have the right to communicate with other investors in connection
with requesting a meeting of investors for the purpose of removing one or more
Trustees. Investors also have the right to remove one or more Trustees without a
meeting by a declaration in writing by a specified number of investors. Upon
liquidation of a Portfolio, investors would be entitled to share pro rata in the
net assets of that Portfolio (and no other series) available for distribution to
investors.
Each Portfolio determines its net income and realized capital gains, if
any, on each Portfolio Business Day (as defined below) and allocates all such
income and gain pro rata among the investors in the Portfolio at the time of
such determination.
The "net income" of each Portfolio shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of a Portfolio, less (ii)
all actual and accrued expenses of that 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 a Portfolio. All the net income of each Portfolio is allocated pro
rata among the investors in that Portfolio (and no other series).
Under their anticipated method of operation, the Portfolios will not be
subject to any income tax. However, each investor in each Portfolio will be
taxable on its share (as determined in accordance with the governing instruments
of the Portfolio Series) of that 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 each Portfolio's assets, income and distributions will
be managed in such a way that an investor in each Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in that Portfolio.
For more information on tax matters, see Item 20 in Part B. Investor
inquiries regarding the Portfolio Series may be directed to St. James
Portfolios, 6 St. James Avenue, Boston, Massachusetts 02116 (617-423-0800).
Item 7. Purchase of Securities.
Beneficial interests in each Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See Item 4 above.
An investment in a Portfolio may be made without sales load at the net
asset value next determined if an order is received "in good order" by the
Portfolio Series.
There is no minimum initial or subsequent investment in a Portfolio.
However, because each 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 a Portfolio's custodian bank by a Federal Reserve Bank).
The Portfolio Series and U.S. Trust Pacific reserve the right to cease
accepting investments in any Portfolio at any time or to reject any investment
order.
The net asset value of each Portfolio is determined each day during which
the Adviser is open for business ("Portfolio Business Day"). This determination
is made once each day as of 4:00 p.m. Eastern Time (the "Valuation Time"). For
information on the valuation of the Portfolio's securities, see Item 19 in
Part B.
Each investor in each Portfolio may add to or reduce its investment in that
Portfolio on each Portfolio Business Day. As of the Valuation Time on each such
day, the value of each investor's beneficial interests in each Portfolio will be
determined by multiplying the net asset value of a 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 on that day will then be effected. The investor's percentage of the
aggregate beneficial interests in each 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 a 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 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 a
Portfolio as of the Valuation Time on the following Portfolio Business Day.
Item 8. Redemption or Repurchase.
An investor in each Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request in
proper form is furnished by the investor to the Portfolio Series by the
designated cutoff time for each accredited investor. The proceeds of a reduction
or withdrawal will be paid by the Portfolio Series in federal funds normally on
the Portfolio Business Day the withdrawal is effected, but in any event within
seven days. The Portfolio Series, on behalf of each Portfolio, reserves the
right to pay redemptions in kind. Unless requested by an investor, the Portfolio
Series will not make redemptions in kind to the investor, except in situations
where that investor may make redemptions in kind. See Item 19 in Part B.
Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any withdrawal
may be suspended or the payment of the withdrawal proceeds postponed during any
period in which the New York Stock Exchange ("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.
Item 9. Pending Legal Proceedings.
Not applicable.
<PAGE>
UST153A
PART B
Item 10. Cover Page.
Not Applicable.
Item 11. Table of Contents.
General Information and History
Investment Objectives and Policies
Management of the Portfolio Series
Control Persons and Principal Holders of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock and Other Securities
Purchase, Redemption and Pricing of Securities
Tax Status
Underwriters
Calculations of Performance Data
Financial Statements
Appendix
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objectives and Policies.
Part A contains additional information about the investment objectives and
policies and management techniques of the Portfolios. This Part B should only be
read in conjunction with Part A of the registration statement.
The approval of the investors in the Portfolios is not required to change
any of the investment objectives, policies or management techniques of the
Portfolios discussed herein or in Part A of this registration statement, unless
otherwise indicated.
Other Investment Considerations - Equity Portfolio
Equity Portfolio invests primarily in common stocks but may purchase both
preferred stocks and securities convertible into common stock at the discretion
of U.S. Trust. While current income is secondary to the objective of long-term
capital appreciation, the Portfolio Series expects that the broad and
diversified strategies utilized by U.S. Trust will result in somewhat more
current income than would be generated if U.S. Trust utilized a single strategy
more narrowly focused on rapid growth of principal and involving exposure to
higher levels of risk.
U.S. Trust's investment philosophy is to identify investment values
available in the market at attractive prices. Investment value arises from the
ability to generate earnings or from the ownership of assets or resources.
Underlying earnings potential and asset values are frequently demonstrable but
not recognized in the market prices of the securities representing their
ownership. U.S. Trust employs the following three different but closely
interrelated portfolio strategies to focus and organize its search for
investment values.
1. Problem/Opportunity Companies. Important investment opportunities often
occur where companies develop solutions to large, complex, fundamental problems,
such as declining industrial productivity; rising costs and declining sources of
energy; the economic imbalances and value erosion caused by years of high
inflation and interest rates; the soaring costs and competing priorities of
providing health care; and the accelerating interdependence and "shrinking size"
of the world.
Solutions or parts of solutions to large problems may be generated by
established companies or comparatively new companies of all sizes through the
development of new products, technologies or services, or through new
applications of older ones.
Investment in such companies represents a very wide range of investment
potential, current income return rates, and exposure to fundamental and market
risks. Income generated by Equity Portfolio's investments in these companies
would be expected to be moderate, characterized by lesser rates than those of a
fund whose sole objective is current income, and somewhat higher rates than
those of a higher-risk growth fund.
2. Transaction Value Companies. In the opinion of U.S. Trust, the stock
market frequently values the aggregate ownership of a company at a substantially
lower figure than its component assets would be worth if they were sold off
separately over time. Such assets may include intangible assets such as product
and market franchises, operating know-how, or distribution systems, as well as
such tangible properties as oil reserves, timber, real estate, or production
facilities. Investment opportunities in these companies are determined by the
magnitude of difference between economic worth and current market price.
Market undervaluations are very often corrected by purchase and sale,
restructuring of the company, or market recognition of a company's actual worth.
The recognition process may well occur over time, however, incurring a form of
time-exposure risk. Success from investing in these companies is often great,
but may well be achieved only after a waiting period of inactivity.
Income derived from investing in undervalued companies is expected to be
moderately greater than that derived from investments in either the
problem/opportunity or early life cycle companies.
3. Early Life Cycle Companies. Investments in early life cycle companies
tend to be narrowly focused on an objective of higher rates of capital
appreciation. They correspondingly will involve a significantly greater degree
of risk and the reduction of current income to a negligible level. Such
investments will not be limited to new, small companies engaged only in frontier
technology, but will seek opportunities for maximum appreciation through the
full spectrum of business operations, products, services, and asset values.
Consequently, Equity Portfolio's investments in early life cycle companies are
primarily in younger, small-to-medium-sized companies in the early stages of
their development. Such companies are usually more flexible in trying new
approaches to problem-solving and in making new or different employment of
assets. Because of the high risk level involved, the ratio of success among such
companies is lower than the average, but for those companies which succeed, the
magnitude of investment reward is potentially higher.
Other Investment Considerations - International Equity Portfolio
The Portfolio may purchase gold bars primarily of standard weight
(approximately 400 troy ounces) at the best available prices in the New York
bullion market. However, U.S. Trust will have discretion to purchase or sell
gold bullion in other markets, including foreign markets, if better prices can
be obtained. Gold bullion is valued by the Portfolio at the mean between the
closing bid and asked prices in the New York bullion market as of the close of
the New York Stock Exchange each business day. When there is no readily
available market quotation for gold bullion, the bullion will be valued by such
method as determined by the Portfolio Series' Board of Trustees to best reflect
its fair value. For purpose of determining net asset value, gold will be valued
in U.S. dollars.
Bank Obligations
Domestic commercial banks organized under federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System. Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks are
subject to federal examination and to a substantial body of federal law and
regulation. As a result of federal or state laws and regulations, domestic
banks, among other things, generally are required to maintain specified levels
of reserves, are limited in the amounts which they can loan to a single
borrower, and are subject to other regulations designed to promote financial
soundness. However, not all of such laws and regulations apply to the foreign
branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as certificates of deposit
("CDs") and time deposits ("TDs"), may be general obligations of the parent
banks in addition to the issuing branch, or may be limited by the terms of a
specific obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
U.S. Government and Agency Securities
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those issued by
the Federal National Mortgage Association, by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. While the U.S.
Government provides financial support to such U.S. Government-sponsored agencies
or instrumentalities, no assurance can be given that it will always do so, since
it is not so obligated by law.
Commercial Paper
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under an agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
The Portfolios may purchase three types of commercial paper, as classified
by exemption from registration under the Securities Act of 1933, as amended (the
"1933 Act"). The three types include open market, privately placed, and letter
of credit commercial paper. Trading of such commercial paper is conducted
primarily by institutional investors through investment dealers or directly
through the issuers. Individual investor participation in the commercial paper
market is very limited.
Open Market. "Open market" commercial paper refers to the commercial paper
of any industrial, commercial, or financial institution which is openly traded,
including directly issued paper. "Open market" paper's 1933 Act exemption is
under Section 3(a)(3) which limits the use of proceeds to current transactions,
limits maturities to 270 days and requires that the paper contain no provision
for automatic rollovers.
Privately Placed. "Privately placed" commercial paper relies on the
exemption from registration provided by Section 4(2), which exempts transactions
by an issuer not involving any public offering. The commercial paper may only be
offered to a limited number of accredited investors. "Privately placed"
commercial paper has no maturity restriction and may be considered illiquid. See
"Illiquid Securities" below.
Letter of Credit. "Letter of credit" commercial paper is exempt from
registration under Section 3(a)(2) of the 1933 Act. It is backed by an
irrevocable or unconditional commitment by a bank to provide funds for repayment
of the notes. Unlike "open market" and "privately placed" commercial paper,
"letter of credit" paper has no limitations on purchases.
Lending of Portfolio Securities
The Portfolios have the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, a
Portfolio can increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash collateral in
short-term securities or obtaining yield in the form of interest paid when
U.S. Government obligations are used as collateral. There may be risks of delay
in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. A Portfolio will adhere to the following conditions
whenever its securities are loaned: (i) the Portfolio must receive at least 100%
cash collateral or equivalent securities from the borrower; (ii) the borrower
must increase this collateral whenever the market value of the loaned securities
including accrued interest exceeds the level of the collateral; (iii) the
Portfolio must be able to terminate the loan at any time; (iv) the Portfolio
must receive reasonable interest on the loan, as well as any dividends, interest
or other distributions on the loaned securities, and any increase in market
value; (v) the Portfolio may pay only reasonable custodian fees in connection
with the loan; and (vi) voting rights on the loaned securities may pass to the
borrower. However, if a material event adversely affecting the loaned securities
were to occur, the Portfolio would terminate the loan and regain the right to
vote the securities.
Variable Rate and Floating Rate Securities
The Portfolios may purchase floating and variable rate demand notes and
bonds, which are obligations ordinarily having stated maturities in excess of
397 days, but which permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding 397 days, in each case upon not
more than 30 days' notice. Variable rate demand notes include master demand
notes which are obligations that permit a Portfolio to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct arrangements
between the Portfolio, as lender, and the borrower. The interest rates on these
notes fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
collateralized by letters of credit or other credit support arrangements
provided by banks. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary market
for these obligations, although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, a Portfolio's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies and a Portfolio may invest in
obligations which are not so rated only if its investment managers determine
that at the time of investment the obligations are of comparable quality to the
other obligations in which the Portfolio may invest. The respective subadvisers
of the Portfolios will consider on an ongoing basis the creditworthiness of the
issuers of the floating and variable rate demand obligations held by the
Portfolios. The Portfolios will not invest more than 15% of the value of their
net assets in floating or variable rate demand obligations as to which they
cannot exercise the demand feature on not more than seven days' notice if there
is no secondary market available for these obligations, and in other securities
that are not readily marketable. See "Investment Restrictions" below.
Participation Interests
A Portfolio may purchase from financial institutions participation
interests in securities in which such Portfolio may invest. A participation
interest gives a Portfolio an undivided interest in the security in the
proportion that the Portfolio's participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating or
variable rates of interest, with remaining maturities of 13 months or less. If
the participation interest is unrated, or has been given a rating below that
which is permissible for purchase by the Portfolio, the participation interest
will be backed by an irrevocable letter of credit or guarantee of a bank, or the
payment obligation otherwise will be collateralized by U.S. Government
securities, or, in the case of unrated participation interests, the investment
managers of a Portfolio must have determined that the instrument is of
comparable quality to those instruments in which the Portfolio may invest. For
certain participation interests, a Portfolio will have the right to demand
payment, on not more than seven days' notice, for all or any part of the
Portfolio's participation interest in the security, plus accrued interest. As to
these instruments, the Portfolio intends to exercise its right to demand payment
only upon a default under the terms of the security, as needed to provide
liquidity to meet redemptions, or to maintain or improve the quality of its
investment portfolio. A Portfolio will not invest more than 15% of its net
assets in participation interests that do not have this demand feature, and in
other securities that are not readily marketable. Currently, no Portfolio
intends to invest more than 5% of its net assets in participation interests
during the current year. See "Investment Restrictions" below.
Illiquid Securities
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them which,
if possible at all, would result in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A,
which allows a broader institutional trading market for securities otherwise
subject to restriction on their resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the 1933 Act
for resales of certain securities to qualified institutional buyers.
A Portfolio's investment managers will monitor the liquidity of Rule 144A
securities for that Portfolio under the supervision of the Portfolio's Board of
Trustees. In reaching liquidity decisions, the investment managers will
consider, among other things, the following factors: (1) the frequency of trades
and quotes for the security, (2) the number of dealers and other potential
purchasers wishing to purchase or sell the security, (3) dealer undertakings to
make a market in the security and (4) the nature of the security and of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Unsecured Promissory Notes
A Portfolio also may purchase unsecured promissory notes ("Notes") which
are not readily marketable and have not been registered under the 1933 Act,
provided such investments are consistent with the Portfolio's investment
objective and policies. The Portfolio will invest no more than 15% of its net
assets in such Notes and in other securities that are not readily marketable
(which securities would include floating and variable rate demand obligations as
to which the Portfolio cannot exercise the demand feature described above and as
to which there is no secondary market). Currently, no Portfolio intends to
invest any of its assets in unsecured promissory notes during the coming year.
See "Investment Restrictions" below.
Repurchase Agreements and Reverse Repurchase Agreements
Repurchase agreements are agreements by which a person purchases a security
and simultaneously commits to resell that security to the seller (which is
usually a member bank of the Federal Reserve System or a member firm of the New
York Stock Exchange (or a subsidiary thereof)) at an agreed-upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed-upon price, which obligation is in effect secured by the value of the
underlying security, usually U.S. Government or government agency issues. Under
the Investment Company Act of 1940, as amended (the "1940 Act"), repurchase
agreements may be considered to be loans by the buyer. A Portfolio's risk is
limited to the ability of the seller to pay the agreed upon amount on the
delivery date. If the seller defaults, the underlying security constitutes
collateral for the seller's obligation to pay although a Portfolio may incur
certain costs in liquidating this collateral and in certain cases may not be
permitted to liquidate this collateral. All repurchase agreements entered into
by the Portfolios are fully collateralized, with such collateral being marked to
market daily.
The Portfolios may borrow funds for temporary or emergency purposes, such
as meeting larger than anticipated redemption requests, and not for leverage.
One means of borrowing is by agreeing to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase them at a
mutually agreed date and price (a "reverse repurchase agreement"). At the time a
Portfolio enters into a reverse repurchase agreement it will place in a
segregated custodial account cash, U.S. Government securities or high-grade debt
obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Portfolio may decline below the repurchase price
of those securities. Municipal Obligations - Income Portfolio and Total Return
Bond Portfolio
Income Portfolio and Total Return Bond Portfolio may, when deemed
appropriate by U.S. Trust in light of the Portfolios' investment objective,
invest in municipal obligations. Although yields on municipal obligations can
generally be expected under normal market conditions to be lower than yields on
corporate and U.S. Government obligations, from time to time municipal
securities have outperformed, on a total return basis, comparable corporate and
federal debt obligations as a result of prevailing economic, regulatory or other
circumstances. Dividends paid by Income Portfolio and Total Return Bond
Portfolio that are derived from interest on municipal securities would be
taxable to the Portfolios' investors for federal income tax purposes.
Municipal obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately operated facilities
are included within the term "municipal obligations" only if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax.
The two principal classifications of municipal obligations are "general
obligation" and "revenue" issues, but the Portfolios' securities holdings may
include "moral obligation" issues, which are normally issued by special-purpose
authorities. There are, of course, variations in the quality of municipal
obligations, both within a particular classification and between
classifications, and the yields on municipal obligations depend upon a variety
of factors, including general market conditions, the financial condition of the
issuer, conditions of the municipal bond market, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. The
ratings of Moody's and S&P described in the Part A and Appendix A hereto
represent the opinion of the respective rating agencies as to the quality of
municipal obligations. It should be emphasized that these ratings are general
and are not absolute standards of quality, and municipal obligations with the
same maturity, interest rate, and rating may have different yields while
municipal obligations of the same maturity and interest rate with different
ratings may have the same yield.
The payment of principal and interest on most municipal obligations
purchased by the Portfolios will depend upon the ability of the issuers to meet
their obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities, and each multistate
agency of which a state is a member, is a separate "issuer" as that term is used
in this Part B and in Part A. The non-governmental user of facilities financed
by private activity bonds is also considered to be an "issuer". An issuer's
obligations are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
municipal obligations may be materially adversely affected by litigation or
other conditions.
Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
Among other instruments, the Portfolios may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax-exempt commercial paper, construction loan notes and
other forms of short-term loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Portfolios may invest in
long-term tax-exempt instruments, such as municipal bonds and private activity
bonds, to the extent consistent with the maturity restrictions applicable to it.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Portfolio
Series nor U.S. Trust will review the proceedings relating to the issuance of
municipal obligations or the basis for such opinions.
Stand-By Commitments - Income Portfolio and Total Return Bond Portfolio
Income Portfolio and Total Return Bond Portfolio may acquire "stand-by
commitments" with respect to municipal obligations held by them. Under a
stand-by commitment, a dealer or bank agrees to purchase from a Portfolio, at
the Portfolio's option, specified municipal obligations at a specified price.
The amount payable to a Portfolio upon its exercise of a stand-by commitment is
normally (i) the Portfolio's acquisition cost of the municipal obligations
(excluding any accrued interest which the Portfolio paid on their acquisition),
less any amortized market premium or plus any amortized market or original issue
discount during the period the Portfolio owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date during
that period. Stand-by commitments are exercisable by a Portfolio at any time
before the maturity of the underlying municipal obligations, and may be sold,
transferred or assigned by the Portfolio only with the underlying instruments.
Income Portfolio and Total Return Bond Portfolio expect that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either Portfolio may
pay for a stand-by commitment either separately in cash or by paying a higher
price for securities which are acquired subject to the commitment (thus reducing
the yield to maturity otherwise available for the same securities). Where a
Portfolio has paid any consideration directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment was held by the Portfolio.
Income Portfolio and Total Return Bond Portfolio intend to enter into
stand-by commitments only with banks and broker/dealers which, in U.S. Trust's
opinion, present minimal credit risks. In evaluating the creditworthiness of the
issuer of a stand-by commitment, U.S. Trust will review periodically the
issuer's assets, liabilities, contingent claims and other relevant financial
information.
Foreign Securities
If permitted pursuant to their investment objectives and policies, the
Portfolios may invest their assets in securities of foreign issuers. Investing
in securities issued by companies whose principal business activities are
outside the United States may involve significant risks not present in domestic
investments. For example, there is generally less publicly available information
about foreign companies, particularly those not subject to the disclosure and
reporting requirements of the U.S. securities laws. Foreign issuers are
generally not bound by uniform accounting, auditing and financial reporting
requirements comparable to those applicable to domestic issuers. Investments in
foreign securities also involve the risk of possible adverse changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, brokerage or other taxation, limitation on the removal of funds or
other assets of a Portfolio, political or financial instability or diplomatic
and other developments which would affect such investments. Further, economies
of particular countries or areas of the world may differ from the economy of the
United States.
It is anticipated that in most cases the best available market for foreign
securities would be on exchanges or in over-the-counter markets located outside
the United States. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United States,
and securities of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
United States companies. Foreign security trading practices, including those
involving securities settlement where a Portfolio's assets may be released prior
to receipt of payment, may expose a Portfolio to increased risk in the event of
a failed trade or the insolvency of a foreign broker-dealer. In addition,
foreign brokerage commissions are generally higher than commissions on
securities traded in the United States and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
The Portfolios may invest in foreign securities that impose restrictions on
transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad, they
may be less liquid than foreign securities of the same class that are not
subject to such restrictions.
Forward Foreign Currency Exchange Contracts
Because the Portfolios, if consistent with their investment objectives and
policies, may buy and sell securities denominated in currencies other than the
U.S. dollar and receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Portfolios from time to time may enter into
foreign currency exchange transactions to convert to and from different foreign
currencies and to convert foreign currencies to and from the U.S. dollar. The
Portfolios either enter into these transactions on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market or use forward
contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. A Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolios may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions or
changes in foreign currency exchange rates that would adversely affect a
portfolio position or an anticipated investment position. Since consideration of
the prospect for currency parities will be incorporated into the investment
managers' long-term investment decisions, the Portfolios will not routinely
enter into foreign currency hedging transactions with respect to security
transactions; however, the investment managers believe that it is important to
have the flexibility to enter into foreign currency hedging transactions when
they determine that the transactions would be in a Portfolio's best interest.
Although these transactions tend to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
At or before the maturity of a forward foreign currency exchange contract,
a Portfolio may sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Portfolio will
obtain, on the same maturity date, the same amount of the currency which it is
obligated to deliver. If the Portfolio retains the portfolio security and
engages in an offsetting transaction, the Portfolio, at the time of execution of
the offsetting transaction, will incur a gain or a loss to the extent that
movement has occurred in forward contract prices. Should forward prices decline
during the period between a Portfolio's entering into a forward contract for the
sale of a currency, and the date it enters into an offsetting contract for the
purchase of the currency, the Portfolio will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Portfolio will
suffer a loss to the extent of the price of the currency it has agreed to sell
is less than the price of the currency it has agreed to purchase in the
offsetting contract.
While these contracts are not presently regulated by the Commodity Futures
Trading Commission ("CFTC"), the CFTC may in the future assert authority to
regulate forward contracts. In such event a Portfolio's ability to utilize
forward contracts in the manner set forth in Part A may be restricted. Forward
contracts may reduce the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a
Portfolio than if it had not entered into such contracts. The use of foreign
currency forward contracts may not eliminate fluctuations in the underlying U.S.
dollar equivalent value of the prices of or rates of return on a Portfolio's
foreign currency denominated portfolio securities and the use of such techniques
will subject the Portfolio to certain risks.
The matching of the increase in value of a forward contract and the decline
in the U.S. dollar-equivalent value of the foreign currency-denominated asset
that is the subject of the hedge generally will not be precise. In addition, a
Portfolio may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit a Portfolio's ability to use
such contract to hedge or cross-hedge its assets. Also, with regard to a
Portfolio's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying a
Portfolio's cross-hedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.
Guaranteed Investment Contracts
The Portfolios may invest in guaranteed investment contracts ("GICs")
issued by insurance companies. Pursuant to such contracts, a Portfolio makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the fund guaranteed interest. The GICs
provide that this guaranteed interest will not be less than a certain minimum
rate. The insurance company may assess periodic charges against a GIC for
expenses and service costs allocable to it, and the charges will be deducted
from the value of the deposit fund. Because a Portfolio may not receive the
principal amount of a GIC from the insurance company on seven days' notice or
less, the GIC is considered an illiquid investment and, together with other
instruments in a Portfolio which are not readily marketable, will not exceed 15%
of the Portfolio's net assets. The term of a GIC will be 13 months or less. In
determining average weighted portfolio maturity, a GIC will be deemed to have a
maturity equal to the longer of the period of time remaining until the next
readjustment of the guaranteed interest rate or the period of time remaining
until the principal amount can be recovered from the issuer through demand.
Currently, each Portfolio intends to invest 5% or less of its respective net
assets in GICs during the current year.
When-issued Securities
If permitted pursuant to their investment objectives and policies, the
Portfolios may purchase securities on a "when-issued" or on a "forward delivery"
basis. It is expected that, under normal circumstances, the Portfolios would
take delivery of such securities. Prior to committing to the purchase of a
security on a when-issued or on a forward delivery basis, the Portfolios will
establish procedures consistent with the relevant policies of the SEC. Those
policies currently recommend that an amount of a Portfolio's assets equal to the
amount of the purchase commitment be held aside or segregated to be used to pay
for the commitment. Therefore, the Portfolios expect always to have cash, cash
equivalents, or high quality debt securities sufficient to cover any purchase
commitments or to limit any potential risk. Although the Portfolios do not
intend to make such purchases for speculative purposes and intend to adhere to
SEC policies, purchases of securities on a when issued or forward delivery basis
may involve additional risks than other types of securities purchases. For
example, a Portfolio may have to sell assets which have been set aside in order
to meet redemptions. Also, if a Portfolio determines it is advisable as a matter
of investment strategy to sell the when-issued or forward delivery securities,
the Portfolio would be required to meet its obligations from its then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the when-issued or forward delivery securities
themselves (which may have a value greater or less than the Portfolio's payment
obligation).
When a Portfolio engages in when-issued or forward delivery transactions,
it relies on the other party to consummate the trade. Failure of such other
party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities and any subsequent fluctuations in
their market value are taken into account when determining the market value of a
Portfolio starting on the day the Portfolio agrees to purchase the securities.
The Portfolio does not earn interest on the securities it has committed to
purchase until they are paid for and delivered on the settlement date.
Zero Coupon Obligations
A Portfolio may acquire zero coupon obligations when consistent with its
investment objective and policies. Such obligations have greater price
volatility than coupon obligations and will not result in payment of interest
until maturity. Since dividend income is accrued throughout the term of the zero
coupon obligation but is not actually received until maturity, a Portfolio may
have to sell other securities to pay said accrued dividends prior to maturity of
the zero coupon obligation.
Futures Contracts and Options on Futures Contracts
General. The successful use of such instruments by a Portfolio may depend
in part upon its investment managers' skill and experience with respect to such
instruments. Should interest or exchange rates move in an unexpected manner, the
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on futures
contracts and movements in the price of the securities and currencies hedged or
used for cover will not be perfect and could produce unanticipated losses.
Futures Contracts. If permitted pursuant to their investment objectives and
policies, the Portfolios may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or foreign currencies, or contracts
based on financial indices including any index of U.S. Government securities,
foreign government securities or corporate debt securities. U.S. futures
contracts have been designed by exchanges which have been designated "contracts
markets" by the CFTC, and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant contract market.
Futures contracts trade on a number of exchange markets, and, through their
clearing corporations, the exchanges guarantee performance of the contracts as
between the clearing members of the exchange. A Portfolio may enter into futures
contracts which are based on debt securities that are backed by the full faith
and credit of the U.S. Government, such as long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills. A Portfolio may
also enter into futures contracts which are based on bonds issued by entities
other than the U.S. Government.
Purchases or sales of stock index futures contracts are used to attempt to
protect a Portfolio's current or intended stock investments from broad
fluctuations in stock prices. For example, the Portfolio may sell stock index
futures contracts in anticipation of or during a decline in the market value of
the Portfolio's securities. If such decline occurs, the loss in value of
portfolio securities may be offset, in whole or part, by gains on the futures
position. When a Portfolio is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock index futures
contracts in order to gain rapid market exposure that may, in part or entirely,
offset increases in the cost of securities that the Portfolio intends to
purchase. As such purchases are made, the corresponding positions in stock index
futures contracts will be closed out. In a substantial majority of these
transactions, the Portfolio will purchase such securities upon termination of
the futures position, but under unusual market conditions, a long futures
position may be terminated without a related purchase of securities.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, a Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case
of a Portfolio which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currencies. For example, if interest rates were expected to increase, a
Portfolio might enter into futures contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the debt securities owned by the Portfolio. If interest rates did increase, the
value of the debt security in a Portfolio would decline, but the value of the
futures contracts to the Portfolio would increase at approximately the same
rate, thereby keeping the net asset value of the Portfolio from declining as
much as it otherwise would have. The Portfolio could accomplish similar results
by selling debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the futures market is
more liquid than the cash market, the use of futures contracts as an investment
technique allows a Portfolio to maintain a defensive position without having to
sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Portfolio could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent a Portfolio enters into futures contracts for
this purpose, the assets in the segregated asset account maintained to cover the
Portfolio's obligations with respect to such futures contracts will consist of
cash, cash equivalents or high quality liquid debt securities from its portfolio
in an amount equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial and variation
margin payments made by the Portfolio with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the investment managers may
still not result in a successful transaction.
In addition, futures contracts entail risks. Although the investment
managers believe that use of such contracts will benefit the Portfolios, if the
judgment of the investment managers about the general direction of interest
rates is incorrect, a Portfolio's overall performance would be poorer than if it
had not entered into any such contract. For example, if a Portfolio has hedged
against the possibility of an increase in interest rates which would adversely
affect the price of debt securities held by it and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if a Portfolio
has insufficient cash, it may have to sell debt securities to meet daily
variation margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising market. A Portfolio
may have to sell securities at a time when it may be disadvantageous to do so.
Options on Futures Contracts. If permitted pursuant to their investment
objectives and policies, the Portfolios may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when a Portfolio is not fully invested it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may purchase a put option on a futures contract to hedge
its portfolio against the risk of rising interest rates.
The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees of the Portfolio Series has adopted the requirement
that futures contracts and options on futures contracts be used either (i) as a
hedge without regard to any quantitative limitation, or (ii) for other purposes
to the extent that immediately thereafter the aggregate amount of margin
deposits on all (non-hedge) futures contracts of the Portfolio and premiums paid
on outstanding (non-hedge) options on futures contracts owned by the Portfolio
does not exceed 5% of the market value of the total assets of the Portfolio. In
addition, the aggregate market value of the outstanding futures contracts
purchased by the Portfolio may not exceed 50% of the market value of the total
assets of the Portfolio. Neither of these restrictions will be changed by the
Portfolio's Board of Trustees without considering the policies and concerns of
the various applicable federal and state regulatory agencies.
Options on Foreign Currencies. If permitted pursuant to their investment
objectives and policies, the Portfolios may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, a Portfolio will have the right to sell such currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
A Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, where a Portfolio anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
The Portfolios may write covered call options on foreign currencies. A call
option written on a foreign currency by a Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held by it. A call option is also covered if the Portfolio has a call on the
same foreign currency and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash, U.S.
Government securities and other high quality liquid debt securities in a
segregated account with its custodian.
The Portfolios may write call options on foreign currencies that are not
covered for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which the Portfolio
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, the Portfolio collateralizes the option by maintaining in a
segregated account with its custodian, cash or U.S. Government securities or
other high quality liquid debt securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars marked to market daily.
Additional Risks of Options on Futures Contracts, Forward Contracts and
Options on Foreign Currencies. Unlike transactions entered into by a Portfolio
in futures contracts, options on foreign currencies and forward contracts are
not traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-traded currency options. A Portfolio's
ability to terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, each Portfolio
will treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. Government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in a Portfolio's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
Options on Securities
If permitted pursuant to their investment objectives and policies, the
Portfolios may write (sell) covered call and put options to a limited extent on
its portfolio securities ("covered options"). However, a Portfolio may forgo the
benefits of appreciation on securities sold or may pay more than the market
price on securities acquired pursuant to call and put options written by the
Portfolio.
When a Portfolio writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which a Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, a Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price.
When a Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which a Portfolio has no control, the Portfolio must purchase the
underlying security from the option holder at the exercise price. By writing a
covered put option, a Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. A Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.
A Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing purchase
transaction." Where a Portfolio cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.
When a Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
A Portfolio may purchase call and put options on any securities in which it
may invest. A Portfolio would normally purchase a call option in anticipation of
an increase in the market value of such securities. The purchase of a call
option would entitle the Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. A Portfolio
would ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
A Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle a Portfolio, in exchange for the premium paid, to sell
a security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's portfolio securities. Put options also may be purchased by a
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. A Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.
The Portfolios have adopted certain other non-fundamental policies
concerning option transactions which are discussed below. A Portfolio's
activities in options may also be restricted by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for its respective investor's
qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
The Portfolios may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolios will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The investment managers
will monitor the creditworthiness of dealers with whom the Portfolios enter into
such options transactions, under the general supervision of the Portfolio
Series' Trustees.
Options on Securities Indices
In addition to options on securities, and if permitted pursuant to their
investment objectives and policies, the Portfolios may also purchase and write
(sell) call and put options on securities indices. Such options give the holder
the right to receive a cash settlement during the term of the option based upon
the difference between the exercise price and the value of the index. Such
options will be used for the purposes described above under "Options on
Securities."
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although a
Portfolio generally will only purchase or write such an option if its investment
managers believe the option can be closed out.
Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included in the
index is interrupted. A Portfolio will not purchase such options unless its
investment managers believe the market is sufficiently developed such that the
risk of trading in such options is no greater than the risk of trading in
options on securities.
Price movements in the Portfolios' securities may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the investment managers may be forced to liquidate
portfolio securities to meet a Portfolio's settlement obligations.
Short Sales "Against the Box"
In a short sale, a Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. A
Portfolio may engage in short sales only if at the time of the short sale it
owns or has the right to obtain, at no additional cost, an equal amount of the
security being sold short. This investment technique is known as a short sale
"against the box".
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If a Portfolio engages in a short sale, the collateral for the short
position will be maintained by its custodian or qualified sub-custodian. While
the short sale is open, a Portfolio maintains in a segregated account an amount
of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position.
The Portfolios will not engage in short sales against the box for
investment purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security (or a security convertible or exchangeable for such
security), or when a Portfolio wants to sell the security at an attractive
current price, but also wishes to defer recognition of gain or loss for federal
income tax purposes or for purposes of satisfying certain tests applicable to
regulated investment companies under the Code. In such case, any future losses
in a Portfolio's long position should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a loss
in the short position. The extent to which such gains or losses are reduced
depends upon the amount of the security sold short relative to the amount a
Portfolio owns. There are certain additional transaction costs associated with
short sales against the box, but the Portfolios endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales.
As a non-fundamental operating policy, not more than 40% of a Portfolio's
total assets would be involved in short sales against the box.
Certain Other Obligations
In order to allow for investments in new instruments that may be created in
the future, upon the Portfolio Series supplementing this registration statement,
a Portfolio or Portfolios may invest in obligations other than those listed
previously, provided such investments are consistent with the Portfolio's
investment objective, policies and restrictions.
Rating Services
Ratings represent the opinions of rating services as to the quality of the
securities that they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings are an initial criterion for selection of portfolio
investments, the investment managers also make their own evaluations of these
securities, subject to review by the Board of Trustees of the Portfolio Series.
After purchase by a Portfolio, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Portfolio. Neither
event would require a Portfolio to dispose of the obligation, but its subadviser
will consider such an event in its determination of whether the Portfolio should
continue to hold the obligation. A description of the ratings used herein and in
Part A is set forth in the Appendix to this Part B.
Except as stated otherwise, all investment policies and restrictions
described herein are non-fundamental, and may be changed without prior
shareholder approval.
Investment Restrictions
The following investment restrictions are "fundamental policies" of each
Portfolio and may not be changed with respect to a Portfolio without the
approval of a "majority of the outstanding voting securities" of the Portfolio.
"Majority of the outstanding voting securities" under the 1940 Act and as used
in this Part B and Part A means, with respect to the Portfolio, the lesser of
(i) 67% or more of the total beneficial interests of the Portfolio present at a
meeting, if the holders of more than 50% of the total beneficial interests of
the Portfolio are present or represented by proxy, or (ii) more than 50% of the
total beneficial interests of the Portfolio.
With respect to each fundamental investment restriction and each
non-fundamental investment policy listed below, if a percentage or a rating
restriction on investment or utilization of assets is adhered to at the time an
investment is made or assets are so utilized, a later change in such percentage
resulting from changes in a Portfolio's total assets or the value of a
Portfolio's securities, or a later change in the rating of a portfolio security,
will not be considered a violation of the relevant restriction or policy.
As a matter of fundamental policy, each Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio, except
that in an amount not to exceed 1/3 of the current value of the Portfolio's
assets (including such borrowing) less liabilities (not including such
borrowing), it may borrow money, enter into reverse repurchase agreements, and
purchase when-issued securities, and except that it may pledge, mortgage or
hypothecate its assets to secure such borrowings, reverse repurchase agreements,
or when-issued securities, provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this restriction, and
except that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute. The Portfolio will not purchase securities while
borrowings exceed 5% of the Portfolio's total assets.
(2) underwrite securities issued by other persons except insofar as the
Portfolio Series or the Portfolio may technically be deemed an underwriter under
the 1933 Act in selling a portfolio security;
(3) make loans to other persons except (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not exceed 30%
of the Portfolio's total assets (taken at market value), (b) through the use of
repurchase agreements or the purchase of short-term obligations, or (c) by
purchasing debt securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests
in partnerships substantially all of whose assets consist of real estate but
excluding securities secured by real estate or interests therein), interests in
oil, gas or mineral leases, commodities or commodity contracts (except futures
and option contracts) in the ordinary course of business (the Portfolio Series
may hold and sell, for the Portfolio's portfolio, real estate acquired as a
result of the Portfolio's ownership of securities);
(5) invest 25% or more of its assets in any one industry (excluding U.S.
Government securities), unless the stocks in a single industry were to comprise
25% or more of the S&P 500 Index (in the case of the Equity Market Portfolio) or
the Lehman Brothers Aggregate Bond Index (in the case of the Bond Market
Portfolio), in which case the Portfolio will invest 25% or more of its assets in
that industry; or
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction.
State and Federal Restrictions. In order to comply with certain state and
federal statutes and policies each Portfolio will not as a matter of operating
policy:
(i) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of purchases
and sales of securities may be obtained and except that deposits of initial
deposit and variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(ii) invest for the purpose of exercising control or management;
(iii) purchase securities issued by any other investment company except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that securities of any investment
company will not be purchased for the Portfolio if such purchase at the time
thereof would cause (a) more than 10% of the Portfolio's total assets (taken at
the greater of cost or market value) to be invested in the securities of such
issuers; (b) more that 5% of the Portfolio's total assets (taken at the greater
of cost or market value) to be invested in any one investment company; or
(c) more than 3% of the outstanding voting securities of any such issuer to be
held for the Portfolio;
(iv) purchase securities of any issuer if such purchase at the time thereof
would cause the Portfolio to hold more than 10% of any class of securities of
such issuer, for which purposes all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be subject to this
restriction;
(v) purchase or retain in the Portfolio's portfolio any securities issued
by an issuer any of whose officers, directors, trustees or security holders is
an officer or Trustee of the Portfolio, or is an officer or partner of the
investment adviser or subadviser of the Portfolio, if after the purchase of the
securities of such issuer for the Portfolio one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all taken
at market value, of such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities, or both, all taken at market value;
(vi) invest more than 5% of the Portfolio's net assets in warrants (valued
at the lower of cost or market), but not more than 2% of the Portfolio's net
assets may be invested in warrants not listed on the New York Stock Exchange or
the American Stock Exchange;
(vii) make short sales of securities or maintain a short position
(excluding short sales if the Portfolio owns an equal amount of such securities
or securities convertible into or exchangeable for, without payment of any
further consideration, securities of equivalent kind and amount) if such short
sales represent more than 25% of the Portfolio's net assets (taken at market
value); provided, however, that the value of the Portfolio's short sales of
securities (excluding U.S. Government securities) of any one issuer may not be
greater than 2% of the value (taken at market value) of the Portfolio's net
assets or more than 2% of the securities of any class of any issuer;
(viii) enter into repurchase agreements providing for settlement in more
than seven days after notice, or purchase securities which are not readily
marketable, if, in the aggregate, more than 15% of its net assets would be so
invested; or
(ix) purchase puts, calls, straddles, spreads or any combination thereof,
if by reason of such purchase the value of its aggregate investment in such
securities would exceed 5% of the Portfolio's total assets.
Policies (i) through (ix) may be changed by the Board of Trustees of the
Portfolio Series.
Item 14. Management of the Portfolio Series.
The Trustees and officers of the Portfolio Series and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate those Trustees who are
"interested persons" (as defined in the 1940 Act) of the Portfolio Series.
Unless otherwise indicated, the address of each Trustee and officer of the
Portfolio Series is 6 St. James Avenue, Boston, Massachusetts 02116.
Trustees of the Portfolio Series
STEPHEN D. BARRETT -- Trustee; Director, President and Chief Operating
Officer, H.C. Wainwright & Co., Inc. (broker-dealer) (since 1990); Director,
Alex Brown & Sons, Inc. (from 1976 to 1989). His address is 33 Marlborough
Street, Boston, Massachusetts 02116.
WILLIAM B. BLUNDIN* -- Trustee and Co-Chairman of the Board of Trustees;
Vice Chairman, Concord Holding Corporation (since 1987).
DAVID H. CARTER -- Trustee, 1784 Funds (since 1993); Managing Director,
Bearbull (UK) Ltd. (investment advisor) (from 1988 to 1993). His address is
Vasterne Manor, Wootton Bassett, Wiltshire, England SN4 7PB.
RAYMOND L. COLOTTI -- Trustee; Retired; Executive Vice President, The
Equitable Companies (financial services) (1990-1993); Executive Vice
President, Equitable Investment Corporation (1985-1990). His address is 13
Summit Road, Verone, New Jersey 07044.
PHILIP W. COOLIDGE* -- Trustee and Co-Chairman of the Board of Trustees;
Chairman, Chief Executive Officer and President, Signature Financial Group, Inc.
("SFG") (since December 1988); Chairman, Chief Executive Officer and President,
SFSI (since May 1993).
Each Trustee is paid an annual fee as follows for serving as Trustee of the
Portfolio Series, and is reimbursed for expenses incurred in connection with
service as a Trustee. The compensation paid to the Trustees for the fiscal year
ended May 31, 1995 is set forth below. The Trustees may hold various other
directorships unrelated to the Portfolio Series.
TOTAL
COMPENSATION
FROM THE
PENSION OR PORTFOLIO
RETIREMENT SERIES AND
BENEFITS ESTIMATED FUND COMPLEX
AGGREGATE ACCRUED ANNUAL PAID TO
COMPENSATION AS PART BENEFITS TRUSTEES FOR
FROM OF FUND UPON FY ENDED
NAME TRUST EXPENSES RETIREMENT 5/31/95
Stephen D. Barrett, $8,000 None None $8,000
Trustee
David H. Carter, Trustee $8,000 None None $8,000
Raymond L. Colotti, $8,000 None None $8,000
Trustee
Philip W. Coolidge, None None None None
Trustee*
Officers of the Portfolio Series
JOHN R. ELDER -- Treasurer; Vice President , SFG (since April 1995);
Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life Mutual Insurance
Company) (from 1983 to March 1995).
LINDA T. GIBSON -- Assistant Secretary; Legal Counsel, SFG (since June
1991); Assistant Secretary, SFSI (since May 1993); law student, Boston
University School of Law (from September, 1989 to May 1992).
THOMAS M. LENZ -- Secretary; Vice President and Associate General Counsel,
SFG (since November 1989); Assistant Secretary, SFSI (since May 1993).
MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel, SFG (since December
1988); Assistant Secretary, SFSI (since May 1993).
BARBARA M. O'DETTE -- Assistant Treasurer; Assistant Treasurer, SFG (since
December 1988) and SFSI (since May 1993).
ANDRES E. SALDANA -- Assistant Secretary; Legal Counsel, SFG (since
November 1992); Assistant Secretary, SFSI (since May 1993); Attorney, Ropes &
Gray (law firm) (September 1990 to November 1992); law student, Yale Law School
(September 1987 to May 1990).
* * *
Mss. Gibson, Mugler and O'Dette and Messrs. Coolidge, Elder, Lenz and
Saldana may also hold similar positions for other investment companies for which
SFSI or an affiliate serves as the principal underwriter.
The Declaration of Trust of the Portfolio Series provides that it will
indemnify its trustees and officers as described below under Item 18.
Item 15. Control Persons and Principal Holders of Securities.
As of September 15, 1995, the following series of Excelsior Institutional
Trust, a Delaware business trust, owned 99.9% of the outstanding beneficial
interests of each Portfolio listed below:
Series of Excelsior Institutional Trust Corresponding Portfolio
Excelsior Institutional Equity Index Fund Equity Market Portfolio
Excelsior Institutional Bond Index Fund Bond Market Portfolio
Excelsior Institutional Small
Capitalization Fund Small Cap Portfolio
Excelsior Institutional Balanced Fund Balanced Portfolio
Excelsior Institutional Equity Growth Fund Equity Growth Portfolio
Excelsior Institutional Value Equity
Income Fund Value Equity Income Portfolio
As of the same date, UST Distributors, Inc. owned the only other beneficial
interest outstanding for each of the Portfolios, representing 0.1% of the
aggregate outstanding beneficial interests of each Portfolio. Because Excelsior
Institutional Trust controls each Portfolio, it may take actions without the
approval of any other investor in the Portfolios. As of the same date, the
officers and Trustees of the Portfolio Series owned beneficially and in the
aggregate 0% of the outstanding interests of the Portfolios.
Excelsior Institutional Trust has informed the Portfolio Series that
whenever one of its series is requested to vote on matters pertaining to the
fundamental policies of a Portfolio, Excelsior Institutional Trust will hold a
meeting of shareholders of that series and will cast its vote as instructed by
those shareholders. It is anticipated that other investors in the Portfolio
Series will follow the same or a similar practice.
Item 16. Investment Advisory and Other Services.
Investment Advisory Services
U.S. Trust Pacific is responsible for the management of the assets of the
Bond Market, Equity Market, Small Cap, Balanced, Equity Growth, Value Equity
Income and International Equity Portfolios pursuant to an Investment Advisory
Agreement with the Portfolio Series on behalf of said Portfolios, subject to the
general supervision and guidance of the Board of Trustees of the Portfolio
Series. U.S. Trust is responsible for the management of the assets of the
Equity, Income and Total Return Bond Portfolios pursuant to an Investment
Advisory Agreement with the Portfolio Series on behalf of said Portfolios,
subject to the general supervision and guidance of the Board of Trustees of the
Portfolio Series.
Each Advisory Agreement will continue in effect with respect to each
Portfolio as long as such continuance is specifically approved at least annually
by the Portfolio Series Board of Trustees or by a majority vote of the investors
in the applicable Portfolio (with the vote of each being in proportion to the
respective values of their investments), and, in either case, by a majority of
the Portfolio Series' Trustees who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Advisory Agreement. Each Advisory Agreement was approved by the
Portfolio Series' Board of Trustees on June 30, 1994 or (in the case of the
Equity, Income, Total Return Bond and International Equity Portfolios) on
September 13, 1994. Each investment adviser has agreed to waive all investment
advisory fees. While no such Portfolio pays investment advisory fees to U.S.
Trust, each shareholder of the Portfolio's investor enters into an asset
management services agreement with U.S. Trust Pacific and agrees to pay annual
fees calculated as a specified percentage of average net assets.
Each Advisory Agreement provides that the investment adviser may render
services to others, and each Agreement is terminable with respect to one or more
Portfolios by the Portfolio Series without penalty on not more than 60 days' nor
less than 30 days' written notice when authorized either by majority vote of the
investors in the Portfolio (with the vote of each being in proportion to the
amount of its investment) or by a vote of a majority of the Portfolio Series'
Board of Trustees, or by the respective investment adviser on not more than 60
days' nor less than 30 days' written notice, and will automatically terminate in
the event of its assignment. Each Advisory Agreement provides that neither the
investment adviser nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss arising out of any investment, or for any act
or omission in the execution of security transactions for a Portfolio, except
for willful misfeasance, bad faith, gross negligence or reckless disregard of
its or their obligations and duties under the Advisory Agreement.
Part A contains a description of the fees payable to the investment
advisers under the Advisory Agreements. Each investment adviser, if required by
applicable state law, shall reimburse a the Portfolio's investors or waive all
or part of its fees up to, but not exceeding, its investment advisory fees from
the Portfolio. Such reimbursement, if required, will be equal to the combined
aggregate annual expenses of and investor and its corresponding Portfolio which
exceed that expense limitation with the lowest threshold prescribed by any state
in which those investors are qualified for offer or sale. Management of each of
the Portfolio Series has been advised that the lowest such threshold currently
in effect is 2 1/2% of net assets up to $30,000,000, 2% of the next $70,000,000
of net assets and 1 1/2% of net assets in excess of that amount.
With respect to the Bond Market, Equity Market, Small Cap, Balanced, Equity
Growth, Value Equity Income and International Equity Portfolios, U.S. Trust
Pacific has entered into an Investment Subadvisory Agreement (each a
"Subadvisory Agreement") with the subadviser listed below opposite the name of
the Portfolio. For their services under the Subadvisory Agreements, the
subadvisers receive from U.S. Trust Pacific, fees at a maximum annual rate equal
to the percentages specified in the table below of the corresponding Portfolio's
average daily net assets.
Portfolio Compensation Rate
Portfolio Name Subadviser for Subadviser (%)
Equity Market Portfolio U.S. Trust 0.25%
Bond Market Portfolio U.S. Trust 0.25%
Small Cap Portfolio U.S. Trust 0.65%
Balanced Portfolio Becker 0.425%
Equity Growth Portfolio Luther King 0.40%
Value Equity Income Portfolio Spare Kaplan 0.40%
International Equity Portfolio Harding Loevner 0.45%
It is the responsibility of the subadvisers to make the day-to-day
investment decisions for their corresponding Portfolio or Portfolios, and to
place the purchase and sales orders for securities transactions of such
Portfolios, subject in all cases to the general supervision of U.S. Trust
Pacific. Each subadviser furnishes at its own expense all services, facilities
and personnel necessary in connection with managing the Portfolio's investments
and effecting securities transactions for the Portfolio.
Servicing Agent
Signature Financial Services, Inc. ("SFSI") serves as servicing agent
and fund accounting agent to the Portfolio Series pursuant to an agreement
between SFSI and the Portfolio Series (the "Servicing Agent Agreement"). For
its services under the Servicing Agent Agreement with the Portfolio Series,
SFSI receives a servicing agent fee which is computed daily and may be paid
monthly at the following annual rates of the average daily net assets of the
Portfolios: 0.05% of the first $2 billion in assets; 0.08% of the next $500
million; 0.07% of the next $500 million; 0.06% of the next $1 billion; and
0.05% thereafter. Part A contains a description of the fund accounting fees
payable to SFSI under the Servicing Agent Agreement. SFSI is a wholly-owned
subsidiary of Signature Financial Group, Inc.
Pursuant to the Servicing Agent Agreement, SFSI may render fund accounting
and other services to others. The Agreement terminates automatically if assigned
and may be terminated without penalty by vote of a majority of the beneficial
interest in the Portfolio Series, or by either party on not more than 60 days'
nor less than 30 days' written notice. The Servicing and Fund Accounting
Agreement also provides that neither SFSI nor its personnel shall be liable for
any error of judgment or mistake of law or for any act or omission in the
administration or management of the Portfolio Series, except for willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties, or by reason of reckless disregard of its or their obligations and
duties under said agreement.
For the period ended May 31, 1995, servicing agent fees for each Portfolio
amounted to the following: Equity Portfolio: $20,368; Income Portfolio: $23,776;
Total Return Bond Portfolio: $21,403; Equity Market Portfolio: $54,614; Bond
Market Portfolio: $54,279; Small Cap Portfolio: $50,206; Balanced Portfolio:
$72,155; Equity Growth Portfolio: $66,174; Value Equity Income Portfolio:
$52,265; International Equity Portfolio: $18,964.
Transfer Agent and Custodian
U.S. Trust serves as custodian of the Portfolios' assets pursuant to
separate a Custody Agreement between U.S. Trust and the Portfolio Series.
Under such agreement and acting as the Portfolios' custodian, U.S. Trust
has agreed to (i) maintain a separate account or accounts for each of the
Portfolios; (ii) make receipts and disbursements of money on behalf of the
Portfolios; (iii) collect and receive income and other payments and
distributions on account of the Portfolios' securities; (iv) respond to
correspondence from securities brokers and others relating to its duties;
(v) maintain certain financial accounts and records; and (vi) make periodic
reports to the Portfolio Series concerning the Portfolios' operations. For the
services provided by U.S. Trust under the Custody Agreement, the Portfolio
Series has agreed to pay U.S. Trust a fee as agreed upon from time to time.
U.S. Trust may, at its own expense, open and maintain custody accounts with
respect to the Portfolios with other banks or trust companies, provided that
U.S. Trust shall remain liable under the Custody Agreement for the performance
of all of its duties under such agreement, notwithstanding any such delegation.
Pursuant to its delegation authority under the Custody Agreement, U.S. Trust has
entered into sub-custody arrangements with Investors Bank & Trust Company
("IBT") with respect to the Portfolio Series. For the services provided
thereunder by IBT, U.S. Trust has agreed to pay IBT a fee as agreed upon from
time to time. IBT receives no fee directly from the Portfolio Series for any of
its sub-custody services.
Chase Global Fund Services serves as transfer agent for the Portfolios
pursuant to a Transfer Agency Agreement. Under this agreement, Chase Global Fund
Services will perform the following functions, among others: (i) issue and
redeem beneficial interests in the Portfolios; (ii) respond to correspondence by
investors and others relating to its duties; (iii) maintain investor accounts;
and (iv) make periodic reports to the Portfolio Series concerning the
Portfolios' operations. For its transfer agency and dividend disbursement
services, Chase Global Fund Services is entitled to receive from the Portfolio
Series such compensation as may be agreed upon from time to time between the
Portfolio Series and Chase Global Fund Services. In addition, Chase Global Fund
Services is entitled to be reimbursed for its out-of-pocket expenses for the
cost of forms, postage, processing purchase and redemption orders, handling of
proxies, and other similar expenses in connection with the above services.
Chase Global Fund Services may delegate its transfer agency obligations to
another transfer agent registered or qualified under applicable law, provided
that Chase Global Fund Services shall remain liable for the performance of all
of its transfer agency duties under the Transfer Agency Agreement,
notwithstanding any delegation.
Servicing Plan
The Portfolio Series has adopted a Servicing Plan (the "Plan") which
provides that the Portfolio Series may obtain the services of a servicing and
fund accounting agent, a transfer agent and a custodian, and may enter into
agreements providing for the payment of fees for such services. The Plan will
continue in effect indefinitely if such continuance is specifically approved at
least annually by a vote of both a majority of the Portfolio Series' Trustees
and a majority of the Trustees who are not "interested persons" of the Portfolio
Series and who have no direct or indirect financial interest in the operation of
the Plan or in any agreement related to such Plan (the "Qualified Trustees").
The Plan requires that the Portfolio Series shall provide to its Board of
Trustees and the Board of Trustees shall review, at least quarterly, a written
report of the amounts expended (and the purposes therefor) under the Plan. The
Plan may be terminated at any time (i) by a vote of a majority of the Qualified
Trustees or (ii) by a majority vote of the holders of beneficial interests in
the Portfolio Series. The Plan may not be amended to increase materially the
amount of permitted expenses thereunder without the approval of a majority of
the holders of beneficial interests in the Portfolio Series and may not be
materially amended in any case without a vote of the majority of both the
Trustees and the Qualified Trustees of the Portfolio Series.
Placement Agent. The placement agent for the Portfolio Series is UST
Distributors, Inc. UST Distributors, Inc. is unaffiliated with U.S. Trust or
any of its affiliates.
Independent Accountants
Price Waterhouse LLP are the independent accountants for St. James
Portfolios. The U.S. Firm of Price Waterhouse has registered as a Registered
Limited Liability Partnership under the laws of the State of Delaware and from
August 1, 1994, will continue its practice under the name Price Waterhouse LLP.
Price Waterhouse LLP provides audit services and assistance and consultation
with respect to the preparation of filings with the Securities and Exchange
Commission. The principle business address of Price Waterhouse LLP is 160
Federal Street, Boston, Massachusetts 02110.
Item 17. Brokerage Allocation and Other Practices.
Except as may be required to ensure satisfaction of certain tests
applicable to regulated investment companies under the Code, portfolio changes
are made without regard to the length of time a security has been held, or
whether a sale would result in the recognition of a profit or loss. Each
Portfolio may engage in short-term trading to achieve its investment
objective(s). Portfolio turnover may vary greatly from year to year as well as
within a particular year. It is expected that the Income Portfolio's and Total
Return Bond Portfolio's turnover rates may remain higher than those of many
other investment companies with similar investment objectives and policies;
however, since brokerage commissions are not normally paid on instruments
purchased by these Portfolios, portfolio turnover is not expected to have a
material effect on the net asset value of either Portfolio. Each Portfolio's
portfolio turnover rate may also be affected by cash requirements for
redemptions of shares and by regulatory provisions which enable a Portfolio to
receive certain favorable tax treatment. Portfolio turnover will not be a
limiting factor in making portfolio decisions. Portfolio trading is engaged in
for a Portfolio if its investment managers believe that a transaction net of
costs (including custodian charges) will help achieve the Portfolio's investment
objective.
A Portfolio's purchase and sales of securities may be principal
transactions, that is, securities may be purchased directly from the issuer or
from an underwriter or market maker for the securities. There usually are no
brokerage commissions paid for such purchases and, therefore, the Portfolios do
not anticipate paying brokerage commissions in such transactions. Purchases and
sales of the Bond Market Portfolio's, Income Portfolio's and Total Return Bond
Portfolio's portfolio securities will usually be principal transactions without
brokerage commissions. Any transactions for which a Portfolio pays a brokerage
commission will be effected at the best price and execution available. Purchases
from underwriters of securities include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
include the spread between the bid and the asked price.
Allocations of transactions, including their frequency, to various dealers
is determined by the investment managers in their best judgement and in a manner
deemed to be in the best interest of the investors in the applicable Portfolio
rather than by any formula. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price.
The Advisory and Subadvisory Agreements provide that, in executing
portfolio transactions and selecting brokers or dealers, the investment managers
will seek to obtain the best net price and the most favorable execution. The
investment managers shall consider factors they deem relevant, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis.
In addition, the Advisory and Subadvisory Agreements authorize the
investment managers, to the extent permitted by law and subject to the review of
the Portfolio Series' Board of Trustees, to cause the Portfolios to pay a broker
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker for effecting the same transaction,
provided that the investment managers determine in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker, viewed in terms of either that particular
transaction or the overall responsibilities of the investment managers to the
accounts as to which it exercises investment discretion.
Such brokerage and research services might consist of reports and
statistics on specific companies or industries, general summaries of groups of
stocks and their comparative earnings, or broad overviews of the stock market
and the economy. Such services might also include reports on global, regional,
and country-by-country prospects for economic growth, anticipated levels of
inflation, prevailing and expected interest rates, and the outlook for currency
relationships.
Supplementary research information so received is in addition to and not in
lieu of services required to be performed by the investment managers and does
not reduce the investment advisory fees, if any, payable by the Portfolios. Such
information may be useful to the investment managers in serving the Portfolios
and other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the investment managers
in carrying out their obligations to the Portfolios.
Investment decisions for a Portfolio will be made independently from those
for any other account or investment company that is or may in the future become
managed by its investment managers or any of their affiliates. If, however, a
Portfolio and other investment companies or accounts managed by the same
investment manager are contemporaneously engaged in the purchase or sale of the
same security, the transactions may be averaged as to price and allocated
equitably to each account. In some cases, this policy might adversely affect the
price paid or received by a Portfolio or the size of the position obtainable for
the Portfolio. In addition, when purchases or sales of the same security for a
Portfolio and for other investment companies managed by the same investment
manager occur contemporaneously, the purchase or sale orders may be aggregated
in order to obtain any price advantages available to large denomination
purchases or sales. Furthermore, in certain circumstances affiliates of the
investment managers whose investment portfolios are managed internally, rather
than by the investment managers, might seek to purchase or sell the same type of
investments at the same time as a Portfolio. Such an event might also adversely
affect that Portfolio.
The following Portfolios paid the following approximate brokerage
commissions for their respective fiscal periods from commencement of operations1
through May 31, 1995: Equity Portfolio: $27,636; Equity Market Portfolio:
$32,193; Small Cap Portfolio: $16,200; Balanced Portfolio: $43,886; Equity
Growth Portfolio: $163,537; Value Equity Income Portfolio: $25,962;
International Equity Portfolio: $33,014; Bond Market, Income and Total Return
Bond Portfolios: $0.
Portfolio Turnover
Set forth below are the portfolio turnover rates for the Portfolios for the
indicated periods. A rate of 100% indicates that the equivalent of all of a
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. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. Portfolio turnover rates from commencement of
operations2 through May 31, 1995 were as follows: Equity Portfolio, 34%; Income
Portfolio, 34%; Total Return Bond Portfolio, 84%; Equity Market Portfolio, 98%;
Bond Market Portfolio, 67%; Small Cap Portfolio, 47%; Balanced Portfolio, 57%;
Equity Growth Portfolio, 122%; Value Equity Income Portfolio, 28%; International
Equity Portfolio, 8%.
Item 18. Capital Stock and Other Securities.
Each Portfolio is a series of St. James Portfolios, which is organized as a
series trust under the laws of the State of New York. Under the Declaration of
Trust, the Trustees are authorized to issue beneficial interests in one or more
series (each a "Series"). Currently, there are ten active and two inactive
series of the Portfolio Series. The ten active Series include: Equity Market
Portfolio, Bond Market Portfolio, Small Cap Portfolio, Balanced Portfolio,
Equity Growth, Value Equity Income Portfolio, Income Portfolio, Total Return
Bond Portfolio, Equity Portfolio, and Income and Growth Portfolio. The two
inactive Series include: International Equity Portfolio and Socially Responsible
Portfolio. Investors in a Series will be held personally liable for the
obligations and liabilities of that Series (and of no other Series), subject,
however, to indemnification by the Portfolio Series in the event that there is
imposed upon an investor a greater portion of the liabilities and obligations of
the Series than its proportionate beneficial interest in the Series. The
Declaration of Trust also provides that the Portfolio Series shall maintain
appropriate insurance (for example, a fidelity bond and errors and omissions
insurance) for the protection of the Portfolio Series, its investors, Trustees,
officers, employees and agents, and 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 Series itself was unable to meet its
obligations.
Investors in a Series are entitled to participate pro rata in distributions
of taxable income, loss, gain and credit of their respective Series only. Upon
liquidation or dissolution of a Series, investors are entitled to share pro rata
in that Series' (and no other Series) net assets available for distribution to
its investors. The Portfolio Series reserves the right to create and issue
additional Series of beneficial interests, in which case the beneficial
interests in each new Series would participate equally in the earnings,
dividends and assets of that particular Series only (and no other Series). Any
property of the Portfolio Series is allocated and belongs to a specific Series
to the exclusion of all other Series. All consideration received by the
Portfolio Series for the issuance and sale of beneficial interests in a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings and proceeds thereof, and any funds
or payments derived from any reinvestment of such proceeds, is held by the
Trustees in a separate subtrust (a Series) for the benefit of investors in that
Series and irrevocably belongs to that series for all purposes. Neither a Series
nor investors in that Series possess any right to or interest in the assets
belonging to any other Series.
Investments in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series may not be transferred. Certificates representing an
investor's beneficial interest in a Series 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 each Series. Investors in a Series do not have cumulative voting
rights, and investors holding more than 50% of the aggregate beneficial
interests in all outstanding Series may elect all of the Trustees if they choose
to do so and in such event other investors would not be able to elect any
Trustees. Investors in each Series will vote as a separate class except as to
voting of Trustees, as otherwise required by the 1940 Act, or if determined by
the Trustees to be a matter which affects all Series. As to any matter which
does not affect the interest of a particular Series, only investors in the one
or more affected Series are entitled to vote. The Portfolio Series is not
required and has no current intention of holding annual meetings of investors,
but the Portfolio Series will hold special meetings of investors when in the
judgment of the Portfolio Series' Trustees it is necessary or desirable to
submit matters for an investor vote. The Portfolio Series' Declaration of Trust
may be amended without the vote of investors, except that investors have the
right to approve by affirmative majority vote any amendment which would affect
their voting rights, alter the procedures to amend the Declaration of Trust of
the Portfolio Series, or as required by law or by the Portfolio Series'
registration statement, or as submitted to them by the Trustees. Any amendment
submitted to investors which the Trustees determine would affect the investors
of any Series shall be authorized by vote of the investors of such Series and no
vote will be required of investors in a Series not affected.
The Portfolio Series or any Series may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved (a)
at a meeting of investors by investors representing the lesser of (i) 67% or
more of the beneficial interests in the affected Series present of represented
at such meeting, if investors in more than 50% of all such beneficial interests
are present or represented by proxy, or (ii) more than 50% of all such
beneficial interests, or (b) by an instrument in writing without a meeting,
consented to by investors representing not less than a majority of the
beneficial interests in the affected Series. The Portfolio Series or any Series
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), (ii) by the Trustees by written
notice to its investors, or (iii) upon the bankruptcy or expulsion of an
investor in the affected Series, unless the investors in such Series, by
majority vote, agree to continue the Series. The Portfolio Series will be
dissolved upon the dissolution of the last remaining Series.
The Portfolio Series' Declaration of Trust provides that obligations of the
Portfolio Series are not binding upon the Trustees individually but only upon
the property of the Portfolio Series 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.
The Portfolio Series' Declaration of Trust further 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 Series, unless, as to liability to the Portfolio
Series 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 Series. 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 19. Purchase, Redemption and Pricing of Securities.
Beneficial interests in each Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See Item 4 in Part A of this
Registration Statement.
Each investor in each Portfolio may add to or reduce its investment in that
Portfolio on each Portfolio Business Day. As of the Valuation Time on each such
day, the value of each investor's beneficial interest in each Portfolio will be
determined by multiplying the net asset value of a 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 on that day will then be effected. The investor's percentage of the
aggregate beneficial interests in each 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 a 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 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 a
Portfolio as of the Valuation Time on the following Portfolio Business Day.
Assets in the Portfolios which are traded on a recognized domestic stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on a national
securities market. Securities traded only on over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities for which there
were no transactions are valued at the average of the most recent bid and asked
prices. Restricted securities, securities for which market quotations are not
readily available, and other assets are valued at fair value, pursuant to
guidelines adopted by the Portfolio Series' Board of Trustees. Absent unusual
circumstances, debt securities maturing in 60 days or less are valued at
amortized cost.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except that when an event subsequent
to the time when value was so established is likely to have changed such value,
then the fair value of those securities will be determined after consideration
of such events and other material factors, all under the direction and guidance
of the Board of Trustees of the Portfolio Series. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Investments in domestic
and foreign debt securities having a maturity of 60 days or less are valued
based upon the amortized cost method. All other foreign securities are valued at
the last current bid quotation if market quotations are available, or at fair
value as determined in accordance with policies established by the Board of
Trustees. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market rate
on the day of conversion. The servicing agent has undertaken to price the
securities held by the Portfolios, and may use one or more independent pricing
services in connection with this service. The methods used by the pricing
services and the valuations so established will be reviewed by each Portfolio's
investment managers and servicing agent under the general supervision of the
Board of Trustees of the Series Portfolio.
Interest rate futures contracts held by a Portfolio are valued on the basis
of closing market quotations, which are normally available daily. When market
quotations are not readily available, the fair value of these contracts will be
determined in good faith utilizing procedures approved by the Board of Trustees
of the Portfolio Series.
A determination of value used in calculating net asset value must be a fair
value determination made in good faith utilizing procedures approved by the
Portfolio Series's Board of Trustees. While no single standard for determining
fair value exists, as a general rule, the current fair value of a security would
appear to be the amount which a Portfolio could expect to receive upon its
current sale. Some, but not necessarily all, of the general factors which may be
considered in determining fair value include: (i) the fundamental analytical
data relating to the investment; (ii) the nature and duration of restrictions on
disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold. Without
limiting or including all of the specific factors which may be considered in
determining fair value, some of the specific factors include: type of security,
financial statements of the issuer, cost at date of purchase, size of holding,
discount from market value, value of unrestricted securities of the same class
at the time of purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the securities, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.
Each 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 Portfolios or the
investor's portfolio, as the case may be. A Portfolio will not make a
distribution in kind except in circumstances in which the owner of a beneficial
interest in that Portfolio is permitted to redeem in kind or unless requested by
such investor.
Item 20. Tax Status.
The Portfolio Series is organized as a New York trust. The Portfolios are
not subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts. However, each investor in a Portfolio will be
taxable on its share (as determined in accordance with the governing instruments
of the Portfolio Series) of the Portfolio's ordinary income and capital gains in
determining its income tax liability. The determination of such share will be
made in accordance with the Code and regulations promulgated thereunder.
Under interpretations of the Internal Revenue Service (1) each Portfolio
will be treated for federal income tax purposes as a partnership which is not a
publicly traded partnership, and (2) for purposes of determining whether an
investor in a Portfolio satisfies requirements of Subchapter M of the Code, the
investor will be deemed to own a proportionate share of the Portfolio's assets
and will be deemed to be entitled to the Portfolio's income attributable to that
share. The Portfolio Series has advised its initial investors that it intends to
conduct its operations so as to enable investors to satisfy those requirements.
Each Portfolio, since it is taxed as a partnership, is not subject to
federal income taxation. Instead, an investor must take into account, in
computing its federal income tax liability, its share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether it has received any cash distributions from the Portfolio.
Withdrawals by investors from a Portfolio generally will not result in
their recognizing any gain or loss for federal income tax purposes, except that
(1) gain will be recognized to the extent that any cash distributed exceeds the
basis of the investor's interest in the Portfolio prior to the distribution,
(2) income or gain will be realized if the withdrawal is in liquidation of the
investor's entire interest in the Portfolio and includes a disproportionate
share of any unrealized receivables held by the Portfolio, and (3) loss will be
recognized if the distribution is in liquidation of that entire interest and
consists solely of cash and/or unrealized receivables. The basis of an
investor's interest in a Portfolio generally equals the amount of cash and the
basis of any property that the investor invests in the Portfolio, increased by
the investor's share of income from the Portfolio and decreased by the amount of
any cash distributions and the basis of any property distributed from the
Portfolio.
Each Portfolio's taxable year-end will be May 31st. Although, as described
above, a Portfolio will not be subject to federal income tax, it will file
appropriate income tax returns.
It is intended that each Portfolio's assets, income and distributions will
be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code.
There are certain tax issues that will be relevant to only certain of the
investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to a Portfolio. It is intended
that such segregated asset accounts will be able to satisfy diversification
requirements applicable to them and that such contributions of assets will not
be taxable provided certain requirements are met. Such investors are advised to
consult their own tax advisors as to the tax consequences of an investment in a
Portfolio.
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.
Not applicable.
Item 22. Calculation of Performance Data.
Not applicable.
Item 23. Financial Statements.
The financial statements at May 31, 1995, included herein have been
included in reliance upon the report of Price Waterhouse LLP, independent
accountants, as experts in accounting and auditing.
- --------
2 The Portfolios commenced operations on the following dates: Equity and
Income Portfolios, January 16, 1995; Total Return Bond Portfolio, January 19,
1995; Equity Market, Bond Market, Small Cap, Balanced, Equity Growth and Value
Equity Income Portfolios, July 11, 1994; and, International Equity Portfolio,
January 24, 1995.
<PAGE>
APPENDIX
Description of Security Ratings
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated "AAA" has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
Plus(+) or Minus(-) - The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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 highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
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
edged". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Note - Moody's applies numerical modifiers, 1,2, and 3 in each generic rating
classification from Aa through Bb in its corporate bond rating system. The
modifier 1 indicates that the security rates in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category. Those municipal bonds within the Aa, A, Baa, and Ba categories that
Moody's believes possess the strongest credit attributes within those categories
are designated by the symbols Aa1, A1, Baa1, and Ba1.
COMMERCIAL PAPER
Prime-1 - Issuers rated P-1 (or supporting institutions) have a superior ability
for repayment of short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection. - Broad margins in earnings
coverage of fixed financial charges and high internal cash
generation. - Well established access to a range of financial
markets and assured sources of alternate liquidity.
Prime-2 - Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 - Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime - Issuers rated "Not Prime" do not fall within any of the Prime rating
categories.
FITCH INVESTORS SERVICE
CORPORATE BOND RATINGS
AAA - Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong companies, and are
most numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on specific property as
in the case of high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary reduction of the
debt by call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.
AA - Securities in this group are of safety virtually beyond question, and as a
class are readily salable while many are highly active. Their merits are not
greatly unlike those of the AAA class, but a security so rated may be of junior
though strong lien - in many cases directly following an AAA security - or the
margin of safety is less strikingly broad. The issue may be the obligation of a
small company, strongly secured but influenced as to ratings by the lesser
financial power of the enterprise and more local type of market.
A - Securities of this rating are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Securities of this rating are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus(+) or Minus(-) - Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
COMMERCIAL PAPER RATINGS
F-1+ - Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 - Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issue.
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned "F-1+" and F-1" ratings.
F-3 - Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
DUFF & PHELPS RATINGS
CORPORATE BOND RATINGS
AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury Funds.
AA+, AA, AA- - High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- - Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- - Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
COMMERCIAL PAPER RATINGS
Duff 1+ - Highest certainty of timely payment. Short term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk free U.S. Treasury short term
obligations.
Duff 1 - Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1- - High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2 - Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3 - Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
<PAGE>
UST153A
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
The financial statements called for by this Item are included in Part B and
listed under Item 23 hereof.
(b) Exhibits filed herewith:
1 Declaration of Trust of the Registrant.3
2 By-Laws of the Registrant.3
5(a) Investment Advisory Agreements.3
5(b) Investment Sub-advisory Agreements.3
8(a) Form of Custodian Agreement.1
8(b) Form of Sub-Custodian Agreement.1
9 Form of Servicing Agreement.1
9(a) Servicing Plan of the Registrant.2
13 Investment Representation Letters of Initial Investors.1
1Incorporated herein by reference from the Registrant's registration statement
on Form N-1A (File No. 811-8602) (the "Registration Statement") as filed with
the Securities and Exchange Commission 9 (the "SEC")on July 1, 1994.
2Incorporated herein by reference from Amendment No. 1 to the Registrant's
Registration Statement as filed with the SEC on July 13, 1994.
3Filed herewith.
Item 25. Persons Controlled by or Under Common Control with the Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Classes (as of September 29, 1995)
Equity Market Portfolio 2
Bond Market Portfolio 2
Small Cap Portfolio 2
Balanced Portfolio 2
Equity Growth Portfolio 2
Value Equity Income Portfolio 2
Equity Portfolio 2
Income Portfolio 2
Total Return Bond Portfolio 2
International Equity Portfolio 2
Item 27. Indemnification.
Reference is made to Article V of the Registrant's Declaration of Trust,
filed as Exhibit 1 herewith.
The Trustees and officers of the Registrant and the personnel of the
Registrant's servicing agent are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 28. Business and Other Connections of Investment Adviser.
United States Trust Company of New York ("U.S. Trust") is a full-service
state-chartered bank located in New York, New York. The name, position with U.S.
Trust, address, principal occupation and type of business are set forth below
for the trustees and certain senior executive officers of U.S. Trust, including
those who are engaged in any other business, profession, vocation, or employment
of a substantial nature.
SAMUEL C. BUTLER -- Trustee/Director; Cravath, Swaine & Moore, Worldwide
Plaza, 825 Eighth Avenue, New York, NY 10019 ; Partner in Cravath, Swaine &
Moore (law firm).
PETER O. CRISP -- Trustee/Director; Venrock Associates, Room 5600, 30
Rockefeller Plaza, New York, NY 10112 ; General Partner in Venrock Associates.
ANTONIA M. GRUMBACH -- Trustee/Director; Patterson, Belknap, Webb & Tyler,
30 Rockefeller Plaza, New York, NY 10112 ; Partner in Patterson, Belknap, Webb &
Tyler (law firm).
H. MARSHALL SCHWARZ -- Trustee/Director; Chairman of the Board and Chief
Executive Officer; United States Trust Co. of New York, 114 West 47th Street,
New York, NY 10036; Chairman of the Board & Chief Executive Officer of U.S.
Trust Corp. and U.S. Trust Company of N.Y. (bank).
PHILIPPE DE MONTEBELLO -- Trustee/Director; Metropolitan Museum of Art,
1000 Fifth Avenue, New York, NY 10029-0198; Director of the Metropolitan Museum
of Art (art museum).
PAUL W. DOUGLAS -- Trustee/Director; 250 Park Avenue, Room 1900, New York,
NY , 10177.
FREDERIC C. HAMILTON -- Trustee/Director; Hamilton Oil Corp., 1560
Broadway, Suite 2000, Denver, CO 80202 ; Chairman of the Board of Hamilton Oil
Corp. (oil & gas exploration).
FRANK S. STREETER -- Honorary Trustee; 380 Madison Ave., 4th Floor, New
York, NY 10017 ; Trustees and Corp.
JOHN H. STOOKEY -- Trusteee/Director; Quantum Chemical Corp., 99 Park
Avenue, New York, NY 10016; Director, Chairman of the Board, Chief Executive
Officer and President of Quantum Chemical Corp.
ROBERT N. WILSON -- Trustee/Director; Johnson & Johnson, One Johnson &
Johnson Plaza, New Brunswick, NJ 08933 ; Vice Chairman of the Board of Johnson &
Johnson.
PETER L. MALKIN -- Trustee/Director; Wein, Malkin & Bettex , Lincoln
Building, 60 East 42nd Street, New York, NY 10165 ; Chairman of Wein, Malkin &
Bettex.
RICHARD F. TUCKER -- Trustee/Director; 11 Over Rock Lane, Westport, CT
06880 ; retired.
CARROLL L. WAINRIGHT, JR. -- Trustee/Director; Milbank, Tweed, Hadley &
McCloy, One Chase Manhattan Plaza, New York, NY 10005 ; Consulting Partner of
Milbank, Tweed, Hadley & McCloy (law firm).
FREDERICK S. WONHAM -- Trustee/Director and Vice Chairman; United States
Trust Company of New York, 114 West 47th Street, New York, NY 10036; Vice
Chairman of the Board of U.S. Trust Corporation and United States Trust Company
of New York (bank).
DONALD M. ROBERTS -- Trustee/Director, Vice Chairman and Treasurer; United
States Trust Company of New York, 114 West 47th Street, New York, NY 10036; Vice
Chairman of the Board and Treasurer of U.S. Trust Corporation and United States
Trust Company of New York (bank).
FREDERICK B. TAYLOR -- Trustee/Director, Vice Chairman and Chief Investment
Officer; United States Trust Company of New York; 114 West 47th Street, New
York, NY 10036; Vice Chairman and Chief Investment Officer of U.S. Trust
Corporation and United States Trust Company of New York (bank).
JEFFREY S. MAURER -- United States Trust Company of New York, 114 West 47th
Street, New York, NY 10036 (bank).
DANIEL P. DAVISON -- Trustee/Director; Christie, Manson & Woods
International, Inc., 502 Park Avenue, New York, NY 10021, Chairman, Christie,
Manson & Woods International, Inc. (fine art auctioneer).
TOM KILLEFER -- Honorary Trustee; United States Trust, Company of New York,
114 West 47th Street, New York, NY 10036; Former Chairman of the Board and
President of U.S. Trust Corporation and United States Trust Company of New York
(bank).
ORSON D. MUNN -- Trustee/Director; Munn, Bernhard & Associates, Inc., 6
East 43rd Street , 28th Floor, New York, NY 10017 ; Chairman and Director of
Munn, Bernhard & Associates, Inc. (investment advisory firm).
WALTER N. ROTHSCHILD, JR. -- Trustee/Director; 145 East 48th Street, Suite
16D, New York, NY 10017 ; Corporate Director and Trustee.
PHILIP L. SMITH -- Trustee/Director; P.O. Box 205, Oakledge, Mount Sunapee,
NH 03772 ; Corporate Director and Trustee.
EDWIN D. ETHERINGTON -- Trustee/Director; P.O. Box 100, Old Lyme, CT 06371;
President Emeritus, Wesleyan University, and Former President of American Stock
Exchange (education).
HAROLD J. HUDSON, JR. -- Honorary Trustee; General Reinsurance Co.,
Financial Center, P.O. Box 10350, Stamford, CT 06904; Former Chairman of the
Board of General Reinsurance Corporation.
United States Trust Company of the Pacific Northwest ("UST-PN") is a
full-service state chartered bank located in Portland, Oregon. The name,
position with UST-PN, address, principal occupation and type of business are set
forth below for the trustees and certain senior executive officers of UST-PN,
including those who are engaged in any other business, profession, vocation, or
employment of a substantial nature.
RALPH RITTENOUR, JR. -- Trustee/Director; United States Trust Company of
the Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201;
Chairman and Chief Executive Officer of United States Trust Company of the
Pacific Northwest (bank).
CHARLES J. SWINDELLS -- Trustee/Director; United States Trust Company of
the Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201;
President of United States Trust Company of the Pacific Northwest (bank).
NANCY L. JACOB, PH.D. -- Trustee/Director; United States Trust Company of
the Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201;
Executive Vice President of United States Trust of the Pacific Northwest (bank).
RICHARD ACKERMAN -- Trustee/Director; United States Trust Company of the Pacific
Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201 ; Chief
Administrative Officer and Senior Vice President of United States Trust Company
of the Pacific Northwest (bank).
STEVE BRINK -- Trustee/Director; United States Trust Company of the Pacific
Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201 ; Senior Vice
President and Chief Investment Officer of United States Trust Company of the
Pacific Northwest (bank).
MARCIA BENNETT -- Trustee/Director; United States Trust Company of the
Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201 ;
Senior Vice President, Trust Officer and Operations Officer of United States
Trust Company of the Pacific Northwest (bank).
MARV VUKOVICH -- Trustee/Director; United States Trust Company of the
Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201 ; Vice
President and Chief Financial Officer of United States Trust Company of the
Pacific Northwest (bank).
CAROL HIBBS -- Trustee/Director; Tonkon Torp, Galen, Marmaduke & Booth,
1600 Pioneer Tower, 888 SW Fifth Avenue, Portland, OR 97204; Attorney of Tonkon
Torp, Galen, Marmaduke & Booth (law firm).
Becker Capital Management, Inc. ("Becker") is a registered Investment
Adviser located in Portland, Oregon. The name, position with Becker, address,
principal occupation and type of business are set forth below for the trustees
and certain senior executive officers of Becker, including those who are engaged
in any other business, profession, vocation, or employment of a substantial
nature.
PATRICK E. BECKER -- President and Chief Investment Officer ; Becker
Capital Management, Inc., 1211 SW Fifth Avenue, #2185, Portland, OR 97204 ;
President and Chief Investment Officer of Becker Capital Management, Inc.
(investment advisory).
JANEEN S. MCANINCH -- Executive Vice President; Becker Capital Management,
Inc. , 1211 SW Fifth Avenue, #2185, Portland, OR 97204; Executive Vice President
of Becker Capital Management, Inc. (investment advisory).
GEARY T. BECKER -- Senior Vice President - Fixed Income; Becker Capital
Management, Inc. , 1211 SW Fifth Avenue, #2185, Portland, OR 97204 , Senior Vice
President - Fixed Income of Becker Capital Management, Inc. (investment
advisory).
MICHAEL C. MALONE -- Senior Vice President - Marketing; Becker Capital
Management, Inc. , 1211 SW Fifth Avenue, #2185, Portland, OR 97204 ; Senior Vice
President - Marketing of Becker Capital Management, Inc. (investment advisory).
DONALD L. WOLCOTT -- Vice President - Equity Portfolio Manager; Becker
Capital Management, Inc., 1211 SW Fifth Avenue, #2185, Portland, OR 97204; Vice
President - Equity Portfolio Manger of Becker Capital Management, Inc.
(investment advisory).
ROBERT N. SCHAEFFER -- Vice President - Equity Portfolio Manager; Becker
Capital Management, Inc., 1211 SW Fifth Avenue, #2185, Portland, OR 97204; Vice
President - Equity Portfolio Manger of Becker Capital Management, Inc.
(investment advisory).
MICHAEL F. MCCOY -- Vice President - Quantitative Research; Becker Capital
Management, Inc., 1211 SW Fifth Avenue, #2185, Portland, OR 97204; Vice
President - Quantitative Research of Becker Capital Management, Inc. (investment
advisory).
Harding, Loevner Management, L.P. ("Harding Loevner") is a registered
Investment Advisor located in Somerville, New Jersey. The name, position with
Harding Loevner, address, principal occupation and type of business are set
forth below for the trustees and certain senior executive officers of Harding
Loevner, including those who are engaged in any other business, profession,
vocation, or employment of a substantial nature.
DANIEL D. HARDING -- Director/Chief Investment Officer; Harding, Loevner
Management, L.P. , 50 Division Street, Suite 401, Somerville, NJ 08876 ; Chief
Investment Officer of Harding, Loevner Management, L.P. (investment advisory).
DAVID R. LOEVNER -- Director/Chief Executive Officer; Harding, Loevner
Management, L.P. , 50 Division Street, Suite 401, Somerville, NJ 08876; Chief
Executive Officer of Harding, Loevner Management, L.P. (investment advisory).
SIMMON HALLETT -- Director/Senior Portfolio Manager; Harding, Loevner
Management, L.P., 50 Division Street, Suite 401, Somerville, NJ 08876; Senior
Portfolio Investment Manager of Harding, Loevner Management, L.P. (investment
advisory).
Luther King Capital Management ("Luther King") is a registered Investment
Advisor located in Fort Worth, Texas. The name, position with Luther King,
address, principal occupation and type of business are set forth below for the
trustees and certain senior executive officers of Luther King, including those
who are engaged in any other business, profession, vocation, or employment of a
substantial nature.
J. LUTHER KING, JR. -- President; Luther King Capital Management, 301
Commerce Street, Suite 1600, Ft. Worth, TX 76102; Chief Investment Officer of
Luther King Capital Management (investment advisory).
EMMETT M. MURPHY -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102 ; Portfolio
Manager of Luther King Capital Management (investment advisory).
PAUL W. GREENWELL -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102 ; Portfolio
Manager of Luther King Capital Management (investment advisory).
ROBERT M. HOLT, JR. -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102 ; Portfolio
Manager of Luther King Capital Management (investment advisory).
SCOT C. HOLLMANN -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102 ; Portfolio
Manager of Luther King Capital Management (investment advisory).
DAVID L. DOWLER -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102 ; Portfolio
Manager of Luther King Capital Management (investment advisory).
BARBARA S. GARCIA -- Treasurer/Principal; Luther King Capital Management,
301 Commerce Street, Suite 1600, Ft. Worth, TX 76102; Officer Manager of Luther
King Capital Management (investment advisory).
Spare, Kaplan, Bischel & Associates ("Spare Kaplan") is a registered
Investment Advisor located in San Francisco, California. The name, position with
Spare Kaplan, address, principal occupation and type of business are set forth
below for the trustees and certain senior executive officers of Spare Kaplan,
including those who are engaged in any other business, profession, vocation, or
employment of a substantial nature.
ANTHONY E. SPARE -- Chief Executive Officer/Chief Investment Officer;
Spare, Kaplan, Bischel & Associates, 44 Montgomer Street, San Francisco, CA
94104; Chief Executive Officer & Chief Investment Officer of Spare, Kaplan,
Bischel & Associates (investment advisory).
KENNETH J. KAPLAN -- Principal & Senior Investment Contact; Spare, Kaplan,
Bischel & Associates, 44 Montgomer Street, San Francisco, CA 94104; Principal &
Senior Investment Contact of Spare, Kaplan, Bischel, Associates (investment
advisory).
ANDREW W. BISCHEL -- Principal & Director of Research & Training; Spare,
Kaplan, Bischel & Associates, 44 Montgomer Street, San Francisco, CA 94104 ;
Principal & Director of Research & Training of Spare, Kaplan, Bischel &
Associates (investment advisory).
JEFFREY J. COLLINSON -- Schroder Ventures, 1055 Washington Boulevard,
Stamford, CT 06901 ; Managing Partner of Schroder Ventures (venture capital).
MARY PAT THORNTON -- Putnam Lovell, 19 Fulton Street, South Street Seaport,
New York, NY 10038; Principal of Putnam Lovell (investing banking).
Item 29. Principal Underwriters.
Not applicable.
Item 30. Location of Accounts and Records.
St. James Portfolios, 6 St. James Avenue, Boston, MA 02116
Signature Financial Services, Inc. (servicing agent and fund accounting
agent) -- 6 St. James Avenue , Boston, MA 02116
Investors Bank & Trust Company (subcustodian) -- 79 Milk Street, 7th floor,
Boston, MA 02205
Mutual Funds Service Company (transfer agent) -- 73 Tremont Street, Boston,
MA 02108-3913
United States Trust Company of New York (custodian and subadviser) --
Mutual Funds Service Division, 770 Broadway, New York, NY 10003-9598
United States Trust Company of the Pacific Northwest (adviser) -- 4380
Southwest Macadam Avenue , Suite 450, Portland, OR 97201
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 (the "Act") as though such provisions of the Act
were applicable to the Registrant. UST153A
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the St.
James Portfolios (the "Registrant") has duly caused this amendment to the
Registrant's registration statement on Form N-1A to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 29tth day of September, 1995.
ST. JAMES PORTFOLIOS
By PHILIP W. COOLIDGE
Philip W. Coolidge
Trustee, President and Co-Chairman
of the Board of Trustees
UST153A
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
1 Declaration of Trust of the Registrant.
2 By-Laws of the Registrant.
5(a) Investment Advisory Agreements.
5(b) Investment Sub-advisory Agreements.
17 Financial Data Schedules.
ST. JAMES PORTFOLIOS
DECLARATION OF TRUST
Dated as of May 11, 1994
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . 1
ARTICLE II--Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Number and Qualification . . . . . . . . . . . . . 3
Section 2.2 Term and Election . . . . . . . . . . . . . . . . 3
Section 2.3 Resignation, Removal and Retirement . . . . . . . 4
Section 2.4 Vacancies . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 Meetings . . . . . . . . . . . . . . . . . . . . . 5
Section 2.6 Officers; Chairman of the Board . . . . . . . . . 5
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 . . . . . . 7
Section 3.6 Borrow Money . . . . . . . . . . . . . . . . . . 7
Section 3.7 Delegation; Committees . . . . . . . . . . . . . . 8
Section 3.8 Collection and Payment . . . . . . . . . . . . . . 8
Section 3.9 Expenses . . . . . . . . . . . . . . . . . . . . . 8
Section 3.10 Miscellaneous Powers . . . . . . . . . . . . . . . 9
Section 3.11 Further Powers . . . . . . . . . . . . . . . . . . 9
ARTICLE IV--Investment Advisory, Administration and Placement
Agent Arrangements; Custodian . . . . . . . . . . . . 9
Section 4.1 Investment Advisory and Other Arrangements . . . . 9
Section 4.2 Parties to Contract . . . . . . . . . . . . . . . 10
Section 4.3 Custodian . . . . . . . . . . . . . . . . . . . . 10
Section 4.4 1940 Act Governance . . . . . . . . . . . . . . . 10
ARTICLE V--Liability of Holders; Limitations of Liability of Trustees,
Officers, etc. . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.1 Liability of Holders; Indemnification 10
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
Section 5.5 No Bond Required of Trustees . . . . . . . . . . . 12
i
<PAGE>
PAGE
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc. . . . . . . . . . . . . . . . 12
Section 5.7 Reliance on Experts, etc. . . . . . . . . . . . . 13
Section 5.8 No Repeal or Modification . . . . . . . . . . . . 13
ARTICLE VI--Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.1 Interests . . . . . . . . . . . . . . . . . . . . 13
Section 6.2 Establishment and Designation of Series . . . . . 14
Section 6.3 Non-Transferability . . . . . . . . . . . . . . . 15
Section 6.4 Register of Interests . . . . . . . . . . . . . . 15
ARTICLE VII--Increases, Decreases And Redemptions of Interests . . . . . . 15
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions . . . . . . . . . . . . . . . . . 16
Section 8.1 Book Capital Account Balances . . . . . . . . . . 16
Section 8.2 Allocations and Distributions to Holders . . . . . 16
Section 8.3 Power to Modify Foregoing Procedures . . . . . . . 16
ARTICLE IX--Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 9.1 Rights of Holders . . . . . . . . . . . . . . . . 16
Section 9.2 Meetings of Holders . . . . . . . . . . . . . . . 17
Section 9.3 Notice of Meetings . . . . . . . . . . . . . . . . 17
Section 9.4 Record Date for Meetings, Distributions, etc. . . 18
Section 9.5 Proxies, etc. . . . . . . . . . . . . . . . . . . 18
Section 9.6 Reports . . . . . . . . . . . . . . . . . . . . . 18
Section 9.7 Inspection of Records . . . . . . . . . . . . . . 18
Section 9.8 Holder Action by Written Consent . . . . . . . . . 18
Section 9.9 Notices . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE X--Duration; Termination; Dissolution; Amendment; Mergers; Etc. . 19
Section 10.1 Duration . . . . . . . . . . . . . . . . . . . . . 19
Section 10.2 Dissolution . . . . . . . . . . . . . . . . . . . 19
Section 10.3 Termination . . . . . . . . . . . . . . . . . . . 20
Section 10.4 Amendment Procedure . . . . . . . . . . . . . . . 21
Section 10.5 Merger, Consolidation and Sale of Assets . . . . . 21
Section 10.6 Incorporation . . . . . . . . . . . . . . . . . . 22
ARTICLE XI--Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 11.1 Certificate of Designation; 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
ii
<PAGE>
DECLARATION OF TRUST
OF
ST. JAMES PORTFOLIOS
This DECLARATION OF TRUST of St. James Portfolios is made as of the 11th
day of May, 1994 by the parties signatory hereto, as Trustees (as defined in
Section 1.2 hereof).
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a master trust fund or "Trust" (as
defined in Section 1.2 hereof) under the law of the State of New York consisting
of one or more subtrusts or "Series" (as defined in Section 1.2 hereof) for the
investment and reinvestment of assets contributed thereto; and
WHEREAS, it is proposed that the trust assets be composed of money and
other property contributed to the Series, such assets to be held and managed in
trust for the benefit of the holders of beneficial interests in such Series;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust
all money and other property contributed to the Trust and will manage and
dispose of the same for the benefit of such holders of beneficial interests and
subject to the provisions hereof, to wit:
ARTICLE I
The Trust
1.1. Name. The name of the Trust shall be St. James Portfolios and so far
as may be practicable the Trustees shall conduct the Trust's activities, execute
all documents and sue or be sued under that name, which name (and the term
"Trust" wherever hereinafter used) shall refer to the Trustees as Trustees, and
not individually, and shall not refer to the officers, employees, agents or
independent contractors of the Trust or its holders of beneficial interests.
1.2. Definitions. As used in this Declaration, the following terms shall
have the following meanings:
"Administrator" shall mean any party furnishing services to one or more
Series pursuant to any administration contract described in Section 4.1 hereof.
"Book Capital Account" shall mean, for any Holder (as hereinafter defined)
at any time, the Book Capital Account of the Holder at such time with respect to
the Holder's beneficial interest in the Trust Property (as hereinafter defined)
of any Series, determined in accordance with the method established by the
Trustees pursuant to Section 8.1 hereof. The Trust shall maintain separate
records of Book Capital Accounts for each such Series.
<PAGE>
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
Internal Revenue Code of 1954, as amended (or any corresponding provision or
provisions of succeeding law).
"Commission" shall mean the United States Securities and Exchange
Commission.
"Declaration" shall mean this Declaration of Trust as amended from time to
time. References in this Declaration to "Declaration", "hereof", "herein" and
"hereunder" shall be deemed to refer to this Declaration rather than the article
or section in which any such word appears.
"Fiscal Year" shall mean an annual period determined by the Trustees which
ends on December 31 of each year or on such other day as is permitted or
required by the Code.
"Holder" shall mean the record holder of any Interest.
"Institutional Investor(s)" shall mean any regulated investment company,
segregated asset account, foreign investment company, common trust fund, group
trust or other investment arrangement, whether organized within or without the
United States of America, other than an individual, S corporation, partnership
or grantor trust beneficially owned by any individual, S corporation or
partnership.
"Interested Person" shall have the meaning given it in the 1940 Act (as
hereinafter defined).
"Interest" shall mean the beneficial interest of a Holder in the Trust
Property of any Series, including all rights, powers and privileges accorded to
Holders by this Declaration, which interest may be expressed as a percentage,
determined by calculating for a particular Series, at such times and on such
basis as the Trustees shall from time to time determine, the ratio of each
Holder's Book Capital Account balance to the total of all Holders' Book Capital
Account balances. Reference herein to a specified percentage of, or fraction of,
Interests, means Holders whose combined Book Capital Account balances represent
such specified percentage or fraction of the combined Book Capital Account
balances of all, or a specified group of, Holders.
"Investment Adviser" shall mean any party furnishing services to one or
more Series of the Trust pursuant to any investment advisory contract described
in Section 4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a meeting of Holders of
one or more Series as the context may require, of (A) 67% or more of the
Interests present or represented at such meeting, if Holders of more than 50% of
all Interests in such one or more Series are present or represented by proxy, or
(B) more than 50% of all Interests in such one or more Series, whichever is
less.
"1940 Act" shall mean the United States Investment Company Act of 1940, as
amended from time to time, and the rules and regulations thereunder.
2
<PAGE>
"Person" shall mean and include individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
"Redemption" shall mean the complete withdrawal of an Interest of a Holder
the result of which is to reduce the Book Capital Account balance of that Holder
to zero, and the term "redeem" shall mean to effect a Redemption.
"Series" shall mean the subtrusts of the Trust as the same are established
and designated pursuant to Article VI hereof, each of which shall be a separate
subtrust.
"Trust" shall mean the master trust fund established hereby and shall
include each Series hereof.
"Trust Property" shall mean as of any particular time any and all assets or
other property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of any Series or for the account of the
Trustees, each component of which shall be allocated and belong to a specific
Series to the exclusion of all other Series.
"Trustees" shall mean each signatory to this Declaration, so long as such
signatory shall continue in office in accordance with the terms hereof, and all
other individuals who at the time in question have been duly elected or
appointed and have qualified as Trustees in accordance with the provisions
hereof and are then in office, and reference in this Declaration to a Trustee or
Trustees shall refer to such individual or individuals in their capacity as
Trustees hereunder.
ARTICLE II
Trustees
2.1. Number and Qualification. The number of Trustees shall be fixed from
time to time by action of the Trustees taken as provided in Section 2.5 hereof;
provided, however, that the number of Trustees so fixed shall in no event be
less than three. Any vacancy created by an increase in the number of Trustees
may be filled by the appointment of an individual having the qualifications
described in this Section 2.1 made by action of the Trustees taken as provided
in Section 2.5 hereof. Any such appointment shall not become effective, however,
until the individual named in the written instrument of appointment shall have
accepted in writing such appointment and agreed in writing to be bound by the
terms of this Declaration. No reduction in the number of Trustees shall have the
effect of removing any Trustee from office. Whenever a vacancy occurs, until
such vacancy is filled as provided in Section 2.4 hereof, the Trustees
continuing in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Declaration. A Trustee shall be an individual at least 21 years
of age who is not under legal disability.
2.2. Term and Election. Each Trustee named herein, or elected or appointed
prior to the first meeting of Holders, shall (except in the event of
3
<PAGE>
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 with or without cause by the affirmative
vote of Holders of two-thirds of the Interests or (provided the aggregate number
of Trustees, after such removal and after giving effect to any appointment made
to fill the vacancy created by such removal, shall not be less than the number
required by Section 2.1 hereof) by the action of two-thirds of the remaining
Trustees. Any Trustee who has attained a mandatory retirement age, if any,
established pursuant to any written policy adopted from time to time by a
majority of the Trustees shall, automatically and without action by such Trustee
or the remaining Trustees, be deemed to have retired in accordance with the
terms of such policy, effective as of the date determined in accordance with
such policy. Any Trustee who has become incapacitated by illness or injury as
determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the date of
such Trustee's retirement. Upon the resignation, retirement or removal of a
Trustee, or a Trustee otherwise ceasing to be a Trustee, such resigning,
retired, removed or former Trustee shall execute and deliver such documents as
the remaining Trustees shall require for the purpose of conveying to the Trust
or the remaining Trustees any Trust Property held in the name of such resigning,
retired, removed or former Trustee. Upon the death of any Trustee or upon
removal, retirement or resignation due to any Trustee's incapacity to serve as
Trustee, the legal representative of such deceased, removed, retired or
resigning Trustee shall execute and deliver on behalf of such deceased, removed,
retired or resigning Trustee such documents as the remaining Trustees shall
require for the purpose set forth in the preceding sentence.
2.4. Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, retirement or
removal of a Trustee. No such vacancy shall operate to annul this Declaration or
to revoke any existing agency created pursuant to the terms of this Declaration.
In the case of a vacancy, Holders of at least a majority of the Interests
entitled to vote, acting at any meeting of Holders held in accordance with
Section 9.2 hereof, or, to the extent permitted by the 1940 Act, a majority vote
of the Trustees continuing in office acting by written instrument or
instruments, may fill such vacancy, and any Trustee so elected by the Trustees
or the Holders shall hold office as provided in this Declaration. The Trustees
may appoint a new Trustee as provided above in anticipation of a vacancy
expected to occur because of the retirement, resignation or removal of a
Trustee, or an increase in number of Trustees, provided that such appointment
shall become effective only when or after the
4
<PAGE>
expected vacancy occurs. Subject to the foregoing sentence, as soon as any
Trustee has accepted such appointment in writing, the Trust estate shall vest in
the new Trustee, together with the continuing Trustees, without any further act
or conveyance, and he or she shall be deemed a Trustee hereunder. The power of
appointment is subject to Section 16(a) of the 1940 Act.
2.5. Meetings. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, if any, the President, the Secretary, an
Assistant Secretary or any two Trustees. Regular meetings of the Trustees may be
held without call or notice at a time and place fixed by the By-Laws or by
resolution of the Trustees. Notice of any other meeting shall be mailed or
otherwise given not less than 24 hours before the meeting but may be waived in
writing by any Trustee either before or after such meeting. The attendance of a
Trustee at a meeting shall constitute a waiver of notice of such meeting except
in the situation in which a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting was
not lawfully called or convened. The Trustees may act with or without a meeting.
A quorum for all meetings of the Trustees shall be a majority of the Trustees.
Unless provided otherwise in this Declaration, any action of the Trustees may be
taken at a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the Trustees.
Any committee of the Trustees, including an executive committee, if any,
may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
Any notice, waiver or written consent hereunder may be provided and
delivered to the Trust or a Trustee by facsimile or other similar electronic
mechanism.
With respect to actions of the Trustees and any committee of the Trustees,
Trustees who are Interested Persons of the Trust or otherwise interested in any
action to be taken may be counted for quorum purposes under this Section 2.5 and
shall be entitled to vote to the extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all individuals participating in the
meeting can hear each other and participation in a meeting by means of such
communications equipment shall constitute presence in person at such meeting.
2.6. Officers; Chairman of the Board. The Trustees shall, from time to
time, elect a President, a Secretary and a Treasurer. The Trustees may elect or
appoint, from time to time, a Chairman of the Board who shall preside at all
meetings of the Trustees and carry out such other duties as the Trustees may
designate. The Trustees may elect or appoint or authorize the President to
appoint such other officers, agents or independent contractors
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with such powers as the Trustees may deem to be advisable. The Chairman, if any,
shall be and each other officer may, but need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and, from time to time, amend or
repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
Powers of Trustees
3.1. General. The Trustees shall have exclusive and absolute control over
the Trust Property and over the business of the Trust and each Series to the
same extent as if the Trustees were the sole owners of the Trust Property and
such business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees may perform such acts as in their
sole discretion they deem proper for conducting the business of the Trust and
any Series. The enumeration of or failure to mention any specific power herein
shall not be construed as limiting such exclusive and absolute control. The
powers of the Trustees may be exercised without order of or resort to any court.
The Trustees shall have full power and authority to do any and all acts and
to make and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall have full authority and power to make any and all investments
which they, in their uncontrolled discretion, shall deem proper to accomplish
the purposes of this Trust.
3.2. Investments. The Trustees shall have the power with respect to the
Trust and each Series to:
(a) conduct, operate and carry on the business of an investment company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise acquire,
hold, pledge, sell, assign, transfer, exchange, distribute or otherwise deal in
or dispose of United States and foreign currencies and related instruments
including forward contracts, and securities, including common and preferred
stock, warrants, bonds, debentures, time notes and all other evidences of
indebtedness, negotiable or non-negotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities, forward
contracts, options, futures contracts, and other securities, including, without
limitation, those issued, guaranteed or sponsored by any state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United States
Government, any foreign government, or any agency, instrumentality or political
subdivision of the United States Government or any foreign government, or any
international instrumentality, or by any bank, savings institution, corporation
or other business entity organized under the laws of the United States or any
state or under any foreign laws; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of any kind and description,
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including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons to exercise any of
such rights, powers and privileges in respect of any of such investments; and
the Trustees shall be deemed to have the foregoing powers with respect to any
additional instruments in which the Trustees may determine to invest;
(c) definitively interpret the investment objectives, policies and
limitations of any Series.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3. Legal Title. Legal title to all Trust Property shall be vested in the
Trustees as joint tenants except that the Trustees shall have the power to cause
legal title to any Trust Property to be held by or in the name of one or more of
the Trustees, or in the name of the Trust or any Series, or in the name or
nominee name of any other Person on behalf of the Trust or any Series, on such
terms as the Trustees may determine.
The right, title and interest of the Trustees in the Trust Property shall
vest automatically in each individual who may hereafter become a Trustee upon
his due election and qualification. Upon the resignation, removal or death of a
Trustee, such resigning, removed or deceased Trustee shall automatically cease
to have any right, title or interest in any Trust Property, and the right, title
and interest of such resigning, removed or deceased Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
3.4. Sale and Increases of Interests. The Trustees, in their discretion,
may, from time to time, without a vote of the Holders, permit any Institutional
Investor to purchase an Interest in a Series, or increase such Interest, for
such type of consideration, including cash or property, at such time or times
(including, without limitation, each business day), and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. Individuals, S corporations, partnerships and
grantor trusts that are beneficially owned by any individual, S corporation or
partnership may not purchase Interests. The Trustees, in their discretion, may
refuse to sell an Interest in a Series to any person without any cause or reason
therefor. A Holder which has redeemed its Interest in a Series may not be
permitted to purchase an Interest in such Series until the later of 60 calendar
days after the date of such Redemption or the first day of the Fiscal Year next
succeeding the Fiscal Year during which such Redemption occurred.
3.5 Decreases and Redemptions of Interests. Subject to Article VII hereof,
the Trustees, in their discretion, may, from time to time, without a vote of the
Holders, permit a Holder to redeem its Interest in a Series, or decrease such
Interest, for either cash or property, at such time
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or times (including, without limitation, each business day), and on such terms
as the Trustees may deem best.
3.6. Borrow Money. The Trustees shall have power on behalf of any Series to
borrow money or otherwise obtain credit and to secure the same by mortgaging,
pledging or otherwise subjecting as security the assets belonging to such
Series, as appropriate, including the lending of portfolio securities, and to
endorse, guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person.
3.7. Delegation; Committees. The Trustees shall have power, consistent with
their continuing exclusive and absolute control over the Trust Property and over
the business of the Trust and any Series, to delegate from time to time to such
of their number or to officers, employees, agents or independent contractors of
the Trust or any Series the doing of such things and the execution of such
instruments in either the name of the Trust or any Series or the names of the
Trustees or otherwise as the Trustees may deem expedient.
3.8. Collection and Payment. The Trustees shall have power to collect all
property due to the Trust; and to pay all claims, including taxes, against the
Trust Property on behalf of any Series; to prosecute, defend, compromise or
abandon any claims relating to the Trust or the Trust Property on behalf of any
Series; to foreclose any security interest securing any obligation, by virtue of
which any property is owed to the Trust; and to enter into releases, agreements
and other instruments.
3.9. Expenses. The Trustees shall have power to incur and pay any expenses
from the Trust Property which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the Trust Property to themselves as Trustees.
Permitted expenses of the Trust include, but are not limited to, interest
charges, taxes, brokerage fees and commissions; expenses of sales, increases,
decreases or redemptions of Interests; certain insurance premiums; applicable
fees, interest charges and expenses of third parties, including the Trust's
investment advisers, managers, administrators, placement agents, custodians
transfer agents and fund accountants; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
telecommunications expenses; costs of forming the Trust and its Series and
maintaining its and their existence; costs of preparing and printing the
registration statements and Holder reports of the Trust and each Series and
delivering them to Holders; expenses of meetings of Holders; costs of
maintaining books and accounts; costs of reproduction, stationery and supplies;
fees and expenses of the Trustees; compensation of the Trust's officers and
employees and costs of other personnel performing services for the Trust or any
Series; costs of Trustee meetings; Commission registration fees and related
expenses; state or foreign securities laws registration fees and related
expenses; and for such non-recurring items as may arise, including litigation to
which the Trust or a Series (or a Trustee or officer of the Trust acting as
such) is a party, and for all losses and liabilities by them incurred in
administering the Trust. The Trustees shall have a lien on the assets belonging
to the appropriate Series, or in the case of an expense allocable to more than
one Series, on the assets of each such Series, prior to
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any rights or interests of the Holders thereto, for the reimbursement to them of
such expenses, disbursements, losses and liabilities. The Trustees shall fix the
compensation of all officers, employees and Trustees. The Trustees may pay
themselves such compensation for special services, including legal and brokerage
services, as they in good faith may deem reasonable, and reimbursement for
expenses reasonably incurred by themselves on behalf of the Trust or any Series.
3.10. Miscellaneous Powers. The Trustees shall have power to: (a) employ or
contract with such Persons as the Trustees may deem appropriate for the
transaction of the business of the Trust or any Series and terminate such
employees or contractual relationships as they consider appropriate; (b) enter
into joint ventures, partnerships and any other combinations or associations;
(c) purchase, and pay for out of Trust Property insurance policies insuring the
Investment Adviser, Administrator, placement agent, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not the Trust would
have the power to indemnify such Person against such liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
the Trustees, officers, employees or agents of the Trust or any Series; (e)
prosecute, defend and settle lawsuits in the name of the Trust or any Series and
pay settlements and judgments out of the Trust Property; (f) to the extent
permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Administrator, placement agent, Holders,
Trustees, officers, employees, agents or independent contractors of the Trust,
to such extent as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the Fiscal Year of
the Trust or any Series and the method by which its accounts shall be kept; and
(i) adopt a seal for the Trust or any Series, but the absence of such a seal
shall not impair the validity of any instrument executed on behalf of the Trust
or such Series.
3.11. Further Powers. The Trustees shall have power to conduct the business
of the Trust or any Series and carry on its operations in any and all of its
branches and maintain offices, whether within or without the State of New York,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper, appropriate or desirable in order to
promote the interests of the Trust or any Series although such things are not
herein specifically mentioned. Any determination as to what is in the interests
of the Trust or any Series which is made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration, the presumption
shall be in favor of a grant of power to the Trustees. The Trustees shall not be
required to obtain any court order in order to deal with Trust Property.
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ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements; Custodian
4.1. Investment Advisory and Other Arrangements. The Trustees may in their
discretion, from time to time, enter into investment advisory contracts,
administration contracts, placement agent agreements or other service agreements
whereby the other party to such contract or agreement shall undertake to furnish
with respect to one or more particular Series such investment advisory,
administration, placement agent and/or other services as the Trustees shall,
from time to time, consider appropriate or desirable and all upon such terms and
conditions as the Trustees may in their sole discretion determine.
Notwithstanding any provision of this Declaration, the Trustees may authorize
any Investment Adviser (subject to such general or specific instructions as the
Trustees may, from time to time, adopt) to employ one or more subadvisers and to
effect purchases, sales, loans or exchanges of Trust Property on behalf of any
Series or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of any such
Investment Adviser (all without any further action by the Trustees).
4.2. Parties to Contract. Any contract of the character described in
Section 4.1 or Section 4.3 hereof or in the By-Laws of the Trust may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any individual holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust or
any Series under or by reason of any such contract or accountable for any profit
realized directly or indirectly therefrom, provided that the contract when
entered into was reasonable and fair and not inconsistent with the provisions of
this Article IV or the By-Laws. The same Person may be the other party to one or
more contracts entered into pursuant to Section 4.1 or Section 4.3 hereof or the
By-Laws, and any individual may be financially interested or otherwise
affiliated with Persons who are parties to any or all of the contracts mentioned
in this Section 4.2 or in the By-Laws.
4.3 Custodian. The Trustees shall at all times place and maintain the
securities and similar investments of the Trust on behalf of each Series in
custody meeting the requirements of Section 17(f) of the 1940 Act and the rules
thereunder. The Trustees, on behalf of the Trust or any Series, may enter into
an agreement with a custodian on terms and conditions acceptable to the
Trustees, providing for the custodian, among other things, (a) to hold the
securities owned by the Trust on behalf of any Series and deliver the same upon
written order or oral order confirmed in writing, (b) to receive and receipt for
any moneys due to the Trust on behalf of any Series and deposit the same in its
own banking department or elsewhere, (c) to disburse such funds upon orders or
vouchers, and (d) to employ one or more subcustodians.
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4.4. 1940 Act Governance. Any contract referred to in Section 4.1 hereof
shall be consistent with and subject to the applicable requirements of Section
15 of the 1940 Act and the rules and orders thereunder with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal. No amendment to a contract referred to in
Section 4.1 hereof shall be effective unless assented to in a manner consistent
with the requirements of Section 15 of the 1940 Act, and the rules and orders
thereunder.
ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
5.1. Liability of Holders; Indemnification. Each Holder of an Interest in a
Series shall be jointly and severally liable with every other Holder of an
Interest in that Series (with rights of contribution inter se in proportion to
their respective Interests in the Series) for the liabilities and obligations of
that Series (and of no other Series) in the event that the Trust fails to
satisfy such liabilities and obligations from the assets of that Series;
provided, however, that, to the extent assets of that Series are available in
the Trust, the Trust shall indemnify and hold each Holder harmless from and
against any claim or liability to which such Holder may become subject by reason
of being or having been a Holder of an Interest in that Series to the extent
that such claim or liability imposes on the Holder an obligation or liability
which, when compared to the obligations and liabilities imposed on other Holders
of Interests in that Series, is greater than such Holder's Interest
(proportionate share), and shall reimburse such Holder for all legal and other
expenses reasonably incurred by such Holder in connection with any such claim or
liability. The rights accruing to a Holder under this Section 5.1 shall not
exclude any other right to which such Holder may be lawfully entitled, nor shall
anything contained herein restrict the right of the Trust to indemnify or
reimburse a Holder in any appropriate situation even though not specifically
provided herein. Notwithstanding the indemnification procedure described above,
it is intended that each Holder of an Interest in a Series shall remain jointly
and severally liable to the creditors of that Series as a legal matter. The
liabilities of a particular Series and the right to indemnification granted
hereunder to Holders of Interests in such Series shall not be enforceable
against any other Series or Holders of Interests in any other Series.
5.2. Limitations of Liability of Trustees, Officers, Employees, Agents,
Independent Contractors to Third Parties. No Trustee, officer, employee, agent
or independent contractor (except in the case of an agent or independent
contractor to the extent expressly provided by written contract) of the Trust or
any Series shall be subject to any personal liability whatsoever to any Person,
other than the Trust or the Holders, in connection with Trust Property or the
affairs of the Trust; and all such Persons shall look solely to the Trust
Property for satisfaction of claims of any nature against a Trustee, officer,
employee, agent or independent contractor (except in the case of an agent or
independent contractor to the extent expressly provided by written contract) of
the Trust arising in connection with the affairs of the Trust.
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5.3. Limitations of Liability of Trustees, Officers or Employees to
Trust, Holders, etc. No Trustee, officer or employee of the Trust shall be
liable to the Trust or the Holders for any action or failure to act (including,
without limitation, the failure to compel in any way any former or acting
Trustee to redress any breach of trust) except for such Person's own bad faith,
willful misfeasance, gross negligence or reckless disregard of such Person's
duties.
5.4. Mandatory Indemnification. The Trust shall indemnify, to the
fullest extent permitted by law (including the 1940 Act), each Trustee, officer
or employee of the Trust (including any Person who serves at the Trust's request
as a director, officer or trustee of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred by
such Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to any
matter as to which such Person shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties, such liabilities and expenses being liabilities only of the
Series out of which such claim for indemnification arises; provided, however,
that as to any matter disposed of by a compromise payment by such Person,
pursuant to a consent decree or otherwise, no indemnification either for such
payment or for any other expenses shall be provided unless there has been a
determination that such Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Person's office (i) by the court or other body approving the settlement or
other disposition; or (ii) based upon a review of readily available facts (as
opposed to a full trial-type inquiry), by written opinion from independent legal
counsel approved by the Trustees; or (iii) by a majority of the Trustees who are
neither Interested Persons of the Trust nor parties to the matter, based upon a
review of readily available facts (as opposed to a full trial- type inquiry).
The rights accruing to any Person under these provisions shall not exclude any
other right to which such Person may be lawfully entitled; provided that no
Person may satisfy any right of indemnity or reimbursement granted in this
Section 5.4 or in Section 5.2 hereof or to which such Person may be otherwise
entitled except out of the Trust Property. The rights of indemnification
provided herein may be insured against by policies maintained by the Trust. The
Trustees may make advance payments in connection with indemnification under this
Section 5.4, provided that the indemnified Person shall have given a written
undertaking to reimburse the Trust in the event it is subsequently determined
that such Person is not entitled to such indemnification, and provided further
that either (i) such Person shall have provided appropriate security for such
undertaking, or (ii) the Trust is insured against losses arising out of any such
advance payments, or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is
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reason to believe that such Person will not be disqualified from indemnification
under this Section 5.4.
5.5. No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance of
any of such Trustee's duties hereunder.
5.6. No Duty of Investigation; Notice in Trust Instruments, etc. No
purchaser, lender or other Person dealing with any Trustee, officer, employee,
agent or independent contractor of the Trust or any Series shall be bound to
make any inquiry concerning the validity of any transaction purporting to be
made by such Trustee, officer, employee, agent or independent contractor or be
liable for the application of money or property paid, loaned or delivered to or
on the order of such Trustee, officer, employee, agent or independent
contractor. Every obligation, contract, instrument, certificate or other
interest or undertaking of the Trust or any Series, and every other act or thing
whatsoever executed in connection with the Trust or any Series shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Trustees, officers, employees, agents or independent
contractors of the Trust or any Series. Every written obligation, contract,
instrument, certificate or other interest or undertaking of the Trust or any
Series made or sold by any Trustee, officer or employee of the Trust or any
Series, in such capacity, shall contain an appropriate recital to the effect
that the Trustee, officer or employee of the Trust or any Series shall not
personally be bound by or liable thereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder, and
appropriate references shall be made therein to the Declaration, and may contain
any further recital which they may deem appropriate, but the omission of such
recital shall not operate to impose personal liability on any Trustee, officer
or employee of the Trust or any Series. Subject to the provisions of the 1940
Act, the Trust may maintain insurance for the protection of the Trust Property,
the Holders, and the Trustees, officers or employees of the Trust and any Series
in such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
5.7. Reliance on Experts, etc. Each Trustee, officer or employee of the
Trust and any Series shall, in the performance of such Person's duties, be fully
and completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust or any Series (whether or not the Trust or any Series would
have the power to indemnify such Persons against such liability), upon an
opinion of counsel, or upon reports made to the Trust or any Series by any of
its officers or employees or by any Investment Adviser or Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust or any Series,
regardless of whether such counsel or expert may also be a Trustee.
5.8. No Repeal or Modification. Any repeal or modification of
this Article V by the Holders, or adoption or modification of any other
provision of this Declaration or the By-Laws inconsistent with this Article V,
shall be prospective only, to the extent that such repeal or modification
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would, if applied retrospectively, adversely affect any limitation on the
liability of any Person or indemnification available to any indemnified Person
with respect to any act or omission which occurred prior to such repeal,
modification or adoption.
ARTICLE VI
Interests
6.1. Interests. The beneficial interest in the Trust Property shall consist
of non-transferable Interests. Interests may be sold only to Institutional
Investors, as may be approved by the Trustees, for cash or other consideration
acceptable to the Trustees, subject to the requirements of the 1940 Act. The
Interests shall be personal property giving only the rights in this Declaration
specifically set forth. The value of an Interest shall be equal to the Book
Capital Account balance of the Holder of the Interest.
The Trustees shall have authority, from time to time, to establish Series,
each of which shall be a separate subtrust and the Interests in which shall be
separate and distinct from the Interests in any other Series. The Series shall
include, without limitation, those Series specifically established and
designated pursuant to Section 6.2 hereof, and such other Series as the Trustees
may deem necessary or desirable. The Trustees shall have exclusive power without
the requirement of Holder approval to establish and designate such separate and
distinct Series, and, subject to the provisions of this Declaration and the 1940
Act, to fix and determine the rights of Holders of Interests in such Series,
including with respect to the price, terms and manner of purchase and
redemption, dividends and other distributions, rights on liquidation, sinking or
purchase fund provisions, conversion rights and conditions under which the
Holders of the several Series shall have separate voting rights or no voting
rights.
6.2. Establishment and Designation of Series. The establishment and
designation of any Series shall be effective upon the execution by the Secretary
or an Assistant Secretary of the Trust, pursuant to authorization by a majority
of the Trustees, of an instrument setting forth such establishment and
designation and the relative rights and preferences of the Interests in such
Series, or as otherwise provided in such instrument. At any time that there are
no Interests outstanding of any particular Series previously established and
designated, the Trustees may by resolution adopted by a majority of their
number, and evidenced by an instrument executed by the Secretary or an Assistant
Secretary of the Trust, abolish that Series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration of Trust.
Without limiting the authority of the Trustees set forth above to establish
and designate further Series, the Trustees hereby establish and designate the
Series set forth on Schedule A hereto. The Interests in each of these Series and
any Interests in any further Series that may from time to time be established
and designated by the Trustees shall (unless the Trustees otherwise determine
with respect to some further Series at the time of establishing and designating
the same) have the following relative rights and preferences:
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(a) Assets Belonging to Series. All consideration received by the Trust for
the issue or sale of Interests in a particular Series, together with all assets
in which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall be
held by the Trustees in a separate trust for the benefit of the Holders of
Interests in that Series and shall irrevocably belong to that Series for all
purposes, and shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
belonging to" that Series. No Series shall have any right to or interest in the
assets belonging to any other Series, and no Holder shall have any right or
interest with respect to the assets belonging to any Series in which it does not
hold an Interest.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged with the liabilities in respect of that
Series and all expenses, costs, charges and reserves attributable to that
Series. The liabilities, expenses, costs, charges and reserves so charged to a
Series are herein referred to as "liabilities belonging to" that Series. No
Series shall be liable for or charged with the liabilities belonging to any
other Series, and no Holder shall be subject to any liabilities belonging to any
Series in which it does not hold an Interest.
(c) Voting. On each matter submitted to a vote of the Holders, each Holder
shall be entitled to a vote proportionate to its Interest as recorded on the
books of the Trust. Each Series shall vote as a separate class except as to
voting for Trustees, as otherwise required by the 1940 Act, or if determined by
the Trustees to be a matter which affects all Series. As to any matter which
does not affect the interest of all Series, only the Holders in the one or more
affected Series shall be entitled to vote. On each matter submitted to a vote of
the Holders, a Holder may apportion its vote with respect to a proposal in the
same proportion as its own shareholders voted with respect to that proposal.
6.3. Non-Transferability. A Holder may not transfer its Interest.
6.4. Register of Interests. A register shall be kept at the Trust under the
direction of the Trustees which shall contain the name, address and Book Capital
Account balance of each Holder in each Series. Such register shall be conclusive
as to the identity of the Holders. No Holder shall be entitled to receive
payment of any distribution, nor to have notice given to it as herein provided,
until it has given its address to such officer or agent of the Trust as is
keeping such register for entry thereon.
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ARTICLE VII
Increases, Decreases And Redemptions of Interests
Subject to applicable law, to the provisions of this Declaration and to
such restrictions as may from time to time be adopted by the Trustees, each
Holder may vary its Interest in any Series at any time by increasing (through a
capital contribution) or decreasing (through a capital withdrawal) or by a
Redemption of its Interest. An increase in the Interest of a Holder in a Series
shall be reflected as an increase in the Book Capital Account balance of that
Holder in that Series and a decrease in the Interest of a Holder in a Series or
the Redemption of the Interest of that Holder shall be reflected as a decrease
in the Book Capital Account balance of that Holder in that Series. The Trust
shall, upon appropriate and adequate notice from any Holder, increase, decrease
or redeem such Holder's Interest for an amount determined by the application of
a formula adopted for such purpose by resolution of the Trustees; provided that
(a) the amount received by the Holder upon any such decrease or Redemption shall
not exceed the decrease in the Holder's Book Capital Account balance effected by
such decrease or Redemption of its Interest, and (b) if so authorized by the
Trustees, the Trust may, at any time and from time to time, charge fees for
effecting any such decrease or Redemption, at such rates as the Trustees may
establish, and may, at any time and from time to time, suspend such right of
decrease or Redemption. The procedures for effecting decreases or Redemptions
shall be as determined by the Trustees from time to time.
ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
8.1. Book Capital Account Balances. The Book Capital Account balance of
Holders with respect to a particular Series shall be determined on such days and
at such time or times as the Trustees may determine. The Trustees shall adopt
resolutions setting forth the method of determining the Book Capital Account
balance of each Holder. The power and duty to make calculations pursuant to such
resolutions may be delegated by the Trustees to the Investment Adviser or
Administrator, custodian, or such other Person as the Trustees may determine.
Upon the Redemption of an Interest, the Holder of that Interest shall be
entitled to receive the balance of its Book Capital Account. A Holder may not
transfer its Book Capital Account balance.
8.2. Allocations and Distributions to Holders. The Trustees shall, in
compliance with the Code, the 1940 Act and generally accepted accounting
principles, establish the procedures by which the Trust shall make with respect
to each Series (i) the allocation of unrealized gains and losses, taxable income
and tax loss, and profit and loss, or any item or items thereof, to each Holder,
(ii) the payment of distributions, if any, to Holders, and (iii) upon
liquidation, the final distribution of items of taxable income and expense. Such
procedures shall be set forth in writing and be furnished to the Trust's
accountants. The Trustees may amend the procedures adopted pursuant to this
Section 8.2 from time to time. The
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Trustees may retain from the net profits of each Series such amount as they may
deem necessary to pay the liabilities and expenses of that Series.
8.3. Power to Modify Foregoing Procedures. Notwithstanding any of the
foregoing provisions of this Article VIII, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the net income
and net assets of the Trust and of each Series, the allocation of income of the
Trust and of each Series, the Book Capital Account balance of each Holder, or
the payment of distributions to the Holders as they may deem necessary or
desirable to enable the Trust or a Series to comply with any provision of the
1940 Act or any order of exemption issued by the Commission or with the Code.
ARTICLE IX
Holders
9.1. Rights of Holders. The ownership of the Trust Property and the right
to conduct any business described herein are vested exclusively in the Trustees,
and the Holders shall have no right or title therein other than the beneficial
interest conferred by their Interests and they shall have no power or right to
call for any partition or division of any Trust Property.
The Trust shall be entitled to treat a Holder of record as the holder in
fact and shall not be bound to recognize any equitable or other claim of
interest in such Holder's Interest on the part of any other entity except as may
be otherwise expressly provided by law.
In addition, the Holders shall have power to vote only with respect to (a)
the election of Trustees as provided in Article II, Section 2.4; (b) the removal
of Trustees as provided in Article II, Section 2.3; (c) any investment advisory
contract as provided in Article IV, Section 4.1; (d) any dissolution of a Series
as provided in Article X, Section 10.2; (e) the amendment of this Declaration to
the extent and as provided in Article X, Section 10.4; (f) any merger,
consolidation or sale of assets as provided in Article X, Section 10.5; and (g)
such additional matters relating to the Trust as may be required or authorized
by law, by this Declaration or the By-Laws or any registration statement of the
Trust filed with the Commission, or as the Trustees may consider desirable.
9.2. Meetings of Holders. Meetings of Holders may be called at any time by
a majority of the Trustees and shall be called by any Trustee upon written
request of Holders holding, in the aggregate, not less than 10% of the Interests
in one or more Series (if the meeting relates solely to such Series), or not
less than 10% of the Interests in the Trust (if the meeting relates to the Trust
and not solely to one or more particular Series), such request specifying the
purpose or purposes for which such meeting is to be called. Any such meeting
shall be held within or without the State of New York and within or without the
United States of America on such day and at such time as the Trustees shall
designate. Holders of at least one-third of the Interests in one or more Series
(if the meeting relates solely to such one or more Series) or Holders of at
least one-third of the Interests in the Trust (if the meeting relates to the
Trust and not solely to one or more particular
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Series), present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the 1940
Act, other applicable law, this Declaration or the By-Laws. If a quorum is
present at a meeting, an affirmative vote of the Holders present, in person or
by proxy, holding more than 50% of the total Interests of the Holders present in
a Series or the Trust, as applicable, either in person or by proxy, at such
meeting constitutes the action of the Holders in such Series or the Trust, as
applicable, unless a greater number of affirmative votes is required by the 1940
Act, other applicable law, this Declaration or the By-Laws, and except that a
plurality of the total Interests of the Holders present shall elect a Trustee.
All or any one of more Holders may participate in a meeting of Holders by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other and participation
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting.
9.3. Notice of Meetings. Notice of each meeting of Holders, stating the
time, place and purposes of the meeting, shall be given by the Trustees by mail
to each Holder of the Series or the Trust, as the case may be, at its registered
address, mailed at least 10 days and not more than 60 days before the meeting.
Notice of any meeting may be waived in writing by any Holder either before or
after such meeting. The attendance of a Holder at a meeting shall constitute a
waiver of notice of such meeting except in the situation in which a Holder
attends a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting was not lawfully called or convened. At
any meeting, any business properly before the meeting may be considered whether
or not stated in the notice of the meeting. Any adjourned meeting may be held as
adjourned without further notice.
9.4. Record Date for Meetings, Distributions, etc. For the purpose of
determining the Holders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time fix a date, not more than 90 days
prior to the date of any meeting of Holders or the payment of any distribution
or the taking of any other action, as the case may be, as a record date for the
determination of the Persons to be treated as Holders of the Series or the
Trust, as the case may be, for such purpose.
9.5. Proxies, etc. At any meeting of Holders, any Holder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Secretary, or with such other
officer or agent of the Trust as the Secretary may direct, for verification
prior to the time at which such vote is to be taken. A proxy may be revoked by a
Holder at any time before it has been exercised by placing on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, a later dated proxy or written revocation. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of the Trust or
of one or more Trustees or of one or more officers of the Trust. Only Holders on
the record date shall be entitled to vote. Each such Holder shall be entitled to
a vote proportionate to its Interest in the Series or the Trust, as the case may
be. When an Interest is held jointly by several Persons, any one of them may
vote at any
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meeting in person or by proxy in respect of such Interest, but if more than one
of them is present at such meeting in person or by proxy, and such joint owners
or their proxies so present disagree as to any vote to be cast, such vote shall
not be received in respect of such Interest. A proxy purporting to be executed
by or on behalf of a Holder, including proxies received via telecopy, shall be
deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger.
9.6. Reports. As to each Series, the Trustees shall cause to be prepared
and furnished to each Holder thereof, at least annually as of the end of each
Fiscal Year, a report of operations containing a balance sheet and a statement
of income of such Series prepared in conformity with generally accepted
accounting principles and an opinion of an independent public accountant on such
financial statements. The Trustees shall, in addition, with respect to each
Series furnish to each Holder of such Series at least semi-annually interim
reports of operations containing an unaudited balance sheet as of the end of
such period and an unaudited statement of income for the period from the
beginning of the then-current Fiscal Year to the end of such period.
9.7. Inspection of Records. The records of the Trust shall be open to
inspection by Holders during normal business hours for any purpose not harmful
to the Trust.
9.8. Holder Action by Written Consent. Any action which may be taken on
behalf of the Trust or any Series by Holders may be taken without a meeting if
Holders holding more than 50% of all Interests entitled to vote (or such larger
proportion thereof as shall be required by any express provision of this
Declaration or of applicable law) consent to the action in writing and the
written consents are filed with the records of the meetings of Holders. Such
consents shall be treated for all purposes as a vote taken at a meeting of
Holders. Each such written consent shall be executed by or on behalf of the
Holder delivering such consent and shall bear the date of such execution. No
such written consent shall be effective to take the action referred to therein
unless, within one year of the earliest dated consent, written consents executed
by a sufficient number of Holders to take such action are filed with the records
of the meetings of Holders.
9.9. Notices. Any and all communications, including any and all notices to
which any Holder may be entitled, shall be deemed duly served or given if
mailed, postage prepaid, addressed to a Holder at its last known address as
recorded on the register of the Trust or if delivered to a Holder by courier or
by facsimile or other similar electronic mechanism.
ARTICLE X
Duration; Termination; Dissolution; Amendment; Mergers; Etc.
10.1. Duration. Subject to possible dissolution or termination in
accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration of
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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
Abigail Foote Coolidge 483 Pleasant Street, No. 9 05/04/94
Belmont, MA 02178
Michelle Muriel Rumery 18 Rio Vista Street 07/11/93
North Billerica, MA 01862
Nicole Catherine Rumery 18 Rio Vista Street 12/21/91
North Billerica, MA 01862
Shelby Sara Wyetzner 8 Oak Brook Lane 10/18/90
Merrick, NY 11566
Amanda Jehan Sher Coolidge 483 Pleasant Street, No. 9 08/16/89
Belmont, MA 02178
Caroline Bolger Cima 11 Beechwood Lane 12/23/88
Scarsdale, NY 10583
Adriana L. Saldana 58 Newell Road 03/22/88
Newton, MA 02166
10.2. Dissolution. Any Series shall be dissolved (i) by the affirmative
vote of the Holders of not less than two-thirds of the Interests in the Series
at any meeting of the Holders or by an instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the Holders of not less
than two-thirds of such Interests, (ii) by the Trustees by written notice of
dissolution to the Holders of the Interests in the Series, or (iii) upon the
bankruptcy or withdrawal of a Holder of an Interest in the Series, unless the
remaining Holders of Interests in such Series, by majority vote, agree to
continue the Series. The Trust may be dissolved by action of the Trustees upon
the dissolution of the last remaining Series.
10.3. Termination.
(a) Upon an event of dissolution of the Trust or a Series, unless the Trust
or Series is continued in accordance with the proviso to Section 10.2 above, the
Trust or Series, as applicable, shall be terminated in accordance with the
following provisions:
(i) the Trust or Series, as applicable, shall carry on no business except
for the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the Trust or
Series, as applicable, and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or Series have been
wound up, including the power to fulfill or discharge the contracts of the Trust
or Series, collect
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the assets of the Trust of Series, sell, convey, assign, exchange or otherwise
dispose of all or any part of the Trust Property affected to one or more Persons
at public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay the
liabilities of the Trust or Series, and do all other acts appropriate to
liquidate the business of the Trust or Series; provided that any sale,
conveyance, assignment, exchange or other disposition of all or substantially
all the Trust Property or substantially all of the assets belonging to a
particular Series, other than for cash, shall require approval of the principal
terms of the transaction and the nature and amount of the consideration by the
vote of Holders holding more than 50% of the total Interests in the Trust or
Series, as applicable; and
(iii) after paying or adequately providing for the payment of all
liabilities of the Trust or of the Series being terminated, and upon receipt of
such releases, indemnities and refunding agreements as they deem necessary for
their protection, the Trustees shall distribute the remaining Trust Property of
the Trust or Series, as applicable, in cash or in kind or partly each, among the
Holders according to their respective rights as set forth in the procedures
established pursuant to Section 8.2 hereof.
(b) Upon termination of the Trust or Series and distribution to the Holders
as herein provided, a majority of the Trustees shall execute and file with the
records of the Trust an instrument in writing setting forth the fact of such
termination and distribution. Upon termination of the Trust, the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Holders shall thereupon cease.
10.4. Amendment Procedure.
(a) The Trustees may, without any vote of Holders, amend or otherwise
supplement this Declaration by an instrument in writing executed by a majority
of the Trustees, provided that Holders shall have the right to vote on any
amendment (a) which would affect the voting rights of Holders granted in Article
IX, Section 9.1, (b) to this Section 10.4, (c) required to be approved by
Holders by law or by the Trust's registration statement filed with the
Commission, or (d) submitted to them by the Trustees. Any amendment submitted to
Holders which the Trustees determine would affect the Holders of certain but not
all Series shall be authorized by vote of the Holders of such Series affected
and no vote shall be required of Holders of a Series not affected. Any amendment
applicable to the Trust as a whole, unless otherwise required by law or by this
Declaration or the By-Laws, shall be authorized by vote of the Holders of the
Trust. Notwithstanding anything else herein, any amendment to Article V which
would have the effect of reducing the indemnification and other rights provided
thereby and any repeal or amendment of this sentence shall each require the
affirmative vote of the Holders of two-thirds of the Interests entitled to vote
thereon.
(b) No amendment may be made under Section 10.4(a) hereof which would
change any rights with respect to any Interest by reducing the amount payable
thereon upon liquidation of the Trust or any Series or by diminishing or
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eliminating any voting rights pertaining thereto, except with the vote or
consent of Holders of two-thirds of all Interests which would be so affected by
such amendment.
(c) A certification in recordable form executed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by the
Holders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when filed with the records of the
Trust.
Notwithstanding any other provision hereof, until such time as Interests
are first sold, this Declaration may be terminated or amended in any respect by
the affirmative vote of a majority of the Trustees at any meeting of Trustees or
by an instrument executed by a majority of the Trustees.
10.5. Merger, Consolidation and Sale of Assets. The Trust or any Series may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, or assets belonging to such Series, as applicable, including
good will, upon such terms and conditions and for such consideration when and as
authorized at any meeting of Holders called for such purpose by Majority
Interests Vote of Interests in the Series affected by such action, or by an
instrument in writing without a meeting, consented to by Holders of not less
than a majority of the Interests in the Series affected by such action, and any
such merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the law of the State of
New York, provided however that no such vote shall be required where by
reorganization, purchase of assets or otherwise, the Trust or any affected
Series is the surviving entity.
10.6. Incorporation. Upon a Majority Interests Vote, the Trustees may cause
to be organized or assist in organizing a corporation or corporations under the
law of any jurisdiction or a trust, partnership, association or other
organization to take over the Trust Property or to carry on any business in
which the Trust directly or indirectly has any interest, and to sell, convey and
transfer the Trust Property to any such corporation, trust, partnership,
association or other organization in exchange for the equity interests thereof
or otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contract with any such corporation, trust, partnership,
association or other organization, or any corporation, trust, partnership,
association or other organization in which the Trust holds or is about to
acquire equity interests. The Trustees may also cause a merger or consolidation
between the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted by
law. Nothing contained herein shall be construed as requiring approval of the
Holders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to one or
more of such organizations or entities.
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ARTICLE XI
Miscellaneous
11.1. Certificate of Designation; Agent for Service of Process. If required
by New York law, the Trust shall file, with the Department of State of the State
of New York, a certificate, in the name of the Trust and executed by an officer
of the Trust, designating the Secretary of State of the State of New York as an
agent upon whom process in any action or proceeding against the Trust or any
Series may be served.
11.2. Governing Law. This Declaration is executed by the Trustees and
delivered in the State of New York and with reference to the law thereof, and
the rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed in accordance with the law of the State
of New York and reference shall be specifically made to the trust law of the
State of New York as to the construction of matters not specifically covered
herein or as to which an ambiguity exists.
11.3. Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any one such original counterpart.
11.4. Reliance by Third Parties. Any certificate executed by an individual
who, according to the records of the Trust or of any recording office in which
this Declaration may be recorded, appears to be a Trustee hereunder, certifying
to: (a) the number or identity of Trustees or Holders, (b) the due authorization
of the execution of any instrument or writing, (c) the form of any vote passed
at a meeting of Trustees or Holders, (d) the fact that the number of Trustees or
Holders present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by or the
identity of any officer elected by the Trustees, or (f) the existence of any
fact or facts which in any manner relate to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any Person
dealing with the Trustees.
11.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, or with other applicable law and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned have executed this Declaration of Trust
of St. James Portfolios as of the day and year first above written.
Philip W. Coolidge
As Trustee and not individually
James B. Craver
As Trustee and not individually
Andres E. Saldana
As Trustee and not individually
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SCHEDULE A
St. James Portfolios
Initial Series
Equity Market Portfolio
Bond Market Portfolio
Small Cap Portfolio
Balanced Portfolio
Equity Growth Portfolio
Value Equity Income Portfolio
Fixed Income (Income) Portfolio
Fixed Income (Total Return) Portfolio
Equity (Total Return) Portfolio
Income and Growth Portfolio
International Equity Portfolio
Socially Responsible Portfolio
<PAGE>
CERTIFICATE OF AMENDMENT TO DECLARATION OF TRUST OF ST. JAMES PORTFOLIOS
AMENDMENT NO. 1
JUNE 13, 1994
The undersigned, being the Trustees of St. James Portfolio, a New York
trust (the "Trust"), acting pursuant to Article X, Section 10.4 of the Trust's
Declaration of Trust dated as of May 11, 1994 (the "Declaration"), hereby amend
and restate Schedule A appended to the Declaration in order to change the names
of three of the Trust's twelve initial Series (as defined in the Declaration) as
follows:
Initial Series
Equity Market Portfolio Income Portfolio1
Bond Market Portfolio Total Return Bond Portfolio2
Small Cap Portfolio Equity Portfolio3
Balanced Portfolio Income and Growth Portfolio
Equity Growth Portfolio International Equity Portfolio
Value Equity Income Portfolio Socially Responsible Portfolio
IN WITNESS WHEREOF, the undersigned have as of the year and day first
written above executed this Amendment to the Declaration. This instrument may be
executed by the Trustees on separate counterparts but shall be effective only
when signed by a majority of the Trustees.
Philip W. Coolidge
As Trustee and not Individually
James B. Craver
As Trustee and not Individually
Andres E. Saldana
As Trustee and not Individually
- --------
1Formerly, Fixed Income (Income) Portfolio.
2Formerly, Fixed Income (Total Return) Portfolio.
3Formerly, Equity (Total Return) Portfolio.
<PAGE>
CERTIFICATE OF AMENDMENT TO DECLARATION OF TRUST OF ST. JAMES PORTFOLIOS
AMENDMENT NO. 2
SEPTEMBER 6, 1994
The undersigned, being the Trustees of St. James Portfolio, a New York
trust (the "Trust"), acting pursuant to Article X, Section 10.4 of the Trust's
Declaration of Trust dated as of May 11, 1994 (the "Declaration"), hereby amend
and restate Schedule A appended to the Declaration in order to change the name
of one of the Trust's twelve initial Series (as defined in the Declaration) as
follows:
Initial Series
Equity Market Portfolio Income Portfolio
Bond Market Portfolio Total Return Bond Portfolio
Small Cap Portfolio Equity Portfolio
Balanced Portfolio Income and Growth Portfolio
Equity Growth Portfolio International Portfolio1
Value Equity Income Portfolio Socially Responsible Portfolio
IN WITNESS WHEREOF, the undersigned have as of the year and day first
written above executed this Amendment to the Declaration. This instrument may be
executed by the Trustees on separate counterparts but shall be effective only
when signed by a majority of the Trustees.
Stephen D. Barrett Raymond L. Colotti
As Trustee and not Individually As Trustee and not Individually
William B. Blundin Philip W. Coolidge
As Trustee and not Individually As Trustee and not Individually
David H. Carter John H. Forsgren
As Trustee and not Individually As Trustee and not Individually
- --------
1Formerly, International Equity Portfolio.
ST. JAMES PORTFOLIOS
BY-LAWS
As Adopted May 5, 1994
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I -- Meetings of Holders . . . . . . . . . . . . . 1
Section 1.1 Fixing Record Dates . . . . . . . . . . . 1
Section 1.2 Records at Holder Meetings . . . . . . . . 1
Section 1.3 Inspectors of Election . . . . . . . . . . 1
Section 1.4 Proxies; Voting . . . . . . . . . . . . . 2
Section 1.5 Series Holders Meetings . . . . . . . . . 2
ARTICLE II -- Meetings of Trustees . . . . . . . . . . . . 2
Section 2.1 Annual and Regular Meetings . . . . . 2
Section 2.2 Notice . . . . . . . . . . . . 2
ARTICLE III -- Officers . . . . . . . . . . . . . . . . 2
Section 3.1 Officers of the Trust . . . . . . . 2
Section 3.2 Election and Tenure . . . . . . . 3
Section 3.3 Removal of Officers . . . . . . . 3
Section 3.4 Bonds and Surety . . . . . . . . 3
Section 3.5 Chairman, President and Vice President . 3
Section 3.6 Secretary . . . . . . . . . . . 4
Section 3.7 Treasurer . . . . . . . . . . . 4
Section 3.8 Other Officers and Duties . . . . . 4
ARTICLE IV -- Miscellaneous . . . . . . . . . . . . . . . 5
Section 4.1 Depositories . . . . . . . . . . 5
Section 4.2 Signatures . . . . . . . . . . 5
Section 4.3 Seal . . . . . . . . . . . . 5
Section 4.4 Indemnification . . . . . . . . . 5
Section 4.5 Distribution Disbursing Agents and the
Like . . . . . . . . . . . . 5
ARTICLE V -- Regulations; Amendment of By-Laws . . . . . . . . 6
Section 5.1 Regulations . . . . . . . . . . 6
Section 5.2 Amendment and Repeal of By-Laws . . . 6
i
<PAGE>
BY-LAWS
OF
ST. JAMES PORTFOLIOS
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing St. James Portfolios (the "Trust"), dated as
of May 11, 1994, as from time to time amended (the "Declaration"). All words and
terms capitalized in these By-Laws shall have the meaning or meanings set forth
for such words or terms in the Declaration.
ARTICLE I
Meetings of Holders
Section 1.1. Fixing Record Dates. If the Trustees do not, prior to any
meeting of the Holders, fix a record date, then the date of mailing notice of
the meeting shall be the record date.
Section 1.2. Records at Holder Meetings. At each meeting of the Holders
there shall be open for inspection the minutes of the last previous meeting of
Holders of the Trust and a list of the Holders of the Trust, certified to be
true and correct by the Secretary or other proper agent of the Trust, as of the
record date of the meeting. Such list of Holders shall contain the name of each
Holder in alphabetical order and the address and Interest owned by such Holder
on such record date.
Section 1.3. Inspectors of Election. In advance of any meeting of the
Holders, the Trustees may appoint Inspectors of Election to act at the meeting
or any adjournment thereof. If Inspectors of Election are not so appointed, the
chairman, if any, of any meeting of the Holders may, and on the request of any
Holder or his proxy shall, appoint Inspectors of Election. The number of
Inspectors of Election shall be either one or three. If appointed at the meeting
on the request of one or more Holders or proxies, a Majority Interests Vote
shall determine whether one or three Inspectors of Election are to be appointed,
but failure to allow such determination by the Holders shall not affect the
validity of the appointment of Inspectors of Election. In case any individual
appointed as an Inspector of Election fails to appear or fails or refuses to so
act, the vacancy may be filled by appointment made by the Trustees in advance of
the convening of the meeting or at the meeting by the individual acting as
chairman of the meeting. The Inspectors of Election shall determine the Interest
owned by each Holder, the Interests represented at the meeting, the existence of
a quorum, the authenticity, validity and effect of proxies, shall receive votes,
ballots or consents, shall hear and determine all challenges and questions in
any way arising in connection with the right to vote, shall count and tabulate
all votes or consents, shall determine the results, and shall do such other acts
as may be proper to conduct the election or vote with fairness to all Holders.
If there are three Inspectors of Election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or
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certificate of all. On request of the chairman, if any, of the meeting, or of
any Holder or his proxy, the Inspectors of Election shall make a report in
writing of any challenge or question or matter determined by them and shall
execute a certificate of any facts found by them.
Section 1.4. Proxies; Voting. No proxy shall be valid after one year from
the date of its execution, unless a longer period is expressly stated in such
proxy.
Section 1.5 Series Holders Meetings. Whenever a matter is required to be
voted by Holders of the Trust in the aggregate under Section 9.1 and 9.2 of the
Declaration, the Trust may either hold a meeting of Holders of all series to
vote on such matter, or hold separate meetings of Holders of each of the
individual series to vote on such matter, provided that (i) such separate
meetings shall be held within one year of each other, (ii) a quorum of the
individual series entitled to vote in person or by proxy shall be present at
each such separate meeting, and (iii) a quorum shall be present in the aggregate
at such separate meetings, and the votes of Holders at all such separate
meetings shall be aggregated in order to determine if sufficient votes have been
cast for such matter to be voted.
When separate meetings are held for Holders of each of the individual
series to vote on a matter required to be voted on by Holders of the Trust in
the aggregate, the record date of each such separate meeting shall be determined
in the manner described above in Section 1.1.
ARTICLE II
Meetings of Trustees
Section 2.1. Annual and Regular Meetings. The Trustees shall hold an annual
meeting for the election of officers and the transaction of other business which
may come before such meeting.
Section 2.2. Notice. Notice of a meeting shall be given by mail, by
telegram (which term shall include a cablegram), by telecopier or delivered
personally (which term shall include by telephone). 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, and no notice need be given of
action proposed to be taken by written consent.
ARTICLE III
Officers
Section 3.1. Officers of the Trust. The officers of the Trust shall consist
of a Chairman, if any, a President, a Secretary, a Treasurer and such other
officers or assistant officers, including Vice Presidents, as may be elected by
the Trustees. Any two or more of the offices may be held by the same person. The
Trustees may designate a Vice President as an Executive Vice President and may
designate the order in which the other Vice Presidents may act.
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The Chairman shall be a Trustee, but no other officer of the Trust, including
the President, need be a Trustee.
Section 3.2. Election and Tenure. At the initial organization meeting and
thereafter at each annual meeting of the Trustees, the Trustees shall elect the
Chairman, if any, the President, the Secretary, the Treasurer and such other
officers as the Trustees shall deem necessary or appropriate in order to carry
out the business of the Trust. Such officers shall hold office until the next
annual meeting of the Trustees and until their successors have been duly elected
and qualified. The Trustees may fill any vacancy in office or add any additional
officer at any time.
Section 3.3. Removal of Officers. Any officer may be removed at any time,
with or without cause, by action of a majority of the Trustees. This provision
shall not prevent the making of a contract of employment for a definite term
with any officer and shall have no effect upon any cause of action which any
officer may have as a result of removal in breach of a contract of employment.
Any officer may resign at any time by notice in writing signed by such officer
and delivered or mailed to the Chairman, if any, the President or the Secretary,
and such resignation shall take effect immediately, or at a later date according
to the terms of such notice in writing.
Section 3.4. Bonds and Surety. Any officer may be required by the Trustees
to be bonded for the faithful performance of his duties in such amount and with
such sureties as the Trustees may determine.
Section 3.5. Chairman, President and Vice Presidents. The Chairman, if any,
shall, if present, preside at all meetings of the Holders and of the Trustees
and shall exercise and perform such other powers and duties as may be from time
to time assigned to him by the Trustees. Subject to such supervisory powers, if
any, as may be given by the Trustees to the Chairman, if any, the President
shall be the chief executive officer of the Trust and, subject to the control of
the Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of President of a
corporation. In the absence of the Chairman, if any, the President shall preside
at all meetings of the Holders and, in the absence of the Chairman, the
President shall preside at all meetings of the Trustees. The President shall be,
ex officio, a member of all standing committees of Trustees. Subject to the
direction of the Trustees, the President shall have the power, in the name and
on behalf of the Trust, to execute any and all loan documents, contracts,
agreements, deeds, mortgages and other instruments in writing, and to employ and
discharge employees and agents of the Trust. Unless otherwise directed by the
Trustees, the President shall have full authority and power to attend, to act
and to vote, on behalf of the Trust, at any meeting of any business organization
in which the Trust holds an interest, or to confer such powers upon any other
person, by executing any proxies duly authorizing such person. The President
shall have such further authorities and duties as the Trustees shall from time
to time determine. In the absence or disability of the President, the Vice
Presidents in order of their rank or the Vice President designated by the
Trustees, shall perform all of the duties of the President, and when so acting
shall have all the powers of and be subject to all of the restrictions upon the
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President. Subject to the direction of the President, each Vice President shall
have the power in the name and on behalf of the Trust to execute any and all
loan documents, contracts, agreements, deeds, mortgages and other instruments in
writing, and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees or by the President.
Section 3.6. Secretary. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Holders, Trustees and the Executive
Committee, if any. The results of all actions taken at a meeting of the
Trustees, or by written consent of the Trustees, shall be recorded by the
Secretary. The Secretary shall be custodian of the seal of the Trust, if any,
and (and any other person so authorized by the Trustees) shall affix the seal
or, if permitted, a facsimile thereof, to any instrument executed by the Trust
which would be sealed by a New York corporation executing the same or a similar
instrument and shall attest the seal and the signature or signatures of the
officer or officers executing such instrument on behalf of the Trust. The
Secretary shall also perform any other duties commonly incident to such office
in a New York corporation, and shall have such other authorities and duties as
the Trustees shall from time to time determine.
Section 3.7. Treasurer. Except as otherwise directed by the Trustees, the
Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable and other valuable papers and documents of the Trust, and shall
have and exercise under the supervision of the Trustees and of the President all
powers and duties normally incident to his office. The Treasurer may endorse for
deposit or collection all notes, checks and other instruments payable to the
Trust or to its order and shall deposit all funds of the Trust as may be ordered
by the Trustees or the President. The Treasurer shall keep accurate account of
the books of the Trust's transactions which shall be the property of the Trust,
and which together with all other property of the Trust in his possession, shall
be subject at all times to the inspection and control of the Trustees. Unless
the Trustees shall otherwise determine, the Treasurer shall be the principal
accounting officer of the Trust and shall also be the principal financial
officer of the Trust. The Treasurer shall have such other duties and authorities
as the Trustees shall from time to time determine. Notwithstanding anything to
the contrary herein contained, the Trustees may authorize the Investment Manager
and Administrator to maintain bank accounts and deposit and disburse funds on
behalf of the Trust.
Section 3.8. Other Officers and Duties. The Trustees may elect such other
officers and assistant officers as they shall from time to time determine to be
necessary or desirable in order to conduct the business of the Trust. Assistant
officers shall act generally in the absence of the officer whom they assist and
shall assist that officer in the duties of his office. Each officer, employee
and agent of the Trust shall have such other duties and authorities as may be
conferred upon him by the Trustees or delegated to him by the President.
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ARTICLE IV
Miscellaneous
Section 4.1. Depositories. The funds of the Trust shall be deposited in
such depositories as the Trustees shall designate and shall be drawn out on
checks, drafts or other orders signed by such officer, officers, agent or agents
(including the Investment Manager and Administrator) as the Trustees may from
time to time authorize.
Section 4.2. Signatures. All contracts and other instruments shall be
executed on behalf of the Trust by such officer, officers, agent or agents as
provided in these By-Laws or as the Trustees may from time to time by resolution
provide.
Section 4.3. Seal. The seal of the Trust, if any, may be affixed to any
document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same effect
as if done by a New York corporation.
Section 4.4. Indemnification. Insofar as the conditional advancing of
indemnification monies under Section 5.4 of the Declaration for actions based
upon the 1940 Act may be concerned, such payments will be made only on the
following conditions: (i) the advances must be limited to amounts used, or to be
used, for the preparation or presentation of a defense to the action, including
costs connected with the preparation of a settlement; (ii) advances may be made
only upon receipt of a written promise by, or on behalf of, the recipient to
repay the amount of the advance which exceeds the amount to which it is
ultimately determined that he is entitled to receive from the Trust by reason of
indemnification; and (iii) (a) such promise must be secured by a surety bond,
other suitable insurance or an equivalent form of security which assures that
any repayment may be obtained by the Trust without delay or litigation, which
bond, insurance or other form of security must be provided by the recipient of
the advance, or (b) a majority of a quorum of the Trust's disinterested,
non-party Trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that the recipient of
the advance ultimately will be found entitled to indemnification.
Section 4.5. Distribution Disbursing Agents and the Like. The Trustees
shall have the power to employ and compensate such distribution disbursing
agents, warrant agents and agents for the reinvestment of distributions as they
shall deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustees.
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ARTICLE V
Regulations; Amendment of By-Laws
Section 5.1. Regulations. The Trustees may make such additional rules and
regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the sale and purchase of Interests of the Trust.
Section 5.2. Amendment and Repeal of By-Laws. In accordance with Section
2.7 of the Declaration, the Trustees shall have the power to alter, amend or
repeal the By-Laws or adopt new By-Laws at any time. Action by the Trustees with
respect to the By-Laws shall be taken by an affirmative vote of a majority of
the Trustees. The Trustees shall in no event adopt By-Laws which are in conflict
with the Declaration.
The Declaration refers to the Trustees as Trustees, but not as individuals
or personally; and no Trustee, officer, employee or agent of the Trust shall be
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Trust.
6
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of June 30, 1994 by and between St. James Portfolios, a
New York trust (the "Trust") registered as an open-end investment company under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
and United States Trust Company of the Pacific Northwest, an Oregon corporation
(the "Adviser").
In consideration of the promises and the mutual covenants herein contained,
the Trust and the Adviser agree as follows:
1. Appointment. The Trust appoints the Adviser to act as investment adviser
to the Trust with respect to the series of the Trust listed on Exhibit A hereto
(the "Series") for the period and on the terms set forth in this Agreement. The
Adviser accepts such appointment and agrees to provide an investment program for
the compensation provided by this Agreement. In providing the services and
assuming the obligations set forth herein, the Adviser may, at its own expense,
employ one or more subadvisers; provided that the Adviser understands and agrees
that it shall remain fully responsible for the performance of all the duties set
forth in this Agreement and that it shall supervise the activities of each
subadviser. Any agreement between the Adviser and a subadviser shall be subject
to the renewal, termination and amendment provisions applicable to this
Agreement.
2. Duties of the Adviser. Subject to the direction and control of the Board
of Trustees of the Trust, the Adviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and economic
data; and other information necessary or appropriate for the performance of its
duties under this Agreement;
(b) formulate and continuously review, supervise, and administer an
investment program for each Series;
(c) determine the securities to be purchased by each Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by each such
Series;
<PAGE>
(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the Adviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and
(g) assist the Trust's officers in connection with the operation of the
Trust and perform any further acts that may be necessary to effectuate the
purposes of this Agreement.
3. Supervision and Compliance. The activities of the Adviser shall be
subject at all times to the direction and control of the Board of Trustees of
the Trust and shall comply with: (a) the Declaration of Trust and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (d) the Investment Company Act and the regulations thereunder; (e) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (f) any other applicable laws or regulations;
and (g) such other limitations as the Board of Trustees may adopt.
4. Purchase and Sale of Securities. The Adviser shall, at its own expense,
place orders for the purchase, sale or loan of securities by the Trust either
directly with the issuer or with any broker and/or dealer who deals in such
securities.
(a) In placing orders with brokers and/or dealers, the Adviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Adviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers who provide brokerage and research services
(within the meaning of Section 28(e) of the Securities and Exchange Act of 1934)
to or for the benefit of the Trust and/or other accounts over which the Adviser
exercises investment discretion. The Adviser is authorized to pay a broker who
provides such brokerage and research services a commission for effecting a
securities transaction which is in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Adviser
determines in good faith that such commission was reasonable in relation to the
value of brokerage and research services provided by such broker. This
determination may be viewed in terms of either that particular transaction or of
the overall responsibilities of the Adviser with respect to the accounts as to
which it exercises investment discretion.
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(b) The Adviser may execute transactions through itself and its affiliates
on a securities exchange provided that the commissions paid by the Trust are
"reasonable and fair" compared to commissions received by other brokers having
comparable execution capability and provided that the transactions are effected
pursuant to procedures established by the Board of Trustees of the Trust. An
affiliated broker may transmit, clear and settle transactions for the Trust that
are executed on a securities exchange provided that the affiliated broker
arranges for unaffiliated brokers to execute the transactions.
(c) Notwithstanding the foregoing, the Board of Trustees periodically shall
review the commissions paid by the Trust and determine whether those commissions
were reasonable in relation to the brokerage and research services received. In
addition, the Board of Trustees of the Trust, in its discretion, may instruct
the Adviser to effect all or a portion of its securities transactions with one
or more brokers and/or dealers selected by the Board of Trustees, if it
determines that the use of such brokers and/or dealers is in the best interest
of the Trust.
(d) When the Adviser deems the purchase or sale of a security to be in the
best interest of the Trust as well as other customers, the Adviser, to the
extent permitted by applicable law, may aggregate the securities to be so sold
or purchased in order to obtain the best execution or lower brokerage
commissions. The Adviser also may purchase or sell a particular security for one
or more customers in different amounts. Allocation of the securities purchased
or sold in either manner, as well as the expenses incurred in the transactions,
will be made by the Adviser in a manner that is equitable and consistent with
applicable law and regulations and with its fiduciary obligations to the Trust
and to such other customers.
5. Expenses.
(a) The Adviser shall furnish at its own expense all office space, office
facilities, equipment and personnel necessary or appropriate to the performance
of its duties under this Agreement. The Adviser also shall pay the salaries and
fees of all personnel of the Trust or the Adviser performing services related to
the Adviser's duties under this Agreement.
(b) It is understood that the Trust will pay all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and securities,
maintenance of books and accounts and calculation of
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the net asset value of beneficial interests of each Series), transfer agent and
registrar and dividend disbursing agent of the Trust; expenses of preparing and
mailing reports to investors and regulatory agencies; expenses relating to the
issuance, registration and qualification of shares of each Series, and the
preparation, printing and mailing of prospectuses for such purposes; insurance
premiums; brokerage and other expenses of executing portfolio transactions;
expenses of investors' and Trustees' meetings; organization expenses; and
extraordinary expenses.
6. Compensation of the Adviser. In consideration of the services to be
rendered by the Adviser under this Agreement, the Trust shall pay the Adviser a
fee accrued daily and paid monthly from each Series at an annual rate equal to
that specified in Exhibit A to this Agreement for that Series' average daily net
assets. The fee for any period in which the Adviser serves as investment adviser
pursuant to this Agreement for less than one full month shall be paid for that
portion of the month accrued. For purposes of calculating fees, the value of the
net assets of each Series of the Trust shall be computed in the manner specified
in its Registration Statement on Form N-1A.
7. Services to Others. The services of the Adviser to the Trust are not to
be deemed exclusive, and the Adviser is free to render services to others and to
engage in other activities, provided, however, that those services and
activities do not adversely affect the Adviser's ability to perform its
obligations under this Agreement.
8. Books, Records, and Information. The Adviser shall provide the Trust
with all records concerning the Adviser's activities that the Trust is required
by law to maintain. Any records required to be maintained and preserved pursuant
to the provisions of Rule 31a-1 and Rule 31a-2 under the Investment Company Act
which are prepared or maintained by the Adviser on behalf of the Trust are the
property of the Trust and will be surrendered promptly to the Trust on request.
The Trust also shall comply with all reasonable requests for information by the
Trust's officers or Board of Trustees, including information required for the
Trust's filings with the Securities and Exchange Commission and state securities
commissions.
9. Limitations on Liability.
(a) The Adviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be limited in all cases to the Series and their assets, and the
Adviser shall not seek satisfaction of any such obligation from any Trustee or
shareholder of the Series.
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(b) The Adviser shall give the Trust the benefit of its best judgment and
efforts in rendering services under this Agreement. In the absence of willful
malfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of the Adviser, the Adviser shall not be liable to
the Trust or to any shareholder of the Series for any act or omission in the
course of, or connected with, rendering services under this Agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to each Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to each Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of such
Series; or (ii) the vote of a majority of the full Board of Trustees.
(b) This Agreement may be terminated at any time and as to any one or more
Series, without the payment of any penalty, either by: (i) the Trust, by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Series, on 60 days' written notice to the Adviser; or (ii)
the Adviser, on 90 days' written notice to the Trust. This Agreement shall
terminate immediately in the event of its assignment.
(c) This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Trust or by vote
of a majority of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such amendment.
(d) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested persons"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts
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without giving effect to the choice of law provisions thereof, to the extent
that such laws are consistent with provisions of the Investment Company Act and
the regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for the
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,
regulation, 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.
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IN WITNESS WHEREOF, the Trust and the Adviser have caused this Agreement to
be executed and delivered in their names and on their behalf by the undersigned,
duly authorized officers, all as of the day and year first above written.
Attest: ST. JAMES PORTFOLIOS
/S/ Andres E. Saldana By:/S/ Philip W. Coolidge
Andres E. Saldana Philip W. Coolidge
Assistant Secretary President
Attest: UNITED STATES TRUST COMPANY OF
THE PACIFIC NORTHWEST
By:
Name:
Title:
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Exhibit A
SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
ADVISORY AGREEMENT
Series Names Annual
Fee (as a percentage of the
average daily net assets of a
series)
Equity Market Portfolio 25 basis points
Bond Market Portfolio 25 basis points
Small Cap Portfolio 65 basis points
Balanced Portfolio 65 basis points
Equity Growth Portfolio 65 basis points
Value Equity Income Portfolio 65 basis points
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of September 13, 1994 by and between St. James
Portfolios, a New York trust (the "Trust") registered as an open-end investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and United States Trust Company of the Pacific Northwest, an
Oregon corporation (the "Adviser").
In consideration of the promises and the mutual covenants herein contained,
the Trust and the Adviser agree as follows:
1. Appointment. The Trust appoints the Adviser to act as investment adviser
to the Trust with respect to the series of the Trust listed on Exhibit A hereto
(the "Series") for the period and on the terms set forth in this Agreement. The
Adviser accepts such appointment and agrees to provide an investment program for
the compensation provided by this Agreement. In providing the services and
assuming the obligations set forth herein, the Adviser may, at its own expense,
employ one or more subadvisers; provided that the Adviser understands and agrees
that it shall remain fully responsible for the performance of all the duties set
forth in this Agreement and that it shall supervise the activities of each
subadviser. Any agreement between the Adviser and a subadviser shall be subject
to the renewal, termination and amendment provisions applicable to this
Agreement.
2. Duties of the Adviser. Subject to the direction and control of the Board
of Trustees of the Trust, the Adviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and economic
data; and other information necessary or appropriate for the performance of its
duties under this Agreement;
(b) formulate and continuously review, supervise, and administer an
investment program for the Series;
(c) determine the securities to be purchased by the Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by the Series;
<PAGE>
(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the Adviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and
(g) assist the Trust's officers in connection with the operation of the
Trust and perform any further acts that may be necessary to effectuate the
purposes of this Agreement.
3. Supervision and Compliance. The activities of the Adviser shall be
subject at all times to the direction and control of the Board of Trustees of
the Trust and shall comply with: (a) the Declaration of Trust and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (d) the Investment Company Act and the regulations thereunder; (e) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (f) any other applicable laws or regulations;
and (g) such other limitations as the Board of Trustees may adopt.
4. Purchase and Sale of Securities. The Adviser shall, at its own expense,
place orders for the purchase, sale or loan of securities by the Trust either
directly with the issuer or with any broker and/or dealer who deals in such
securities.
(a) In placing orders with brokers and/or dealers, the Adviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Adviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers who provide brokerage and research services
(within the meaning of Section 28(e) of the Securities and Exchange Act of 1934)
to or for the benefit of the Trust and/or other accounts over which the Adviser
exercises investment discretion. The Adviser is authorized to pay a broker who
provides such brokerage and research services a commission for effecting a
securities transaction which is in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Adviser
determines in good faith that such commission was reasonable in relation to the
value of brokerage and research services provided by such broker. This
determination may be viewed in terms of either that particular transaction or of
the overall responsibilities of the Adviser with respect to the accounts as to
which it exercises investment discretion.
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(b) The Adviser may execute transactions through itself and its affiliates
on a securities exchange provided that the commissions paid by the Trust are
"reasonable and fair" compared to commissions received by other brokers having
comparable execution capability and provided that the transactions are effected
pursuant to procedures established by the Board of Trustees of the Trust. An
affiliated broker may transmit, clear and settle transactions for the Trust that
are executed on a securities exchange provided that the affiliated broker
arranges for unaffiliated brokers to execute the transactions.
(c) Notwithstanding the foregoing, the Board of Trustees periodically shall
review the commissions paid by the Trust and determine whether those commissions
were reasonable in relation to the brokerage and research services received. In
addition, the Board of Trustees of the Trust, in its discretion, may instruct
the Adviser to effect all or a portion of its securities transactions with one
or more brokers and/or dealers selected by the Board of Trustees, if it
determines that the use of such brokers and/or dealers is in the best interest
of the Trust.
(d) When the Adviser deems the purchase or sale of a security to be in the
best interest of the Trust as well as other customers, the Adviser, to the
extent permitted by applicable law, may aggregate the securities to be so sold
or purchased in order to obtain the best execution or lower brokerage
commissions. The Adviser also may purchase or sell a particular security for one
or more customers in different amounts. Allocation of the securities purchased
or sold in either manner, as well as the expenses incurred in the transactions,
will be made by the Adviser in a manner that is equitable and consistent with
applicable law and regulations and with its fiduciary obligations to the Trust
and to such other customers.
5. Expenses.
(a) The Adviser shall furnish at its own expense all office space, office
facilities, equipment and personnel necessary or appropriate to the performance
of its duties under this Agreement. The Adviser also shall pay the salaries and
fees of all personnel of the Trust or the Adviser performing services related to
the Adviser's duties under this Agreement.
(b) It is understood that the Trust will pay all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and securities,
maintenance of books and accounts and calculation of
3
<PAGE>
the net asset value of beneficial interests of the Series), transfer agent and
registrar and dividend disbursing agent of the Trust; expenses of preparing and
mailing reports to investors and regulatory agencies; expenses relating to the
issuance, registration and qualification of shares of the Series, and the
preparation, printing and mailing of prospectuses for such purposes; insurance
premiums; brokerage and other expenses of executing portfolio transactions;
expenses of investors' and Trustees' meetings; organization expenses; and
extraordinary expenses.
6. Compensation of the Adviser. In consideration of the services to be
rendered by the Adviser under this Agreement, the Trust shall pay the Adviser a
fee accrued daily and paid monthly from the Series at an annual rate equal to
that specified in Exhibit A to this Agreement for the Series' average daily net
assets. The fee for any period in which the Adviser serves as investment adviser
pursuant to this Agreement for less than one full month shall be paid for that
portion of the month accrued. For purposes of calculating fees, the value of the
net assets of the Series shall be computed in the manner specified in its
Registration Statement on Form N-1A.
7. Services to Others. The services of the Adviser to the Trust are not to
be deemed exclusive, and the Adviser is free to render services to others and to
engage in other activities, provided, however, that those services and
activities do not adversely affect the Adviser's ability to perform its
obligations under this Agreement.
8. Books, Records, and Information. The Adviser shall provide the Trust
with all records concerning the Adviser's activities that the Trust is required
by law to maintain. Any records required to be maintained and preserved pursuant
to the provisions of Rule 31a-1 and Rule 31a-2 under the Investment Company Act
which are prepared or maintained by the Adviser on behalf of the Trust are the
property of the Trust and will be surrendered promptly to the Trust on request.
The Trust also shall comply with all reasonable requests for information by the
Trust's officers or Board of Trustees, including information required for the
Trust's filings with the Securities and Exchange Commission and state securities
commissions.
9. Limitations on Liability.
(a) The Adviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be limited in all cases to the Series and its assets, and the
Adviser shall not seek satisfaction of any such obligation from any Trustee or
shareholder of the Series.
4
<PAGE>
(b) The Adviser shall give the Trust the benefit of its best judgment and
efforts in rendering services under this Agreement. In the absence of willful
malfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of the Adviser, the Adviser shall not be liable to
the Trust or to any shareholder of the Series for any act or omission in the
course of, or connected with, rendering services under this Agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to the Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to the Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of the
Series; or (ii) the vote of a majority of the full Board of Trustees.
(b) This Agreement may be terminated at any time, without the payment of
any penalty, either by: (i) the Trust, by action of the Board of Trustees or by
vote of a majority of the outstanding voting securities of the Series, on 60
days' written notice to the Adviser; or (ii) the Adviser, on 90 days' written
notice to the Trust. This Agreement shall terminate immediately in the event of
its assignment.
(c) This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Trust or by vote
of a majority of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such amendment.
(d) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested persons"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the choice of
law provisions thereof, to
5
<PAGE>
the extent that such laws are consistent with provisions of the Investment
Company Act and the regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for the
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,
regulation, 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.
IN WITNESS WHEREOF, the Trust and the Adviser have caused this Agreement to
be executed and delivered in their names and on their behalf by the undersigned,
duly authorized officers, all as of the day and year first above written.
Attest: ST. JAMES PORTFOLIOS
/S/ Andres E. Saldana By:/S/ Philip W. Coolidge
Andres E. Saldana Philip W. Coolidge
Assistant Secretary President
Attest: UNITED STATES TRUST COMPANY OF
THE PACIFIC NORTHWEST
By:
Name:
Title:
6
<PAGE>
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
ADVISORY AGREEMENT
Series Name Annual Fee
(as a percentage of the average
daily net assets of the series)
International Portfolio 100 basis points
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of September 13, 1994 by and between St. James
Portfolios, a New York trust (the "Trust") registered as an open-end investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and United States Trust Company of New York, a New York trust
company (the "Adviser").
In consideration of the promises and the mutual covenants herein contained,
the Trust and the Adviser agree as follows:
1. Appointment. The Trust appoints the Adviser to act as investment adviser
to the Trust with respect to the series of the Trust listed on Exhibit A hereto
(the "Series") for the period and on the terms set forth in this Agreement. The
Adviser accepts such appointment and agrees to provide an investment program for
the compensation provided by this Agreement. In providing the services and
assuming the obligations set forth herein, the Adviser may, at its own expense,
employ one or more subadvisers; provided that the Adviser understands and agrees
that it shall remain fully responsible for the performance of all the duties set
forth in this Agreement and that it shall supervise the activities of each
subadviser. Any agreement between the Adviser and a subadviser shall be subject
to the renewal, termination and amendment provisions applicable to this
Agreement.
2. Duties of the Adviser. Subject to the direction and control of the Board
of Trustees of the Trust, the Adviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and economic
data; and other information necessary or appropriate for the performance of its
duties under this Agreement;
(b) formulate and continuously review, supervise, and administer an
investment program for the Series;
(c) determine the securities to be purchased by the Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by the Series;
<PAGE>
(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the Adviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and
(g) assist the Trust's officers in connection with the operation of the
Trust and perform any further acts that may be necessary to effectuate the
purposes of this Agreement.
3. Supervision and Compliance. The activities of the Adviser shall be
subject at all times to the direction and control of the Board of Trustees of
the Trust and shall comply with: (a) the Declaration of Trust and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (d) the Investment Company Act and the regulations thereunder; (e) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (f) any other applicable laws or regulations;
and (g) such other limitations as the Board of Trustees may adopt.
4. Purchase and Sale of Securities. The Adviser shall, at its own expense,
place orders for the purchase, sale or loan of securities by the Trust either
directly with the issuer or with any broker and/or dealer who deals in such
securities.
(a) In placing orders with brokers and/or dealers, the Adviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Adviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers who provide brokerage and research services
(within the meaning of Section 28(e) of the Securities and Exchange Act of 1934)
to or for the benefit of the Trust and/or other accounts over which the Adviser
exercises investment discretion. The Adviser is authorized to pay a broker who
provides such brokerage and research services a commission for effecting a
securities transaction which is in excess of the amount of commission another
broker would have charged for effecting that transaction, if the Adviser
determines in good faith that such commission was reasonable in relation to the
value of brokerage and research services provided by such broker. This
determination may be viewed in terms of either that particular transaction or of
the overall responsibilities of the Adviser with respect to the accounts as to
which it exercises investment discretion.
2
<PAGE>
(b) The Adviser may execute transactions through itself and its affiliates
on a securities exchange provided that the commissions paid by the Trust are
"reasonable and fair" compared to commissions received by other brokers having
comparable execution capability and provided that the transactions are effected
pursuant to procedures established by the Board of Trustees of the Trust. An
affiliated broker may transmit, clear and settle transactions for the Trust that
are executed on a securities exchange provided that the affiliated broker
arranges for unaffiliated brokers to execute the transactions.
(c) Notwithstanding the foregoing, the Board of Trustees periodically shall
review the commissions paid by the Trust and determine whether those commissions
were reasonable in relation to the brokerage and research services received. In
addition, the Board of Trustees of the Trust, in its discretion, may instruct
the Adviser to effect all or a portion of its securities transactions with one
or more brokers and/or dealers selected by the Board of Trustees, if it
determines that the use of such brokers and/or dealers is in the best interest
of the Trust.
(d) When the Adviser deems the purchase or sale of a security to be in the
best interest of the Trust as well as other customers, the Adviser, to the
extent permitted by applicable law, may aggregate the securities to be so sold
or purchased in order to obtain the best execution or lower brokerage
commissions. The Adviser also may purchase or sell a particular security for one
or more customers in different amounts. Allocation of the securities purchased
or sold in either manner, as well as the expenses incurred in the transactions,
will be made by the Adviser in a manner that is equitable and consistent with
applicable law and regulations and with its fiduciary obligations to the Trust
and to such other customers.
5. Expenses.
(a) The Adviser shall furnish at its own expense all office space, office
facilities, equipment and personnel necessary or appropriate to the performance
of its duties under this Agreement. The Adviser also shall pay the salaries and
fees of all personnel of the Trust or the Adviser performing services related to
the Adviser's duties under this Agreement.
(b) It is understood that the Trust will pay all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and securities,
maintenance of books and accounts and calculation of
3
<PAGE>
the net asset value of beneficial interests of the Series), transfer agent and
registrar and dividend disbursing agent of the Trust; expenses of preparing and
mailing reports to investors and regulatory agencies; expenses relating to the
issuance, registration and qualification of shares of the Series, and the
preparation, printing and mailing of prospectuses for such purposes; insurance
premiums; brokerage and other expenses of executing portfolio transactions;
expenses of investors' and Trustees' meetings; organization expenses; and
extraordinary expenses.
6. Compensation of the Adviser. In consideration of the services to be
rendered by the Adviser under this Agreement, the Trust shall pay the Adviser a
fee accrued daily and paid monthly from the Series at an annual rate equal to
that specified in Exhibit A to this Agreement for the Series' average daily net
assets. The fee for any period in which the Adviser serves as investment adviser
pursuant to this Agreement for less than one full month shall be paid for that
portion of the month accrued. For purposes of calculating fees, the value of the
net assets of the Series shall be computed in the manner specified in its
Registration Statement on Form N-1A.
7. Services to Others. The services of the Adviser to the Trust are not to
be deemed exclusive, and the Adviser is free to render services to others and to
engage in other activities, provided, however, that those services and
activities do not adversely affect the Adviser's ability to perform its
obligations under this Agreement.
8. Books, Records, and Information. The Adviser shall provide the Trust
with all records concerning the Adviser's activities that the Trust is required
by law to maintain. Any records required to be maintained and preserved pursuant
to the provisions of Rule 31a-1 and Rule 31a-2 under the Investment Company Act
which are prepared or maintained by the Adviser on behalf of the Trust are the
property of the Trust and will be surrendered promptly to the Trust on request.
The Trust also shall comply with all reasonable requests for information by the
Trust's officers or Board of Trustees, including information required for the
Trust's filings with the Securities and Exchange Commission and state securities
commissions.
9. Limitations on Liability.
(a) The Adviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be limited in all cases to the Series and its assets, and the
Adviser shall not seek satisfaction of any such obligation from any Trustee or
shareholder of the Series.
4
<PAGE>
(b) The Adviser shall give the Trust the benefit of its best judgment and
efforts in rendering services under this Agreement. In the absence of willful
malfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of the Adviser, the Adviser shall not be liable to
the Trust or to any shareholder of the Series for any act or omission in the
course of, or connected with, rendering services under this Agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to the Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to the Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of the
Series; or (ii) the vote of a majority of the full Board of Trustees.
(b) This Agreement may be terminated at any time, without the payment of
any penalty, either by: (i) the Trust, by action of the Board of Trustees or by
vote of a majority of the outstanding voting securities of the Series, on 60
days' written notice to the Adviser; or (ii) the Adviser, on 90 days' written
notice to the Trust. This Agreement shall terminate immediately in the event of
its assignment.
(c) This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Trust or by vote
of a majority of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such amendment.
(d) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested persons"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the choice of
law provisions thereof, to
5
<PAGE>
the extent that such laws are consistent with provisions of the Investment
Company Act and the regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for the
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,
regulation, 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.
IN WITNESS WHEREOF, the Trust and the Adviser have caused this Agreement to
be executed and delivered in their names and on their behalf by the undersigned,
duly authorized officers, all as of the day and year first above written.
Attest: ST. JAMES PORTFOLIOS
/S/ Andres E. Saldana By:/S/ Philip W. Coolidge
Andres E. Saldana Philip W. Coolidge
Assistant Secretary President
Attest: UNITED STATES TRUST COMPANY OF
NEW YORK
By:
Name:
Title:
6
<PAGE>
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
ADVISORY AGREEMENT
Series Name Annual Fee (as a percentage of
the average daily net assets
of the series)
Income Portfolio 65 basis points
Total Return Bond Portfolio 65 basis points
Equity Portfolio 65 basis points
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of June 30, 1994 by and between United States Trust
Company of the Pacific Northwest, an Oregon corporation (the "Adviser"), and
Becker Capital Management, Inc., an Oregon corporation (the "Subadviser").
In consideration of the promises and the mutual covenants herein contained,
the Adviser and the Subadviser agree as follows:
1. Appointment. The Adviser has been retained by St. James Portfolios, a
New York trust (the "Trust") to act as investment adviser to the Trust with
respect to the series of the Trust listed on Exhibit A hereto (the "Series"). In
accordance with and subject to the Investment Advisory Agreement between the
Trust and the Adviser, attached hereto as Exhibit B (the "Advisory Agreement"),
the Adviser appoints the Subadviser to act as subadviser with respect to the
Series for the period and on the terms set forth in this Agreement. The
Subadviser accepts such appointment and agrees to provide an investment program
for the compensation provided by this Agreement.
2. Duties of the Subadviser. Subject to the direction and control of the
Adviser and the Board of Trustees of the Trust, the Subadviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and economic
data; and other information necessary or appropriate for the performance of its
duties under this Agreement;
(b) formulate and continuously review, supervise, and administer an
investment program for each Series;
(c) determine the securities to be purchased by each Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by each Series;
(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the Subadviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and
<PAGE>
(g) assist the Adviser and the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.
3. Supervision and Compliance. Notwithstanding any provision of this
Agreement, the Adviser shall retain all rights and ultimate responsibilities to
supervise, and, in its discretion, conduct investment advisory activities
relating to the Trust. The activities of the Subadviser shall be subject at all
times to the direction and control of the Board of Trustees of the Trust and the
Adviser and shall comply with: (a) the Declaration of Trust and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (d) the Investment Company Act and the regulations thereunder; (e) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (f) any other applicable laws or regulations;
and (g) such other limitations as the Adviser or the Board of Trustees of the
Trust may adopt.
4. Purchase and Sale of Securities. The Subadviser shall, at its own
expense, place orders for the purchase, sale or loan of securities by the Trust
either directly with the issuer or with any broker and/or dealer who deals in
such securities.
(a) In placing orders with brokers and/or dealers, the Subadviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Subadviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers who provide brokerage and research services
(within the meaning of Section 28(e) of the Securities and Exchange Act of 1934)
to or for the benefit of the Trust and/or other accounts over which the
Subadviser exercises investment discretion. The Subadviser is authorized to pay
a broker who provides such brokerage and research services a commission for
effecting a securities transaction which is in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Subadviser determines in good faith that such commission was reasonable in
relation to the value of brokerage and research services provided by such
broker. This determination may be viewed in terms of either that particular
transaction or of the overall responsibilities of the Subadviser with respect to
the accounts as to which it exercises investment discretion.
2
<PAGE>
(b) The Subadviser may execute transactions through itself and its
affiliates on a securities exchange provided that the commissions paid by the
Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.
(c) Notwithstanding the foregoing, the Board of Trustees and the Adviser
periodically shall review the commissions paid by the Trust and determine
whether those commissions were reasonable in relation to the brokerage and
research services received. In addition, the Board of Trustees of the Trust, in
its discretion, may instruct the Subadviser to effect all or a portion of its
securities transactions with one or more brokers and/or dealers selected by the
Board of Trustees, if it determines that the use of such brokers and/or dealers
is in the best interest of the Trust.
(d) When the Subadviser deems the purchase or sale of a security to be in
the best interest of the Trust as well as other customers, the Subadviser, to
the extent permitted by applicable law, may aggregate the securities to be so
sold or purchased in order to obtain the best execution or lower brokerage
commissions. The Subadviser also may purchase or sell a particular security for
one or more customers in different amounts. Allocation of the securities
purchased or sold in either manner, as well as the expenses incurred in the
transactions, will be made by the Subadviser in a manner that is equitable and
consistent with applicable law and regulations and with its fiduciary
obligations to the Trust and to such other customers.
5. Expenses.
(a) The Subadviser shall furnish at its own expense all office space,
office facilities, equipment and personnel necessary or appropriate to the
performance of its duties under this Agreement. The Subadviser also shall pay
the salaries of all personnel performing services related to the Subadviser's
duties under this Agreement.
(b) It is understood that the Trust will pay all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and
3
<PAGE>
securities, maintenance of books and accounts and calculation of the net asset
value of beneficial interests of each Series), transfer agent and registrar and
dividend disbursing agent of the Trust; expenses of preparing and mailing
reports to investors and regulatory agencies; expenses relating to the issuance,
registration and qualification of shares of each Series, and the preparation,
printing and mailing of prospectuses for such purposes;insurance premiums;
brokerage and other expenses of executing portfolio transactions; expenses of
investors' and Trustees' meetings; organization expenses; and extraordinary
expenses.
6. Compensation of the Subadviser. In consideration of the services to be
rendered by the Subadviser under this Agreement, the Adviser shall pay the
Subadviser a fee accrued daily and paid monthly at an annual rate equal to that
specified in Exhibit A to this Agreement for that Series' average daily net
assets. The fee for any period in which the Subadviser serves as investment
adviser pursuant to this Agreement for less than one full month shall be paid
for that portion of the month accrued. For purposes of calculating fees, the
value of the net assets of each Series of the Trust shall be computed in the
manner specified in its Registration Statement on Form N-1A.
7. Services to Others. The services of the Subadviser to the Adviser and
the Trust are not to be deemed exclusive, and the Subadviser is free to render
services to others and to engage in other activities, provided, however, that
those services and activities do not adversely affect the Subadviser's ability
to perform its obligations under this Agreement.
8. Books, Records, and Information. The Subadviser shall provide the
Adviser and the Trust with all records concerning the Subadviser's activities
that the Trust is required by law to maintain. Any records required to be
maintained and preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
under the Investment Company Act which are prepared or maintained by the
Subadviser on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request. The Subadviser also shall comply
with all reasonable requests for information by the Adviser or the Trust's
officers or Board of Trustees, including information required for the Trust's
filings with the Securities and Exchange Commission and state securities
commissions.
9. Limitations on Liability.
(a) The Subadviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be
4
<PAGE>
limited in all cases to the Series and their assets, and the Subadviser shall
not seek satisfaction of any such obligation from any Trustee or shareholder of
the Series.
(b) The Subadviser shall give the Adviser and the Trust the benefit of its
best judgment and efforts in rendering services under this Agreement. In the
absence of willful malfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Subadviser, the
Subadviser shall not be liable to the Trust, to any shareholder of the Series or
to the Adviser for any act or omission in the course of, or connected with,
rendering services under this Agreement or for any losses that may be sustained
in the purchase, holding or sale of any security. The Adviser agrees that the
Subadviser shall not be liable for, and shall be indemnified and held harmless
by the Adviser for, any losses, liabilities, or expenses that the Subadviser may
incur due to errors of judgment, mistakes, acts or ommission of the Adviser.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to each Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to each Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of such
Series; or (ii) the vote of a majority of the full Board of Trustees.
(b) This Agreement may be terminated at any time and as to any one or more
Series, without the payment of any penalty, either by: (i) the Trust, by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Series, on 60 days' written notice to the Subadviser; (ii)
the Adviser, on 60 days' written notice to the Subadviser; or (iii) the
Subadviser, on 90 days' written notice to the Adviser and the Trust. This
Agreement shall terminate immediately in the event of its assignment.
(c) This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Trust or by vote
of a majority of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons of any such
5
<PAGE>
party, cast in person at a meeting called for the purpose of voting on such
amendment.
(d) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested persons"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the choice of
law provisions thereof, to the extent that such laws are consistent with
provisions of the Investment Company Act and the regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for the
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,
regulation, 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.
IN WITNESS WHEREOF, the Adviser and the Subadviser have caused this
Agreement to be executed and delivered in their names and on their behalf by the
undersigned, duly authorized officers, all as of the day and year first above
written.
UNITED STATES TRUST COMPANY OF THE
PACIFIC NORTHWEST
By: /S/ Stephen C. Brent
Name: Stephen c. Brent
Title: Senior Vice President
BECKER CAPITAL MANAGEMENT, INC.
By: /S/ Paul Becker
Name: Paul Becker
Title: President
6
<PAGE>
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
SUBADVISORY AGREEMENT
Series Names Annual
Fee (as a percentage of the
average daily net assets of a
series)
Balanced Portfolio 42.5 basis points on first $20
million
20 basis points on assets in excess
of $20 million
<PAGE>
Exhibit B
COPY OF EXECUTED INVESTMENT ADVISORY AGREEMENT
BETWEEN ST. JAMES PORTFOLIOS AND
UNITED STATES TRUST COMPANY OF THE PACIFIC NORTHWEST
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of September 13, 1994 by and between United States Trust
Company of the Pacific Northwest, an Oregon corporation (the "Adviser"), and
Harding Loevner, an Oregon corporation (the "Subadviser").
In consideration of the promises and the mutual covenants herein contained,
the Adviser and the Subadviser agree as follows:
1. Appointment. The Adviser has been retained by St. James Portfolios, a
New York trust (the "Trust") to act as investment adviser to the Trust with
respect to the series of the Trust listed on Exhibit A hereto (the "Series"). In
accordance with and subject to the Investment Advisory Agreement between the
Trust and the Adviser, attached hereto as Exhibit B (the "Advisory Agreement"),
the Adviser appoints the Subadviser to act as subadviser with respect to the
Series for the period and on the terms set forth in this Agreement. The
Subadviser accepts such appointment and agrees to provide an investment program
for the compensation provided by this Agreement.
2. Duties of the Subadviser. Subject to the direction and control of the
Adviser and the Board of Trustees of the Trust, the Subadviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and economic
data; and other information necessary or appropriate for the performance of its
duties under this Agreement;
(b) formulate and continuously review, supervise, and administer an
investment program for each Series;
(c) determine the securities to be purchased by each Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by each Series;
(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the Subadviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and
<PAGE>
(g) assist the Adviser and the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.
3. Supervision and Compliance. Notwithstanding any provision of this
Agreement, the Adviser shall retain all rights and ultimate responsibilities to
supervise, and, in its discretion, conduct investment advisory activities
relating to the Trust. The activities of the Subadviser shall be subject at all
times to the direction and control of the Board of Trustees of the Trust and the
Adviser and shall comply with: (a) the Declaration of Trust and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (d) the Investment Company Act and the regulations thereunder; (e) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (f) any other applicable laws or regulations;
and (g) such other limitations as the Adviser or the Board of Trustees of the
Trust may adopt.
4. Purchase and Sale of Securities. The Subadviser shall, at its own
expense, place orders for the purchase, sale or loan of securities by the Trust
either directly with the issuer or with any broker and/or dealer who deals in
such securities.
(a) In placing orders with brokers and/or dealers, the Subadviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Subadviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers who provide brokerage and research services
(within the meaning of Section 28(e) of the Securities and Exchange Act of 1934)
to or for the benefit of the Trust and/or other accounts over which the
Subadviser exercises investment discretion. The Subadviser is authorized to pay
a broker who provides such brokerage and research services a commission for
effecting a securities transaction which is in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Subadviser determines in good faith that such commission was reasonable in
relation to the value of brokerage and research services provided by such
broker. This determination may be viewed in terms of either that particular
transaction or of the overall responsibilities of the Subadviser with respect to
the accounts as to which it exercises investment discretion.
2
<PAGE>
(b) The Subadviser may execute transactions through itself and its
affiliates on a securities exchange provided that the commissions paid by the
Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.
(c) Notwithstanding the foregoing, the Board of Trustees and the Adviser
periodically shall review the commissions paid by the Trust and determine
whether those commissions were reasonable in relation to the brokerage and
research services received. In addition, the Board of Trustees of the Trust, in
its discretion, may instruct the Subadviser to effect all or a portion of its
securities transactions with one or more brokers and/or dealers selected by the
Board of Trustees, if it determines that the use of such brokers and/or dealers
is in the best interest of the Trust.
(d) When the Subadviser deems the purchase or sale of a security to be in
the best interest of the Trust as well as other customers, the Subadviser, to
the extent permitted by applicable law, may aggregate the securities to be so
sold or purchased in order to obtain the best execution or lower brokerage
commissions. The Subadviser also may purchase or sell a particular security for
one or more customers in different amounts. Allocation of the securities
purchased or sold in either manner, as well as the expenses incurred in the
transactions, will be made by the Subadviser in a manner that is equitable and
consistent with applicable law and regulations and with its fiduciary
obligations to the Trust and to such other customers.
5. Expenses.
(a) The Subadviser shall furnish at its own expense all office space,
office facilities, equipment and personnel necessary or appropriate to the
performance of its duties under this Agreement. The Subadviser also shall pay
the salaries of all personnel performing services related to the Subadviser's
duties under this Agreement.
(b) It is understood that the Trust will pay all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and
3
<PAGE>
securities, maintenance of books and accounts and calculation of the net asset
value of beneficial interests of each Series), transfer agent and registrar and
dividend disbursing agent of the Trust; expenses of preparing and mailing
reports to investors and regulatory agencies; expenses relating to the issuance,
registration and qualification of shares of each Series, and the preparation,
printing and mailing of prospectuses for such purposes;insurance premiums;
brokerage and other expenses of executing portfolio transactions; expenses of
investors' and Trustees' meetings; organization expenses; and extraordinary
expenses.
6. Compensation of the Subadviser. In consideration of the services to be
rendered by the Subadviser under this Agreement, the Adviser shall pay the
Subadviser a fee accrued daily and paid monthly at an annual rate equal to that
specified in Exhibit A to this Agreement for that Series' average daily net
assets. The fee for any period in which the Subadviser serves as investment
adviser pursuant to this Agreement for less than one full month shall be paid
for that portion of the month accrued. For purposes of calculating fees, the
value of the net assets of each Series of the Trust shall be computed in the
manner specified in its Registration Statement on Form N-1A.
7. Services to Others. The services of the Subadviser to the Adviser and
the Trust are not to be deemed exclusive, and the Subadviser is free to render
services to others and to engage in other activities, provided, however, that
those services and activities do not adversely affect the Subadviser's ability
to perform its obligations under this Agreement.
8. Books, Records, and Information. The Subadviser shall provide the
Adviser and the Trust with all records concerning the Subadviser's activities
that the Trust is required by law to maintain. Any records required to be
maintained and preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
under the Investment Company Act which are prepared or maintained by the
Subadviser on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request. The Subadviser also shall comply
with all reasonable requests for information by the Adviser or the Trust's
officers or Board of Trustees, including information required for the Trust's
filings with the Securities and Exchange Commission and state securities
commissions.
9. Limitations on Liability.
(a) The Subadviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be
4
<PAGE>
limited in all cases to the Series and their assets, and the Subadviser shall
not seek satisfaction of any such obligation from any Trustee or shareholder of
the Series.
(b) The Subadviser shall give the Adviser and the Trust the benefit of its
best judgment and efforts in rendering services under this Agreement. In the
absence of willful malfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Subadviser, the
Subadviser shall not be liable to the Trust, to any shareholder of the Series or
to the Adviser for any act or omission in the course of, or connected with,
rendering services under this Agreement or for any losses that may be sustained
in the purchase, holding or sale of any security. The Adviser agrees that the
Subadviser shall not be liable for, and shall be indemnified and held harmless
by the Adviser for, any losses, liabilities, or expenses that the Subadviser may
incur due to errors of judgment, mistakes, acts or omission of the Adviser.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to each Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to each Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of such
Series; or (ii) the vote of a majority of the full Board of Trustees.
(b) This Agreement may be terminated at any time and as to any one or more
Series, without the payment of any penalty, either by: (i) the Trust, by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Series, on 60 days' written notice to the Subadviser; (ii)
the Adviser, on 60 days' written notice to the Subadviser; or (iii) the
Subadviser, on 90 days' written notice to the Adviser and the Trust. This
Agreement shall terminate immediately in the event of its assignment.
(c) This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Trust or by vote
of a majority of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons of any such
5
<PAGE>
party, cast in person at a meeting called for the purpose of voting on such
amendment.
(d) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested persons"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the choice of
law provisions thereof, to the extent that such laws are consistent with
provisions of the Investment Company Act and the regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for the
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,
regulation, 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.
IN WITNESS WHEREOF, the Adviser and the Subadviser have caused this
Agreement to be executed and delivered in their names and on their behalf by the
undersigned, duly authorized officers, all as of the day and year first above
written.
UNITED STATES TRUST COMPANY OF THE
PACIFIC NORTHWEST
By:
Name:
Title:
HARDING, LOEVNER MANAGEMENT, L.P.
By: HLM Holdings, Inc.
General Partner
By:
Name:
Title:
6
<PAGE>
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
SUBADVISORY AGREEMENT
Series Names Annual Fee (as a percentage of
the average daily net assets
of a series)
International Portfolio 50 basis points
<PAGE>
Exhibit B
COPY OF EXECUTED INVESTMENT ADVISORY AGREEMENT
BETWEEN ST. JAMES PORTFOLIOS AND
UNITED STATES TRUST COMPANY OF THE PACIFIC NORTHWEST
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of June 30, 1994 by and between United States Trust
Company of the Pacific Northwest, an Oregon corporation (the "Adviser"), and
Luther King Capital Management, a Delaware corporation (the "Subadviser").
In consideration of the promises and the mutual covenants herein contained,
the Adviser and the Subadviser agree as follows:
1. Appointment. The Adviser has been retained by St. James Portfolios, a
New York trust (the "Trust") to act as investment adviser to the Trust with
respect to the series of the Trust listed on Exhibit A hereto (the "Series"). In
accordance with and subject to the Investment Advisory Agreement between the
Trust and the Adviser, attached hereto as Exhibit B (the "Advisory Agreement"),
the Adviser appoints the Subadviser to act as subadviser with respect to the
Series for the period and on the terms set forth in this Agreement. The
Subadviser accepts such appointment and agrees to provide an investment program
for the compensation provided by this Agreement.
2. Duties of the Subadviser. Subject to the direction and control of the
Adviser and the Board of Trustees of the Trust, the Subadviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and economic
data; and other information necessary or appropriate for the performance of its
duties under this Agreement;
(b) formulate and continuously review, supervise, and administer an
investment program for each Series;
(c) determine the securities to be purchased by each Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by each Series;
(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the Subadviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and
<PAGE>
(g) assist the Adviser and the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.
3. Supervision and Compliance. Notwithstanding any provision of this
Agreement, the Adviser shall retain all rights and ultimate responsibilities to
supervise, and, in its discretion, conduct investment advisory activities
relating to the Trust. The activities of the Subadviser shall be subject at all
times to the direction and control of the Board of Trustees of the Trust and the
Adviser and shall comply with: (a) the Declaration of Trust and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (d) the Investment Company Act and the regulations thereunder; (e) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (f) any other applicable laws or regulations;
and (g) such other limitations as the Adviser or the Board of Trustees of the
Trust may adopt.
4. Purchase and Sale of Securities. The Subadviser shall, at its own
expense, place orders for the purchase, sale or loan of securities by the Trust
either directly with the issuer or with any broker and/or dealer who deals in
such securities.
(a) In placing orders with brokers and/or dealers, the Subadviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Subadviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers who provide brokerage and research services
(within the meaning of Section 28(e) of the Securities and Exchange Act of 1934)
to or for the benefit of the Trust and/or other accounts over which the
Subadviser exercises investment discretion. The Subadviser is authorized to pay
a broker who provides such brokerage and research services a commission for
effecting a securities transaction which is in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Subadviser determines in good faith that such commission was reasonable in
relation to the value of brokerage and research services provided by such
broker. This determination may be viewed in terms of either that particular
transaction or of the overall responsibilities of the Subadviser with respect to
the accounts as to which it exercises investment discretion.
2
<PAGE>
(b) The Subadviser may execute transactions through itself and its
affiliates on a securities exchange provided that the commissions paid by the
Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.
(c) Notwithstanding the foregoing, the Board of Trustees and the Adviser
periodically shall review the commissions paid by the Trust and determine
whether those commissions were reasonable in relation to the brokerage and
research services received. In addition, the Board of Trustees of the Trust, in
its discretion, may instruct the Subadviser to effect all or a portion of its
securities transactions with one or more brokers and/or dealers selected by the
Board of Trustees, if it determines that the use of such brokers and/or dealers
is in the best interest of the Trust.
(d) When the Subadviser deems the purchase or sale of a security to be in
the best interest of the Trust as well as other customers, the Subadviser, to
the extent permitted by applicable law, may aggregate the securities to be so
sold or purchased in order to obtain the best execution or lower brokerage
commissions. The Subadviser also may purchase or sell a particular security for
one or more customers in different amounts. Allocation of the securities
purchased or sold in either manner, as well as the expenses incurred in the
transactions, will be made by the Subadviser in a manner that is equitable and
consistent with applicable law and regulations and with its fiduciary
obligations to the Trust and to such other customers.
5. Expenses.
(a) The Subadviser shall furnish at its own expense all office space,
office facilities, equipment and personnel necessary or appropriate to the
performance of its duties under this Agreement. The Subadviser also shall pay
the salaries of all personnel performing services related to the Subadviser's
duties under this Agreement.
(b) It is understood that the Trust will pay all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and
3
<PAGE>
securities, maintenance of books and accounts and calculation of the net asset
value of beneficial interests of each Series), transfer agent and registrar and
dividend disbursing agent of the Trust; expenses of preparing and mailing
reports to investors and regulatory agencies; expenses relating to the issuance,
registration and qualification of shares of each Series, and the preparation,
printing and mailing of prospectuses for such purposes;insurance premiums;
brokerage and other expenses of executing portfolio transactions; expenses of
investors' and Trustees' meetings; organization expenses; and extraordinary
expenses.
6. Compensation of the Subadviser. In consideration of the services to be
rendered by the Subadviser under this Agreement, the Adviser shall pay the
Subadviser a fee accrued daily and paid monthly at an annual rate equal to that
specified in Exhibit A to this Agreement for that Series' average daily net
assets. The fee for any period in which the Subadviser serves as investment
adviser pursuant to this Agreement for less than one full month shall be paid
for that portion of the month accrued. For purposes of calculating fees, the
value of the net assets of each Series of the Trust shall be computed in the
manner specified in its Registration Statement on Form N-1A.
7. Services to Others. The services of the Subadviser to the Adviser and
the Trust are not to be deemed exclusive, and the Subadviser is free to render
services to others and to engage in other activities, provided, however, that
those services and activities do not adversely affect the Subadviser's ability
to perform its obligations under this Agreement.
8. Books, Records, and Information. The Subadviser shall provide the
Adviser and the Trust with all records concerning the Subadviser's activities
that the Trust is required by law to maintain. Any records required to be
maintained and preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
under the Investment Company Act which are prepared or maintained by the
Subadviser on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request. The Subadviser also shall comply
with all reasonable requests for information by the Adviser or the Trust's
officers or Board of Trustees, including information required for the Trust's
filings with the Securities and Exchange Commission and state securities
commissions.
9. Limitations on Liability.
(a) The Subadviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be
4
<PAGE>
limited in all cases to the Series and their assets, and the Subadviser shall
not seek satisfaction of any such obligation from any Trustee or shareholder of
the Series.
(b) The Subadviser shall give the Adviser and the Trust the benefit of its
best judgment and efforts in rendering services under this Agreement. In the
absence of willful malfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Subadviser, the
Subadviser shall not be liable to the Trust, to any shareholder of the Series or
to the Adviser for any act or omission in the course of, or connected with,
rendering services under this Agreement or for any losses that may be sustained
in the purchase, holding or sale of any security. The Adviser agrees that the
Subadviser shall not be liable for, and shall be indemnified and held harmless
by the Adviser for, any losses, liabilities, or expenses that the Subadviser may
incur due to errors of judgment, mistakes, acts or ommission of the Adviser.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to each Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to each Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of such
Series; or (ii) the vote of a majority of the full Board of Trustees.
(b) This Agreement may be terminated at any time and as to any one or more
Series, without the payment of any penalty, either by: (i) the Trust, by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Series, on 60 days' written notice to the Subadviser; (ii)
the Adviser, on 60 days' written notice to the Subadviser; or (iii) the
Subadviser, on 90 days' written notice to the Adviser and the Trust. This
Agreement shall terminate immediately in the event of its assignment.
(c) This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Trust or by vote
of a majority of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons of any such
5
<PAGE>
party, cast in person at a meeting called for the purpose of voting on such
amendment.
(d) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested persons"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the choice of
law provisions thereof, to the extent that such laws are consistent with
provisions of the Investment Company Act and the regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for the
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,
regulation, 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.
IN WITNESS WHEREOF, the Adviser and the Subadviser have caused this
Agreement to be executed and delivered in their names and on their behalf by the
undersigned, duly authorized officers, all as of the day and year first above
written.
UNITED STATES TRUST COMPANY OF THE
PACIFIC NORTHWEST
By: /S/ Stephen C. Brent
Name: Stephen C. Brent
Title: Senior Vice President
LUTHER KING CAPITAL MANAGEMENT
By: /S/
Name:
Title: Vice President/Principal
6
<PAGE>
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
SUBADVISORY AGREEMENT
Series Names Annual
Fee (as a percentage of the
average daily net assets of a
series)
Equity Growth Portfolio 40 basis points on first $20 million
30 basis points on next $30 million
Fees on assets in excess of $50
million to be negotiated
<PAGE>
Exhibit B
COPY OF EXECUTED INVESTMENT ADVISORY AGREEMENT
BETWEEN ST. JAMES PORTFOLIOS AND
UNITED STATES TRUST COMPANY OF THE PACIFIC NORTHWEST
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of June 30, 1994 by and between United States Trust
Company of the Pacific Northwest, an Oregon corporation (the "Adviser"), and
Spare, Tengler, Kaplan & Bischel, a California corporation (the "Subadviser").
In consideration of the promises and the mutual covenants herein contained,
the Adviser and the Subadviser agree as follows:
1. Appointment. The Adviser has been retained by St. James Portfolios, a
New York trust (the "Trust") to act as investment adviser to the Trust with
respect to the series of the Trust listed on Exhibit A hereto (the "Series"). In
accordance with and subject to the Investment Advisory Agreement between the
Trust and the Adviser, attached hereto as Exhibit B (the "Advisory Agreement"),
the Adviser appoints the Subadviser to act as subadviser with respect to the
Series for the period and on the terms set forth in this Agreement. The
Subadviser accepts such appointment and agrees to provide an investment program
for the compensation provided by this Agreement.
2. Duties of the Subadviser. Subject to the direction and control of the
Adviser and the Board of Trustees of the Trust, the Subadviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and economic
data; and other information necessary or appropriate for the performance of its
duties under this Agreement;
(b) formulate and continuously review, supervise, and administer an
investment program for each Series;
(c) determine the securities to be purchased by each Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by each Series;
(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the Subadviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and
<PAGE>
(g) assist the Adviser and the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.
3. Supervision and Compliance. Notwithstanding any provision of this
Agreement, the Adviser shall retain all rights and ultimate responsibilities to
supervise, and, in its discretion, conduct investment advisory activities
relating to the Trust. The activities of the Subadviser shall be subject at all
times to the direction and control of the Board of Trustees of the Trust and the
Adviser and shall comply with: (a) the Declaration of Trust and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (d) the Investment Company Act and the regulations thereunder; (e) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (f) any other applicable laws or regulations;
and (g) such other limitations as the Adviser or the Board of Trustees of the
Trust may adopt.
4. Purchase and Sale of Securities. The Subadviser shall, at its own
expense, place orders for the purchase, sale or loan of securities by the Trust
either directly with the issuer or with any broker and/or dealer who deals in
such securities.
(a) In placing orders with brokers and/or dealers, the Subadviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Subadviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers who provide brokerage and research services
(within the meaning of Section 28(e) of the Securities and Exchange Act of 1934)
to or for the benefit of the Trust and/or other accounts over which the
Subadviser exercises investment discretion. The Subadviser is authorized to pay
a broker who provides such brokerage and research services a commission for
effecting a securities transaction which is in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Subadviser determines in good faith that such commission was reasonable in
relation to the value of brokerage and research services provided by such
broker. This determination may be viewed in terms of either that particular
transaction or of the overall responsibilities of the Subadviser with respect to
the accounts as to which it exercises investment discretion.
2
<PAGE>
(b) The Subadviser may execute transactions through itself and its
affiliates on a securities exchange provided that the commissions paid by the
Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.
(c) Notwithstanding the foregoing, the Board of Trustees and the Adviser
periodically shall review the commissions paid by the Trust and determine
whether those commissions were reasonable in relation to the brokerage and
research services received. In addition, the Board of Trustees of the Trust, in
its discretion, may instruct the Subadviser to effect all or a portion of its
securities transactions with one or more brokers and/or dealers selected by the
Board of Trustees, if it determines that the use of such brokers and/or dealers
is in the best interest of the Trust.
(d) When the Subadviser deems the purchase or sale of a security to be in
the best interest of the Trust as well as other customers, the Subadviser, to
the extent permitted by applicable law, may aggregate the securities to be so
sold or purchased in order to obtain the best execution or lower brokerage
commissions. The Subadviser also may purchase or sell a particular security for
one or more customers in different amounts. Allocation of the securities
purchased or sold in either manner, as well as the expenses incurred in the
transactions, will be made by the Subadviser in a manner that is equitable and
consistent with applicable law and regulations and with its fiduciary
obligations to the Trust and to such other customers.
5. Expenses.
(a) The Subadviser shall furnish at its own expense all office space,
office facilities, equipment and personnel necessary or appropriate to the
performance of its duties under this Agreement. The Subadviser also shall pay
the salaries of all personnel performing services related to the Subadviser's
duties under this Agreement.
(b) It is understood that the Trust will pay all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and
3
<PAGE>
securities, maintenance of books and accounts and calculation of the net asset
value of beneficial interests of each Series), transfer agent and registrar and
dividend disbursing agent of the Trust; expenses of preparing and mailing
reports to investors and regulatory agencies; expenses relating to the issuance,
registration and qualification of shares of each Series, and the preparation,
printing and mailing of prospectuses for such purposes;insurance premiums;
brokerage and other expenses of executing portfolio transactions; expenses of
investors' and Trustees' meetings; organization expenses; and extraordinary
expenses.
6. Compensation of the Subadviser. In consideration of the services to be
rendered by the Subadviser under this Agreement, the Adviser shall pay the
Subadviser a fee accrued daily and paid monthly at an annual rate equal to that
specified in Exhibit A to this Agreement for that Series' average daily net
assets. The fee for any period in which the Subadviser serves as investment
adviser pursuant to this Agreement for less than one full month shall be paid
for that portion of the month accrued. For purposes of calculating fees, the
value of the net assets of each Series of the Trust shall be computed in the
manner specified in its Registration Statement on Form N-1A.
7. Services to Others. The services of the Subadviser to the Adviser and
the Trust are not to be deemed exclusive, and the Subadviser is free to render
services to others and to engage in other activities, provided, however, that
those services and activities do not adversely affect the Subadviser's ability
to perform its obligations under this Agreement.
8. Books, Records, and Information. The Subadviser shall provide the
Adviser and the Trust with all records concerning the Subadviser's activities
that the Trust is required by law to maintain. Any records required to be
maintained and preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
under the Investment Company Act which are prepared or maintained by the
Subadviser on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request. The Subadviser also shall comply
with all reasonable requests for information by the Adviser or the Trust's
officers or Board of Trustees, including information required for the Trust's
filings with the Securities and Exchange Commission and state securities
commissions.
9. Limitations on Liability.
(a) The Subadviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be
4
<PAGE>
limited in all cases to the Series and their assets, and the Subadviser shall
not seek satisfaction of any such obligation from any Trustee or shareholder of
the Series.
(b) The Subadviser shall give the Adviser and the Trust the benefit of its
best judgment and efforts in rendering services under this Agreement. In the
absence of willful malfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Subadviser, the
Subadviser shall not be liable to the Trust, to any shareholder of the Series or
to the Adviser for any act or omission in the course of, or connected with,
rendering services under this Agreement or for any losses that may be sustained
in the purchase, holding or sale of any security. The Adviser agrees that the
Subadviser shall not be liable for, and shall be indemnified and held harmless
by the Adviser for, any losses, liabilities, or expenses that the Subadviser may
incur due to errors of judgment, mistakes, acts or ommission of the Adviser.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to each Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to each Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of such
Series; or (ii) the vote of a majority of the full Board of Trustees.
(b) This Agreement may be terminated at any time and as to any one or more
Series, without the payment of any penalty, either by: (i) the Trust, by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Series, on 60 days' written notice to the Subadviser; (ii)
the Adviser, on 60 days' written notice to the Subadviser; or (iii) the
Subadviser, on 90 days' written notice to the Adviser and the Trust. This
Agreement shall terminate immediately in the event of its assignment.
(c) This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Trust or by vote
of a majority of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons of any such
5
<PAGE>
party, cast in person at a meeting called for the purpose of voting on such
amendment.
(d) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested persons"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the choice of
law provisions thereof, to the extent that such laws are consistent with
provisions of the Investment Company Act and the regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for the
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,
regulation, 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.
IN WITNESS WHEREOF, the Adviser and the Subadviser have caused this
Agreement to be executed and delivered in their names and on their behalf by the
undersigned, duly authorized officers, all as of the day and year first above
written.
UNITED STATES TRUST COMPANY OF THE
PACIFIC NORTHWEST
By:
Name:
Title:
SPARE, TENGLER, KAPLAN & BISCHEL
By:
Name:
Title:
6
<PAGE>
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
SUBADVISORY AGREEMENT
Series Names Annual
Fee (as a percentage of the
average daily net assets of a
series)
Value Equity Income Portfolio 40 basis points on first $20 million
31.5 basis points on next $75
million
Fees on assets in excess of $100
million to be negotiated
<PAGE>
Exhibit B
COPY OF EXECUTED INVESTMENT ADVISORY AGREEMENT
BETWEEN ST. JAMES PORTFOLIOS AND
UNITED STATES TRUST COMPANY OF THE PACIFIC NORTHWEST
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of June 30, 1994 by and between United States Trust
Company of the Pacific Northwest, an Oregon corporation (the "Adviser"), and
United States Trust Company of New York, a New York trust company (the
"Subadviser").
In consideration of the promises and the mutual covenants herein contained,
the Adviser and the Subadviser agree as follows:
1. Appointment. The Adviser has been retained by St. James Portfolios, a
New York trust (the "Trust") to act as investment adviser to the Trust with
respect to the series of the Trust listed on Exhibit A hereto (the "Series"). In
accordance with and subject to the Investment Advisory Agreement between the
Trust and the Adviser, attached hereto as Exhibit B (the "Advisory Agreement"),
the Adviser appoints the Subadviser to act as subadviser with respect to the
Series for the period and on the terms set forth in this Agreement. The
Subadviser accepts such appointment and agrees to provide an investment program
for the compensation provided by this Agreement.
2. Duties of the Subadviser. Subject to the direction and control of the
Adviser and the Board of Trustees of the Trust, the Subadviser shall:
(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and economic
data; and other information necessary or appropriate for the performance of its
duties under this Agreement;
(b) formulate and continuously review, supervise, and administer an
investment program for each Series;
(c) determine the securities to be purchased by each Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;
(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
(e) provide valuations with respect to the securities held by each Series;
(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the Subadviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and
<PAGE>
(g) assist the Adviser and the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.
3. Supervision and Compliance. Notwithstanding any provision of this
Agreement, the Adviser shall retain all rights and ultimate responsibilities to
supervise, and, in its discretion, conduct investment advisory activities
relating to the Trust. The activities of the Subadviser shall be subject at all
times to the direction and control of the Board of Trustees of the Trust and the
Adviser and shall comply with: (a) the Declaration of Trust and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (d) the Investment Company Act and the regulations thereunder; (e) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (f) any other applicable laws or regulations;
and (g) such other limitations as the Adviser or the Board of Trustees of the
Trust may adopt.
4. Purchase and Sale of Securities. The Subadviser shall, at its own
expense, place orders for the purchase, sale or loan of securities by the Trust
either directly with the issuer or with any broker and/or dealer who deals in
such securities.
(a) In placing orders with brokers and/or dealers, the Subadviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Subadviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers who provide brokerage and research services
(within the meaning of Section 28(e) of the Securities and Exchange Act of 1934)
to or for the benefit of the Trust and/or other accounts over which the
Subadviser exercises investment discretion. The Subadviser is authorized to pay
a broker who provides such brokerage and research services a commission for
effecting a securities transaction which is in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Subadviser determines in good faith that such commission was reasonable in
relation to the value of brokerage and research services provided by such
broker. This determination may be viewed in terms of either that particular
transaction or of the overall responsibilities of the Subadviser with respect to
the accounts as to which it exercises investment discretion.
2
<PAGE>
(b) The Subadviser may execute transactions through itself and its
affiliates on a securities exchange provided that the commissions paid by the
Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.
(c) Notwithstanding the foregoing, the Board of Trustees and the Adviser
periodically shall review the commissions paid by the Trust and determine
whether those commissions were reasonable in relation to the brokerage and
research services received. In addition, the Board of Trustees of the Trust, in
its discretion, may instruct the Subadviser to effect all or a portion of its
securities transactions with one or more brokers and/or dealers selected by the
Board of Trustees, if it determines that the use of such brokers and/or dealers
is in the best interest of the Trust.
(d) When the Subadviser deems the purchase or sale of a security to be in
the best interest of the Trust as well as other customers, the Subadviser, to
the extent permitted by applicable law, may aggregate the securities to be so
sold or purchased in order to obtain the best execution or lower brokerage
commissions. The Subadviser also may purchase or sell a particular security for
one or more customers in different amounts. Allocation of the securities
purchased or sold in either manner, as well as the expenses incurred in the
transactions, will be made by the Subadviser in a manner that is equitable and
consistent with applicable law and regulations and with its fiduciary
obligations to the Trust and to such other customers.
5. Expenses.
(a) The Subadviser shall furnish at its own expense all office space,
office facilities, equipment and personnel necessary or appropriate to the
performance of its duties under this Agreement. The Subadviser also shall pay
the salaries of all personnel performing services related to the Subadviser's
duties under this Agreement.
(b) It is understood that the Trust will pay all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and
3
<PAGE>
securities, maintenance of books and accounts and calculation of the net asset
value of beneficial interests of each Series), transfer agent and registrar and
dividend disbursing agent of the Trust; expenses of preparing and mailing
reports to investors and regulatory agencies; expenses relating to the issuance,
registration and qualification of shares of each Series, and the preparation,
printing and mailing of prospectuses for such purposes;insurance premiums;
brokerage and other expenses of executing portfolio transactions; expenses of
investors' and Trustees' meetings; organization expenses; and extraordinary
expenses.
6. Compensation of the Subadviser. In consideration of the services to be
rendered by the Subadviser under this Agreement, the Adviser shall pay the
Subadviser a fee accrued daily and paid monthly at an annual rate equal to that
specified in Exhibit A to this Agreement for that Series' average daily net
assets. The fee for any period in which the Subadviser serves as investment
adviser pursuant to this Agreement for less than one full month shall be paid
for that portion of the month accrued. For purposes of calculating fees, the
value of the net assets of each Series of the Trust shall be computed in the
manner specified in its Registration Statement on Form N-1A.
7. Services to Others. The services of the Subadviser to the Adviser and
the Trust are not to be deemed exclusive, and the Subadviser is free to render
services to others and to engage in other activities, provided, however, that
those services and activities do not adversely affect the Subadviser's ability
to perform its obligations under this Agreement.
8. Books, Records, and Information. The Subadviser shall provide the
Adviser and the Trust with all records concerning the Subadviser's activities
that the Trust is required by law to maintain. Any records required to be
maintained and preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
under the Investment Company Act which are prepared or maintained by the
Subadviser on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request. The Subadviser also shall comply
with all reasonable requests for information by the Adviser or the Trust's
officers or Board of Trustees, including information required for the Trust's
filings with the Securities and Exchange Commission and state securities
commissions.
9. Limitations on Liability.
(a) The Subadviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be
4
<PAGE>
limited in all cases to the Series and their assets, and the Subadviser shall
not seek satisfaction of any such obligation from any Trustee or shareholder of
the Series.
(b) The Subadviser shall give the Adviser and the Trust the benefit of its
best judgment and efforts in rendering services under this Agreement. In the
absence of willful malfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Subadviser, the
Subadviser shall not be liable to the Trust, to any shareholder of the Series or
to the Adviser for any act or omission in the course of, or connected with,
rendering services under this Agreement or for any losses that may be sustained
in the purchase, holding or sale of any security. The Adviser agrees that the
Subadviser shall not be liable for, and shall be indemnified and held harmless
by the Adviser for, any losses, liabilities, or expenses that the Subadviser may
incur due to errors of judgment, mistakes, acts or ommission of the Adviser.
10. Effective Date; Termination; Amendments.
(a) This Agreement shall be effective as to each Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to each Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of such
Series; or (ii) the vote of a majority of the full Board of Trustees.
(b) This Agreement may be terminated at any time and as to any one or more
Series, without the payment of any penalty, either by: (i) the Trust, by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Series, on 60 days' written notice to the Subadviser; (ii)
the Adviser, on 60 days' written notice to the Subadviser; or (iii) the
Subadviser, on 90 days' written notice to the Adviser and the Trust. This
Agreement shall terminate immediately in the event of its assignment.
(c) This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Trust or by vote
of a majority of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons of any such
5
<PAGE>
party, cast in person at a meeting called for the purpose of voting on such
amendment.
(d) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested persons"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.
11. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the choice of
law provisions thereof, to the extent that such laws are consistent with
provisions of the Investment Company Act and the regulations thereunder.
12. Miscellaneous. The captions in this Agreement are included for the
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,
regulation, 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.
IN WITNESS WHEREOF, the Adviser and the Subadviser have caused this
Agreement to be executed and delivered in their names and on their behalf by the
undersigned, duly authorized officers, all as of the day and year first above
written.
UNITED STATES TRUST COMPANY OF THE
PACIFIC NORTHWEST
By:
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW YORK
By:
Name:
Title:
6
<PAGE>
Exhibit A
SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
SUBADVISORY AGREEMENT
Series Names Annual Fee (as a percentage of the
average daily net assets of a
series)
Equity Market Portfolio 25 basis points
Bond Market Portfolio 25 basis points
Small Cap Portfolio 65 basis points
<PAGE>
Exhibit B
COPY OF EXECUTED INVESTMENT ADVISORY AGREEMENT
BETWEEN ST. JAMES PORTFOLIOS AND
UNITED STATES TRUST COMPANY OF THE PACIFIC NORTHWEST
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Excelsior Institutional Trust Annual Report, dated 5/31/95 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 9
<NAME> EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JAN-16-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 14,490,103
<INVESTMENTS-AT-VALUE> 15,749,263
<RECEIVABLES> 561,198
<ASSETS-OTHER> 37,871
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,348,332
<PAYABLE-FOR-SECURITIES> 894,338
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,657
<TOTAL-LIABILITIES> 946,995
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,401,337
<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> 15,401,337
<DIVIDEND-INCOME> 70,381
<INTEREST-INCOME> 23,004
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 93,385
<REALIZED-GAINS-CURRENT> (284,228)
<APPREC-INCREASE-CURRENT> 1,259,160
<NET-CHANGE-FROM-OPS> 1,068,317
<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> 15,401,230
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23,905
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64,366
<AVERAGE-NET-ASSETS> 9,870,460
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Excelsior Institutional Trust Annual Report, dated 5/31/95 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 7
<NAME> INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JAN-16-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 31,606,379
<INVESTMENTS-AT-VALUE> 32,857,206
<RECEIVABLES> 602,121
<ASSETS-OTHER> 36,865
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,496,192
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,043
<TOTAL-LIABILITIES> 55,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,441,149
<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> 33,441,149
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 758,407
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 758,407
<REALIZED-GAINS-CURRENT> 95,033
<APPREC-INCREASE-CURRENT> 1,250,827
<NET-CHANGE-FROM-OPS> 2,104,267
<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> 33,441,042
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 67,732
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111,184
<AVERAGE-NET-ASSETS> 27,966,151
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Excelsior Institutional Trust Annual Report, dated 5/31/95 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 8
<NAME> TOTAL RETURN BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JAN-19-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 24,553,520
<INVESTMENTS-AT-VALUE> 25,765,222
<RECEIVABLES> 301,978
<ASSETS-OTHER> 36,875
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,104,075
<PAYABLE-FOR-SECURITIES> 1,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,513
<TOTAL-LIABILITIES> 1,053,513
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,050,562
<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> 25,050,562
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 481,370
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 481,370
<REALIZED-GAINS-CURRENT> 127,441
<APPREC-INCREASE-CURRENT> 1,211,702
<NET-CHANGE-FROM-OPS> 1,820,513
<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> 25,050,455
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43,478
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 81,851
<AVERAGE-NET-ASSETS> 18,355,757
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Excelsior Institutional Trust Annual Report, dated 5/31/95 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 1
<NAME> EQUITY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUL-8-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 11,203,842
<INVESTMENTS-AT-VALUE> 13,037,340
<RECEIVABLES> 699,645
<ASSETS-OTHER> 44,589
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,781,574
<PAYABLE-FOR-SECURITIES> 96,405
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,786
<TOTAL-LIABILITIES> 149,191
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,632,383
<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> 13,632,383
<DIVIDEND-INCOME> 537,049
<INTEREST-INCOME> 44,889
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 581,938
<REALIZED-GAINS-CURRENT> 1,591,469
<APPREC-INCREASE-CURRENT> 1,837,991
<NET-CHANGE-FROM-OPS> 4,011,398
<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> 13,615,616
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,516
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 149,465
<AVERAGE-NET-ASSETS> 22,244,054
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Excelsior Institutional Trust Annual Report, dated 5/31/95 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 2
<NAME> BOND MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUL-8-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 15,192,578
<INVESTMENTS-AT-VALUE> 15,804,130
<RECEIVABLES> 485,992
<ASSETS-OTHER> 41,353
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,331,475
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50,620
<TOTAL-LIABILITIES> 50,620
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,280,855
<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> 16,280,855
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,428,528
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1,428,528
<REALIZED-GAINS-CURRENT> 136,599
<APPREC-INCREASE-CURRENT> 611,552
<NET-CHANGE-FROM-OPS> 2,176,679
<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> 16,264,088
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 47,955
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 131,409
<AVERAGE-NET-ASSETS> 21,542,816
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Excelsior
Institutional Trust Annual Report, dated 5/31/95 and is qualified in its
entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 3
<NAME> SMALL CAP PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUL-8-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 12,660,737
<INVESTMENTS-AT-VALUE> 13,611,021
<RECEIVABLES> 61,652
<ASSETS-OTHER> 38,067
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,710,740
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,045
<TOTAL-LIABILITIES> 56,045
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,654,695
<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> 13,654,695
<DIVIDEND-INCOME> 167,293
<INTEREST-INCOME> 31,685
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 198,978
<REALIZED-GAINS-CURRENT> 247,778
<APPREC-INCREASE-CURRENT> 945,454
<NET-CHANGE-FROM-OPS> 1,392,210
<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> 13,637,928
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 75,292
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 154,942
<AVERAGE-NET-ASSETS> 13,008,952
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This document contains summary financial information extracted from the
Excelsior Institutional Trust Annual Report, dated 5/31/95 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 4
<NAME> BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUL-8-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 69,767,527
<INVESTMENTS-AT-VALUE> 74,806,736
<RECEIVABLES> 849,387
<ASSETS-OTHER> 63,437
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 75,719,560
<PAYABLE-FOR-SECURITIES> 1,175,084
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65,397
<TOTAL-LIABILITIES> 1,240,481
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,479,079
<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> 74,479,079
<DIVIDEND-INCOME> 795,427
<INTEREST-INCOME> 2,401,616
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 3,197,043
<REALIZED-GAINS-CURRENT> 1,047,162
<APPREC-INCREASE-CURRENT> 5,039,209
<NET-CHANGE-FROM-OPS> 9,283,414
<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> 74,462,312
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 365,664
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 503,730
<AVERAGE-NET-ASSETS> 63,179,754
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Excelsior Institutional Trust Annual Report, dated 5/31/95 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 5
<NAME> EQUITY GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUL-8-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 49,414,308
<INVESTMENTS-AT-VALUE> 52,422,173
<RECEIVABLES> 694,812
<ASSETS-OTHER> 53,999
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,170,984
<PAYABLE-FOR-SECURITIES> 758,950
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,220
<TOTAL-LIABILITIES> 818,170
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,352,814
<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> 52,352,814
<DIVIDEND-INCOME> 496,863
<INTEREST-INCOME> 112,874
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 609,737
<REALIZED-GAINS-CURRENT> 2,653,871
<APPREC-INCREASE-CURRENT> 3,007,865
<NET-CHANGE-FROM-OPS> 6,271,473
<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> 53,336,047
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 285,384
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 405,337
<AVERAGE-NET-ASSETS> 49,308,935
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Excelsior Institutional Trust Annual Report, dated 5/31/95 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 6
<NAME> VALUE EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUL-8-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 15,082,291
<INVESTMENTS-AT-VALUE> 16,766,706
<RECEIVABLES> 879,227
<ASSETS-OTHER> 40,328
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,686,261
<PAYABLE-FOR-SECURITIES> 149,877
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50,689
<TOTAL-LIABILITIES> 200,566
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,485,695
<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> 17,485,695
<DIVIDEND-INCOME> 779,640
<INTEREST-INCOME> 31,027
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 810,667
<REALIZED-GAINS-CURRENT> 511,049
<APPREC-INCREASE-CURRENT> 1,684,415
<NET-CHANGE-FROM-OPS> 3,006,131
<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> 17,468,928
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 102,039
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 183,593
<AVERAGE-NET-ASSETS> 17,630,443
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Excelsior Institutional Trust Annual Report, dated 5/31/95 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000926362
<NAME> ST. JAMES PORTFOLIOS
<SERIES>
<NUMBER> 10
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JAN-24-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 8,052,643
<INVESTMENTS-AT-VALUE> 8,868,161
<RECEIVABLES> 80,939
<ASSETS-OTHER> 36,884
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,985,984
<PAYABLE-FOR-SECURITIES> 96,130
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,820
<TOTAL-LIABILITIES> 145,950
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,840,034
<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> 8,840,034
<DIVIDEND-INCOME> 66,283
<INTEREST-INCOME> 31,668
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 97,951
<REALIZED-GAINS-CURRENT> 8,756
<APPREC-INCREASE-CURRENT> 815,551
<NET-CHANGE-FROM-OPS> 922,258
<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> 8,839,927
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,276
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 58,757
<AVERAGE-NET-ASSETS> 7,492,886
<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> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
