As filed with the Securities and Exchange Commission on October 31, 1997
File No. 811-8436
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4*
THE PREMIUM PORTFOLIOS**
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
ELIZABETHAN SQUARE, GEORGE TOWN, GRAND CAYMAN, CAYMAN ISLANDS, BWI
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(345) 945-1824
SUSAN JAKUBOSKI, ELIZABETHAN SQUARE, GEORGE TOWN,
GRAND CAYMAN, CAYMAN ISLANDS, BWI
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH
BINGHAM DANA LLP
150 FEDERAL STREET
BOSTON, MA 02110
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* This Amendment also serves as Amendment No. 3 to the Registration Statement
on Form N-1A for The Premium Portfolios as it relates to the Small Cap Growth
Portfolio, File No. 811-07269.
** Relates only to Large Cap Growth Portfolio (formerly known as Equity
Portfolio), Small Cap Growth Portfolio (formerly known as Small Cap Value
Portfolio) and Growth & Income Portfolio.
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940. Beneficial interests in the
Registrant are not being registered under the Securities Act of 1933, as
amended (the "1933 Act"), because such interests will be issued solely in
private placement transactions which do not involve any "public offering"
within the meaning of Section 4(2) of the 1933 Act. Investments in the
Registrant may be made only by investment companies, common or commingled trust
funds or similar organizations or entities which are "accredited investors"
within the meaning of Regulation D under the 1933 Act. This Registration
Statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any beneficial interests in the Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant.
Large Cap Growth Portfolio (formerly Equity Portfolio), Small Cap Growth
Portfolio (formerly Small Cap Value Portfolio) and Growth & Income Portfolio
(each, a "Portfolio" and collectively, the "Portfolios") are separate series of
The Premium Portfolios (the "Trust"). Citibank, N.A. ("Citibank" or the
"Manager") is the investment adviser for each of the Portfolios. The Trust is
an open-end management investment company which was organized as a trust under
the laws of the State of New York on September 13, 1993. Beneficial interests
in the Portfolios are issued solely in private placement transactions which do
not involve any "public offering" within the meaning of Section 4(2) of the
U.S. Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolios may be made only by investment companies, common or commingled trust
funds or similar organizations or entities which are "accredited investors"
within the meaning of Regulation D under the 1933 Act. This Registration
Statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.
BENEFICIAL INTERESTS IN THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY
AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
INVESTMENT OBJECTIVE AND POLICIES:
The investment objective of LARGE CAP GROWTH PORTFOLIO is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
The investment objective of SMALL CAP GROWTH PORTFOLIO is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
The investment objective of GROWTH & INCOME PORTFOLIO is long-term
capital growth and current income.
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LARGE CAP GROWTH PORTFOLIO seeks its objective by investing in a broadly
diversified portfolio of equity securities consisting mainly of common stocks
of U.S. issuers. Under normal circumstances, at least 65% of the Large Cap
Growth Portfolio's total assets is invested in equity securities.
In selecting equity securities for the Large Cap Growth Portfolio, the
Manager emphasizes securities issued by established companies with medium to
large market capitalizations, i.e., $750 million or more, and seasoned
management teams, which the Manager believes possess above-average prospects
for growth. The Manager may also select other securities which it believes
provide an opportunity for appreciation, such as fixed income securities and
convertible and non-convertible bonds, preferred stocks and warrants. All of
the Portfolio's long-term non-convertible debt investments are investment grade
securities (rated Baa or better by Moody's Investors Service, Inc. ("Moody's")
or BBB or better by Standard & Poor's Rating Services ("S&P")) or securities
which the Manager believes to be of comparable quality. Less than 5% of the
Portfolio's investments consist of securities rated Baa by Moody's or BBB by
S&P.
SMALL CAP GROWTH PORTFOLIO seeks its objective by investing in a
diversified portfolio consisting primarily of equity securities of U.S.
companies that have small market capitalizations. Under normal circumstances,
at least 65% of the Small Cap Growth Portfolio's total assets is invested in
equity securities of these companies. Equity securities include common stocks,
preferred stocks and warrants for the purchase of stock. Small market
capitalization companies are those with market capitalizations of $750 million
or less at the time of the Portfolio's investment. In addition, the Portfolio
may invest in companies that are believed to be emerging companies relative to
their potential markets. There are special risks involved in investing in
emerging companies. See "Risk Considerations" below.
The Manager may also select other securities for the Small Cap Growth
Portfolio that it believes provide an opportunity for appreciation, such as
fixed income securities and convertible and non-convertible bonds. Most of the
Portfolio's long-term non-convertible debt investments are investment grade
securities (securities rated Baa or better by Moody's or BBB or better by S&P),
and less than 5% of the Portfolio's investments consist of securities rated Baa
by Moody's or BBB by S&P.
The GROWTH & INCOME PORTFOLIO seeks its objective by investing primarily
in common stocks that offer potential for capital growth, current income, or
both. The Portfolio may also purchase corporate bonds, notes and debentures,
preferred stocks, convertible securities (both debt securities and preferred
stocks) and U.S. government securities and may invest a portion of its assets
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in cash or money market instruments. The Portfolio currently intends to invest
primarily in securities of U.S. issuers, but may also invest in securities of
foreign issuers.
CERTAIN ADDITIONAL INVESTMENT POLICIES:
NON-U.S. SECURITIES. While each Portfolio emphasizes U.S. securities,
each Portfolio may invest a portion of its assets in non-U.S. equity and debt
securities, including depository receipts. No Portfolio intends to invest more
than 25% of its assets in non-U.S. securities, including sponsored American
Depositary Receipts, which represent the right to receive securities of
non-U.S. issuers deposited in a U.S. or correspondent bank. Each Portfolio may
invest up to 5% of its assets in closed-end investment companies which
primarily hold non-U.S. securities.
FUTURES. Each of the Portfolios may purchase or sell stock index futures
and the foreign currency futures in each case in order to protect against
declines in the value of portfolio securities or increases in the cost of
securities or other assets to be acquired and, subject to applicable law, to
enhance potential gain. The Growth & Income Portfolio also may use financial
futures in order to protect itself from fluctuations in interest rates
(sometimes called "hedging") without actually buying or selling securities, or
to manage the effective maturity or duration of fixed income securities in the
Portfolio's investment portfolio in an effort to reduce potential losses or
enhance potential gain. Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a security at a
specified future time and price, or for making payment of a cash settlement
based on changes in the value of a security, an index of securities or other
assets. In many cases, the futures contracts that may be purchased or sold by
the Portfolios are standardized contracts traded on commodities exchanges or
boards of trade.
TEMPORARY INVESTMENTS. During periods of unusual economic or market
conditions or for temporary defensive purposes or liquidity, each Portfolio may
invest without limit in cash and in U.S. dollar-denominated high quality money
market and short-term instruments. These investments may result in a lower
yield than would be available from investments with a lower quality or longer
term.
OTHER PERMITTED INVESTMENTS. For more information regarding the
Portfolios' permitted investments and investment practices, see "Permitted
Investments and Investment Practices" below. The Portfolios will not
necessarily invest or engage in each of the investments and investment
practices described in "Permitted Investments and Investment Practices" but
reserve the right to do so.
INVESTMENT RESTRICTIONS. Part B of this Registration Statement contains a
list of specific investment restrictions which govern the investment policies
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of the Portfolios, including a limitation that each Portfolio may borrow money
from banks in an amount not to exceed 1/3 of the Portfolio's net assets for
extraordinary or emergency purposes (e.g., to meet redemption requests). Except
as otherwise indicated, the Portfolios' investment objectives and policies may
be changed without investor approval. If a percentage or rating restriction
(other than a restriction as to borrowing) is adhered to at the time an
investment is made, a later change in percentage or rating resulting from
changes in a Portfolio's securities will not be a violation of policy.
PORTFOLIO TURNOVER. Securities of each Portfolio will be sold whenever
the Manager believes it is appropriate to do so in light of the Portfolio's
investment objective, without regard to the length of time a particular
security may have been held. For the fiscal years ended December 31, 1995 and
December 31, 1996 the turnover rates for the Large Cap Growth Portfolio were
67% and 90%, respectively. For the period June 21, 1995 (commencement of
operations) to December 31, 1995 and for the fiscal year ended December 31,
1996, the turnover rates for the Small Cap Growth Portfolio were 41% and 89%,
respectively. The Growth & Income Portfolio was not in operation during the
fiscal year ending October 31, 1997. The turnover rate for the Growth & Income
Portfolio is not expected to exceed 100% for its fiscal year ending October 31,
1998. The amount of brokerage commissions and realization of taxable capital
gains will tend to increase as the level of portfolio activity increases.
BROKERAGE TRANSACTIONS. In connection with the selection of brokers or
dealers for securities transactions for the Portfolios and the placing of such
orders, brokers or dealers may be selected who also provide brokerage and
research services to the Portfolios or the other accounts over which the
Manager or its affiliates exercise investment discretion. The Manager is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for a Portfolio
which is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Manager determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer.
RISK CONSIDERATIONS:
The risks of investing in each Portfolio vary depending upon the nature
of the securities held, and the investment practices employed, on its behalf.
Certain of these risks are described below.
CHANGES IN NET ASSET VALUE. Each Portfolio's net asset value will
fluctuate based on changes in the values of the underlying portfolio
securities. This means that an investor's interest may be worth more or less at
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redemption than at the time of purchase. Equity securities fluctuate in
response to general market and economic conditions and other factors, including
actual and anticipated earnings, changes in management, political developments
and the potential for takeovers and acquisitions. During periods of rising
interest rates the value of debt securities generally declines, and during
periods of falling rates the value of these securities generally increases.
Changes by recognized rating agencies in the rating of any debt security, and
actual or perceived changes in an issuer's ability to make principal or
interest payments, also affect the value of these investments.
CREDIT RISK OF DEBT SECURITIES. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and equivalent securities may
have speculative characteristics. Adverse economic or changing circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade obligations. The Growth & Income
Portfolio may invest in securities rated below Baa or BBB (commonly known as
"junk bonds"). These securities are speculative. All of the risks of investing
in lower rated investment grade securities are heightened by investing in these
securities.
SMALL CAP COMPANIES. Each Portfolio may invest a portion of its assets in
stocks of U.S. issuers that have small market capitalizations (i.e., $750
million or less). Investors should be aware that the securities of companies
with small market capitalizations may have more risks than the securities of
other companies. Small cap companies may be more susceptible to market
downturns or setbacks because they may have limited product lines, markets,
distribution channels, and financial and management resources. Further, there
is often less publicly available information about small cap companies than
about more established companies. As a result of these and other factors, the
prices of securities issued by small cap companies may be volatile. Since under
normal circumstances, at least 65% of the Small Cap Growth Portfolio's total
assets will be invested in equity securities of companies with small market
capitalizations, an investment in the Small Cap Growth Portfolio may be subject
to greater fluctuation in value than an investment in an equity fund investing
primarily in securities of larger, more established companies.
ZERO-COUPON AND PAYMENT-IN-KIND BONDS. The Growth & Income Portfolio also
may invest in "zero-coupon" and "payment-in-kind" bonds. Zero-coupon bonds are
issued at a significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the security.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. Both zero-coupon
bonds and payment-in-kind bonds allow an issuer to avoid the need to generate
cash to meet current interest payments. Accordingly, these bonds may involve
greater credit risks than bonds paying interest in cash currently. The values
of zero-coupon bonds and payment-in-kind bonds are also subject to greater
fluctuation in response to changes in market interest rates than bonds that pay
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interest in cash currently. Even though such bonds do not pay current interest
in cash, the Portfolio nonetheless is required to accrue interest income on
these investments and to distribute the interest income on a current basis
Thus, the Portfolio could be required at times to liquidate other investments
in order to satisfy its distribution requirements.
NON-U.S. SECURITIES. Investments in non-U.S. securities involve risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S. and
non-U.S issuers and markets are subject. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest, limitations
on the use or transfer of portfolio assets and political or social instability.
Enforcing legal rights may be difficult, costly and slow in non-U.S. countries,
and there may be special problems enforcing claims against non-U.S.
governments. In addition, non-U.S. companies may not be subject to accounting
standards or governmental supervision comparable to U.S. companies, and there
may be less public information about their operations. Non-U.S. markets may be
less liquid and more volatile than U.S. markets, and may offer less protection
to investors such as the Portfolios. Prices at which a Portfolio may acquire
securities may be affected by trading by persons with material non-public
information and by securities transactions by brokers in anticipation of
transactions by the Portfolio.
Because non-U.S. securities often are denominated in currencies other
than the U.S. dollar, changes in currency exchange rates will affect a
Portfolio's net asset value, the value of dividends and interest earned and
gains and losses realized on the sale of securities. In addition, some non-U.S.
currency values may be volatile and there is the possibility of governmental
controls on currency exchanges or governmental intervention in currency
markets.
Equity securities traded in certain foreign countries may trade at
price-earnings multiples higher than those of comparable companies trading on
securities markets in the United States, which may not be sustainable. Rapid
increases in money supply in certain countries may result in speculative
investment in equity securities which may contribute to volatility of trading
markets.
The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those attributable to U.S. investing. As a result, the operating expense
ratios of the Portfolios may be higher than those of investment companies
investing exclusively in U.S. securities.
Each Portfolio may invest in securities of issuers in developing
countries, and all of these risks are increased for investments in issuers in
developing countries.
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INVESTMENT PRACTICES. Certain of the investment practices employed for
the Portfolios may entail certain risks. These risks are in addition to the
risks described above and are described in "Permitted Investments and
Investment Practices" below.
PERMITTED INVESTMENTS AND INVESTMENT PRACTICES:
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase
agreements in order to earn a return on temporarily available cash. Repurchase
agreements are transactions in which an institution sells the Portfolio a
security at one price, subject to the Portfolio's obligation to resell and the
selling institution's obligation to repurchase that security at a higher price
normally within a seven day period. There may be delays and risks of loss if
the seller is unable to meet its obligation to repurchase.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Portfolio and the agreement by the Portfolio to
repurchase the securities at an agreed-upon price, date and interest payment.
When a Portfolio enters into reverse repurchase transactions, securities of a
dollar amount equal in value to the securities subject to the agreement will be
maintained in a segregated account with the Portfolio's custodian. The
segregation of assets could impair the Portfolio's ability to meet its current
obligations or impede investment management if a large portion of the
Portfolio's assets are involved. Reverse repurchase agreements are considered
to be a form of borrowing.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate additional income, each Portfolio may
lend its portfolio securities to broker-dealers and other institutional
borrowers. Such loans must be callable at any time and continuously secured by
collateral (cash or U.S. Government securities) in an amount not less than the
market value, determined daily, of the securities loaned. It is intended that
the value of securities loaned by a Portfolio would not exceed 30% of the
Portfolio's total assets.
In the event of the bankruptcy of the other party to a securities loan, a
repurchase agreement or a reverse repurchase agreement, a Portfolio could
experience delays in recovering either the securities or cash. To the extent
that, in the meantime, the value of the securities loaned or sold has increased
or the value of the securities purchased has decreased, the Portfolio could
experience a loss.
CONVERTIBLE SECURITIES. The Growth & Income Portfolio may invest in
convertible securities. A convertible security is a fixed-income security (a
bond or preferred stock) which may be converted at a stated price within a
specified period of time into a certain quantity of common stock or other
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equity securities of the same or a different issuer. Convertible securities
rank senior to common stock in a corporation's capital structure but are
usually subordinated to similar non-convertible securities. While providing a
fixed-income stream (generally higher in yield than the income derivable from
common stock but lower than that afforded by a similar non-convertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation
attendant upon a market price advance in the convertible security's underlying
common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
RULE 144A SECURITIES. Each Portfolio may purchase restricted securities
that are not registered for sale to the general public. If it is determined
that there is a dealer or institutional market in the securities, the
securities will not be treated as illiquid for purposes of the Portfolio's
investment limitations. The Trustees will review these determinations. These
securities are known as "Rule 144A securities," because they are traded under
SEC Rule 144A among qualified institutional buyers. Institutional trading in
Rule 144A securities is relatively new, and the liquidity of these investments
could be impaired if trading in Rule 144A securities does not develop or if
qualified institutional buyers become, for a time, uninterested in purchasing
Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. Each Portfolio may invest up
to 15% of its net assets in securities for which there is no readily available
market. These illiquid securities may include privately placed restricted
securities for which no institutional market exists. The absence of a trading
market can make it difficult to ascertain a market value for illiquid
investments. Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for a
Portfolio to sell them promptly at an acceptable price.
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, each Portfolio may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered to
the Portfolio at a future date beyond customary settlement time. Under normal
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circumstances, the Portfolio takes delivery of the securities. In general, the
Portfolio does not pay for the securities until received and does not start
earning interest until the contractual settlement date. While awaiting delivery
of the securities, the Portfolio establishes a segregated account consisting of
cash, cash equivalents or high quality debt securities equal to the amount of
the Portfolio's commitments to purchase "when-issued" securities. An increase
in the percentage of the Portfolio's assets committed to the purchase of
securities on a "when-issued" basis may increase the volatility of its net
asset value.
FUTURES CONTRACTS. Each Portfolio may enter into stock index futures
contracts and foreign currency futures. The Growth & Income Portfolio may also
use financial futures in order to protect itself form fluctuations in interest
rates without actually buying or selling securities, or to manage the effective
maturity in duration of fixed income securities in the Portfolio's investment
portfolio in an effort to reduce potential losses or enhance potential gain.
Such investment strategies will be used for hedging purposes and for nonhedging
purposes, subject to applicable law. Futures contracts provide for the future
sale by one party and purchase by another party of a specified amount of a
security at a specified future time and price, or for making payment of a cash
settlement based on changes in the value of a security, an index of securities
or other assets. In many cases, the futures contracts that may be purchased by
a Portfolio are standardized contracts traded on commodities exchanges or
boards of trade.
Because the value of a futures contract changes based on the price of the
underlying security or other asset, futures contracts are commonly referred to
as "derivatives." Futures contracts are a generally accepted part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. When a Portfolio purchases or sells a futures
contract, it is required to make an initial margin deposit. Although the amount
may vary, initial margin can be as low as 1% or less of the face amount of the
contract. Additional margin may be required as the contract fluctuates in
value. Since the amount of margin is relatively small compared to the value of
the securities covered by a futures contract, the potential for gain or loss on
a futures contract is much greater than the amount of a Portfolio's initial
margin deposit. No Portfolio currently intends to enter into a futures contract
if, as a result, the initial margin deposits on all of that Portfolio's futures
contracts would exceed approximately 5% of that Portfolio's net assets. Also,
each Portfolio intends to limit its futures contracts so that the value of the
securities covered by its futures contracts would not generally exceed 50% of
that Portfolio's other assets and to segregate sufficient assets to meet its
obligations under outstanding futures contracts.
The ability of a Portfolio to utilize futures contracts successfully will
depend on the Manager's ability to predict stock price movements, which cannot
be assured. In addition to general risks associated with any investment, the
use of futures contracts entails the risk that, to the extent the Manager's
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view as to stock price movements is incorrect, the use of futures contracts,
even for hedging purposes, could result in losses greater than if they had not
been used. This could happen, for example, if there is a poor correlation
between price movements of futures contracts and price movements in a
Portfolio's related portfolio position. Also, the futures markets may not be
liquid in all circumstances. As a result, in certain markets, a Portfolio might
not be able to close out a transaction without incurring substantial losses, if
at all. When futures contracts are used for hedging, even if they are
successful in minimizing the risk of loss due to a decline in the value of the
hedged position, at the same time they limit any potential gain which might
result from an increase in value of such position. As noted, a Portfolio may
also enter into transactions in futures contracts for other than hedging
purposes (subject to applicable law), including speculative transactions, which
involve greater risk. In particular, in entering into such transactions, a
Portfolio may experience losses which are not offset by gains on other
portfolio positions, thereby reducing its gross income. In addition, the
markets for such instruments may be extremely volatile from time to time, which
could increase the risks incurred by a Portfolio in entering into such
transactions.
The use of futures contracts potentially exposes a Portfolio to the
effects of "leveraging," which occurs when futures are used so that the
Portfolio's exposure to the market is greater than it would have been if the
Portfolio had invested directly in the underlying securities. "Leveraging"
increases a Portfolio's potential for both gain and loss. As noted above, each
Portfolio intends to adhere to certain policies relating to the use of futures
contracts, which should have the effect of limiting the amount of leverage by
the Portfolio.
SECURITIES OF ISSUERS IN DEVELOPING COUNTRIES. Investors should be aware
that investing in the equity and fixed income markets of developing countries
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability,
than those of developed countries. Historical experience indicates that the
markets of developing countries have been more volatile than the markets of
developed countries with more mature economies; such markets often have
provided higher rates of return and greater risks. These heightened risks
include (i) greater risks of expropriation, confiscatory taxation and
nationalization, and less social, political and economic stability; (ii) the
small current size of markets for securities of issuers based in developing
countries and the currently low or non-existent volume of trading, resulting in
a lack of liquidity and in price volatility; (iii) certain national policies
which may restrict the Portfolio's investment opportunities including
restrictions on investing in issuers or industries deemed sensitive to relevant
national interests; and (iv) the absence of developed legal structures. Such
characteristics can be expected to continue in the future.
CURRENCY EXCHANGE CONTRACTS. Forward currency exchange contracts may be
entered into for each Portfolio for the purchase or sale of non-U.S. currency
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for hedging purposes against adverse rate changes or otherwise to achieve the
Portfolio's investment objective. A currency exchange contract allows a
definite price in dollars to be fixed for securities of non-U.S. issuers that
have been purchased or sold (but not settled) for the Portfolio. Entering into
such exchange contracts may result in the loss of all or a portion of the
benefits which otherwise could have been obtained from favorable movements in
exchange rates. In addition, entering into such contracts means incurring
certain transaction costs and bearing the risk of incurring losses if rates do
not move in the direction anticipated.
LOWER RATED DEBT SECURITIES. Each Portfolio may purchase lower rated
securities (those rated Baa or better by Moody's or BBB or better by S&P) which
may have poor protection of payment of principal and interest. These securities
are often considered to be speculative and involve greater risk of default or
price changes than securities assigned a higher quality rating due to changes
in the issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty which may follow periods of rising
interest rates.
The Growth & Income Portfolio also may purchase securities rated lower
than Baa by Moody's or BBB by S&P or comparable securities (commonly known as
"junk bonds"). These lower rated high yielding fixed income securities
generally tend to reflect economic changes (and the outlook for economic
growth), short-term corporate and industry developments and the market's
perception of their credit quality (especially during times of adverse
publicity) to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates (although
these lower rated fixed income securities are also affected by changes in
interest rates). In the past, economic downturns or an increase in interest
rates have under certain circumstances caused a higher incidence of default by
the issuers of these securities and may do so in the future, especially in the
case of highly leveraged issuers. During certain periods, the higher yields on
the Portfolio's lower rated fixed income securities are paid primarily because
of the increased risk of loss of principal and income, arising from such
factors as the heightened possibility of default or bankruptcy of the issuers
of such securities. Due to the fixed income payments of these securities, the
Portfolio may continue to earn the same level of interest income while its net
asset value declines due to portfolio losses. The prices for these securities
may be affected by legislative and regulatory developments. Changes in the
value of securities subsequent to their acquisition will not affect cash income
to the Portfolio but will be reflected in the net asset value of shares of the
Portfolio. The market for these lower rated fixed income securities may be less
liquid than the market for investment grade fixed income securities.
Furthermore, the liquidity of these lower rated securities may be affected by
the market's perception of their credit quality. Therefore, the Manager's
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities, and it also may be more
difficult during times of certain adverse market conditions to sell these lower
<PAGE>
rated securities at their fair value to meet redemption requests or to respond
to changes in the market.
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. Each Portfolio (other than the Growth & Income
Portfolio) may engage in short sales. A Portfolio will 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. Not more than 40% of a Portfolio's total assets would be
involved in short sales "against the box."
COMMERCIAL PAPER. Each Portfolio may invest in commercial paper, which is
unsecured debt of corporations usually maturing in 270 days or less from its
date of issuance.
DEPOSITARY RECEIPTS FOR SECURITIES. American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") and other forms of depositary receipts for securities of non-U.S.
issuers provide an alternative method for a Portfolio to make non-U.S.
investments. These securities are not usually traded in the same currency as
the securities into which they may be converted. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets and EDRs and GDRs, in
bearer form, are designed for use in European and global securities markets.
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities. EDRs and GDRs are European and global
receipts, respectively, evidencing a similar arrangement.
OTHER INVESTMENT COMPANIES. Subject to applicable statutory and
regulatory limitations, assets of each Portfolio may be invested in shares of
other investment companies. A Portfolio may invest up to 5% of its assets in
closed-end investment companies which primarily hold securities of non-U.S.
issuers.
ASSET-BACKED SECURITIES. The Growth & Income Portfolio may invest in
corporate asset-backed securities. These securities, issued by trusts and
special purpose corporations, are backed by a pool of assets, such as credit
card or automobile loan receivables, representing the obligations of a number
of different parties. Corporate asset-backed securities present certain risks.
For instance, in the case of credit card receivables, these securities may not
have the benefit of any security interest in the related collateral.
<PAGE>
The Growth & Income Portfolio also may purchase mortgage-backed
securities issued or guaranteed as to payment of principal and interest by the
U.S. Government or one of its agencies and backed by the full faith and credit
of the U.S. Government, including direct pass-through certificates of GNMA, as
well as mortgage-backed securities for which principal and interest payments
are backed by the credit of particular agencies of the U.S. Government.
Mortgage-backed securities are generally backed or collateralized by a pool of
mortgages. These securities are sometimes called collateralized mortgage
obligations or CMOs.
Even if the U.S. Government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment, because the underlying mortgages are refinanced to
take advantage of the lower rates. Thus the prices of mortgage-backed
securities may not increase as much as prices of other debt obligations when
interest rates decline, and mortgage-backed securities may not be an effective
means of locking in a particular interest rate. In addition, any premium paid
for a mortgage-backed security may be lost when it is prepaid. When interest
rates go up, mortgage-backed securities experience lower rates of prepayment.
This has the effect of lengthening the expected maturity of a mortgage-backed
security. As a result, prices of mortgage-backed securities may decrease more
than prices of other debt obligations when interest rates go up.
Additionally mortgage-backed securities are also subject to maturity
extension risk, that is, the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively convert a security that was considered short or intermediate-term
at the time of purchase into a long-term security. Long-term securities
generally fluctuate more widely in response to changes in interest rates than
short or intermediate-term securities. Thus, a rising interest rate would not
only likely decrease the value of the Portfolio's securities, but would also
increase the inherent volatility of the Portfolio by effectively converting
short term debt instruments into long term debt instruments.
DOLLAR ROLLS. The Growth & Income Portfolio may enter into "dollar
rolls." A dollar roll is a transaction pursuant to which the Portfolio sells
mortgage-backed securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Portfolio
foregoes principal and interest paid on the mortgage-backed securities. The
Portfolio is compensated by the difference between the current sales price and
the lower forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
<PAGE>
sale. A "covered roll" is a specific type of dollar roll for which the
Portfolio establishes a segregated account with liquid high grade debt
securities equal in value to the securities subject to repurchase by the
Portfolio. The Growth & Income Portfolio will invest only in covered rolls.
OPTIONS. The Growth & Income Portfolio may write (sell) covered call and
put options and purchase call and put options on securities. The Growth &
Income Portfolio will write options on securities for the purpose of increasing
its return on such securities and/or to protect the values of its portfolio. In
particular, where the Portfolio writes an option which expires unexercised or
is closed out by the Portfolio at a profit, it will retain the premium paid for
the option which will increase its gross income and will offset in part the
reduced value of the portfolio security underlying the option, or the increased
cost of portfolio securities to be acquired. If the price of the underlying
security moves adversely to the Portfolio's position, the option may be
exercised and the Portfolio will be required to purchase or sell the underlying
security at a disadvantageous price, which may only be partially offset by the
amount of the premium.
By writing a call option on a security, the Portfolio limits its
opportunity to profit from any increase in the market value of the underlying
security, since the holder will usually exercise the call option when the
market value of the underlying security exceeds the exercise price of the call.
However, the Portfolio retains the risk of depreciation in value of securities
on which it has written call options.
The Growth & Income Portfolio also may purchase options on a non-U.S.
currency in order to protect against currency rate fluctuations. If the
Portfolio purchases a put option on a non-U.S. currency and the value of the
U.S. currency declines, the Portfolio will have the right to sell the non-U.S.
currency for a fixed amount in U.S. dollars and will thereby offset, in whole
or in part, the adverse effect on the Portfolio which otherwise would have
<PAGE>
resulted. Conversely, where a rise in the U.S. dollar value of another currency
is projected, and where the Portfolio anticipates investing in securities
traded in such currency, the Portfolio may purchase call options on the
non-U.S. currency. The Growth & Income Portfolio also may buy and write options
on stock indices.
The Growth & Income Portfolio may purchase and write options to buy or
sell interest rate futures contracts and each Portfolio may purchase and write
options on stock index futures contracts. Such investment strategies will be
used for hedging and non-hedging purposes, subject to applicable law. Put and
call options on futures contracts may be traded by a Portfolio in order to
protect against declines in values of portfolio securities or against increases
in the cost of securities to be acquired. Purchase of options on futures
contracts may present less risk in hedging the investment portfolio of a
Portfolio than the purchase or sale of the underlying futures contracts since
the potential loss is limited to the amount of the premium plus related
transaction costs. The writing of such options, however, does not present less
risk than the trading of futures contracts and will constitute only a partial
hedge, up to the amount of the premium received. In addition, if an option is
exercised, a Portfolio may suffer a loss on the transaction.
Each Portfolio may enter into forward foreign currency contracts for the
purchase or sale of a fixed quantity of a foreign currency at a future date at
a price set at the time of the contract. The Portfolios may enter into forward
contracts for hedging and non-hedging purposes including transactions entered
into for the purpose of profiting from anticipated changes in foreign currency
exchange rates. Each Portfolio has established procedures consistent with
statements of the SEC and its staff regarding the use of forward contracts by
registered investment companies, which requires use of segregated assets or
"cover" in connection with the purchase and sale of such contracts.
Forward contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures and
options contracts described herein.
Transactions in options may be entered into on U.S. exchanges regulated
by the SEC, in the over-the-counter market and on foreign exchanges, while
forward contracts may be entered into only in the over-the-counter market.
Futures contracts and options on futures contracts may be entered into on U.S.
exchanges regulated by the Commodity Futures Trading Commission and on foreign
exchanges. The securities underlying options and futures contracts traded by
the Portfolios may include domestic as well as foreign securities. Investors
should recognize that transactions involving foreign securities or foreign
currencies, and transactions entered into in foreign countries, may involve
considerations and risks not typically associated with investing in U.S.
markets.
Transactions in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater
risk and could result in losses which are not offset by gains on other
portfolio assets. For example, a Portfolio may sell futures contracts on an
index of securities in order to profit from any anticipated decline in the
value of the securities comprising the underlying index. In such instances, any
losses on the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.
<PAGE>
Item 5. Management of the Portfolio.
TRUSTEES AND OFFICERS: Each Portfolio is supervised by the Board of
Trustees of the Trust. A majority of the Trustees are not affiliated with the
Manager. More information on the Trustees and officers of the Portfolios
appears under "Management of the Trust" in Part B.
INVESTMENT MANAGER: Citibank offers a wide range of banking and
investment services to customers across the United States and throughout the
world, and has been managing money since 1822. Its portfolio managers are
responsible for investing in money market, equity and fixed income securities.
Citibank and its affiliates manage more than $88 billion in assets worldwide.
Citibank is a wholly-owned subsidiary of Citicorp. Citibank also serves as
investment adviser to other registered investment companies. Citibank's address
is 153 East 53rd Street, New York, New York 10043.
Subject to policies set by the Trustees, Citibank is responsible for
overall management of the Portfolios' business affairs, and has a separate
management agreement ("Management Agreement") with respect to each Portfolio.
Citibank also provides certain administrative services to the Portfolios. These
administrative services include providing general office facilities and
supervising the overall administration of the Portfolios. Pursuant to
sub-administrative services agreements, The Landmark Funds Broker-Dealer
Services, Inc. ("LFBDS") performs such sub-administrative duties for the
Portfolios as from time to time are agreed upon by Citibank and LFBDS. LFBDS's
compensation as sub-administrator is paid by Citibank.
Grant D. Hobson and Richard Goldman have managed the Large Cap Growth
Portfolio since January 1996. Mr. Hobson is responsible for managing U.S.
equity portfolios for mutual funds, trust and pension accounts of Citibank
Global Asset Management and currently manages or co-manages more than $1
billion of total assets at Citibank. Prior to joining Citibank in 1993, Mr.
Hobson was a Sector Portfolio Manager for Axe Houghton, formerly a division of
USF&G. Mr. Goldman is responsible for managing U.S. equity portfolios for
mutual funds and institutional accounts, and for quantitative equity research
for the U.S. institutional business of Citibank Global Asset Management. He
currently manages, or co-manages, approximately $500 million of total assets at
Citibank. He joined Citicorp's Investment Management Division in 1985 and from
1988 to 1994 was responsible for running Citicorp's Institutional Investor
Relations Department.
Linda J. Intini has managed the Small Cap Growth Portfolio since February
1997. Ms. Intini has over nine years of experience specializing in the
management of small cap equities, including over $300 million of Citibank's
small cap portfolios for trusts and individuals. Prior to joining Citibank in
<PAGE>
1992, she was a Portfolio Manager and Research Analyst with Manufacturers
Hanover in the Special Equity area. She also specialized in equity research at
Eberstadt Fleming.
Barbara G. Marcin has managed the Growth & Income Portfolio since its
inception. Ms. Marcin is a Senior Portfolio Manager responsible for managing
over $600 million in U.S. equity and balanced accounts for individuals. She is
a member of Citibank's Global Investment Committee. Ms. Marcin has over 10
years of investment management experience. Prior to joining Citibank in 1993,
she was a Vice President and portfolio manager at Fiduciary Trust Company
International. She was with E.F. Hutton for three years in the Personal
Financial Management Group.
For its services under the Management Agreements, Citibank receives a
fee, which is accrued daily and paid monthly, at the annual rate specified
below with respect to each Portfolio of the average daily net assets on an
annualized basis of that Portfolio for that Portfolio's then-current fiscal
year: Large Cap Growth Portfolio: 0.60%; Small Cap Growth Portfolio: 0.75%; and
Growth & Income Portfolio: 0.70%.
Citibank may voluntarily agree to waive a portion of its investment
advisory fees.
For the fiscal year ended December 31, 1996 the investment advisory fee
paid to Citibank for the Large Cap Growth Portfolio and the Small Cap Growth
Portfolio under the Advisory Agreements previously in effect was 0.50% and
0.24%, respectively, of the Portfolio's average daily net assets for that
fiscal year. On August 8, 1997 the Trustees of the Trust voted to change the
fiscal year end of the Large Cap Growth and Small Cap Growth Portfolios to
October 31, 1997. The Growth & Income Portfolio is newly organized and had no
operations during the fiscal year ending October 31, 1997.
Citibank and its affiliates may have deposit, loan and other
relationships with the issuers of securities purchased on behalf of the
Portfolios, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Citibank has
informed the Trust that, in making its investment decisions, it does not obtain
or use material inside information in the possession of any division or
department of Citibank or in the possession of any affiliate of Citibank.
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the Trust. Citibank believes that its services under the Management
Agreements and the activities performed by it or by its affiliates as Service
Agents (which are securities dealers or other industry professional that have
entered into service agreements with LFBDS) are not underwriting and are
consistent with the Glass-Steagall Act and other relevant federal and state
<PAGE>
laws. However, there is no controlling precedent regarding the performance of
the combination of investment advisory, shareholder servicing and
administrative activities by banks. State laws on this issue may differ from
applicable federal law, and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. Changes in either
federal or state statutes or regulations, or in their interpretations, could
prevent Citibank from continuing to perform these services. If Citibank were to
be prevented from acting as the investment manager or a Service Agent, the
Trust would seek alternative means for obtaining these services. The Trust does
not expect that shareholders would suffer any adverse financial consequences as
a result of any such occurrence.
The Trust, on behalf of the Portfolios, has entered into Custodian
Agreements with State Street Bank and Trust Company ("State Street") pursuant
to which State Street acts as custodian for each Portfolio. Securities may be
held by a sub-custodian bank approved by the Trustees. State Street Cayman
Trust Company, Ltd. ("State Street Cayman") provides fund accounting services
for each Portfolio. State Street Cayman also provides transfer agency services
to each Portfolio.
The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, Cayman Islands.
In addition to amounts payable under the Management Agreements, each
Portfolio is responsible for its own expenses, including, among other things,
the costs of securities transactions, the compensation of Trustees that are not
affiliated with Citibank or LFBDS, government fees, taxes, accounting and legal
fees, expenses of communicating with investors, interest expense, and insurance
premiums. For the fiscal year ended December 31, 1996, the Portfolios' total
expenses, expressed as a percentage of each Portfolio's average daily net
assets for that period, were as follows: Large Cap Growth Portfolio: 0.60%; and
Small Cap Growth Portfolio: 0.85%. The Growth & Income Portfolio is newly
organized and had no operations during its fiscal year ended October 31, 1997.
All fee waivers are voluntary and may be reduced or terminated at any
time.
Item 6. Capital Stock and Other Securities.
Investments in the Portfolios have no pre-emptive or conversion rights
and are fully paid and non-assessable, except as set forth below. The Trust is
not required to hold, and has no current intention of holding, annual meetings
of investors, but the Trust will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote. Investors have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of investors) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of removing
<PAGE>
one or more Trustees. Investors also have the right to remove one or more
Trustees without a meeting by a declaration in writing by a specified number of
investors. Upon liquidation or dissolution of a Portfolio, investors in that
Portfolio would be entitled to share pro rata in the net assets of the
Portfolio available for distribution to its investors.
The Trust reserves the right to create and issue a number of series, in
which case investors in each series would participate equally in the earnings,
dividends and assets of the particular series.
The Trust is organized as a trust under the laws of the State of New
York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolios. Each investor in a Portfolio is
entitled to a vote in proportion to the amount of its beneficial interest in
that Portfolio. Investments in a Portfolio may not be transferred, but an
investor may withdraw all or any portion of its investment at any time.
The net asset value of each Portfolio (i.e., the value of its securities
and other assets less its liabilities) is determined each day on which the New
York Stock Exchange (the "Exchange") is open for trading ("Business Day") (and
on such other days as are deemed necessary in order to comply with Rule 22c-1
under the U.S. Investment Company Act of 1940, as amended (the "1940 Act")).
This determination is made once during each day as of the close of regular
trading on the Exchange. Values of a Portfolio's assets are determined on the
basis of their market or other fair value, as described in Item 19 of Part B.
Each investor in a Portfolio may add to or reduce its investment in the
Portfolio on each Business Day. As of the close of regular trading on the
Exchange, on each Business Day, the value of each investor's beneficial
interest in a Portfolio is determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in a Portfolio. Any
additions or withdrawals, which are to be effected on that day, are then
effected. Thereafter, the investor's percentage of the aggregate beneficial
interests in the Portfolio is then re-computed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of the close of regular trading on such day plus or minus,
as the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the same time on such day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined is then applied
to determine the value of the investor's interest in the Portfolio as of the
close of regular trading on the following Business Day of the Portfolio.
<PAGE>
Subject to an investor's right to make withdrawals as provided above, the
Portfolios do not make distributions to their investors.
The Trust has determined that each Portfolio is properly treated as a
partnership for U.S. federal and New York state income tax purposes.
Accordingly, no Portfolio is subject to any U.S. federal or New York state
income taxes, but each investor in a Portfolio must take into account its share
of that Portfolio's ordinary income, expense, capital gains and losses, credits
and other items in determining its income tax liability. The determination of
such share is made in accordance with the governing instruments of the Trust
and the U.S. Internal Revenue Code of 1986, as amended (the "Code"), and
regulations promulgated thereunder.
The Trust intends to conduct its activities and those of the Portfolios
so that they will not be deemed to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes. Therefore, it is not anticipated
that an investor in a Portfolio, other than an investor which would be deemed a
"U.S. person" for U.S. federal income tax purposes, will be subject to U.S.
federal income taxation (other than a 30% withholding tax on dividends and
certain interest income) solely by reason of its investment in a Portfolio.
There can be no assurance that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions that, if successful,
might result in the payment of U.S. federal income taxes by investors in a
Portfolio.
Item 7. Purchase of Securities.
Beneficial interests in the Portfolios are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolios may only
be made by investment companies, common or commingled trust funds or similar
organizations or entities which are "accredited investors" within the meaning
of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
An investment in each Portfolio is made without a sales load. All
investments are made at net asset value next determined after an order is
received by a Portfolio. There is no minimum initial or subsequent investment
in a Portfolio. However, since 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., moneys credited to the
account of a Portfolio's custodian bank by a U.S. Federal Reserve Bank).
The Trust reserves the right to cease accepting investments for any
Portfolio at any time or to reject any investment order.
<PAGE>
The exclusive placement agent for the Portfolios is LFBDS. The address of
LFBDS is c/o SFG, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, BWI. LFBDS receives no compensation for serving as the exclusive
placement agent for the Portfolios.
Item 8. Redemption or Repurchase.
An investor in a Portfolio may withdraw all or any portion of its
investment at any time after a withdrawal request in proper form is received by
the Portfolio from the investor. The proceeds of a withdrawal will be paid by
the Portfolio in federal funds normally on the Business Day the withdrawal is
effected, but in any event within seven days. See "Purchase, Redemption and
Pricing of Securities" in Part B of this Registration Statement regarding the
Trust's right to pay the redemption price in kind with readily marketable
securities (instead of cash). Investments in a Portfolio may not be
transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds postponed
during any period in which the Exchange is closed (other than weekends or
holidays) or trading on the Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
Item 9. Pending Legal Proceedings.
Not applicable.
<PAGE>
PART B
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents. Page
General Information and History B-1
Investment Objectives and Policies B-1
Management of the Trust B-28
Control Persons and Principal Holders of Securities B-31
Investment Advisory and Other Services B-31
Brokerage Allocation and Other Practices B-33
Capital Stock and Other Securities B-35
Purchase, Redemption and Pricing of Securities B-36
Tax Status B-38
Underwriters B-41
Calculations of Performance Data B-41
Financial Statements B-41
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objectives and Policies.
Part A contains information about the investment objectives and policies
of the following separate series (each a "Portfolio" and collectively, the
"Portfolios") of The Premium Portfolios (the "Trust"): Large Cap Growth
Portfolio (formerly Equity Portfolio), Small Cap Growth Portfolio (formerly
Small Cap Equity Portfolio) and Growth & Income Portfolio. This Part B should
be read in conjunction with Part A.
INVESTMENT OBJECTIVES
The investment objective of LARGE CAP GROWTH PORTFOLIO is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
<PAGE>
The investment objective of SMALL CAP GROWTH PORTFOLIO is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
The investment objective of GROWTH & INCOME PORTFOLIO is long-term
capital growth and current income.
The investment objective of each Portfolio may be changed without
approval by the Portfolio's investors. Of course, there can be no assurance
that any Portfolio will achieve its investment objective.
INVESTMENT POLICIES
Part A contains a discussion of the various types of securities in which
the Portfolios may invest and the risks involved in such investments. The
following supplements the information contained in Part A concerning the
investment objective, policies and techniques of each Portfolio.
While it is the policy of each of the Large Cap Growth Portfolio and the
Small Cap Growth Portfolio to invest its assets in a broadly diversified
portfolio of equity securities consisting mainly of common stocks of U.S.
issuers, each Portfolio may also invest in other types of securities such as
fixed income securities and convertible and non-convertible bonds.
The Trust has also adopted the following policies with respect to
investments by each of the Large Cap Growth Portfolio and the Small Cap Growth
Portfolio in (i) warrants and (ii) securities of issuers with less than three
years' continuous operation. The Trust's purchases of warrants for each of
these Portfolios will not exceed 5% of the Portfolio's net assets. Included
within that amount, but not exceeding 2% of its net assets, may be warrants
which are not listed on the New York Stock Exchange or the American Stock
Exchange. Any such warrants will be valued at their market value except that
warrants which are attached to securities at the time such securities are
acquired for the Portfolio will be deemed to be without value for the purpose
of this restriction. The Trust will not invest more than 5% of the assets of
any in companies which, including their respective predecessors, have a
record of less than three years' continuous operation.
The policies described above and those described below are not
fundamental and may be changed without investor approval.
REPURCHASE AGREEMENTS
Each of the Portfolios may invest in repurchase agreements collateralized
by securities in which that Portfolio may otherwise invest. Repurchase
agreements are agreements by which a Portfolio purchases a security and
simultaneously commits to resell that security to the seller (which is usually
<PAGE>
a member bank of the U.S. Federal Reserve System or a member firm of the New
York Stock Exchange (or a subsidiary thereof)) at an agreed-upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of
the underlying security, usually U.S. Government or Government agency issues.
Under the 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 the Portfolio may incur
certain costs in liquidating this collateral and in certain cases may not be
permitted to liquidate this collateral. All repurchase agreements entered into
by the Portfolios are fully collateralized, with such collateral being marked
to market daily.
SECURITIES OF NON-U.S. ISSUERS
Each of the Portfolios may invest in securities of non-U.S. issuers.
Investing in securities of foreign issuers may involve significant risks not
present in domestic investments. For example, the value of such securities
fluctuates based on the relative strength of the U.S. dollar. In addition,
there is generally less publicly available information about foreign issuers,
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 securities of foreign issuers
also involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory 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 other countries or areas of the world may
differ favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. securities markets, while growing in
volume and sophistication, are generally not as developed as those in the U.S.,
and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Non-U.S. securities trading practices, including
those involving securities settlement where a Portfolio's assets may be
released prior to receipt of payments, may expose a Portfolio to increased risk
in the event of a failed trade or the insolvency of a non-U.S. broker-dealer.
In addition, non-U.S. brokerage commissions are generally higher than
commissions on securities traded in the U.S. and may be non-negotiable. In
general, there is less overall governmental supervision and regulation of
non-U.S. securities exchanges, brokers and listed companies than in the U.S. In
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general, there is less overall governmental supervision and regulation of
non-U.S. securities exchanges, brokers and listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of
such investments may be substantially less than their net asset value and that
there would be duplication of investment management and other fees and
expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Portfolios to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement. ADRs, EDRs and GDRs are subject to many of the same risks
that apply to other investments in non-U.S. securities.
The Portfolios may invest in securities of non-U.S. issuers 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 securities of non-U.S. issuers of the same
class that are not subject to such restrictions.
The risks described above, including the risks of nationalization or
expropriation of assets, are typically increased to the extent that a Portfolio
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in many of these
countries may be in their infancy and developing rapidly, and such countries
may lack the social, political and economic stability characteristic of more
developed countries. Certain of these countries have in the past failed to
recognize private property rights and have at times nationalized and
expropriated the assets of private companies.
In addition, unanticipated political or social developments may affect
the value of a Portfolio's investments in these countries and the availability
to a Portfolio of additional investments in these countries. The small size,
limited trading volume and relative inexperience of the securities markets in
these countries may make a Portfolio's investment in such countries illiquid
and more volatile than investments in more developed countries, and a
Portfolio's may be required to establish special custodial or other
arrangements before making investments in these countries. There may be little
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financial or accounting information available with respect to issuers located
on these countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each of the Portfolios 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 may enter
into currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency, as well as
convert foreign currency to other foreign currencies. A Portfolio either enters
into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts
to purchase or sell foreign currencies. The Portfolios may also enter into
foreign currency hedging transactions in an attempt to protect the value of the
assets of the respective Portfolio as measured in U.S. dollars from unfavorable
changes in currency exchange rates and control regulations. (Although each
Portfolio's assets are valued daily in terms of U.S. dollars, the Trust does
not intend to convert a Portfolio's holdings of other currencies into U.S.
dollars on a daily basis.) The Portfolios do not currently intend to speculate
in currency exchange rates or forward contracts.
The Portfolios may convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no fees or
commissions are charged at any stage for trades.
When a Portfolio enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-U.S.
currency involved in the underlying security transaction, the Portfolio may be
able to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
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When the Manager believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, a Portfolio may enter
into a forward contract to sell, for a fixed amount of U.S. dollars, the amount
of non-U.S. currency approximating the value of some or all of the Portfolio's
securities denominated in such non-U.S. currency. The precise matching of the
forward contract amounts and the value of the securities involved is not
generally possible since the future value of such securities in non-U.S.
currencies changes as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date
it matures. The projection of a short-term hedging strategy is highly
uncertain. The Portfolios do not enter into such forward contracts or maintain
a net exposure to such contracts where the consummation of the contracts
obligates a Portfolio to deliver an amount of non-U.S. currency in excess of
the value of the Portfolio's securities or other assets denominated in that
currency. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated in the investment decisions made with
regard to overall diversification strategies. However, the Manager believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Portfolio will be
served.
The Portfolios generally would not enter into a forward contract with a
term greater than one year. At the maturity of a forward contract, a Portfolio
will either sell the security and make delivery of the non-U.S. currency, or
retain the security and terminate its contractual obligation to deliver the
non-U.S. currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the non-U.S. currency. If a Portfolio retains the security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices.
If a Portfolio engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the non-U.S. currency. Should forward
prices decline during the period between the date a Portfolio enters into a
forward contract for the sale of the non-U.S. currency and the date it enters
into an offsetting contract for the purchase of such currency, the Portfolio
will realize a gain to the extent the selling price of the currency exceeds the
purchase price of the currency. Should forward prices increase, the Portfolio
will suffer a loss to the extent that the purchase price of the currency
exceeds the selling price of the currency.
It is impossible to forecast with precision the market value of Portfolio
securities at the expiration of the contract. Accordingly, it may be necessary
for a Portfolio to purchase additional non-U.S. currency on the spot market if
the market value of the security is less than the amount of non-U.S. currency
the Portfolio is obligated to deliver and if a decision is made to sell the
security and make delivery of such currency. Conversely, it may be necessary to
sell on the spot market some of the non-U.S. currency received upon the sale of
the security if its market value exceeds the amount of such currency the
Portfolio is obligated to deliver.
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Each of the Portfolios may also purchase put options on a non-U.S.
currency in order to protect against currency rate fluctuations. If a Portfolio
purchases a put option on a non-U.S. currency and the value of the U.S.
currency declines, the Portfolio will have the right to sell the non-U.S.
currency for a fixed amount in U.S. dollars and will thereby offset, in whole
or in part, the adverse effect on the Portfolio which otherwise would have
resulted. Conversely, where a rise in the U.S. dollar value of another currency
is projected, and where a Portfolio anticipates investing in securities traded
in such currency, such Portfolio may purchase call options on the non-U.S.
currency.
The purchase of such options could offset, at least partially, the
effects of adverse movements in exchange rates. However, the benefit to a
Portfolio from purchases of non-U.S. 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, a Portfolio could sustain losses on transactions in non-U.S.
currency options which would require it to forgo a portion or all of the
benefits of advantageous changes in such rates.
Each of the Portfolios may write options on non-U.S. currencies for
hedging purposes or otherwise to achieve its investment objectives. For
example, where a Portfolio anticipates a decline in the value of the U.S.
dollar value of a non-U.S. security 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 option will most likely
not be exercised, and the diminution in value of the security held by the
Portfolio 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 cost of a non-U.S. security to be acquired because
of an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, a 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. However, the writing of a 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 currencies, a Portfolio also may be
required to forgo all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.
Put and call options on non-U.S. currencies written by a Portfolio will
be covered by segregation of cash, short-term money market instruments or high
quality debt securities in an account with the custodian in an amount
sufficient to discharge the Portfolio's obligations with respect to the option,
<PAGE>
by acquisition of the non-U.S. currency or of a right to acquire such currency
(in the case of a call option) or the acquisition of a right to dispose of the
currency (in the case of a put option), or in such other manner as may be in
accordance with the requirements of any exchange on which, or the counterparty
with which, the option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
denominated in currencies other than the U.S. dollar. Because the securities
underlying these receipts are traded primarily in non-U.S. currencies, changes
in currency exchange rates will affect the value of these receipts. For
example, a decline in the U.S. dollar value of another currency in which
securities are primarily traded will reduce the U.S. dollar value of such
securities, even if their value in the other currency remains constant, and
thus will reduce the value of the receipts covering such securities. A
Portfolio may employ any of the above described non-U.S. currency hedging
techniques to protect the value of its assets invested in depositary receipts.
Each Portfolio's dealings in non-U.S. currency contracts are limited to
the transactions described above. Of course, no Portfolio is required to enter
into such transactions and will not do so unless deemed appropriate by the
Manager. It should also be realized that these methods of protecting the value
of a Portfolio's securities against a decline in the value of a currency do not
eliminate fluctuations in the underlying prices of the securities.
Additionally, although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
Each Portfolio has established procedures consistent with policies of the
Securities and Exchange Commission (the "SEC") concerning forward contracts.
Since those policies currently recommend that an amount of a Portfolio's assets
equal to the amount of the purchase be held aside or segregated to be used to
pay for the commitment, each Portfolio expects always to have cash, cash
equivalents or high quality debt securities available sufficient to cover any
commitments under these contracts or to limit any potential risk.
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. Each
Portfolio (other than the Growth & Income Portfolio) may engage in short sales.
A Portfolio, in accordance with applicable investment restrictions, may engage
in short sales only if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
<PAGE>
occurs. If a Portfolio engages in a short sale, the collateral for the short
position is maintained for the Portfolio by the custodian or qualified
sub-custodian. While the short sale is open, an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities are maintained in a segregated
account for the Portfolio. These securities constitute the Portfolio's long
position.
Neither the Large Cap Growth Portfolio nor the Small Cap Growth Portfolio
engages in short sales against the box for investment purposes. Each of the
Large Cap Growth Portfolio and the Small Cap Growth Portfolio may, however,
make a short sale against the box as a hedge, when it believes that the price
of a security may decline, causing a decline in the value of a security owned
by the Portfolio (or a security convertible or exchangeable for such security).
In such case, any future losses in the Portfolio's long position should be
reduced by a gain in the short position. Conversely, any gain in the long
position should be reduced by a loss in the short position. The extent to which
such gains or losses are reduced depends upon the amount of the security sold
short relative to the amount the Portfolio owns. There are certain additional
transaction costs associated with short sales against the box, but each of the
Large Cap Growth Portfolio and the Small Cap Growth Portfolio endeavors to
offset these costs with the income from the investment of the cash proceeds of
short sales.
The Manager does not expect that more than 40% of any Portfolio's total
assets would be involved in short sales against the box. The Manager does not
currently intend to engage in such sales.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, each of the Portfolios may lend its securities to
broker-dealers and other institutional borrowers. Such loans will usually be
made only to member banks of the U.S. Federal Reserve System and to member
firms of the New York Stock Exchange (and subsidiaries thereof). Loans of
securities would be secured continuously by collateral in cash, cash
equivalents, or U.S. Treasury obligations maintained on a current basis at an
amount at least equal to the market value of the securities loaned. The cash
collateral would be invested in high quality short-term instruments. Either
party has the right to terminate a loan at any time on customary industry
settlement notice (which will not usually exceed three business days). During
the existence of a loan, a Portfolio would continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities loaned and
with respect to cash collateral would also receive compensation based on
investment of the collateral (subject to a rebate payable to the borrower).
Where the borrower provides a Portfolio with collateral consisting of U.S.
Treasury obligations, the borrower is also obligated to pay the Portfolio a fee
for use of the borrowed securities. A Portfolio would not, however, have the
right to vote any securities having voting rights during the existence of the
loan, but would call the loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
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of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially. However, the loans would be
made only to entities deemed by the Manager to be of good standing, and when,
in the judgment of the Manager, the consideration which can be earned currently
from loans of this type justifies the attendant risk. In addition, a Portfolio
could suffer loss if the borrower terminates the loan and the Portfolio is
forced to liquidate investments in order to return the cash collateral to the
buyer. If the Manager determines to make loans, it is not intended that the
value of the securities loaned would exceed 30% of the value of the respective
Portfolio's total assets.
WHEN-ISSUED SECURITIES
Each of the Portfolios may purchase securities on a "when-issued" or on a
"forward delivery" basis. It is expected that, under normal circumstances, the
applicable Portfolio would take delivery of such securities. When a Portfolio
commits to purchase a security on a "when-issued" or on a "forward delivery"
basis, it sets up procedures consistent with SEC policies. Since those policies
currently require that an amount of a Portfolio's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment,
each of the Portfolios expects always to have cash, cash equivalents or high
quality debt securities sufficient to cover any commitments or to limit any
potential risk. However, even though the Portfolios do not intend to make such
purchases for speculative purposes and intend to adhere to the provisions of
SEC policies, purchases of securities on such bases may involve more risk than
other types of purchases. For example, a Portfolio may have to sell assets
which have been set aside in order to meet redemptions. Also, if the Manager
determines it is advisable as a matter of investment strategy to sell the
"when-issued" or "forward delivery" securities, a Portfolio would be required
to meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale
of the "when-issued" or "forward delivery" securities themselves (which may
have a value greater or less than the Portfolio's payment obligation).
RULE 144A SECURITIES
Consistent with applicable investment restrictions, each of the
Portfolios may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933 (the "1933 Act"), but can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
1933 Act. However, none of the Portfolios will invest more than 15% of its net
assets in illiquid investments, which includes securities for which there is no
readily available market, securities subject to contractual restrictions on
resale and restricted securities, unless the Board of Trustees of the Trust
determines, based on the trading markets for the specific restricted security,
that it is liquid. The Trustees may adopt guidelines and delegate to the
Manager the daily function of determining and monitoring liquidity of
<PAGE>
restricted securities. The Trustees, however, retain oversight and are
ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market
for restricted securities will develop, the Trustees will carefully monitor
each Portfolio's investments in these securities, focusing on such factors,
among others, as valuation, liquidity and availability of information.
FUTURES CONTRACTS
Each of the Portfolios may enter into stock index futures contracts
and/or foreign currency futures contracts. The Growth & Income Portfolio may
also enter into interest rate futures contracts. Such investment strategies
will be used for hedging purposes and for nonhedging purposes, subject to
applicable law.
A futures contract is an agreement between two parties for the purchase
or sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts have been
designed by exchanges which have been designated "contract markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are very seldom
made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when a Portfolio
purchases or sells a futures contract. At the same time such a purchase or sale
is made, the Portfolio must provide cash or securities as a deposit ("initial
deposit") known as "margin." The initial deposit required will vary, but may be
as low as 1% or less of a contract's face value. Daily thereafter, the futures
contract is valued through a process known as "marking to market," and the
Portfolio may receive or be required to pay additional "variation margin" as
the futures contract becomes more or less valuable.
The Growth & Income Fund may purchase or sell futures contracts to
attempt to protect the Fund from fluctuations in interest rates, or to manage
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the effective maturity or duration of the Fund's investment portfolio in an
effort to reduce potential losses or enhance potential gain, without actually
buying or selling debt securities. For example, if interest rates were expected
to increase, the Growth & Income Portfolio might enter into futures contracts
for the sale of debt securities. Such a sale would have much the same effect as
if the Portfolio sold bonds that it owned, or as if the Portfolio sold
longer-term bonds and purchased shorter-term bonds. If interest rates did
increase, the value of the Portfolio's debt securities would decline, but the
value of the futures contracts would increase, thereby keeping the net asset
value of the Portfolio from declining as much as it otherwise would have.
Similar results could be accomplished by selling bonds, or by selling bonds
with longer maturities and investing in bonds with shorter maturities. However,
by using futures contracts, the Growth & Income Portfolio avoids having to sell
its securities.
Similarly, when it is expected that interest rates may decline, the
Growth & Income Portfolio might enter into futures contracts for the purchase
of debt securities. Such a purchase would be intended to have much the same
effect as if the Portfolio purchased bonds, or as if the Portfolio sold
shorter-term bonds and purchased longer-term bonds. If interest rates did
decline, the value of the futures contracts would increase.
Each of the Portfolios may enter into stock index futures contracts to
gain stock market exposure while holding cash available for investments and
redemptions.
Each of the Portfolios may purchase and sell foreign currency futures
contracts to attempt to protect its current or intended investments from
fluctuations in currency exchange rates. Such fluctuations could reduce the
dollar value of portfolio securities denominated in foreign currencies, or
increase the cost of foreign-denominated securities to be acquired, even if the
value of such securities in the currencies in which they are denominated
remains constant. A Portfolio may sell futures contracts on a foreign currency,
for example, where it holds securities denominated in such currency and it
anticipates a decline in the value of such currency relative to the dollar. In
the event such decline occurs, the resulting adverse effect on the value of
foreign-denominated securities may be offset, in whole or in part, by gains on
the futures contracts.
Conversely, a Portfolio could protect against a rise in the dollar cost
of foreign-denominated securities to be acquired by purchasing futures
contracts on the relevant currency, which could offset, in whole or in part,
the increased cost of such securities resulting from a rise in the dollar value
of the underlying currencies. Where a Portfolio purchases futures contracts
under such circumstances, however, and the prices of securities to be acquired
instead decline, the Portfolio will sustain losses on its futures position
which could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired.
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Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if a
Portfolio sells a futures contract to protect against losses in the securities
held by the Portfolio), at the same time the futures contract limits any
potential gain which might result from an increase in value of a hedged
position.
In addition, the ability effectively to hedge all or a portion of a
Portfolio's investments through transactions in futures contracts depends on
the degree to which movements in the value of the securities underlying such
contracts correlate with movements in the value of the Portfolio's securities.
If the security underlying a futures contract is different than the security
being hedged, they may not move to the same extent or in the same direction. In
that event, the Portfolio's hedging strategy might not be successful and the
Portfolio could sustain losses on these hedging transactions which would not be
offset by gains on the Portfolio's other investments or, alternatively, the
gains on the hedging transaction might not be sufficient to offset losses on
the Portfolio's other investments. It is also possible that there may be a
negative correlation between the security underlying a futures contract and the
securities being hedged, which could result in losses both on the hedging
transaction and the securities. In these and other instances, the Portfolio's
overall return could be less than if the hedging transactions had not been
undertaken. Similarly, even where a Portfolio enters into futures transactions
other than for hedging purposes, the effectiveness of its strategy may be
affected by lack of correlation between changes in the value of the futures
contracts and changes in value of the securities which the Portfolio would
otherwise buy and sell.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, there is the potential that the liquidity of
the futures market may be lacking. Prior to expiration, a futures contract may
be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the contract market on which the futures
contract was originally entered into. While a Portfolio will establish a
futures position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular futures contract at any specific time. In that event, it may not be
possible to close out a position held by the Portfolio, which could require the
Portfolio to purchase or sell the instrument underlying the futures contract or
to meet ongoing variation margin requirements. The inability to close out
futures positions also could have an adverse impact on the ability effectively
to use futures transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
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exchanges, which limit the amount of fluctuation in the price of a futures
contract during a single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures contracts also is subject
to the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times
make it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
Investments in futures contracts also entail the risk that if the
Manager's investment judgment about the general direction of interest rates or
stock prices is incorrect, the Portfolio's overall performance may be poorer
than if any such contract had not been entered into. For example, if the Growth
& Income Portfolio hedged against the possibility of an increase in interest
rates which would adversely affect the price of the Portfolio's bonds and
interest rates decrease instead, part or all of the benefit of the increased
value of the Portfolio's bonds which were hedged will be lost because the
Portfolio will have offsetting losses in its futures positions. Similarly, if
the Growth & Income Portfolio purchases futures contracts expecting a decrease
in interest rates and interest rates instead increased, the Portfolio will have
losses in its futures positions which will increase the amount of the losses on
the securities in its portfolio which will also decline in value because of the
increase in interest rates. In addition, in such situations, if the Growth &
Income Portfolio has insufficient cash, the Portfolio may have to sell bonds
from its investments to meet daily variation margin requirements, possibly at a
time when it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The Manager does not believe that these trading and position limits would have
an adverse impact on a Portfolio's hedging strategies.
CFTC regulations require compliance with certain limitations in order to
assure that a Portfolio is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a Portfolio from
purchasing or selling futures contracts (other than for bona fide hedging
transactions) if, immediately thereafter, the sum of the amount of initial
margin required to establish that Portfolio's non-hedging futures positions
would exceed 5% of that Portfolio's net assets.
Each Portfolio will comply with this CFTC requirement, and each Portfolio
currently intends to adhere to the additional policies described below. First,
an amount of cash or cash equivalents will be maintained by each Portfolio in a
segregated account with the Portfolio's custodian so that the amount so
segregated, plus the initial margin held on deposit, will be approximately
equal to the amount necessary to satisfy the Portfolio's obligations under the
futures contract. The second is that a Portfolio will not enter into a futures
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contract if immediately thereafter the amount of initial margin deposits on all
the futures contracts held by the Portfolio would exceed approximately 5% of
the net assets of the Portfolio. The third is that the aggregate market value
of the futures contracts held by a Portfolio not exceed approximately 50% of
the market value of the Portfolio's total assets other than its futures
contracts. For purposes of this third policy, "market value" of a futures
contract is deemed to be the amount obtained by multiplying the number of units
covered by the futures contract times the per unit price of the securities
covered by that contract.
The use of futures contracts may increase the amount of taxable income of
a Portfolio and may affect the amount, timing and character of a Portfolio's
income for tax purposes, as more fully discussed herein in the section entitled
"Tax Status."
OPTIONS ON FUTURES CONTRACTS
A Portfolio may purchase and write options to buy or sell futures
contracts in which the Portfolio may invest. Such investment strategies will be
used for hedging purposes and for non-hedging purposes, subject to applicable
law.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option
by the holder, the contract market clearinghouse establishes a corresponding
short position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series, (i.e., the same exercise
price and expiration date), as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by a Portfolio
on U.S. exchanges are traded on the same contract market as the underlying
futures contract, and, like futures contracts, are subject to regulation by the
CFTC and the performance guarantee of the exchange clearinghouse. In addition,
options on futures contracts may be traded on foreign exchanges.
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A Portfolio may cover the writing of call options on futures contracts
(a) through purchases of the underlying futures contract, (b) through ownership
of the instrument, or instruments included in the index underlying the futures
contract, or (c) through the holding of a call on the same futures contract and
in the same principal amount as the call written where the exercise price of
the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash or securities in a segregated
account with its custodian. A Portfolio may cover the writing of put options on
futures contracts (a) through sales of the underlying futures contract, (b)
through segregation of cash, short-term money market instruments or high
quality debt securities in an amount equal to the value of the security or
index underlying the futures contract, (c) through the holding of a put on the
same futures contract and in the same principal amount as the put written where
the exercise price of the put held is equal to or greater than the exercise
price of the put written or where the exercise price of the put held is less
than the exercise price of the put written if the difference is maintained by
the Portfolio in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. Put and call options on
futures contracts may also be covered in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Upon the exercise of a call option on a
futures contract written by a Portfolio, the Portfolio will be required to sell
the underlying futures contract which, if the Portfolio has covered its
obligation through the purchase of such contract, will serve to liquidate its
futures position. Similarly, where a put option on a futures contract written
by a Portfolio is exercised, the Portfolio will be required to purchase the
underlying futures contract which, if the Portfolio has covered its obligation
through the sale of such contract, will close out its futures position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. A Portfolio will receive an option premium when it writes the
call, and, if the price of the futures contract at expiration of the option is
below the option exercise price, the Portfolio will retain the full amount of
this option premium, which provides a partial hedge against any decline that
may have occurred in the Portfolio's security holdings. Similarly, the writing
of a put option on a futures contract constitutes a partial hedge against
increasing prices of the securities deliverable upon exercise of the futures
contract. If a Portfolio writes an option on a futures contract and that option
is exercised, the Portfolio may incur a loss, which loss will be reduced by the
amount of the option premium received, less related transaction costs. A
Portfolio's ability to hedge effectively through transactions in options on
futures contracts depends on, among other factors, the degree of correlation
between changes in the value of securities held by the Portfolio and changes in
the value of its futures positions. This correlation cannot be expected to be
exact, and a Portfolio bears a risk that the value of the futures contract
being hedged will not move in the same amount, or even in the same direction,
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as the hedging instrument. Thus it may be possible for a Portfolio to incur a
loss on both the hedging instrument and the futures contract being hedged.
A Portfolio may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline or changes in interest or
exchange rates, a Portfolio could, in lieu of selling futures contracts,
purchase put options thereon. In the event that such decrease occurs, it may be
offset, in whole or part, by a profit on the option. Conversely, where it is
projected that the value of securities to be acquired by a Portfolio will
increase prior to acquisition, due to a market advance or changes in interest
or exchange rates, the Portfolio could purchase call options on futures
contracts, rather than purchasing the underlying futures contracts.
BANK OBLIGATIONS
The Growth & Income Portfolio may invest in bank obligations, i.e.,
certificates of deposit, time deposits (including Eurodollar time deposits) and
bankers' acceptances and other short-term debt obligations issued by domestic
banks, foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
MORTGAGE-BACKED SECURITIES
The Growth & Income Portfolio may invest in mortgage-backed securities,
which are securities representing interests in pools of mortgage loans.
Interests in pools of mortgage-related securities differ from other forms of
debt securities which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
<PAGE>
costs which may be incurred. The market value and interest yield of these
instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the U.S. Government while obligations of FNMA and FHLMC are supported
by the respective agency only. Although GNMA certificates may offer yields
higher than those available from other types of U.S. Government securities,
GNMA certificates may be less effective than other types of securities as a
means of "locking in" attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, the value of a GNMA
certificate likely will not rise as much as comparable debt securities due to
the prepayment feature. In addition, these prepayments can cause the price of a
GNMA certificate originally purchased at a premium to decline in price to its
par value, which may result in a loss.
The Growth & Income Portfolio may also invest a portion of its assets in
collateralized mortgage obligations or "CMOs," a type of mortgage-backed
security. CMOs are securities collateralized by mortgages, mortgage
pass-through certificates, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the mortgage
collateral pool is dedicated to bond repayment), and mortgage-backed bonds
(general obligations of the issuers payable out of the issuers' general funds
and additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior
to their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed
by U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
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volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment because the underlying mortgages are refinanced to
take advantage of the lower rates. The price of mortgage-backed securities may
not increase as much as prices of other debt obligations when interest rates
decline, and mortgage-backed securities may not be an effective means of
locking in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid. When interest rates go
up, mortgage-backed securities experience lower rates of prepayment. This has
the effect of lengthening the expected maturity of a mortgage-backed security.
As a result, prices of mortgage-backed securities may decrease more than prices
of other debt obligations when interest rates go up.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Growth & Income Portfolio may enter into mortgage "dollar roll"
transactions pursuant to which it sells mortgage-backed securities for delivery
in the future and simultaneously contracts to repurchase substantially similar
securities on a specified future date. During the roll period, the Portfolio
foregoes principal and interest paid on the mortgage-backed securities. The
Growth & Income Portfolio is compensated for the lost principal and interest by
the difference between the current sales price and the lower price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Growth & Income Portfolio
may also be compensated by receipt of a commitment fee.
CORPORATE ASSET-BACKED SECURITIES
The Growth & Income Portfolio may invest in corporate asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and
automobile loan receivables, representing the obligations of a number of
different parties.
Corporate asset-backed securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
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cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The
Growth & Income Portfolio will not pay any additional or separate fees for
credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
LOWER RATED DEBT SECURITIES
The Growth & Income Portfolio may invest in lower rated fixed income
securities (commonly known as "junk bonds"), to the extent described in Part A.
The lower ratings of certain securities held by the Portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of such
securities held by the Portfolio more volatile and could limit the Portfolio's
ability to sell its securities at prices approximating the values the Portfolio
had placed on such securities. In the absence of a liquid trading market for
securities held by it, the Portfolio at times may be unable to establish the
fair value of such securities.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better
or worse than the rating would indicate. In addition, the rating assigned to a
security by Moody's Investors Service, Inc. or Standard & Poor's Rating
Services (or by any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the security's market value
or the liquidity of an investment in the security.
<PAGE>
Like those of other fixed-income securities, the values of lower rated
securities fluctuate in response to changes in interest rates. A decrease in
interest rates will generally result in an increase in the value of fixed
income securities. Conversely, during periods of rising interest rates, the
value of the Portfolio's fixed-income securities will generally decline. The
values of lower rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions affecting the
issuers of such securities and their industries. Negative publicity or investor
perceptions may also adversely affect the values of lower rated securities.
Changes by recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments of interest
and principal may also affect the value of these investments. Changes in the
value of portfolio securities generally will not affect income derived from
these securities, but will affect the Portfolio's net asset value. The
Portfolio will not necessarily dispose of a security when its rating is reduced
below its rating at the time of purchase. However, the Manager will monitor the
investment to determine whether its retention will assist in meeting the
Portfolio's investment objective.
Issuers of lower rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. Such issuers
may not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of the Growth & Income Portfolio's assets
may be invested in securities as to which the Portfolio, by itself or together
with other funds and accounts managed by Citibank and its affiliates, holds all
or a major portion. Although Citibank generally considers such securities to be
liquid because of the availability of an institutional market for such
securities, it is possible that, under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the issuer, the
Portfolio could find it more difficult to sell these securities when Citibank
believes it advisable to do so or may be able to sell the securities only at
prices lower than if they were more widely held. Under these circumstances, it
may also be more difficult to determine the fair value of such securities for
purposes of computing the Portfolio's net asset value. In order to enforce its
rights in the event of a default under such securities, the Portfolio may be
required to participate in various legal proceedings or take possession of and
manage assets securing the issuer's obligations on such securities. This could
increase the Portfolio's operating expenses and adversely affect the
Portfolio's net asset value. In addition, the Portfolio's intention to qualify
as a "regulated investment company" under the Internal Revenue Code may limit
the extent to which the Portfolio may exercise its rights by taking possession
of such assets.
<PAGE>
Certain securities held by the Growth & Income Portfolio may permit the
issuer at its option to "call," or redeem, its securities. If an issuer were to
redeem securities held by the Portfolio during a time of declining interest
rates, the Portfolio may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The Growth & Income Portfolio may invest without limit in "zero-coupon"
bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its option, to make
current interest payments on the bonds either in cash or in additional bonds.
Because zero-coupon and payment-in kind bonds do not pay current interest in
cash, their value is subject to greater fluctuation in response to changes in
market interest rates than bonds that pay interest currently. Both zero-coupon
and payment-in-kind bonds allow an issuer to avoid the need to generate cash to
meet current interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently in cash. The Portfolio is
required to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders even though such bonds do not pay
current interest in cash. Thus, it may be necessary at times for the Portfolio
to liquidate investments in order to satisfy its dividend requirements.
To the extent the Growth & Income Portfolio invests in securities in the
lower rating categories, the achievement of the Portfolio's objective is more
dependent on the Manager's investment analysis than would be the case if the
Portfolio were investing in securities in the higher rating categories. This
may be particularly true with respect to tax-exempt securities, as the amount
of information about the financial condition of an issuer of tax-exempt
securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded.
OPTIONS
The Growth & Income Portfolio may write covered call and put options and
purchase call and put options on securities. Call and put options written by
the Portfolio may be covered in the manner set forth below.
A call option written by the Growth & Income Portfolio is "covered" if
the Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Portfolio holds a call on the
same security 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
<PAGE>
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, short-term
money market instruments or high quality debt securities in a segregated
account with its custodian. A put option written by the Portfolio is "covered"
if the Portfolio maintains cash, short term money market instruments or high
quality debt securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
and in the same principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written
or where the exercise price of the put held is less than the exercise price of
the put written if the difference is maintained by the Portfolio in cash,
short-term money market instruments or high quality debt securities in a
segregated account with its custodian. Put and call options written by the
Portfolio may also be covered in such other manner as may be in accordance with
the requirements of the exchange on which, or the counter party with which, the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.
The Growth & Income Portfolio may purchase options for hedging purposes
or to increase its return. Put options may be purchased to hedge against a
decline in the value of portfolio securities. If such decline occurs, the put
options will permit the Portfolio to sell the securities at the exercise price,
or to close out the options at a profit. By using put options in this way, the
Portfolio will reduce any profit it might otherwise have realized in the
underlying security by the amount of the premium paid for the put option and by
transaction costs.
The Growth & Income Portfolio may purchase call options to hedge against
an increase in the price of securities that the Portfolio anticipates
purchasing in the future. If such increase occurs, the call option will permit
the Portfolio to purchase the securities at the exercise price, or to close out
the options at a profit. The premium paid for the call option plus any
transaction costs will reduce the benefit, if any, realized by the Portfolio
upon exercise of the option, and, unless the price of the underlying security
rises sufficiently, the option may expire worthless to the Portfolio.
The Growth & Income Portfolio may write (sell) covered call and put
options and purchase call and put options on stock indices. In contrast to an
option on a security, an option on a stock index provides the holder with the
right, but not the obligation, to make or receive a cash settlement upon
exercise of the option, rather than the right to purchase or sell a security.
The amount of this settlement is equal to (i) the amount, if any, by which the
fixed exercise price of the option exceeds (in the case of a call) or is below
(in the case of a put) the closing value of the underlying index on the date of
exercise, multiplied by (ii) a fixed "index multiplier."
The Growth & Income Portfolio may cover call options on stock indices by
owning securities whose price changes, in the opinion of the Manager, are
<PAGE>
expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities in
its portfolio. Where the Portfolio covers a call option on a stock index
through ownership of securities, such securities may not match the composition
of the index and, in that event, the Portfolio will not be fully covered and
could be subject to risk of loss in the event of adverse changes in the value
of the index. The Portfolio may also cover call options on stock indices by
holding a call on the same index 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, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. The Portfolio may cover put options on
stock indices by maintaining cash, short-term money market instruments or high
quality debt securities with a value equal to the exercise price in a
segregated account with its custodian, or by holding a put on the same stock
index and in the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written or where the exercise price of the put held is less than the exercise
price of the put written if the difference is maintained by the Portfolio in
cash, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. Put and call options on stock indices
may also be covered in such other manner as may be in accordance with the rules
of the exchange on which, or the counterparty with which, the option is traded
and applicable laws and regulations.
The Growth & Income Portfolio will receive a premium from writing a put
or call option, which increases the Portfolio's gross income in the event the
option expires unexercised or is closed out at a profit. If the value of an
index on which the Portfolio has written a call option falls or remains the
same, the Portfolio will realize a profit in the form of the premium received
(less transaction costs) that could offset all or a portion of any decline in
the value of the securities it owns. If the value of the index rises, however,
the Portfolio will realize a loss in its call option position, which will
reduce the benefit of any unrealized appreciation in the Portfolio's stock
investments. By writing a put option, the Portfolio assumes the risk of a
decline in the index. To the extent that the price changes of securities owned
by the Portfolio correlate with changes in the value of the index, writing
covered put options on indices will increase the Portfolio's losses in the
event of a market decline, although such losses will be offset in part by the
premium received for writing the option.
The Growth & Income Portfolio may also purchase put options on stock
indices to hedge the Portfolio's investments against a decline in value. By
purchasing a put option on a stock index, the Portfolio will seek to offset a
decline in the value of securities it owns through appreciation of the put
option. If the value of the Portfolio's investments does not decline as
<PAGE>
anticipated, or if the value of the option does not increase, the Portfolio's
loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will largely depend on the
accuracy of the correlation between the changes in value of the index and the
changes in value of the Portfolio's security holdings.
The purchase of call options on stock indices may be used by the Growth &
Income Portfolio to attempt to reduce the risk of missing a broad market
advance, or an advance in an industry or market segment, at a time when the
Portfolio holds uninvested cash or short-term debt securities awaiting
investment. When purchasing call options for this purpose, the Portfolio will
also bear the risk of losing all or a portion of the premium paid if the value
of the index does not rise. The purchase of call options on stock indices when
the Portfolio is substantially fully invested is a form of leverage, up to the
amount of the premium and related transaction costs, and involves risks of loss
and of increased volatility similar to those involved in purchasing calls on
securities the Portfolio owns.
The Growth & Income Portfolio may purchase and write options on foreign
currencies in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized.
CONVERTIBLE SECURITIES
The Growth & Income Portfolio may invest in convertible securities. A
convertible security is a fixed-income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of common stock or other equity securities of the same or a
different issuer. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to similar
non-convertible securities. While providing a fixed-income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar non-convertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance
in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
<PAGE>
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The Trust, on behalf of the Portfolios, has adopted the following
policies which may not be changed with respect to any Portfolio without
approval by holders of a majority of the outstanding voting securities of that
Portfolio, which as used in this Part B means the vote of the lesser of (i) 67%
or more of the outstanding voting securities of the Portfolio present at a
meeting at which the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented by proxy, or (ii) more
than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
1940 Act.
None of the Portfolios may :
(1) Borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow in an amount not to exceed 1/3 of the current
value of its net assets, including the amount borrowed; or purchase any
securities at any time at which borrowings exceed 5% of the total assets of the
Portfolio, taken at market value. It is intended that a Portfolio would borrow
money only from banks and only to accommodate requests for the repurchase of
beneficial interests in the Portfolio while effecting an orderly liquidation of
portfolio securities.
(2) Make loans to other persons except (a) through the lending of its
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 fixed time deposits or the purchase of short-term
obligations or (c) by purchasing all or a portion of an issue of debt
securities of types commonly distributed privately to financial institutions.
The purchase of short-term commercial paper or a portion of an issue of debt
securities which is part of an issue to the public shall not be considered the
making of a loan.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Portfolio
more than 10% of the voting securities of such issuer to be held by the
Portfolio; provided that, for purposes of this restriction, the issuer of an
option or futures contract shall not be deemed to be the issuer of the security
or securities underlying such contract; and provided further that the Portfolio
may invest all or any portion of its assets in one or more investment companies
to the extent not prohibited by the 1940 Act, the rules and regulations
thereunder, and exemptive orders granted under such Act.
<PAGE>
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the Portfolio's total assets more than 5% of
the Portfolio's assets (taken at market value) to be invested in the securities
of such issuer (other than securities or obligations issued or guaranteed by
the United States, any state or political subdivision thereof, or any political
subdivision of any such state, or any agency or instrumentality of the United
States or of any state or of any political subdivision of any state); provided
that, for purposes of this restriction, the issuer of an option or futures
contract shall not be deemed to be the issuer of the security or securities
underlying such contract; and provided further that the Portfolio may invest
all or any portion of its assets in or more investment companies, to the extent
not prohibited by the 1940 Act, the rules and regulations thereunder, and
exemptive orders granted under such Act.
(5) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of the Portfolio's investment objective,
up to 25% of its assets, at market value at the time of each investment, may be
invested in any one industry, except that positions in futures contracts shall
not be subject to this restriction.
(6) Underwrite securities issued by other persons, except that all or any
portion of the assets of the Portfolio may be invested in one or more
investment companies, to the extent not prohibited by the 1940 Act, the rules
and regulations thereunder, and exemptive orders granted under such Act, and
except insofar as the Portfolio may technically be deemed an underwriter under
the Securities Act in selling a security.
(7) Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the foregoing shall not be deemed to preclude
the Portfolio from purchasing or selling futures contracts or options thereon,
and the Portfolio reserves the freedom of action to hold and to sell real
estate acquired as a result of the ownership of securities by the Portfolio).
(8) 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.
NON-FUNDAMENTAL RESTRICTIONS
Each Portfolio does not as a matter of operating policy:
(i) purchase any securities for the Portfolio at any time at which
borrowings exceed 5% of the total assets of the Portfolio (taken at market
value), or
(ii) purchase securities issued by any registered investment company in
reliance on the provisions of Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940
<PAGE>
Act and the rules and regulations thereunder except to the extent not
prohibited by the 1940 Act, rules and regulations thereunder and exemptive
orders granted thereunder.
These policies are not fundamental and may be changed by each Portfolio
without the approval of its holders of the beneficial interests.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in Part A is adhered to at the time an
investment is made or assets are so utilized, a later change in percentage
resulting from changes in the value of the securities or a later change in the
rating of the securities held for a Portfolio will not be considered a
violation of policy.
Item 14. Management of the Trust.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate that those Trustees and officers are
"interested persons" (as defined in the 1940 Act) of the Trust. Unless
otherwise indicated below, the address of each Trustee and officer is 6 St.
James Avenue, Boston, Massachusetts. The address of the Trust is Elizabethan
Square, George Town, Grand Cayman, Cayman Islands, British West Indies.
TRUSTEES
ELLIOTT J. BERV (aged 54) -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June, 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June, 1991 to
June, 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chairman, Chief
Executive Officer and President, Signature Financial Group, Inc. and The
Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
MARK T. FINN (aged 54) -- President and Director, Delta Financial, Inc. (since
June, 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage
Consulting Group, Inc. (since October, 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
WALTER E. ROBB, III (aged 71) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (corporate financial advisers) (since
<PAGE>
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors)
(since 1989); Trustee of certain registered investment companies in the MFS
Family of Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
OFFICERS
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chairman, Chief
Executive Officer and President, Signature Financial Group, Inc. and The
Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
CHRISTINE A. DRAPEAU* (aged 27) -- Assistant Secretary and Assistant Treasurer
of the Trust; Assistant Vice President, Signature Financial Group, Inc. (since
January, 1996); Paralegal and Compliance Officer, various financial companies
(July, 1992 to January, 1996); Graduate Student, Bentley College (prior to
December, 1994).
JOHN R. ELDER* (aged 49) -- Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (since April, 1995); Treasurer of the Phoenix Family of
Mutual Funds, Phoenix Home Life Mutual Insurance Company (1983 to March, 1995).
LINDA T. GIBSON* (aged 32) -- Secretary of the Trust; Vice President, Signature
Financial Group, Inc. (since May, 1992); Assistant Secretary, The Landmark
Funds Broker-Dealer Services, Inc. (since October, 1992); Law Student, Boston
University School of Law (September, 1989 to May, 1992).
JOAN R. GULINELLO* (aged 42) -- Assistant Secretary and Assistant Treasurer of
the Trust; Vice President, Signature Financial Group, Inc. (since October,
1993); Secretary, The Landmark Funds Broker-Dealer Services, Inc. (since
October, 1995); Vice President and Assistant General Counsel, Massachusetts
Financial Services Company (prior to October, 1993).
JAMES E. HOOLAHAN* (aged 50) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Senior Vice President, Signature Financial
Group, Inc. His address is 437 Madison Avenue, 39th Floor, New York, New York.
SUSAN JAKUBOSKI* (aged 33) -- Assistant Secretary and Assistant Treasurer of
the Trust; Vice President, Signature Financial Group (Cayman) Ltd. (since
August, 1994); Senior Fund Administrator, Signature Financial Group, Inc.
(since August, 1994); Assistant Treasurer, Signature Broker-Dealer Services,
<PAGE>
Inc. (since September, 1994); Fund Compliance Administrator, Concord Financial
Group (November, 1990 to August, 1994). Her address is Elizabethan Square,
George Town, Grand Cayman, Cayman Islands, BWI.
MOLLY S. MUGLER* (aged 46) -- Assistant Secretary and Assistant Treasurer of
the Trust; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, The Landmark Funds Broker-Dealer Services, Inc. (since December,
1988).
KARYN A. NOKE* (aged 27) - Vice President, Assistant Secretary and Assistant
Treasurer of the Trust; Vice President, Signature Financial Group (Cayman) Ltd.
(since September, 1996); Assistant Vice President, Signature Financial Group,
Inc. (May, 1993 to August, 1996); Student, University of Massachusetts (prior
to May, 1993).
SHARON M. WHITSON* (aged 49) -- Assistant Secretary and Assistant Treasurer of
the Trust; Assistant Vice President, Signature Financial Group, Inc. (since
November, 1992); Associate Trader, Massachusetts Financial Services Company
(prior to November, 1992).
JULIE J. WYETZNER* (aged 38) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Vice President, Signature Financial Group,
Inc. Her address is 437 Madison Avenue, 39th Floor, New York, New York.
The Trustees and officers of the Trust also hold comparable positions
with certain other funds for which The Landmark Funds Broker-Dealer Services,
Inc., Signature Financial Group, Inc. or their affiliates serve as the
distributor or administrator.
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its investors, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable
determination, based upon a review of readily available facts, by vote of a
majority of disinterested Trustees or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.
The Trustees of the Trust received the following remuneration from the
Portfolio during its fiscal year ended December 31, 1996.
<PAGE>
Trustee Compensation Table
Aggregate Compensation Total Compensation from
Trustee from the Trust (1) Trust and Complex(1)
Elliott J. Berv $3,462 $42,250
Philip W. Coolidge $0 $0
Mark T. Finn $3,428 $43,000
Walter E. Robb, III $3,246 $45,375
(1) Information relates to the calendar year ended December 31, 1996. Messrs.
Berv, Coolidge, Finn and Robb served as Trustees of 24, 48, 26 and 24 funds
or portfolios, respectively, within the Landmark Family of Funds.
Item 15. Control Persons and Principal Holders of Securities.
As of October 1, 1997, Landmark Equity Fund and Citi U.S. Equity Fund,
Ltd. owned 77% and 23%, respectively, of the outstanding beneficial interests
in Large Cap Growth Portfolio; and Landmark Small Cap Equity Fund and Citi
Small Cap Equity Fund, Ltd. owned 52% and 48%, respectively, of the outstanding
beneficial interests in the Small Cap Growth Portfolio. Because Landmark Equity
Fund and Landmark Small Cap Equity Fund control the Large Cap Growth Portfolio
and the Small Cap Growth Portfolio, respectively, each such Fund could take
actions without the approval of any other investor. Each of Landmark Equity
Fund and Landmark Small Cap Equity Fund has informed the Trust that whenever it
is requested to vote on matters pertaining to the fundamental policies of a
Portfolio, it will hold a meeting of its shareholders and will cast its vote as
instructed by its shareholders. It is anticipated that any other investor in
any Portfolio which is an investment company registered under the 1940 Act
would follow the same or a similar practice. Each of Landmark Equity Fund and
Landmark Small Cap Equity Fund is a series of Landmark Funds II, a
Massachusetts business trust organized on April 13, 1984 and registered under
the 1940 Act as an investment company.
Item 16. Investment Advisory and Other Services.
Citibank serves as the manager of each Portfolio pursuant to
separate management agreements relating to each Portfolio ("Management
Agreements"). Subject to such policies as the Board of Trustees may determine,
Citibank manages the securities of each Portfolio and makes investment
decisions for each Portfolio. Citibank furnishes at its own expense all
services, facilities and personnel necessary in connection with managing each
Portfolio's investments and effecting securities transactions for each
<PAGE>
Portfolio. Each Management Agreement with the Trust provides that Citibank may
delegate the daily management of the securities of each Portfolio to one or
more subadvisers. Each Management Agreement will continue in effect from year
to year as long as such continuance is specifically approved at least annually
by the Board of Trustees of the Trust or by a vote of a majority of the
outstanding voting securities of the applicable Portfolio, and, in either case,
by a majority of the Trustees of the Trust who are not parties to a Management
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on a Management Agreement.
Citibank provides the Trust with general office facilities and supervises
the overall administration of the Trust, including, among other
responsibilities, the negotiation of contracts and fees with, and the
monitoring of performance and billings of, the Trust's independent contractors
and agents; the preparation and filing of all documents required for compliance
by the Trust with applicable laws and regulations; and arranging for the
maintenance of books and records of the Trust. Trustees, officers, and
investors in the Trust are or may be or may become interested in Citibank, as
directors, officers, employees, or otherwise and directors, officers and
employees of Citibank are or may become similarly interested in the Trust.
Each Management Agreement provides that Citibank may render services to
others. Each Management Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by the Trust when
authorized either by a vote of a majority of the outstanding voting securities
of the applicable Portfolio or by a vote of a majority of the Board of Trustees
of the Trust, or by Citibank on not more than 60 days' nor less than 30 days'
written notice, and will automatically terminate in the event of its
assignment. Each Management Agreement with the Trust provides that neither
Citibank nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the applicable Portfolio, except
for willful misfeasance, bad faith or gross negligence or reckless disregard of
its or their obligations and duties under a Management Agreement.
Part A to this Registration Statement contains a description of the fees
payable to Citibank for services under each of the Management Agreements.
Citibank may reimburse any Portfolio or waive all or any portion of its
management fee. For the period May 1, 1994 (commencement of operations) to
December 31, 1994 and for the fiscal years ended December 31, 1995 and 1996 the
fees paid to Citibank under the Advisory Agreement previously in effect with
respect to the Large Cap Growth Portfolio were $639,933, $1,049,008 and
$1,387,227, respectively. For the period June 21, 1995 (commencement of
operations) to December 31, 1995 and for the fiscal year ended December 31,
1996, the investment advisory fees payable to Citibank under the Advisory
Agreement previously in effect with respect to the Small Cap Growth Portfolio
were $10,222 (all of which was voluntarily waived) and $147,259 (of which
$100,088 was voluntarily waived), respectively. The Growth & Income Portfolio
was not in operation during the fiscal year ending October 31, 1997.
<PAGE>
Pursuant to a sub-administrative services agreement with Citibank, The
Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") performs such
sub-administrative duties for the Trust as from time to time are agreed upon by
Citibank and LFBDS. For performing such sub-administrative services, LFBDS
receives compensation as from time to time is agreed upon by Citibank, not in
excess of the amount paid to Citibank for its services under the Management
Agreements with the Trust. All such compensation is paid by Citibank.
The Trust, on behalf of the Portfolios, has entered into a Custodian
Agreement with State Street Bank and Trust Company ("State Street") pursuant to
which State Street acts as custodian for each Portfolio. The Trust, on behalf
of the Portfolios, also has entered into a Fund Accounting Agreement with State
Street Cayman Trust Company, Ltd. ("State Street Cayman") pursuant to which
State Street Cayman provides fund accounting services for each Portfolio. State
Street Cayman also provides transfer agency services to each Portfolio.
The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, British West Indies.
Price Waterhouse are the chartered accountants for the Trust, providing
audit services, and assistance and consultation with respect to the preparation
of filings with the U.S. Securities and Exchange Commission. The address of
Price Waterhouse is Suite 3000, Box 82, Royal Trust Towers, Toronto Dominion
Center, Toronto, Ontario, Canada M5K 1G8.
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel
to the Trust.
Item 17. Brokerage Allocation and Other Practices.
The Trust trades securities for a Portfolio if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Portfolio's investment objectives. Changes in the Portfolio's investments are
made without regard to the length of time a security has been held, or whether
a sale would result in the recognition of a profit or loss. Therefore, the rate
of turnover is not a limiting factor when changes are appropriate. Specific
decisions to purchase or sell securities for a Portfolio are made by a
portfolio manager who is an employee of the Manager and who is appointed and
supervised by its senior officers. The portfolio manager may serve other
clients of the Manager in a similar capacity.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
<PAGE>
28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or the other
accounts over which the Manager or its affiliates exercise investment
discretion. The Manager is authorized to pay a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for the Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
the Manager determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities which the
Manager and its affiliates have with respect to accounts over which they
exercise investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the commissions
paid over representative periods of time were reasonable in relation to the
benefits to the Portfolio.
The investment advisory fee that each Portfolio pays to Citibank will not
be reduced as a consequence of Citibank's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of
Citibank, Citibank would, through the use of the services, avoid the additional
expenses which would be incurred if it should attempt to develop comparable
information through its own staff or obtain such services independently.
In certain instances there may be securities that are suitable as an
investment for a Portfolio as well as for one or more of the Manager's other
clients. Investment decisions for each Portfolio and for the Manager's other
clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for
only one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling the same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable
for the investment objectives of more than one client. When two or more clients
are simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could adversely affect
the price of or the size of the position obtainable for the security for a
Portfolio. When purchases or sales of the same security for a Portfolio and for
other portfolios managed by the Manager occur contemporaneously, the purchase
or sale orders may be aggregated in order to obtain any price advantages
available to large volume purchases or sales.
For the period May 1, 1994 (commencement of operations) to December 31,
1994 and for the fiscal years ended December 31, 1995 and 1996, the Large Cap
Growth Portfolio paid brokerage commissions of $342,356, $418,145 and $586,248,
respectively. For the period June 21, 1995 (commencement of operations) to
December 31, 1995 and for the fiscal year ended December 31, 1996, the Small
<PAGE>
Cap Growth Portfolio paid brokerage commissions of $6,544 and $84,320,
respectively. The Growth & Income Portfolio is newly organized and had no
operations during that period.
Item 18. Capital Stock and Other Securities.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Trust and to establish series, each of which shall
be a subtrust, the beneficial interests in which shall be separate and distinct
from the beneficial interests in any other series. Each Portfolio is a series
of the Trust. Investors in each Portfolio are entitled to participate pro rata
in distributions of taxable income, loss, gain and credit of that Portfolio.
Upon liquidation or dissolution of a Portfolio, investors in that Portfolio are
entitled to share pro rata in the Portfolio's net assets available for
distribution to its investors. Interests in the Portfolio have no preference,
pre-emptive, conversion or similar rights and are fully paid and
non-assessable, except as set forth below. Interests in a Portfolio may not be
transferred.
Each investor is entitled to a vote in proportion to its percentage of
the aggregate beneficial interests in a Portfolio. Investors in a Portfolio do
not have cumulative voting rights, and investors holding more than 50% of the
aggregate beneficial interests in the Trust may elect all of the Trustees if
they choose to do so and in such event the other investors in the Trust would
not be able to elect any Trustee. The Trust is not required to hold, and has no
current intention of holding, annual meetings of investors but the Trust will
hold special meetings of investors when in the judgment of the Trustees it is
necessary or desirable to submit matters for an investor vote.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by a vote of a majority, as
defined in the 1940 Act, of the holders of the Trust's outstanding voting
securities voting as a single class, or of the affected series of the Trust, as
the case may be, or if authorized by an instrument in writing without a
meeting, consented to by holders of not less than a majority of the interests
of the affected series. However, if the Trust or the affected series is the
surviving entity of the merger, consolidation or sale of assets, no vote of
interest holders is required. Any series of the Trust may be dissolved (i) by
the affirmative vote of not less than two-thirds of the outstanding beneficial
interests in such series at any meeting of holders of beneficial interests or
by an instrument in writing signed by a majority of the Trustees and consented
to by not less than two-thirds of the outstanding beneficial interests, (ii) by
the Trustees by written notice to holders of the beneficial interests in the
series or (iii) upon the bankruptcy or expulsion of a holder of a beneficial
interest in the series, unless the remaining holders of beneficial interests,
by majority vote, agree to continue the series. The Trust may be dissolved by
action of the Trustees upon the dissolution of the last remaining series.
Each Portfolio is a series of the Trust, organized as a trust under the
laws of the State of New York. The Declaration of Trust provides that
<PAGE>
obligations of the Trust are not binding upon the Trustees individually and
that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his or her office.
Item 19. Purchase, Redemption and Pricing of Securities.
Beneficial interests in 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 each Portfolio may only
be made by investment companies, common or commingled trust funds or similar
organizations or entities which are "accredited investors" within the meaning
of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
The net asset value of each Portfolio (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued)
is determined each day during which the New York Stock Exchange (the
"Exchange") is open for trading ("Business Day"). As of the date of this
Registration Statement, the Exchange is open for trading every weekday except
for the following holidays (or the days on which they are observed): New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. This determination of net asset value of
each Portfolio is made once each day as of the close of regular trading on the
Exchange. As set forth in more detail below, purchases and withdrawals will be
effected at the time of determination of net asset value next following the
receipt of any purchase or withdrawal order.
For the purpose of calculating a Portfolio's net asset value, all assets
and liabilities initially expressed in non-U.S. currencies will be converted
into U.S. dollars at the prevailing market rates at the time of valuation.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or on the NASDAQ system for unlisted national market
issues, or at the last quoted bid price for securities in which there were no
sales during the day or for unlisted securities not reported on the NASDAQ
system. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time when net assets are valued. Bonds and
other fixed income securities (other than short-term obligations) are valued on
the basis of valuations furnished by a pricing service, use of which has been
approved by the Board of Trustees of the Trust. In making such valuations, the
pricing service utilizes both dealer-supplied valuations and electronic data
processing techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
<PAGE>
accurately the fair value of such securities. Short-term obligations (maturing
in 60 days or less) are valued at amortized cost, which constitutes fair value
as determined by the Board of Trustees. Futures contracts are normally valued
at the settlement price on the exchange on which they are traded. Securities
for which there are no such valuations are valued at fair value as determined
in good faith by or at the direction of the Board of Trustees.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of foreign securities occur between the
time when the exchange on which they are traded closes and the time when a
Portfolio's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Board of Trustees.
Interest income on long-term obligations held for a Portfolio is
determined on the basis of interest accrued plus amortization of "original
issue discount" (generally, the difference between issue price and stated
redemption price at maturity) and premiums (generally, the excess of purchase
price over stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest accrued less amortization of
premium.
Each investor in a Portfolio may add to or reduce its investment in that
Portfolio on each Business Day. As of the close of regular trading on the
Exchange, on each Business Day, the value of each investor's beneficial
interest in a Portfolio is determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in the Portfolio. Any
additions or withdrawals, which are to be effected on that day, are then
effected. Thereafter, the investor's percentage of the aggregate beneficial
interests in the Portfolio is re-computed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of the close of regular trading on such day plus or minus,
as the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the same time on such day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined is then applied
to determine the value of the investor's interest in the Portfolio as of the
close of regular trading on the following Business Day of the Portfolio.
Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption price of beneficial interests in a Portfolio,
either totally or partially, by a distribution in kind of readily marketable
securities (instead of cash). The securities so distributed would be valued at
<PAGE>
the same amount as that assigned to them in calculating the net asset value for
the beneficial interests being sold. If a holder of beneficial interests
received a distribution in kind, such holder could incur brokerage or other
charges in converting the securities to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for beneficial interests in a Portfolio more than seven days during any
period when (a) trading in the markets the Portfolio normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the
SEC, exists making disposal of the Portfolio's investments or determination of
its net asset value not reasonably practicable; (b) the Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC has by
order permitted such suspension.
Item 20. Tax Status.
The Trust is organized as a trust under New York law. The Trust has
determined that each Portfolio is properly treated as a partnership for U.S.
federal and New York State income tax purposes. Accordingly, under those tax
laws, the Portfolios are not subject to any income tax, but each investor in a
Portfolio must take into account its share of that Portfolio's ordinary income,
expense, capital gains, capital losses, credits, and other items in determining
its income tax liability. The determination of such share is made in accordance
with the governing instruments of the Trust and the U.S. Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder.
Each Portfolio's taxable year ends October 31 (on August 8, 1997 the
Board of Trustees of the Trust voted to change the fiscal and, subject to
receipt of IRS approval, taxable year ends of the Large Cap Growth Portfolio
and Small Cap Growth Portfolio to October 31). Although, as described above,
the Portfolios are not subject to U.S. federal income tax, they file
appropriate U.S. federal income tax returns.
The Trust believes that, in the case of an investor in a Portfolio that
seeks to qualify as a regulated investment company ("RIC") under the Code, the
investor should be treated for U.S. federal income tax purposes as an owner of
an undivided interest in the assets and operations of the Portfolio, and
accordingly should be deemed to own a proportionate share of each of the assets
of the Portfolio and be entitled to treat as earned by it the portion of the
Portfolio's gross income attributable to that share. The Trust also believes
that each such investor should be deemed to hold its proportionate share of a
Portfolio's assets for the period the Portfolio has held the assets or for the
period the investor has been a partner in the Portfolio, whichever is shorter.
Each investor should consult its tax advisers regarding whether, in light of
its particular tax status and any special tax rules applicable to it, this
approach applies to its investment in the Portfolio, or whether a Portfolio
should be treated, as to it, as a separate entity as to which the investor has
no direct interest in Portfolio assets or operations.
<PAGE>
In order to enable an investor in a Portfolio that is otherwise eligible
to qualify as a RIC under the Code to so qualify, the Trust intends that each
Portfolio will satisfy the requirements of Subchapter M of the Code relating to
the nature of each Portfolio's gross income and the composition
(diversification) and holding period of each Portfolio's assets as if those
requirements were directly applicable to such Portfolio and will allocate and
permit withdrawals of its net investment income and any net realized capital
gains in a manner that will enable an investor that is a RIC to comply with the
qualification requirements imposed by Subchapter M of the Code.
The Trust will allocate at least annually among each Portfolio's
investors each investor's distributive share of the respective Portfolio's net
investment income, net realized capital gains, and any other items of income,
gain, loss, deduction, or credit in a manner intended to comply with the Code
and applicable U.S. Treasury regulations.
To the extent the cash proceeds of any withdrawal or distribution exceed
an investor's adjusted tax basis in its partnership interest in a Portfolio,
the investor will generally realize gain for U.S. federal income tax purposes.
If, upon a complete withdrawal (i.e., a redemption of its entire interest in
the Portfolio), the investor's adjusted tax basis in its partnership interest
in the Portfolio exceeds the proceeds of the withdrawal, the investor will
generally realize a loss for federal income tax purposes. An investor's
adjusted tax basis in its partnership interest in the Portfolio will generally
be the aggregate price paid therefor, increased by the amounts of its
distributive shares of items of realized net income and gain (including income,
if any, exempt from U.S. Federal income tax), and reduced, but not below zero,
by the amounts of its distributive shares of items of net loss and the amounts
of any distributions received by the investor. This discussion does not address
any distributions by the Portfolios in kind (i.e., any distributions of readily
marketable securities or other non-cash property), which will be subject to
special tax rules and may have consequences different from those described in
this paragraph.
Each Portfolio may be subject to foreign withholding and other taxes with
respect to income on certain securities of non-U.S. issuers. These taxes may be
reduced or eliminated under the terms of an applicable U.S. income tax treaty.
The Trust does not anticipate that investors qualifying as RICs and investing
substantially all of their assets in a Portfolio will be able to pass through
to their shareholders any foreign tax credit for federal income tax purposes
with respect to the foreign withholding taxes paid by the Portfolio, if any.
Foreign exchange gains and losses realized by a Portfolio will generally be
treated as ordinary income and losses for federal income tax purposes. Certain
uses of foreign currency and foreign currency forward contracts and investments
in certain "passive foreign investment companies" may be limited, or a tax
election may be made, if available, in order to enable an investor that is a
RIC to preserve its qualification as a RIC and to avoid imposition of a tax on
such an investor.
<PAGE>
Any Portfolio's investment in zero coupon bonds and payment-in-kind bonds
will cause the Portfolio to recognize income prior to the receipt of cash
payments with respect to those securities. In order to enable any investor
which is a RIC to distribute this income and avoid a tax, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold, potentially resulting in additional taxable gain or loss.
Each Portfolio's transactions in options, foreign currency forward contracts,
and futures contracts will be subject to special tax rules that may affect the
amount, timing, and character of Portfolio income. For example, certain
positions held for the Portfolio on the last business day of each taxable year
will be marked to market (i.e., treated as if sold) on that day, and any gain
or loss associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held for a Portfolio that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Portfolio losses and adjustments in the holding
periods of Portfolio securities. Certain tax elections exist for straddles that
may alter the effects of these rules. Each Portfolio intends to limit its
activities in options, foreign currency forward contracts, and futures
contracts to the extent necessary to enable any investor which is a RIC to meet
the requirements of Subchapter M of the Code.
There are certain tax issues which will be relevant to only certain
investors, specifically, investors which are segregated asset accounts and
investors who contribute assets other than cash to 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 advisers as to the tax consequences of an investment in a
Portfolio.
The Trust intends to conduct its activities and those of the Portfolios
so that they will not be deemed to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes. Therefore, it is not anticipated
that an investor in a Portfolio, other than an investor which would be deemed a
"U.S. person" for U.S. federal income tax purposes, will be subject to U.S.
federal income taxation (other than a 30% withholding tax on dividends and
certain interest income) solely by reason of its investment in a Portfolio.
There can be no assurance that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions that, if successful,
might result in the payment of U.S. federal income taxes by investors in a
Portfolio.
The above discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions, or the state, local, or non-U.S. tax laws that may
be applicable to certain investors. Investors should consult their own tax
advisers with respect to the special tax rules that may apply in their
particular situations, as well as the state, local, or foreign tax consequences
to them of investing in a Portfolio.
<PAGE>
Item 21. Underwriters.
The Landmark Funds Broker-Dealer Services, Inc., exclusive placement
agent for each of the Portfolios, receives no compensation for serving in this
capacity. Investment companies, insurance company separate accounts, common and
commingled trust funds and similar organizations and entities may continuously
invest in each Portfolio.
Item 22. Calculations of Performance Data.
Not applicable.
Item 23. Financial Statements.
The financial statements contained in the Annual Report of the Large Cap
Growth Portfolio and the Small Cap Growth Portfolio for the fiscal year ended
December 31, 1996, as filed with the Securities and Exchange Commission, via
the EDGAR system, on February 26, 1997 (Accession Numbers 0000927086-97-000002
and 00000942918-97-000001), are incorporated by reference into this Part B. The
Growth & Income Portfolio is newly organized and had no other actions during
that period.
Copies of the Annual Reports of the Large Cap Growth Portfolio and the
Small Cap Growth Portfolio accompany this Part B.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Included in Part A:
Not applicable.
Financial Statements Included in Part B:
Large Cap Growth Portfolio:
Portfolio of Investments at December 31, 1996*
Statement of Assets and Liabilities at December 31, 1996*
Statement of Operations for the year ended December 31, 1996*
Statement of Changes in Net Assets for the years ended
December 31, 1995 and 1996*
Financial Highlights for the period from May 1, 1994 (commencement
of operations) to December 31, 1994 and for the years ended
December 31, 1995 and 1996*
Notes to Financial Statements - December 31, 1996*
Independent Auditors' Report - February 4, 1997*
Small Cap Growth Portfolio:
Portfolio of Investments at December 31, 1996**
Statement of Assets and Liabilities at December 31, 1996**
Statement of Operations for the year ended December 31, 1996**
Statement of Changes in Net Assets for the period from June 21,
1995 (commencement of operations) to December 31, 1995 and for
the year ended December 31, 1996**
Financial Highlights for the period from June 21, 1995
(commencement of operations) to December 31, 1995 and for the
year ended December 31, 1996**
Notes to Financial Statements - December 31, 1996**
Independent Auditors' Report - February 4, 1997**
- --------------------
*Incorporated herein by reference to the Annual Report of the Registrant
relating to Large Cap Growth Portfolio (formerly known as "Equity Portfolio")
for the fiscal year ended December 31, 1996 (Accession Number
0000927086-97-000002).
<PAGE>
**Incorporated herein by reference to the Annual Report of the Registrant
relating to Small Cap Growth Portfolio (formerly known as "Small Cap Equity
Portfolio") for the fiscal year ended December 31, 1996 (Accession Number
0000942918-97-000001).
(b) Exhibits
* 1(a) Declaration of Trust of The Premium
Portfolios
* 1(b) Forms of Amendments to Declaration of Trust
** and filed 1(c) Amendments to Declaration of Trust
herewith
1(d) Form of Amendment to Declaration of Trust
* 2 By-laws of The Premium Portfolios
* 5(a) Management Agreement between Large Cap
Growth Portfolio and Citibank, N.A.,
as investment manager and administrator
* 5(b) Management Agreement between Small Cap
Growth Portfolio and Citibank, N.A.,
as investment manager and administrator
* 5(c) Form of Management Agreement between
Growth & Income Portfolio and
Citibank, N.A., as investment manager
and administrator
* 6(a) Form of Placement Agency Agreement
between the Registrant and The
Landmark Funds Broker-Dealer Services,
Inc., as exclusive placement agent
6(b) Form of Letter Agreement adding Growth
& Income Portfolio to the Placement
Agency Agreement
8 Custodian Contract between the
Registrant and State Street Bank and
Trust Company, as custodian
<PAGE>
9(a) Form of Sub-Administrative Services
Agreement between Citibank, N.A. and
Signature Financial Group (Cayman)
Ltd., as sub-administrator
9(b) Accounting Services Agreement between
The Premium Portfolios and State
Street Cayman Trust Company, Ltd.
11 Consent of Price Waterhouse
27 Financial Data Schedules
- -----------------------
* Incorporated herein by reference to the Registration Statement on
Form N-1A of the Registrant relating to its series Government Income
Portfolio File No. 811-3438, filed March 21, 1994.
** Incorporated herein by reference to Amendment No. 2
the Registration Statement on Form N-1A of the
Registrant relating to Large Cap Growth Portfolio,
filed April 29, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
<PAGE>
Item 26. Number of Holders of Securities.
(1) (2)
Title of Class Number of Record Holders
Beneficial Interests (as of October 29, 1997)
Large Cap Growth Portfolio 2
Small Cap Growth Portfolio 2
Growth & Income Portfolio 0
Item 27. Indemnification.
Reference is hereby made to Article V of the Declaration of Trust,
incorporated herein by reference.
The Trustees and officers of the Trust and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940,
as amended.
Item 28. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range of
banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, a
registered bank holding company. Citibank also serves as investment adviser to
the following registered investment companies (or series thereof): The Premium
Portfolios (Balanced Portfolio, Government Income Portfolio, International
Equity Portfolio and Emerging Asian Markets Equity Portfolio), Tax Free
Reserves Portfolio, U.S. Treasury Reserves Portfolio, Cash Reserves Portfolio,
Asset Allocation Portfolios (Asset Allocation Portfolio 200, Asset Allocation
Portfolio 300, Asset Allocation Portfolio 400 and Asset Allocation Portfolio
500), Landmark Multi-State Tax Free Funds (Landmark New York Tax Free Reserves,
Landmark Connecticut Tax Free Reserves and Landmark California Tax Free
<PAGE>
Reserves), Landmark Fixed Income Funds (Landmark Intermediate Income Fund),
Landmark Tax Free Income Funds (Landmark National Tax Free Income Fund and
Landmark New York Tax Free Income Fund), CitiFunds Institutional Trust
(CitiFunds Institutional Cash Reserves) and Variable Annuity Portfolios
(CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP
Folio 400, CitiSelect(R) VIP Folio 500 and Landmark Small Cap Equity VIP Fund).
Citibank and its affiliates manage assets in excess of $88 billion worldwide.
The principal place of business of Citibank is located at 399 Park Avenue, New
York, New York 10043.
John S. Reed is the Chairman of the Board and a Director of Citibank. The
following are Vice Chairmen of the Board and Directors of Citibank: Paul J.
Collins and William R. Rhodes. Other Directors of Citibank are D. Wayne
Calloway, former Chairman and Chief Executive Officer, PepsiCo, Inc.; John M.
Deutch, Institute Professor, Massachusetts Institute of Technology; Reuben
Mark, Chairman and Chief Executive Officer, Colgate-Palmolive Company; Richard
D. Parsons, President, Time Warner, Inc.; Rozanne L. Ridgway, Former Assistant
Secretary of State for Europe and Canada; Robert B. Shapiro, Chairman,
President and Chief Executive Officer, Monsanto Company; Frank A. Shrontz,
Chairman Emeritus, The Boeing Company; and Franklin A. Thomas, former
President, The Ford Foundation.
Each of the individuals named above is also a Director of Citicorp. In
addition, the following persons have the affiliations indicated:
D. Wayne Calloway Director, Exxon Corporation
Director, General Electric Company
Retired Chairman and Chief
Executive Officer and
Director, PepsiCo, Inc.
Paul J. Collins Director, Kimberly-Clark Corporation
John M. Deutch Director, Ariad Pharmaceuticals, Inc.
Director, CMS Energy
Director, Palomar Medical Technologies, Inc.
Director, Cummins Engine Company, Inc.
Director, Schlumberger, Ltd.
Reuben Mark Director, Chairman and Chief Executive Officer
Colgate-Palmolive Company
Director, New York Stock Exchange
Director, Time Warner, Inc.
Non-Executive Director, Pearson, PLC
<PAGE>
Richard D. Parsons Director, Federal National Mortgage Association
Director, Philip Morris Companies Incorporated
Member, Board of Representatives, Time Warner
Entertainment Company, L.P.
Director and President, Time Warner, Inc.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding Corporation
Rozanne L. Ridgway Director, 3M
Director, Bell Atlantic Corporation
Director, Boeing Company
Director, Emerson Electric Company
Member-International Advisory Board,
New Perspective Fund, Inc.
Director, RJR Nabisco, Inc.
Director, Sara Lee Corporation
Director, Union Carbide Corporation
Robert B. Shapiro Director, Chairman and Chief
Executive Officer, Monsanto Company
Director, Silicon Graphics
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director and Chairman Emeritus, Boeing Company
Director, Boise Cascade Corp.
Director, Chevron Corporation
Franklin A. Thomas Director, Aluminum Company of America
Director, Cummins Engine Company, Inc.
Director, Lucent Technologies
Director, PepsiCo, Inc.
<PAGE>
Item 29. Principal Underwriters.
(a) The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS"), the
placement agent for the Registrant's series, is also the placement agent for
International Equity Portfolio, Balanced Portfolio, Government Income
Portfolio, Emerging Asian Markets Equity Portfolio, Tax Free Reserves
Portfolio, Cash Reserves Portfolio, U.S. Treasury Reserves Portfolio, Asset
Allocation Portfolio 200, Asset Allocation Portfolio 300, Asset Allocation
Portfolio 400 and Asset Allocation Portfolio 500. LFBDS is also the distributor
for Landmark International Equity Fund, Landmark Emerging Asian Markets Equity
Fund, Landmark U.S. Treasury Reserves, Landmark Cash Reserves, Premium U.S.
Treasury Reserves, Premium Liquid Reserves, Landmark Institutional U.S.
Treasury Reserves, Landmark Institutional Liquid Reserves, CitiFunds
Institutional Cash Reserves, Landmark Tax Free Reserves, Landmark Institutional
Tax Free Reserves, Landmark California Tax Free Reserves, Landmark Connecticut
Tax Free Reserves, Landmark New York Tax Free Reserves, Landmark U.S.
Government Income Fund, Landmark Intermediate Income Fund, Landmark Balanced
Fund, Landmark Equity Fund, Landmark Small Cap Equity Fund, Landmark National
Tax Free Income Fund, Landmark New York Tax Free Income Fund, CitiSelect(R) VIP
Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400,
CitiSelect(R) VIP Folio 500, Landmark Small Cap Equity VIP Fund, CitiSelect(R)
Folio 200, CitiSelect(R) Folio 300, CitiSelect(R) Folio 400 and CitiSelect(R)
Folio 500.
(b) The information required by this Item 29 with respect to each
director and officer of LFBDS is incorporated by reference to Schedule A of
Form BD filed by LFBDS pursuant to the Securities and Exchange Act of 1934
(File No. 8-32417).
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Name Address
State Street Bank and Trust Company 225 Franklin Street
(custodian) Boston, MA 02110
State Street Cayman Trust Company, Ltd. P.O. Box 25086T
(accounting services agent) Grand Cayman, Cayman Islands
<PAGE>
Citibank, N.A. 153 East 53rd Street
(investment manager and administrator) New York, NY 10043
The Landmark Funds Broker-Dealer c/o Signature Financial Group
Services, Inc. (Cayman) Ltd.
(placement agent) Elizabethan Square
George Town, Grand Cayman
Cayman Islands BWI
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
The Registrant undertakes to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Amendment to its Registration Statement on Form
N-1A to be signed on its behalf by the undersigned, thereunto duly authorized,
in Hamilton, Bermuda, on the 29th day of October, 1997.
THE PREMIUM PORTFOLIOS
on behalf of:
Large Cap Growth Portfolio
Small Cap Growth Portfolio
Growth & Income Portfolio
By: Susan Jakuboski
Assistant Secretary of
The Premium Portfolios
<PAGE>
EXHIBIT INDEX
Exhibit Description:
No.:
1(c) Amendments to Declaration of Trust
1(d) Form of Amendment to Declaration of
Trust
5(a) Management Agreement between Large
Cap Growth Portfolio and Citibank, N.A.,
as investment manager and administrator
5(b) Management Agreement between Small
Cap Growth Portfolio and Citibank, N.A.,
as investment manager and administrator
5(c) Form of Management Agreement between
Growth & Income Portfolio and Citibank,
N.A., as investment manager and
administrator
6(b) Form of Letter Agreement adding Growth
& Income Portfolio to the Placement
Agency Agreement
8 Custodian Contract between the Registrant
and State Street Bank and Trust Company,
as custodian
9(a) Form of Sub-Administrative Services
Agreement between Citibank, N.A. and
Signature Financial Group (Cayman) Ltd.,
as sub-administrator
9(b) Accounting Services Agreement between
The Premium Portfolios and State Street
Cayman Trust Company, Ltd.
11 Consent of Price Waterhouse
<PAGE>
27 Financial Data Schedules
Exhibit 1(c)
THE PREMIUM PORTFOLIOS
AMENDMENT TO
DECLARATION OF TRUST
The undersigned, constituting a majority of the Trustees of The Premium
Portfolios (the "Trust"), a trust organized under the laws of the State of New
York, pursuant to a Declaration of Trust dated September 13, 1993, as amended
(the "Declaration"), subject to approval by a majority of the investors in
Equity Portfolio and Small Cap Equity Portfolio, each a series of the Trust, do
hereby amend Sections 1.2, 3.2 and 5.1 of the Declaration as follows:
By deleting the definition of "Institutional Investor(s)" contained in
Section 1.2 of the Declaration and replacing it with the following:
"Institutional Investor(s)" shall mean, when used with respect to
each Series of the Trust other than the Series designated as Balanced
Portfolio, Government Income Portfolio, International Equity Portfolio
and Emerging Asian Markets Equity Portfolio, any regulated investment
company, segregated asset account, foreign investment company, common
trust fund, group trust or other investment arrangement, whether
organized within or without the United States of America, other than an
individual, S corporation or partnership or a grantor trust beneficially
owned by any individual, S corporation or partnership, unless, in the
case of a partnership or a grantor trust beneficially owned by a
partnership, the interests in the partnership are held by entities that
otherwise meet the definition of Institutional Investor. When used with
respect to those Series of the Trust designated as Balanced Portfolio,
Government Income Portfolio, International Equity Portfolio and Emerging
Asian Markets Equity Portfolio, Institutional Investor(s) shall mean any
regulated investment company, segregated asset account, foreign
investment company, common trust fund, group trust or other investment
arrangement, whether organized within or without the United States of
America, other than an individual, S corporation, partnership or grantor
trust beneficially owned by any individual, S corporation or partnership.
By adding the following paragraph (d) immediately after paragraph (c) of
Section 3.2:
(d) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without
any requirement of approval by investors to either invest all or a
portion of the Trust Property of each Series of the Trust (other than the
<PAGE>
Series designated as Balanced Portfolio, Government Income Portfolio,
International Equity Portfolio and Emerging Asian Markets Equity
Portfolio), or sell all or a portion of such Trust Property and invest
the proceeds of such sales, in one or more investment companies to the
extent not prohibited by the 1940 Act and exemptive orders granted under
such Act.
By deleting Section 5.1 of the Declaration in its entirety and replacing
it with the following:
5.1. Liability of Holders; Indemnification. (a) As to the Series of
the Trust designated as Balanced Portfolio, Government Income Portfolio,
International Equity Portfolio and Emerging Asian Markets Equity
Portfolio, each Holder of an Interest in such Series shall be jointly and
severally liable with every other Holder of an Interest in that Series
(with rights of contribution inter se in proportion to their respective
Interests in the Series) for the liabilities and obligations of that
Series (and of no other Series) in the event that the Trust fails to
satisfy such liabilities and obligations from the assets of that Series.
To the extent assets of a Series named in the preceding sentence are
available in the Trust, the Trust shall indemnify and hold each Holder of
an Interest in that Series harmless from and against any claim or
liability to which such Holder may become subject by reason of being or
having been a Holder of an Interest in that Series to the extent that
such claim or liability imposes on the Holder an obligation or liability
which, when compared to the obligations and liabilities imposed on other
Holders of Interests in that Series, is greater than such Holder's
proportionate share of such claim or liability, and shall reimburse such
Holder for all legal and other expenses reasonably incurred by such
Holder in connection with any such claim or liability.
(b) Notwithstanding any other provision of this Declaration, each
Holder of an Interest in a Series of the Trust other than Balanced
Portfolio, Government Income Portfolio, International Equity Portfolio
and Emerging Asian Markets Equity Portfolio shall not be subject to any
personal liability whatsoever to any Person in connection with the Trust
Property or the acts, obligations or affairs of the Trust with respect to
that Series; and if any such Holder is made a party to any suit or
proceeding to enforce any such liability, such Holder shall not, on
account thereof, be held to any personal liability. To the extent assets
of a Series enumerated in the preceding sentence are available in the
Trust, the Trust shall indemnify and hold each Holder of an Interest in
that Series harmless from and against any claim or liability to which
such Holder may become subject by reason of being or having been a Holder
<PAGE>
of an Interest in that Series, and shall reimburse such Holder for all
legal and other expenses reasonably incurred by such Holder in connection
with any such claim or liability.
(c) The rights accruing to a Holder under this Section 5.1 shall not
exclude any other right to which such Holder may be lawfully entitled,
nor shall anything contained herein restrict the right of the Trust to
indemnify or reimburse a Holder in any appropriate situation even though
not specifically provided herein. The liabilities of a particular Series
and the right to indemnification granted hereunder to Holders of
Interests in such Series shall not be enforceable against any other
Series or Holders of Interests in any other Series.
IN WITNESS WHEREOF, the undersigned have executed this instrument at
Tucker's Town, Bermuda as of the 8th day of August, 1997.
Elliott J. Berv Mark T. Finn
- ------------------------- ---------------------------
ELLIOTT J. BERV MARK T. FINN
As Trustee and Not Individually As Trustee and Not
Individually
Philip W. Coolidge Walter E. Robb, III
- ------------------------- ---------------------------
PHILIP W. COOLIDGE WALTER E. ROBB, III
As Trustee and Not Individually As Trustee and Not
Individually
<PAGE>
THE PREMIUM PORTFOLIOS
AMENDED AND RESTATED
ESTABLISHMENT AND DESIGNATION OF SERIES OF
BENEFICIAL INTERESTS (WITHOUT PAR VALUE)
Pursuant to Section 6.2 of the Declaration of Trust, dated September 13,
1993, as amended (the "Declaration of Trust"), of The Premium Portfolios (the
"Trust"), the undersigned, being a majority of the Trustees of the Trust, do
hereby amend and restate the Trust's existing Establishment and Designation of
Series of Beneficial Interests (without par value) in order to change the names
of two series of Interests (as defined in the Declaration of Trust) which were
previously established and designated and to eliminate the establishment and
designation of five series of Interests which were previously established and
designated. No other changes to the special and relative rights of the existing
series are intended by this amendment and restatement. This amendment and
restatement shall become effective on such date as any officer of the Trust may
select by written notice to the Trust.
1. The series shall be as follows:
The series previously designated as Equity Portfolio shall be
redesignated as "Large Cap Growth Portfolio."
The series previously designated as Small Cap Equity
Portfolio shall be redesignated as "Small Cap Growth Portfolio."
The series previously designated as Government Securities Portfolio, no
Interests therein being outstanding, is hereby eliminated.
The series previously designated as Income Portfolio, no Interests
therein being outstanding, is hereby eliminated.
The series previously designated as New Markets Portfolio, no Interests
therein being outstanding, is hereby eliminated.
The series previously designated as Global Governments Portfolio, no
Interests therein being outstanding, is hereby eliminated.
<PAGE>
The series previously designated as Earnings Growth Equity Portfolio,
no Interests therein being outstanding, is hereby eliminated.
The remaining series are as follows:
Balanced Portfolio;
Government Income Portfolio;
International Equity Portfolio; and
Emerging Asian Markets Equity Portfolio.
2. Each series shall be authorized to hold cash, invest in securities,
instruments and other property and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Investment Company Act of 1940, as amended, to the extent pertaining
to the offering of Interests of such series. Each Interest of each series shall
have such redemption, voting and liquidation rights and shall represent such
proportionate ownership in the series as provided generally in the Declaration
of Trust. The proceeds of sales of Interests of each series, together with any
income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to such series, unless otherwise required by law.
3. Investors in each series shall vote separately as a class on any matter to
the extent required by, and any matter shall have been deemed effectively acted
upon with respect to such series as provided in, Rule 18f-2, as from time to
time in effect, under the Investment Company Act of 1940, as amended, or any
successor rule, and the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated to each series as
set forth in Section 6.2 of the Declaration of Trust.
5. Subject to the provisions of Section 6.2 and Article X of the Declaration of
Trust, the Trustees (including any successor Trustees) shall have the right at
any time and from time to time to change the designation of any series now or
hereafter created, or to otherwise change the special and relative rights of
any series.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument at Tucker's
Town, Bermuda as of the 8th day of August, 1997.
Elliott J. Berv Mark T. Finn
- ------------------------- ----------------------------
ELLIOTT J. BERV MARK T. FINN
As Trustee and Not Individually As Trustee and Not Individually
Philip W. Coolidge Walter E. Robb, III
- ------------------------- ----------------------------
PHILIP W. COOLIDGE WALTER E. ROBB, III
As Trustee and Not Individually As Trustee and Not Individually
<PAGE>
The Premium Portfolios
c/o Signature Financial Group (Cayman) Ltd.
Elizabethan Square
George Town
Grand Cayman, BWI
I, Susan Jakuboski, hereby certify that I am the duly elected, qualified
and acting Assistant Secretary of The Premium Portfolios, a New York trust (the
"Trust"), and, pursuant to authority granted by the Board of Trustees of the
Trust at a meeting held on August 8, 1997, do hereby give notice that the
Amended and Restated Establishment and Designation of Series of Beneficial
Interests (without par value) of the Trust, as executed by the Trustees of the
Trust on August 8, 1997, shall become effective as of November 1, 1997.
IN WITNESS WHEREOF, I have hereunto signed my name at Hamilton, Bermuda
this 14th day of October, 1997.
Susan Jakuboski
------------------------------------
Susan Jakuboski, Assistant Secretary
Exhibit 1(d)
THE PREMIUM PORTFOLIOS
FORM OF AMENDED AND RESTATED
ESTABLISHMENT AND DESIGNATION OF SERIES OF
BENEFICIAL INTERESTS (WITHOUT PAR VALUE)
Pursuant to Section 6.2 of the Declaration of Trust, dated September 13,
1993, as amended (the "Declaration of Trust"), of The Premium Portfolios (the
"Trust"), the undersigned, being a majority of the Trustees of the Trust, do
hereby amend and restate the Trust's existing Establishment and Designation of
Series of Beneficial Interests (without par value) in order to establish one
series of Interests (as defined in the Declaration of Trust). No other changes
to the special and relative rights of the existing series are intended by this
amendment and restatement.
1. The series shall be as follows:
The new series shall be designated as:
"Growth & Income Portfolio."
The remaining series are as follows:
Large Cap Growth Portfolio;
Small Cap Growth Portfolio;
Balanced Portfolio;
Government Income Portfolio;
International Equity Portfolio; and
Emerging Asian Markets Equity Portfolio.
2. Each series shall be authorized to hold cash, invest in securities,
instruments and other property and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Investment Company Act of 1940, as amended, to the extent pertaining
to the offering of Interests of such series. Each Interest of each series shall
have such redemption, voting and liquidation rights and shall represent such
proportionate ownership in the series as provided generally in the Declaration
of Trust. The proceeds of sales of Interests of each series, together with any
income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to such series, unless otherwise required by law.
<PAGE>
3. Investors in each series shall vote separately as a class on any matter to
the extent required by, and any matter shall have been deemed effectively acted
upon with respect to such series as provided in, Rule 18f-2, as from time to
time in effect, under the Investment Company Act of 1940, as amended, or any
successor rule, and the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated to each series as
set forth in Section 6.2 of the Declaration of Trust.
5. Subject to the provisions of Section 6.2 and Article X of the Declaration of
Trust, the Trustees (including any successor Trustees) shall have the right at
any time and from time to time to change the designation of any series now or
hereafter created, or to otherwise change the special and relative rights of
any series.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument at Paget,
Bermuda as of the 14th day of November, 1997.
- ------------------------------- -------------------------------
ELLIOTT J. BERV MARK T. FINN
As Trustee and Not Individually As Trustee and Not Individually
- ------------------------------- -------------------------------
PHILIP W. COOLIDGE C. OSCAR MORONG, JR.
As Trustee and Not Individually As Trustee and Not Individually
- -------------------------------
WALTER E. ROBB, III
As Trustee and Not Individually
Exhibit 5(a)
MANAGEMENT AGREEMENT
THE PREMIUM PORTFOLIOS
Equity Portfolio
MANAGEMENT AGREEMENT, dated as of October 31, 1997, by and between The
Premium Portfolios, a New York trust (the "Trust"), and Citibank, N.A., a
national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder and any exemptive orders thereunder, the "1940 Act"), and
WHEREAS, the Trust wishes to engage Citibank to provide certain
investment advisory and administrative services for the series of the Trust
designated as Equity Portfolio (the "Portfolio"), and Citibank is willing to
provide such investment advisory and administrative services for the Portfolio
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Citibank. (a) Citibank shall act as the Manager for the
Portfolio and as such shall furnish continuously an investment program and
shall determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the assets of the Portfolio shall be held
uninvested, subject always to the restrictions of the Trust's Declaration of
Trust, dated as of September 13, 1993, and By-laws, as each may be amended from
time to time (respectively, the "Declaration" and the "By-Laws"), the
provisions of the 1940 Act, and the then-current Registration Statement of the
Trust with respect to the Portfolio. The Manager shall also make
recommendations as to the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Portfolio's securities
<PAGE>
shall be exercised. Should the Board of Trustees of the Trust at any time,
however, make any definite determination as to investment policy applicable to
the Portfolio and notify the Manager thereof in writing, the Manager shall be
bound by such determination for the period, if any, specified in such notice or
until similarly notified that such determination has been revoked. The Manager
shall take, on behalf of the Portfolio, all actions which it deems necessary to
implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of securities for the
Portfolio's account with the brokers or dealers selected by it, and to that end
the Manager is authorized as the agent of the Trust to give instructions to the
custodian or any subcustodian of the Portfolio as to deliveries of securities
and payments of cash for the account of the Portfolio. In connection with the
selection of such brokers or dealers and the placing of such orders, brokers or
dealers may be selected who also provide brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Portfolio and/or the other accounts over which the Manager or its
affiliates exercise investment discretion. The Manager is authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Manager determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer. This determination may
be viewed in terms of either that particular transaction or the overall
responsibilities which the Manager and its affiliates have with respect to
accounts over which they exercise investment discretion. In making purchases or
sales of securities or other property for the account of the Portfolio, the
Manager may deal with itself or with the Trustees of the Trust or the Trust's
underwriter or distributor, to the extent such actions are permitted by the
1940 Act. In providing the services and assuming the obligations set forth
herein, the Manager may employ, at its own expense, or may request that the
Trust employ at the Portfolio's expense, one or more subadvisers; provided that
in each case the Manager shall supervise the activities of each subadviser. Any
agreement between the Manager and a subadviser shall be subject to the renewal,
termination and amendment provisions applicable to this Agreement. Any
agreement between the Trust on behalf of the Portfolio and a subadviser may be
terminated by the Manager at any time on not more than 60 days' nor less than
30 days' written notice to the Trust and the subadviser.
<PAGE>
(b) Subject to the direction and control of the Board of Trustees of the
Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (i) providing office space, equipment and clerical
personnel necessary for maintaining the organization of the Trust and for
performing the administrative and management functions herein set forth; (ii)
supervising the overall administration of the Trust, including negotiation of
contracts and fees with and the monitoring of performance and billings of the
Trust's transfer agent, custodian and other independent contractors or agents;
(iii) preparing and, if applicable, filing all documents required for
compliance by the Trust with applicable laws and regulations, including
registration statements, semi-annual and annual reports to investors, proxy
statements and tax returns; (iv) preparation of agendas and supporting
documents for and minutes of meetings of Trustees, committees of Trustees and
investors; and (v) arranging for maintenance of books and records of the Trust.
Notwithstanding the foregoing, Citibank shall not be deemed to have assumed any
duties with respect to, and shall not be responsible for, the distribution of
beneficial interests in the Portfolio, nor shall Citibank be deemed to have
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent, fund accounting agent or custodian of the Trust
or the Portfolio. In providing administrative and management services as set
forth herein, Citibank may, at its own expense, employ one or more
subadministrators; provided that Citibank shall remain fully responsible for
the performance of all administrative and management duties set forth herein
and shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its own
expense all necessary services, facilities and personnel in connection with its
responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the
Portfolio all of its own expenses allocable to the Portfolio including, without
limitation, organization costs of the Portfolio; compensation of Trustees who
are not "affiliated persons" of Citibank; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming beneficial interests and servicing
investor accounts; expenses of preparing, typesetting, printing and mailing
investor reports, notices, proxy statements and reports to governmental
officers and commissions and to investors in the Portfolio; expenses connected
<PAGE>
with the execution, recording and settlement of security transactions;
insurance premiums; fees and expenses of the custodian for all services to the
Portfolio, including safekeeping of funds and securities and maintaining
required books and accounts; expenses of calculating the net asset value of the
Portfolio (including but not limited to the fees of independent pricing
services); expenses of meetings of the Portfolio's investors; expenses relating
to the issuance of beneficial interests in the Portfolio; and such
non-recurring or extraordinary expenses as may arise, including those relating
to actions, suits or proceedings to which the Trust on behalf of the Portfolio
may be a party and the legal obligation which the Trust may have to indemnify
its Trustees and officers with respect thereto.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to
Citibank from the assets of the Portfolio a management fee computed daily and
paid monthly at an annual rate equal to 0.60% of the Portfolio's average daily
net assets for the Portfolio's then-current fiscal year. If Citibank provides
services hereunder for less than the whole of any period specified in this
Section 3, the compensation to Citibank shall be accordingly adjusted and
prorated.
4. Covenants of Citibank. Citibank agrees that it will not deal with
itself, or with the Trustees of the Trust or the Trust's principal underwriter
or distributor, if any, as principals in making purchases or sales of
securities or other property for the account of the Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests in the Portfolio except as permitted by the Declaration, and will
comply with all other provisions of the Declaration and By-Laws and the
then-current Registration Statement applicable to the Portfolio relative to
Citibank and its directors and officers.
5. Limitation of Liability of Citibank. Citibank shall not be liable for
any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of securities
transactions for the Portfolio, except for willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder. As used in this Section 5,
the term "Citibank" shall include directors, officers and employees of Citibank
as well as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Portfolio are
not to be deemed to be exclusive, Citibank being free to render investment
advisory, administrative and/or other services to others. It is understood that
Trustees, officers, and shareholders of the Trust are or may be or may become
<PAGE>
interested in Citibank, as directors, officers, employees, or otherwise and
that directors, officers and employees of Citibank are or may become similarly
interested in the Trust and that Citibank may be or may become interested in
the Trust as an investor or otherwise.
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, shall govern
the relations between the parties hereto thereafter and shall remain in force
until August 8, 1999, on which date it will terminate unless its continuance
after August 8, 1999 is "specifically approved at least annually" (a) by the
vote of a majority of the Trustees of the Trust who are not "interested
persons" of the Trust or of Citibank at a meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Trust or by "vote of a majority of the outstanding voting securities" of the
Portfolio.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Portfolio, or by Citibank, in each case on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Portfolio
(except for any such amendment as may be effected in the absence of such
approval without violating the 1940 Act).
The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
Each party acknowledges and agrees that all obligations of the Trust
under this Agreement are binding only with respect to the Portfolio; that any
liability of the Trust under this Agreement, or in connection with the
transactions contemplated herein, shall be discharged only out of the assets of
the Portfolio; and that no other series of the Trust shall be liable with
respect to this Agreement or in connection with the transactions contemplated
herein.
<PAGE>
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or holders of
beneficial interests in the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
THE PREMIUM PORTFOLIOS CITIBANK, N.A.
By: Susan Jakuboski By: Larry Keblusek
Title: Assistant Secretary Title: U.S. CIO
Exhibit 5(b)
MANAGEMENT AGREEMENT
THE PREMIUM PORTFOLIOS
Small Cap Equity Portfolio
MANAGEMENT AGREEMENT, dated as of October 31, 1997, by and between The
Premium Portfolios, a New York trust (the "Trust"), and Citibank, N.A., a
national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder and any exemptive orders thereunder, the "1940 Act"), and
WHEREAS, the Trust wishes to engage Citibank to provide certain
investment advisory and administrative services for the series of the Trust
designated as Small Cap Equity Portfolio (the "Portfolio"), and Citibank is
willing to provide such investment advisory and administrative services for the
Portfolio on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Citibank. (a) Citibank shall act as the Manager for the
Portfolio and as such shall furnish continuously an investment program and
shall determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the assets of the Portfolio shall be held
uninvested, subject always to the restrictions of the Trust's Declaration of
Trust, dated as of September 13, 1993, and By-laws, as each may be amended from
time to time (respectively, the "Declaration" and the "By-Laws"), the
provisions of the 1940 Act, and the then-current Registration Statement of the
Trust with respect to the Portfolio. The Manager shall also make
recommendations as to the manner in which voting rights, rights to consent to
<PAGE>
corporate action and any other rights pertaining to the Portfolio's securities
shall be exercised. Should the Board of Trustees of the Trust at any time,
however, make any definite determination as to investment policy applicable to
the Portfolio and notify the Manager thereof in writing, the Manager shall be
bound by such determination for the period, if any, specified in such notice or
until similarly notified that such determination has been revoked. The Manager
shall take, on behalf of the Portfolio, all actions which it deems necessary to
implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of securities for the
Portfolio's account with the brokers or dealers selected by it, and to that end
the Manager is authorized as the agent of the Trust to give instructions to the
custodian or any subcustodian of the Portfolio as to deliveries of securities
and payments of cash for the account of the Portfolio. In connection with the
selection of such brokers or dealers and the placing of such orders, brokers or
dealers may be selected who also provide brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Portfolio and/or the other accounts over which the Manager or its
affiliates exercise investment discretion. The Manager is authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Manager determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer. This determination may
be viewed in terms of either that particular transaction or the overall
responsibilities which the Manager and its affiliates have with respect to
accounts over which they exercise investment discretion. In making purchases or
sales of securities or other property for the account of the Portfolio, the
Manager may deal with itself or with the Trustees of the Trust or the Trust's
underwriter or distributor, to the extent such actions are permitted by the
1940 Act. In providing the services and assuming the obligations set forth
herein, the Manager may employ, at its own expense, or may request that the
Trust employ at the Portfolio's expense, one or more subadvisers; provided that
in each case the Manager shall supervise the activities of each subadviser. Any
agreement between the Manager and a subadviser shall be subject to the renewal,
termination and amendment provisions applicable to this Agreement. Any
agreement between the Trust on behalf of the Portfolio and a subadviser may be
terminated by the Manager at any time on not more than 60 days' nor less than
30 days' written notice to the Trust and the subadviser.
<PAGE>
(b) Subject to the direction and control of the Board of Trustees of the
Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (i) providing office space, equipment and clerical
personnel necessary for maintaining the organization of the Trust and for
performing the administrative and management functions herein set forth; (ii)
supervising the overall administration of the Trust, including negotiation of
contracts and fees with and the monitoring of performance and billings of the
Trust's transfer agent, custodian and other independent contractors or agents;
(iii) preparing and, if applicable, filing all documents required for
compliance by the Trust with applicable laws and regulations, including
registration statements, semi-annual and annual reports to investors, proxy
statements and tax returns; (iv) preparation of agendas and supporting
documents for and minutes of meetings of Trustees, committees of Trustees and
investors; and (v) arranging for maintenance of books and records of the Trust.
Notwithstanding the foregoing, Citibank shall not be deemed to have assumed any
duties with respect to, and shall not be responsible for, the distribution of
beneficial interests in the Portfolio, nor shall Citibank be deemed to have
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent, fund accounting agent or custodian of the Trust
or the Portfolio. In providing administrative and management services as set
forth herein, Citibank may, at its own expense, employ one or more
subadministrators; provided that Citibank shall remain fully responsible for
the performance of all administrative and management duties set forth herein
and shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its own
expense all necessary services, facilities and personnel in connection with its
responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the
Portfolio all of its own expenses allocable to the Portfolio including, without
limitation, organization costs of the Portfolio; compensation of Trustees who
are not "affiliated persons" of Citibank; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming beneficial interests and servicing
investor accounts; expenses of preparing, typesetting, printing and mailing
investor reports, notices, proxy statements and reports to governmental
officers and commissions and to investors in the Portfolio; expenses connected
<PAGE>
with the execution, recording and settlement of security transactions;
insurance premiums; fees and expenses of the custodian for all services to the
Portfolio, including safekeeping of funds and securities and maintaining
required books and accounts; expenses of calculating the net asset value of the
Portfolio (including but not limited to the fees of independent pricing
services); expenses of meetings of the Portfolio's investors; expenses relating
to the issuance of beneficial interests in the Portfolio; and such
non-recurring or extraordinary expenses as may arise, including those relating
to actions, suits or proceedings to which the Trust on behalf of the Portfolio
may be a party and the legal obligation which the Trust may have to indemnify
its Trustees and officers with respect thereto.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to
Citibank from the assets of the Portfolio a management fee computed daily and
paid monthly at an annual rate equal to 0.75% of the Portfolio's average daily
net assets for the Portfolio's then-current fiscal year. If Citibank provides
services hereunder for less than the whole of any period specified in this
Section 3, the compensation to Citibank shall be accordingly adjusted and
prorated.
4. Covenants of Citibank. Citibank agrees that it will not deal with
itself, or with the Trustees of the Trust or the Trust's principal underwriter
or distributor, if any, as principals in making purchases or sales of
securities or other property for the account of the Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests in the Portfolio except as permitted by the Declaration, and will
comply with all other provisions of the Declaration and By-Laws and the
then-current Registration Statement applicable to the Portfolio relative to
Citibank and its directors and officers.
5. Limitation of Liability of Citibank. Citibank shall not be liable for
any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of securities
transactions for the Portfolio, except for willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder. As used in this Section 5,
the term "Citibank" shall include directors, officers and employees of Citibank
as well as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Portfolio are
not to be deemed to be exclusive, Citibank being free to render investment
advisory, administrative and/or other services to others. It is understood that
Trustees, officers, and shareholders of the Trust are or may be or may become
<PAGE>
interested in Citibank, as directors, officers, employees, or otherwise and
that directors, officers and employees of Citibank are or may become similarly
interested in the Trust and that Citibank may be or may become interested in
the Trust as an investor or otherwise.
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, shall govern
the relations between the parties hereto thereafter and shall remain in force
until August 8, 1999, on which date it will terminate unless its continuance
after August 8, 1999 is "specifically approved at least annually" (a) by the
vote of a majority of the Trustees of the Trust who are not "interested
persons" of the Trust or of Citibank at a meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Trust or by "vote of a majority of the outstanding voting securities" of the
Portfolio.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Portfolio, or by Citibank, in each case on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Portfolio
(except for any such amendment as may be effected in the absence of such
approval without violating the 1940 Act).
The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
Each party acknowledges and agrees that all obligations of the Trust
under this Agreement are binding only with respect to the Portfolio; that any
liability of the Trust under this Agreement, or in connection with the
transactions contemplated herein, shall be discharged only out of the assets of
the Portfolio; and that no other series of the Trust shall be liable with
respect to this Agreement or in connection with the transactions contemplated
herein.
<PAGE>
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or holders of
beneficial interests in the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
THE PREMIUM PORTFOLIOS CITIBANK, N.A.
By: Susan Jakuboski By: Larry Keblusek
Title: Assistant Secretary Title: U.S. CIO
Exhibit 5(c)
FORM OF MANAGEMENT AGREEMENT
THE PREMIUM PORTFOLIOS
Growth & Income Portfolio
MANAGEMENT AGREEMENT, dated as of ________ __, 199_, by and between The
Premium Portfolios, a New York trust (the "Trust"), and Citibank, N.A., a
national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder, the "1940 Act"), and
WHEREAS, the Trust wishes to engage Citibank to provide certain
investment advisory and administrative services for the series of the Trust
designated as Growth & Income Portfolio (the "Portfolio"), and Citibank is
willing to provide such investment advisory and administrative services for the
Portfolio on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Citibank. (a) Citibank shall act as the manager for the
Portfolio and as such shall furnish continuously an investment program and
shall determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the assets of the Portfolio shall be held
uninvested, subject always to the restrictions of the Trust's Declaration of
Trust, dated September 13, 1993, and By-laws, as each may be amended from time
to time (respectively, the "Declaration" and the "By-Laws"), the provisions of
the 1940 Act, and the then-current Registration Statement of the Trust with
respect to the Portfolio. The Manager shall also make recommendations as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Portfolio's portfolio securities shall be
<PAGE>
exercised. Should the Board of Trustees of the Trust at any time, however, make
any definite determination as to investment policy applicable to the Portfolio
and notify the Manager thereof in writing, the Manager shall be bound by such
determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. The Manager shall
take, on behalf of the Portfolio, all actions which it deems necessary to
implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of securities for the
Portfolio's account with the brokers or dealers selected by it, and to that end
the Manager is authorized as the agent of the Trust to give instructions to the
custodian or any subcustodian of the Portfolio as to deliveries of securities
and payments of cash for the account of the Portfolio. In connection with the
selection of such brokers or dealers and the placing of such orders, brokers or
dealers may be selected who also provide brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Portfolio and/or the other accounts over which the Manager or its
affiliates exercise investment discretion. The Manager is authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Manager determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer. This determination may
be viewed in terms of either that particular transaction or the overall
responsibilities which the Manager and its affiliates have with respect to
accounts over which they exercise investment discretion. In making purchases or
sales of securities or other property for the account of the Portfolio, the
Manager may deal with itself or with the Trustees of the Trust or the Trust's
underwriter or distributor, to the extent such actions are permitted by the
1940 Act. In providing the services and assuming the obligations set forth
herein, the Manager may employ at its own expense, or may request that the
Trust employ at the Portfolio's expense, one or more subadvisers; provided that
in each case the Manager shall supervise the activities of each subadviser. Any
agreement between the Manager and a subadviser shall be subject to the renewal,
termination and amendment provisions applicable to this Agreement. Any
agreement by the Trust on behalf of the Portfolio and a subadviser may be
terminated by the Manager at any time on not more than 60 days' nor less than
30 days' written notice to the Trust and the subadviser.
<PAGE>
(b) Subject to the direction and control of the Board of Trustees of the
Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (i) providing office space, equipment and clerical
personnel necessary for maintaining the organization of the Trust and for
performing the administrative and management functions herein set forth; (ii)
supervising the overall administration of the Trust, including negotiation of
contracts and fees with and the monitoring of performance and billings of the
Trust's transfer agent, custodian and other independent contractors or agents;
(iii) preparing and, if applicable, filing all documents required for
compliance by the Trust with applicable laws and regulations, including
registration statements, semi-annual and annual reports to investors, proxy
statements and tax returns; (iv) preparation of agendas and supporting
documents for and minutes of meetings of Trustees, committees of Trustees and
investors; and (v) arranging for maintenance of books and records of the Trust.
Notwithstanding the foregoing, Citibank shall not be deemed to have assumed any
duties with respect to, and shall not be responsible for, the distribution of
beneficial interests in the Portfolio, nor shall Citibank be deemed to have
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent, fund accounting agent or custodian of the Trust
or the Portfolio. In providing administrative and management services as set
forth herein, Citibank may, at its own expense, employ one or more
subadministrators; provided that Citibank shall remain fully responsible for
the performance of all administrative and management duties set forth herein
and shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its own
expense all necessary services, facilities and personnel in connection with its
responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the
Portfolio all of its own expenses allocable to the Portfolio including, without
limitation, organization costs of the Portfolio; compensation of Trustees who
are not "affiliated persons" of Citibank; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming beneficial interests and servicing
investor accounts; expenses of preparing, typesetting, printing and mailing
investor reports, notices, proxy statements and reports to governmental
<PAGE>
officers and commissions and to investors in the Portfolio; expenses connected
with the execution, recording and settlement of security transactions;
insurance premiums; fees and expenses of the custodian for all services to the
Portfolio, including safekeeping of funds and securities and maintaining
required books and accounts; expenses of calculating the net asset value of the
Portfolio (including but not limited to the fees of independent pricing
services); expenses of meetings of the Portfolio's investors; expenses relating
to the issuance of beneficial interests in the Portfolio; and such
non-recurring or extraordinary expenses as may arise, including those relating
to actions, suits or proceedings to which the Trust on behalf of the Portfolio
may be a party and the legal obligation which the Trust may have to indemnify
its Trustees and officers with respect thereto.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to
Citibank from the assets of the Portfolio a management fee computed daily and
paid monthly at an annual rate equal to 0.70% of the Portfolio's average daily
net assets for the Portfolio's then-current fiscal year. If Citibank provides
services hereunder for less than the whole of any period specified in this
Section 3, the compensation to Citibank shall be accordingly adjusted and
prorated.
4. Covenants of Citibank. Citibank agrees that it will not deal with
itself, or with the Trustees of the Trust or the Trust's principal underwriter
or distributor, if any, as principals in making purchases or sales of
securities or other property for the account of the Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests of the Portfolio except as permitted by the Declaration, and will
comply with all other provisions of the Declaration and By-Laws and the
then-current Registration Statement applicable to the Portfolio relative to
Citibank and its directors and officers.
5. Limitation of Liability of Citibank. Citibank shall not be liable for
any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of securities
transactions for the Portfolio, except for willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder. As used in this Section 5,
the term "Citibank" shall include directors, officers and employees of Citibank
as well as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Portfolio are
not to be deemed to be exclusive, Citibank being free to render investment
advisory, administrative and/or other services to others. It is understood that
Trustees, officers, and shareholders of the Trust are or may be or may become
<PAGE>
interested in Citibank, as directors, officers, employees, or otherwise and
that directors, officers and employees of Citibank are or may become similarly
interested in the Trust and that Citibank may be or may become interested in
the Trust as an investor or otherwise.
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, shall govern
the relations between the parties hereto thereafter and shall remain in force
until November 14, 1999, on which date it will terminate unless its continuance
after November 14, 1999 is "specifically approved at least annually" (a) by the
vote of a majority of the Trustees of the Trust who are not "interested
persons" of the Trust or of Citibank at a meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Trust or by "vote of a majority of the outstanding voting securities" of the
Portfolio.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Portfolio, or by Citibank, in each case on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Portfolio
(except for any such amendment as may be effected in the absence of such
approval without violating the 1940 Act).
The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
Each party acknowledges and agrees that all obligations of the Trust
under this Agreement are binding only with respect to the Portfolio; that any
liability of the Trust under this Agreement, or in connection with the
transactions contemplated herein, shall be discharged only out of the assets of
the Portfolio; and that no other series of the Trust shall be liable with
respect to this Agreement or in connection with the transactions contemplated
herein.
<PAGE>
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or holders of
beneficial interests in the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
THE PREMIUM PORTFOLIOS CITIBANK, N.A.
By:________________________ By:________________________
Title:_____________________ Title:_____________________
Exhibit 6(b)
The Premium Portfolios
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
___________ ___, 199__
The Landmark Funds Broker-Dealer Services, Inc.
c/o Signature Financial Group (Cayman), Ltd.
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
Re: The Premium Portfolios - Placement
Agency Agreement
Ladies and Gentlemen:
This letter serves as notice that Growth & Income Portfolio (the "Fund")
is added to the list of series of The Premium Portfolios (the "Trust") to which
The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") renders services as
placement agent pursuant to the terms of the Placement Agency Agreement dated
as of September 13, 1993 (the "Agreement") between the Trust and LFBDS.
Please sign below to acknowledge your receipt of this notice adding the
Fund as a beneficiary under the Agreement.
THE PREMIUM PORTFOLIOS
By:__________________________
Title:_______________________
Acknowledgment:
THE LANDMARK FUNDS BROKER-DEALER SERVICES, INC.
By:___________________________
Title:________________________
Exhibit 8
CUSTODIAN CONTRACT
Between
THE PREMIUM PORTFOLIOS
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
PAGE
1. Employment of Custodian and Property to be Held By
It......................................................... 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States...... 2
2.1 Holding Securities..................................... 2
2.2 Delivery of Securities................................. 2
2.3 Registration of Securities............................. 4
2.4 Bank Accounts.......................................... 4
2.5 Availability of Federal Funds.......................... 5
2.6 Collection of Income................................... 5
2.7 Payment of Fund Monies................................. 6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased................................... 7
2.9 Appointment of Agents.................................. 7
2.10 Deposit of Fund Assets in U.S. Securities System....... 7
2.11 Fund Assets Held in the Custodian's Direct
Paper System........................................... 8
2.12 Segregated Account..................................... 9
2.13 Ownership Certificates for Tax Purposes............... 10
2.14 Proxies............................................... 10
2.15 Communications Relating to Portfolio
Securities............................................ 10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States................. 10
3.1 Appointment of Foreign Sub-Custodians................. 10
3.2 Assets to be Held..................................... 11
3.3 Foreign Securities Systems............................ 11
3.4 Holding Securities.................................... 11
3.5 Agreements with Foreign Banking Institutions.......... 11
3.6 Access of Independent Accountants of the Fund......... 11
3.7 Reports by Custodian.................................. 12
3.8 Transactions in Foreign Custody Account............... 12
3.9 Liability of Foreign Sub-Custodians................... 12
3.10 Liability of Custodian................................ 12
3.11 Reimbursement for Advances............................ 13
3.12 Monitoring Responsibilities........................... 13
3.13 Branches of U.S. Banks................................ 13
3.14 Tax Law............................................... 14
<PAGE>
4. Payments for Sales or Repurchases or Redemptions
of Beneficial Interests of the Fund........................ 14
5. Proper Instructions........................................ 14
6. Actions Permitted Without Express Authority................ 15
7. Evidence of Authority...................................... 15
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income.......... 16
9. Records.................................................... 16
10. Opinion of Fund's Independent Accountants.................. 16
11. Reports to Fund by Independent Public Accountants.......... 16
12. Compensation of Custodian.................................. 17
13. Responsibility of Custodian................................ 17
14. Effective Period, Termination and Amendment................ 18
15. Successor Custodian........................................ 19
16. Interpretive and Additional Provisions..................... 19
17. Additional Funds........................................... 20
18. Massachusetts Law to Apply................................. 20
19. Prior Contracts............................................ 20
20. No Liability of Other Series............................... 20
21. Beneficial Interestholder Communications Election.......... 20
<PAGE>
CUSTODIAN CONTRACT
This Contract between The Premium Portfolios, a trust organized and
existing under the laws of New York, having its principal place of business at
Elizabethan Square, Georgetown, Grand Cayman, Cayman Islands, British West
Indies hereinafter called the "Fund", and State Street Bank and Trust Company,
a Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue beneficial interests in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently offers beneficial interests in one or more
series, including, the Equity Portfolio, Small Cap Equity Portfolio, Balanced
Portfolio, International Equity Portfolio, Emerging Asian Markets Equity
Portfolio and Government Income Portfolio (such series together with all other
series subsequently established by the Fund and made subject to this Contract
in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such beneficial interests of the Fund
representing interests in the Portfolios ("Beneficial Interests") as may be
issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY
THE CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies (each, a "U.S. Securities System") and (b)
commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the Custodian
(the "Direct Paper System") pursuant to Section 2.11.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only upon
receipt of Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate
by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
<PAGE>
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
PROVIDED that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities
prior to receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, BUT ONLY against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of
the Portfolio, which may be in the form of cash or obligations
issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for
<PAGE>
which collateral is to be credited to the Custodian's account in the
book-entry system authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, BUT ONLY against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of Beneficial Interests in connection with distributions in
kind, as may be described from time to time in the currently
effective prospectus and statement of additional information of the
Fund, related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Beneficial Interests for repurchase or
redemption; and
15) For any other proper purpose, BUT ONLY upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees
or of the Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary, specifying the
<PAGE>
securities of the Portfolio to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, UNLESS the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on
such securities and to notify the Fund on a best efforts basis only of
relevant corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; PROVIDED, however,
that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank
or trust company and the funds to be deposited with each such bank or
trust company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
<PAGE>
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Beneficial Interests of such
Portfolio which are deposited into the Portfolio's account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if, on the date
of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of
title to such options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to
act as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Portfolio or
in the name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
<PAGE>
conditions set forth in Section 2.11; (d) in the case of repurchase
agreements entered into between the Fund on behalf of the Portfolio
and the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written evidence of
the agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund as
defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For payment of the amount of dividends received in respect of
securities sold short;
4) For any other proper purpose, BUT ONLY upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment is to
be made.
In connection with the following type of expenses, the Custodian shall
make payments upon Proper Instructions for the Fund from an account of
the Fund controlled from outside of the United States:
5) For the redemption or repurchase of Beneficial Interests issued by
the Portfolio as set forth in Article 4 hereof;
6) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses of
the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
<PAGE>
7) For the payment of any dividends on Beneficial Interests of the
Portfolio declared pursuant to the governing documents of the Fund;
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; PROVIDED, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in
an account ("Account") of the Custodian in the U.S. Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
<PAGE>
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Portfolio.
The Custodian shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Portfolio. Copies of all advices from the U.S. Securities System
of transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon request,
the Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial certificate required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from use
of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or
of any of its or their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as it may have
against the U.S. Securities System; at the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of any
such loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
<PAGE>
2.11 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the Fund
on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the U.S.
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
<PAGE>
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper purposes, BUT
ONLY, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions from the Fund on behalf of the applicable Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes
of such segregated account and declaring such purposes to be proper
purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise of
call and put options written by the Fund on behalf of the Portfolio and
<PAGE>
the maturity of futures contracts purchased or sold by the Portfolio)
received by the Custodian from issuers of the securities being held for
the Portfolio. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Portfolio all written information received
by the Custodian from issuers of the securities whose tender or exchange
is sought and from the party (or his agents) making the tender or
exchange offer. If the Portfolio desires to take action with respect to
any tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior
to the date on which the Custodian is to take such action.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND
HELD OUTSIDE OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of Trustees, the
Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
Portfolio's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian.
3.3 FOREIGN SECURITIES SYSTEMS. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in a clearing agency which acts as a securities depository or
in a book-entry system for the central handling of securities located
outside the United States (each a "Foreign Securities System") only
through arrangements implemented by the foreign banking institutions
<PAGE>
serving as sub-custodians pursuant to the terms hereof (Foreign
Securities Systems and U.S. Securities Systems are collectively referred
to herein as the "Securities Systems"). Where possible, such arrangements
shall include entry into agreements containing the provisions set forth
in Section 3.5 hereof.
3.4 HOLDING SECURITIES. The Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, PROVIDED HOWEVER, that (i)
the records of the Custodian with respect to securities and other
non-cash property of the Fund which are maintained in such account shall
identify by book-entry those securities and other non-cash property
belonging to the Fund and (ii) the Custodian shall require that
securities and other non-cash property so held by the foreign
sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian will be
subject only to the instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities
and other assets of the Portfolio(s) held by foreign sub-custodians,
<PAGE>
including but not limited to an identification of entities having
possession of the Portfolio(s) securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities acquired
for a Portfolio, the identity of the entity having physical possession of
such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and
2.7 of this Contract shall apply, MUTATIS MUTANDIS to the foreign
securities of the Fund held outside the United States by foreign
sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities
to the purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent as
set forth in Section 2.3 of this Contract, and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of
such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
<PAGE>
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to State
Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b)
other losses (excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear incident
or other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
such Portfolio's assets to the extent necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
<PAGE>
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall
be maintained in an interest bearing account established for the Fund
with the Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.14 TAX LAW. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or
any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the tax
law of jurisdictions other than those mentioned in the above sentence,
including responsibility for withholding and other taxes, assessments or
other governmental charges, certifications and governmental reporting.
The sole responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any
claim for exemption or refund under the tax law of jurisdictions for
which the Fund has provided such information.
4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF BENEFICIAL INTERESTS
OF THE FUND
The Custodian shall receive from the distributor for the Beneficial
Interests or from the Transfer Agent of the Fund and deposit into the account
of the appropriate Portfolio such payments as are received for beneficial
interests of that Portfolio issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Fund on behalf of each such
Portfolio and the Transfer Agent of any receipt by it of payments for
Beneficial Interests of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
<PAGE>
instructions from the Transfer Agent, make funds available to the Fund at an
account of the Fund controlled from outside of the United States for payment to
holders of Beneficial Interests who have delivered to the Transfer Agent a
request for redemption or repurchase of their Beneficial Interests. In
connection with the redemption or repurchase of Beneficial Interests of a
Portfolio, the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank designated by the
redeeming Beneficial Interestholders. In connection with the redemption or
repurchase of Beneficial Interests of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Beneficial Interests, which checks
have been furnished by the Fund to the holder of Beneficial Interests, when
presented to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the Custodian.
5. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the Secretary or
an Assistant Secretary as to the authorization by the Board of Trustees of the
Fund accompanied by a detailed description of procedures approved by the Board
of Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, PROVIDED that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
<PAGE>
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any
action by the Board of Trustees pursuant to the Declaration of Trust as
described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION
OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
interest of the outstanding beneficial interests of each Portfolio or, if
directed in writing to do so by the Fund on behalf of the Portfolio, shall
itself keep such books of account and/or compute such net asset value per
beneficial interest. If so directed, the Custodian shall also calculate daily
the net income of the Portfolio as described in the Fund's currently effective
prospectus related to such Portfolio and shall advise the Fund and the Transfer
Agent daily of the total amounts of such net income and, if instructed in
writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per beneficial interest and the daily
<PAGE>
income of each Portfolio shall be made at the time or times described from time
to time in the Fund's currently effective prospectus related to such Portfolio.
9. RECORDS
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on
futures contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so
state.
12. COMPENSATION OF CUSTODIAN
<PAGE>
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
13. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances
beyond the reasonable control of the Custodian or any sub-custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of
trading on or the closure of any securities market, power or other mechanical
or technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
the Investment Advisor in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency
of or acts or omissions by a Securities System; (iv) any delay or failure of
any broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge or registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
<PAGE>
any disorder in market infrastructure with respect to any particular security
or Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of
competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of the Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money
or which action may, in the opinion of the Custodian, result in the Custodian
or its nominee assigned to the Fund or the Portfolio being liable for the
payment of money or incurring liability of some other form, the Fund on behalf
of the Portfolio, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated with respect to any Portfolio by either party by an instrument in
writing delivered or mailed, postage prepaid to the other party, such
termination to take effect not sooner than thirty (30) days after the date of
such delivery or mailing; PROVIDED, however that the Custodian shall not with
respect to a Portfolio act under Section 2.10 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
<PAGE>
Board of Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio, as required by Rule 17f-4 under the
Investment Company Act of 1940, as amended and that the Custodian shall not
with respect to a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System by such Portfolio ; PROVIDED FURTHER, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of its Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the event of the appointment of
a conservator or receiver for the Custodian by the Comptroller of the Currency
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. SUCCESSOR CUSTODIAN
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
<PAGE>
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to
transfer to an account of such successor custodian all of the securities of
each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, PROVIDED that no such
interpretive or additional provisions shall contravene any applicable federal
or state regulations or any provision of the Declaration of Trust of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Beneficial
Interests in addition to Equity Portfolio, Small Cap Equity Portfolio, Balanced
Portfolio, International Equity Portfolio, Emerging Asian Markets Equity
Portfolio and Government Income Portfolio with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in
writing to provide such services, such series of Beneficial Interests shall
become a Portfolio hereunder.
18. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
<PAGE>
19. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. NO LIABILITY OF OTHER SERIES
Notwithstanding any other provision of this Agreement, the parties agree
that the assets and liabilities of each Portfolio are separate and distinct
from the assets and liabilities of each other Portfolio and that no Portfolio
shall be charged for any debt, obligation or liability of any other Portfolio,
whether arising under this Agreement or otherwise.
21. BENEFICIAL INTERESTHOLDER COMMUNICATIONS ELECTION
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below,
the Custodian is required by the rule to treat the Fund as consenting to
disclosure of this information for all securities owned by the Fund or any
funds or accounts established by the Fund. For the Fund's protection, the Rule
prohibits the requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate below whether the
Fund consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of September, 1997.
ATTEST THE PREMIUM PORTFOLIOS
___________________ By PHILIP COOLIDGE
President
ATTEST STATE STREET BANK AND TRUST COMPANY
____________________ By RONALD E. LOGUE
Executive Vice President
<PAGE>
SCHEDULE A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of The Premium
Portfolios for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
<PAGE>
The Premium Portfolios
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
___________ ___, 199__
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: The Premium Portfolios - Custodian Contract
Ladies and Gentlemen:
Pursuant to Section 17 of the Custodian Contract dated as of September 1,
1997 (the "Contract"), between The Premium Portfolios (the "Trust") and State
Street Bank and Trust Company ("the Custodian"), we hereby request that Growth
& Income Portfolio (the "Fund") be added to the list of series of the Trust to
which the Custodian renders services as custodian under the terms of the
Contract.
Please sign below to evidence your agreement to provide such services to
the Fund and to add the Fund as a beneficiary under the Contract.
THE PREMIUM PORTFOLIOS
By:________________________
Title:_____________________
Agreed:
STATE STREET BANK AND TRUST COMPANY
By:______________________
Title:___________________
Exhibit 9(a)
FORM OF SUB-ADMINISTRATIVE SERVICES AGREEMENT
SUB-ADMINISTRATIVE SERVICES AGREEMENT, dated as of ________ __, 199_ by
and between SIGNATURE FINANCIAL GROUP (CAYMAN) LTD., a Cayman corporation (the
"Sub-Administrator"), and CITIBANK, N.A., a national banking association
("Citibank").
W I T N E S S E T H :
WHEREAS, Citibank has been retained by certain registered open-end
management investment companies under the Investment Company Act of 1940, as
amended (the "1940 Act"), as listed on Schedule A hereto (each individually a
"Trust" and collectively the "Trusts"), to provide administrative services to
its investment portfolios, as listed on Schedule A hereto (each individually a
"Fund" and collectively the "Funds"), pursuant to separate Management
Agreements (each a "Management Agreement"), and
WHEREAS, as permitted by Section 1 of each Management Agreement, Citibank
desires to subcontract some or all of the performance of its obligations
thereunder to Sub-Administrator, and Sub-Administrator desires to accept such
obligations; and
WHEREAS, Citibank wishes to engage Sub-Administrator to provided certain
administrative services on the terms and conditions hereinafter set forth, so
long as Citibank shall have found Sub-Administrator to be qualified to perform
the obligations sought to be subcontracted.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties as Sub-Administrator. Subject to the supervision and direction
of Citibank, Sub-Administrator will assist in supervising various aspects of
each Trust's administrative operations and undertakes to perform the following
specific services, from and after the effective date of this Agreement:
(a) To the extent requested by Citibank, furnish Trust secretarial
services;
<PAGE>
(b) To the extent requested by Citibank, furnish Trust treasury
services, including the review of financial data, tax and other
regulatory filings and audit requests;
(c) To the extent requested by Citibank, provide the services of certain
persons who may be appointed as officers or Trustees of the Trust by
the Trust's Board;
(d) To the extent requested by Citibank, participate in the preparation
of documents required for compliance by the Trust with applicable
laws and regulations, including registration statements, semi-annual
and annual reports to investors and proxy statements;
(e) To the extent requested by Citibank, prepare agendas and supporting
documents for and minutes of meetings of the Trustees, Committees of
Trustees and investors;
(f) Maintain books and records of the Trust;
(g) To the extent requested by Citibank, provide advice and counsel to
the Trust with respect to regulatory matters, including monitoring
regulatory and legislative developments which may affect the Trust
and assisting the Trust in routine regulatory examinations or
investigations of the Trust, and working closely with outside
counsel to the Trust in connection with litigation in which the
Trust is involved;
(h) To the extent requested by Citibank, generally assist in all aspects
of the Trust's operations and provide general consulting services on
a day to day, as needed basis;
(i) In connection with the foregoing activities, maintain office
facilities (which may be in the offices of Sub-Administrator or its
corporate affiliate); and
(j) In connection with the foregoing activities, furnishing clerical
services, and internal executive and administrative services,
stationery and office supplies.
Notwithstanding the foregoing, Sub-Administrator under this Agreement
shall not be deemed to have assumed any duties with respect to, and shall not
be responsible for, the management of a Trust, or the distribution of
beneficial interests in a Trust, nor shall Sub-Administrator be deemed to have
<PAGE>
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent or custodian of a Trust.
In performing all services under this Agreement, Sub-Administrator shall
(a) act in conformity with the Trust's charter documents and bylaws, the 1940
Act and other applicable laws, as the same may be amended from time to time,
(b) consult and coordinate with legal counsel for the Trust, as necessary or
appropriate, and (c) advise and report to the Trust and its legal counsel, as
necessary or appropriate, with respect to any material compliance or other
matters that come to its attention.
In performing its services under this Agreement, Sub-Administrator shall
cooperate and coordinate with Citibank as necessary and appropriate and shall
provide such information as is reasonably necessary or appropriate for Citibank
to perform its obligations to the Trust. Sub-Administrator shall perform its
obligations under this Agreement in a conscientious and diligent manner
consistent with prevailing industry standards.
2. Compensation of Sub-Administrator. For the services to be rendered and
the facilities to be provided by Sub-Administrator hereunder, Sub-Administrator
shall be paid an administrative fee as may from time to time be agreed to
between Citibank and Sub-Administrator.
3. Additional Terms and Conditions. The parties may amend this agreement
and include such other terms and conditions as may from time to time be agreed
to by both Citibank and Sub-Administrator.
4. Termination. This Agreement may be terminated by Citibank at any time,
in its entirety or as to one or more Funds, with or without cause. This
Agreement may be terminated by the Sub-Administrator, in its entirety or as to
one or more Funds, with or without cause, provided that Sub-Administrator has
notified Citibank of such termination in writing at least 90 days prior to the
effective date thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunder duly authorized, all as of the day and year first above written.
SIGNATURE FINANCIAL
GROUP (CAYMAN) LTD. CITIBANK, N.A.
By:_________________________ By:___________________________
Title:______________________ Title:________________________
<PAGE>
Schedule A
to Sub-Administrative Services Agreement
Between
Signature Financial Group (Cayman) Ltd.
and
Citibank, N.A.
Trust Series
The Premium Portfolios Large Cap Growth Portfolio
Small Cap Growth Portfolio
Growth & Income Portfolio
<PAGE>
FORM OF SUB-ADMINISTRATIVE SERVICES AGREEMENT
SUB-ADMINISTRATIVE SERVICES AGREEMENT, dated as of __________ ___, 199__,
by and between SIGNATURE FINANCIAL GROUP (CAYMAN) LTD., a Cayman corporation
(the "Sub-Administrator"), and CITIBANK, N.A., a national banking association
("Citibank").
W I T N E S S E T H :
WHEREAS, Citibank has been retained by certain registered open-end
management investment companies under the Investment Company Act of 1940, as
amended (the "1940 Act"), as listed on Schedule A hereto (each individually a
"Trust" and collectively the "Trusts"), to provide administrative services to
its investment portfolios, as listed on Schedule A hereto (each individually a
"Fund" and collectively the "Funds"), pursuant to separate Management
Agreements (each a "Management Agreement"), and
WHEREAS, as permitted by Section 1 of each Management Agreement, Citibank
desires to subcontract some or all of the performance of its obligations
thereunder to Sub-Administrator, and Sub-Administrator desires to accept such
obligations; and
WHEREAS, Citibank wishes to engage Sub-Administrator to provided certain
administrative services on the terms and conditions hereinafter set forth, so
long as Citibank shall have found Sub-Administrator to be qualified to perform
the obligations sought to be subcontracted.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties as Sub-Administrator. Subject to the supervision and direction
of Citibank, Sub-Administrator will assist in supervising various aspects of
each Trust's administrative operations and undertakes to perform the following
specific services, from and after the effective date of this Agreement:
(a) To the extent requested by Citibank, furnish Trust
secretarial services;
<PAGE>
(b) To the extent requested by Citibank, furnish Trust treasury
services, including the review of financial data, tax and other
regulatory filings and audit requests;
(c) To the extent requested by Citibank, provide the services of certain
persons who may be appointed as officers or Trustees of the Trust by
the Trust's Board;
(d) To the extent requested by Citibank, participate in the preparation
of documents required for compliance by the Trust with applicable
laws and regulations, including registration statements,
prospectuses, semi-annual and annual reports to shareholders and
proxy statements;
(e) To the extent requested by Citibank, prepare agendas and supporting
documents for and minutes of meetings of the Trustees, Committees of
Trustees and shareholders;
(f) Maintain books and records of the Trust;
(g) To the extent requested by Citibank, provide advice and counsel
to the Trust with respect to regulatory matters, including
monitoring regulatory and legislative developments which may affect
the Trust and assisting the Trust in routine regulatory examinations
or investigations of the Trust, and working closely with outside
counsel to the Trust in connection with litigation in which the
Trust is involved;
(h) To the extent requested by Citibank, generally assist in all aspects
of the Trust's operations and provide general consulting services on
a day to day, as needed basis;
(i) In connection with the foregoing activities, maintain office
facilities (which may be in the offices of Sub-Administrator or its
corporate affiliate); and
(j) In connection with the foregoing activities, furnishing clerical
services, and internal executive and administrative services,
stationery and office supplies.
Notwithstanding the foregoing, Sub-Administrator under this Agreement
shall not be deemed to have assumed any duties with respect to, and shall not
be responsible for, the management of a Trust, or the distribution of
beneficial interests in a Trust, nor shall Sub-Administrator be deemed to have
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent or custodian of a Trust.
<PAGE>
In performing all services under this Agreement, Sub-Administrator shall
(a) act in conformity with the Trust's charter documents and bylaws, the 1940
Act and other applicable laws, as the same may be amended from time to time,
(b) consult and coordinate with legal counsel for the Trust, as necessary or
appropriate, and (c) advise and report to the Trust and its legal counsel, as
necessary or appropriate, with respect to any material compliance or other
matters that come to its attention.
In performing its services under this Agreement, Sub-Administrator shall
cooperate and coordinate with Citibank as necessary and appropriate and shall
provide such information as is reasonably necessary or appropriate for Citibank
to perform its obligations to the Trust. Sub-Administrator shall perform its
obligations under this Agreement in a conscientious and diligent manner
consistent with prevailing industry standards.
2. Compensation of Sub-Administrator. For the services to be rendered and
the facilities to be provided by Sub-Administrator hereunder, Sub-Administrator
shall be paid an administrative fee as may from time to time be agreed to
between Citibank and Sub-Administrator.
3. Additional Terms and Conditions. The parties may amend this agreement
and include such other terms and conditions as may from time to time be agreed
to by both Citibank and Sub-Administrator.
4. Termination. This Agreement may be terminated by Citibank at any time,
in its entirety or as to one or more Funds, with or without cause. This
Agreement may be terminated by the Sub-Administrator, in its entirety or as to
one or more Funds, with or without cause, provided that Sub-Administrator has
notified Citibank of such termination in writing at least 90 days prior to the
effective date thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunder duly authorized, all as of the day and year first above written.
SIGNATURE FINANCIAL
GROUP (CAYMAN) LTD. CITIBANK, N.A.
By:________________ By:_________________
Title:_____________ Title:______________
<PAGE>
Schedule A
to Sub-Administrative Services Agreement
Between
Signature Financial Group (Cayman) Ltd.
and
Citibank, N.A.
Trust Series
The Premium Portfolios Equity Portfolio
Small Cap Equity Portfolio
Asset Allocation Portfolios Intermediate Income Portfolio
Short-Term Portfolio
Large Cap Value Portfolio
Small Cap Value Portfolio
International Portfolio
Foreign Bond Portfolio
EXHIBIT 9(b)
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of the 1st day of September, 1997 by and
between STATE STREET CAYMAN TRUST COMPANY, LTD., a trust company duly organized
under the laws of the Cayman Islands (the "ACCOUNTING AGENT") and THE PREMIUM
PORTFOLIOS, a trust organized under the laws of the State of New York (the
"FUND").
W I T N E S S E T H:
WHEREAS, the Fund is authorized to issue beneficial interests in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently offers beneficial interests in one or more
series, including, Equity Portfolio, Small Cap Equity Portfolio, Balanced
Portfolio, International Equity Portfolio, Emerging Asian Markets Equity
Portfolio and Government Income Portfolio (such series, together with all other
series subsequently established by the Fund and made subject to this Agreement
in accordance with Section 7.1 below, each a "Portfolio" and collectively, the
"PORTFOLIOS"); and
WHEREAS, the Fund desires to retain the Accounting Agent to perform
certain accounting and recordkeeping duties on behalf of each Portfolio and the
Accounting Agent is willing to perform such services upon the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein (the adequacy of which consideration with respect to each
party is hereby mutually admitted), the parties hereto hereby agree as follows:
Section 1. DUTIES OF THE ACCOUNTING AGENT.
Section 1.1 BOOKS OF ACCOUNT.
The Accounting Agent shall maintain the books of account of each
Portfolio and shall perform the following duties, using information provided to
the Accounting Agent by the Fund and others, in the manner prescribed by each
Portfolio's currently effective Registration Statement and the Declaration of
Trust of the Fund, certified copies of which have been supplied to the
Accounting Agent (with respect to each Portfolio, the "CONSTITUTIVE DOCUMENTS")
<PAGE>
and in accordance with such written procedures as may be agreed upon by the
Fund and the Accounting Agent from time to time:
(a) Record general ledger entries;
(b) Calculate daily net income;
(c) Reconcile activity to the trial balance;
(d) Calculate book capital account balances;
(e) Prepare capital allocation reports in accordance
with Regulation 1.704-3(e)(3) ("Special
aggregation rule for securities partnerships")
under the U.S. Internal Revenue Code, based upon
tax adjustments supplied by the Fund;
(f) Calculate and publish daily net asset value; and
(g) Prepare account balances.
In performing the foregoing services the Accounting Agent will provide to
the Fund on a daily basis the information requested by the Fund in order that
the Fund may calculate each Portfolio's percentage allocations of its
investment activities to be applied to the Portfolio's feeder funds, and the
Accounting Agent will use and rely on the Fund's allocations as so calculated.
The Fund shall provide timely prior notice to the Accounting Agent of any
modification in the manner in which such calculations are to be performed
pursuant to any revision to the Constitutive Documents of a Portfolio and shall
supply the Accounting Agent with certified copies of all amendments and/or
supplements to each Portfolio's Constitutive Documents in a timely manner. For
purposes of calculating the net asset value of each Portfolio, the Accounting
Agent shall value such Portfolio's portfolio securities utilizing prices
obtained from sources designated by the Fund on a Price Source Authorization
substantially in the form attached hereto as Exhibit A, as the same may be
amended by the Fund and the Accounting Agent from time to time, or otherwise
designated by means of Proper Instructions (as such term is defined in Section
2.2 below) (collectively, the "AUTHORIZED PRICE SOURCES"). The Accounting Agent
shall not be responsible for any revisions to the methods of calculation
prescribed by the Constitutive Documents of any Portfolio unless and until such
revisions are communicated in writing to the Accounting Agent. The Accounting
Agent represents and warrants to the Fund that it has all consents, approvals,
licenses, rights and authority necessary to perform the services to be provided
hereunder.
Section 1.2 RECORDS.
The Accounting Agent shall create and maintain all records relating to
its activities and obligations under this Agreement with respect to each
Portfolio in a manner which shall meet the obligations of such Portfolio under
its Constitutive Documents. All such records shall be the property of the
<PAGE>
relevant Portfolio and shall at all times during the regular business hours of
the Accounting Agent be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the regulatory
agencies having jurisdiction over the Portfolio. Subject to Section 3 below,
the Accounting Agent shall preserve the records required to be maintained
thereunder for the period required by law. The Accounting Agent agrees that all
services to be performed by it hereunder shall be performed outside the United
States.
Section 1.3 APPOINTMENT OF AGENTS.
The Accounting Agent may at is own expense employ agents in the
performance of its duties and the exercise of its rights under this Agreement,
provided that the employment of such agents shall not reduce the Accounting
Agent's obligations or liabilities hereunder.
Section 2. DUTIES OF THE FUND.
Section 2.1 PROVISION OF INFORMATION.
The Fund shall provide to the Accounting Agent, or shall cause a third
party to so provide, certain data with respect to each Portfolio as a condition
to the Accounting Agent's obligations under Section 1 above. The data required
to be provided with respect to each Portfolio pursuant to this Section is set
forth on Schedule A hereto, which schedule may be separately amended or
supplemented by the Fund and the Accounting Agent from time to time.
The Accounting Agent is authorized and instructed to rely upon the
information it receives from the Fund or any third party authorized by the Fund
(a "THIRD PARTY AGENT") to provide such information to the Accounting Agent.
The Accounting Agent shall have no responsibility to review, confirm or
otherwise assume any duty with respect to the accuracy or completeness of any
information supplied to it by the Fund or any Third Party Agent.
Section 2.2 PROPER INSTRUCTIONS.
The term "PROPER INSTRUCTIONS" shall mean instructions received by the
Accounting Agent from the Fund, the investment advisor of the Portfolios
appointed by the Fund from time to time (the "INVESTMENT ADVISOR") or any
person duly authorized by them. Such instructions may be in writing signed by
the authorized person or may be in a tested communication or in a communication
utilizing access codes effected between electro-mechanical or electronic
devices or may be by such other means as may be agreed upon from time to time
by the Accounting Agent and the party giving such instructions (including,
<PAGE>
without limitation, oral instructions). All oral instructions shall be promptly
confirmed in writing. The Fund and the Investment Advisor shall each cause its
duly authorized representative to certify to the Accounting Agent in writing
the names and specimen signatures of persons authorized to give Proper
Instructions. The Accounting Agent shall be entitled to rely upon the identity
and authority of such persons until it receives written notice from the Fund or
the Investment Advisor, as the case may be, to the contrary. The Accounting
Agent may rely upon any Proper Instruction reasonably believed by it to be
genuine and to have been properly issued by or on behalf of the Fund or the
Investment Advisor, as the case may be. The Fund shall give timely Proper
Instructions to the Accounting Agent in regard to matters affecting accounting
practices and the Accounting Agent's performance pursuant to this Agreement.
Section 3. SUCCESSOR AGENT.
If a successor accounting agent for the Portfolios shall be appointed by
the Fund, the Accounting Agent shall upon termination of this Agreement deliver
to such successor agent at the office of the Accounting Agent all books and
records of account of each Portfolio maintained by the Accounting Agent
hereunder. In the event this Agreement is terminated by either party without
the appointment of a successor agent, the Accounting Agent shall, upon receipt
of Proper Instructions, deliver such properties at its office in accordance
with such instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Accounting Agent on or
before the effective date of such termination, then the Accounting Agent shall
have the right to deliver to a bank or trust company of its own selection,
having aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than $2,000,000, all property of the Portfolios
held by the Accounting Agent hereunder. Thereafter, such bank or trust company
shall be the successor of the Accounting Agent under this Agreement.
Section 4. STANDARD OF CARE; LIMITATION ON LIABILITY.
The Accounting Agent shall at all times exercise reasonable care and
diligence and act in good faith in the performance of its duties hereunder,
provided, however, that the Accounting Agent shall assume no responsibility and
shall be without liability for any loss, damage or expense suffered or incurred
by the Fund or any Portfolio unless caused by its own fraud, wilful default,
negligence or wrongful act or that of its agents or employees.
Without in any way limiting the generality of the foregoing, the
Accounting Agent shall in no event be liable for any loss or damage arising
<PAGE>
from causes beyond its reasonable control, including, without limitation, delay
or cessation of services hereunder or any damages to the Fund or any Portfolio
resulting therefrom as a consequence of any work stoppage, power or other
mechanical failure, natural disaster, governmental action, communications
disruption or other impossibility of performance. The Accounting Agent shall
not be liable for any special, indirect, incidental, or consequential damages
of any kind whatsoever (including, without limitation, attorneys' fees) in any
way due to any Portfolio's use of the accounting services or the performance of
or failure to perform the Accounting Agent's obligations under this Agreement.
The Fund and any Third Party Agents or Authorized Price Sources from
which the Accounting Agent shall receive or obtain certain records, reports and
other data included in the accounting services provided hereunder are solely
responsible for the contents of such information, including, without
limitation, the accuracy thereof. The Accounting Agent shall have no
responsibility to review, confirm or otherwise assume any duty with respect to
the accuracy or completeness of any such information and shall be without
liability for any loss or damage suffered by the Fund or any Portfolio as a
result of the Accounting Agent's reasonable reliance on and utilization of such
information, except as otherwise required by the terms of the Price Source
Authorization form attached hereto as Exhibit A with respect to the use of data
obtained from Authorized Price Sources. The Accounting Agent shall have no
responsibility and shall be without liability for any loss or damage caused by
the failure of the Fund or any Third Party Agent to provide it with the
information required by Section 2.1 hereof.
Section 5. INDEMNIFICATION.
The Fund hereby agrees to indemnify and hold harmless the Accounting
Agent from and against any loss, liability, claim or expense (including
reasonable attorney's fees and disbursements) suffered or incurred by the
Accounting Agent in connection with the performance of its duties hereunder,
including, without limitation, any liability or expense suffered or incurred as
a result of the acts or omissions of the Fund or any Third Party Agent or
Authorized Price Source whose data or services, including records, reports and
other information, the Accounting Agent must rely upon in performing accounting
services hereunder. Notwithstanding the immediately preceding sentence, the
Fund in no event shall indemnify or hold harmless the Accounting Agent from any
loss, liability, claim or expenses involving any breach or alleged breach or
violation of U.S. Patent No. 5,193,056, entitled Data Processing System for Hub
and Spoke Financial Services Configuration.
<PAGE>
Section 6. DATA ACCESS AND PROPRIETARY INFORMATION.
The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals which may be furnished to it by the Accounting Agent as part of the
Fund's ability to access certain Portfolios-related data ("CUSTOMER DATA")
maintained by the Accounting Agent on data bases under the control and
ownership of the Accounting Agent ("DATA ACCESS SERVICES") constitute
copyrighted, trade secret, or other proprietary information (collectively,
"PROPRIETARY INFORMATION") of substantial value to the Accounting Agent. The
Fund agrees to treat all Proprietary Information as proprietary to the
Accounting Agent and further agrees that it shall not divulge any Proprietary
Information to any person or organization except as may be provided hereunder.
Without limiting the foregoing, the Fund agrees for itself and its employees
and agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Accounting Agent and solely in accordance with the
Accounting Agent's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently
obtained, to inform the Accounting Agent in a timely manner of such
fact and dispose of such information in accordance with the
Accounting Agent's instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of the
Accounting Agent;
(e) that the Fund shall have access only to those
authorized transactions agreed upon by the parties; and
(f) to honor all reasonable written requests made by the Accounting
Agent to protect at the Accounting Agent's expense and risk the
rights of the Accounting Agent in Proprietary Information at common
law, under federal copyright law and under other federal or state
law.
<PAGE>
Each party shall take reasonable efforts to advise its employees and agents of
their obligations pursuant to this Section 6. The obligations of this Section
shall survive for a period of five (5) years any earlier termination of this
Agreement.
The Fund hereby acknowledges that the data and information it may access
from the Accounting Agent utilizing the Data Access Services will be unaudited
and may not be accurate due to inaccurate pricing of securities, delays of a
day in updating a Portfolio's account and other causes for which Accounting
Agent will not be liable to the Fund or any Portfolio.
If the Fund notifies the Accounting Agent that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Accounting Agent shall use its best
efforts to correct such failure as promptly as possible. Data access services
and all computer programs and software specifications used in connection
therewith are provided on an as is, as available basis. The Accounting Agent
expressly disclaims all warranties except those expressly stated herein
including, but not limited to, the implied warranties of merchantability and
fitness for a particular purpose.
If the transactions available to the Fund include the ability to
originate electronic instructions to the Accounting Agent in order to (i)
effect the transfer or movement of cash or beneficial interests or (ii)
transmit interestholder information or other information (such transactions
constituting a "COEFI"), then in such event the Accounting Agent shall be
entitled to rely on the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with mutually acceptable security procedures established by the
Accounting Agent and the Fund from time to time.
Notwithstanding anything to the contrary in this Section 6, the Fund and
its employees and agents may copy and duplicate Proprietary Information for its
own internal use in a manner consistent with this Agreement.
The Fund and its employees and agents may disclose any Proprietary
Information (i) if and to the extent the Fund and its employees and agents are
required to do so by applicable law or an order of a court of competent
jurisdiction or other government agency having appropriate authority, in which
case the Fund shall provide the Accounting Agent with timely notice prior to
such disclosure and (ii) to the extent any of such documents, materials and
information are made public by means other than a breach by the Fund or its
respective employees and agents of the obligations hereunder.
Notwithstanding anything in this Section 6 to the contrary, the Fund and
its employees and agents shall have the right to independently develop
products, provided they do so without any misappropriation of the Proprietary
Information or violation of the Accounting Agent's copyright or patent rights
or interests.
Section 7. GENERAL.
Section 7.1 ADDITIONAL PORTFOLIOS
In the event that the Fund establishes one or more series of beneficial
interests in addition to Equity Portfolio, Small Cap Equity Portfolio, Balanced
Portfolio, International Equity Portfolio, Emerging Asian Markets Equity
Portfolio and Government Income Portfolio, with respect to which it desires to
have the Accounting Agent render services under the terms of this Agreement, it
shall so notify the Accounting Agent in writing, and if the Accounting Agent
agrees in writing to provide such services, such series shall become a
Portfolio hereunder.
Section 7.2 TERM OF AGREEMENT.
This Agreement shall be effective from the date first stated above and
shall remain in full force and effect until terminated as hereinafter provided.
Either party may, in its discretion, terminate this Agreement with respect to
any Portfolio for any reason by giving the other party at least sixty (60) days
prior written notice of termination.
Section 7.3 FEES AND EXPENSES.
The Fund agrees to pay the Accounting Agent such reasonable compensation
for its services and expenses as may be agreed upon from time to time in a
written fee schedule approved by the Fund and the Accounting Agent.
Section 7.4 CONFIDENTIALITY.
The Accounting Agent agrees on behalf of itself and its employees to
treat confidentially all records and other information relating to the Fund and
each Portfolio, except where required to be disclosed by law or where the
Accounting Agent has determined that such disclosure is necessary for the
protection of its interests or has received the prior written consent of the
Fund, which consent shall not be unreasonably withheld.
Section 7.5 NOTICES.
All notices shall be in writing and shall be deemed given when delivered
in person, by facsimile, by overnight delivery through a commercial courier
service, or by registered or certified mail, return receipt requested. Notices
<PAGE>
shall be addressed to each party at its address set forth below, or such other
address as the recipient may have specified by earlier notice to the sender.
If to the Accounting Agent: STATE STREET CAYMAN TRUST COMPANY, LTD.
P.O. Box 2508 GT
Grand Cayman, Cayman Islands
Attention: Jacqueline Henning
Telephone: 809-949-6644
Telecopy: 809-949-3181
With a copy to: STATE STREET FUND SERVICES TORONTO INC.
100 King Street, West
Suite 3600
Toronto, Ontario
Canada M5X 1A9
Attention: Mike Larkin
Telephone: (416) 956-2987
Telecopy: (416) 956-2874
If to the Fund: THE PREMIUM PORTFOLIOS
Elizabethan Square
Grand Cayman, Cayman Islands
Attention: Susan Jakuboski
Telephone: 809-945-1824
Telecopy: 809-945-1823
With a copy to: CITIBANK GLOBAL ASSET MANAGEMENT
153 East 53rd Street
New York, NY 10043
Attention: Andrew Shoup
Telephone: 212-559-1177
Telecopy: 212-793-1812
Section 7.6 ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign its
rights and obligations hereunder to a party controlling, controlled by, or
under common control with such party.
<PAGE>
Section 7.7 ENTIRE AGREEMENT.
This Agreement (including all schedules and attachments hereto)
constitutes the entire Agreement between the parties with respect to its
subject matter.
Section 7.8 AMENDMENTS.
No amendment to this Agreement shall be effective unless it is in writing
and signed by a duly authorized representative of each party. The term
"Agreement", as used herein, includes all schedules and attachments hereto and
any future written amendments, modifications, or supplements made in accordance
herewith.
Section 7.9 HEADINGS NOT CONTROLLING.
Headings used in this Agreement are for reference purposes only and shall
not be deemed a part of this Agreement.
Section 7.10 SURVIVAL.
All provisions regarding indemnification, warranty, liability and limits
thereon shall survive following the expiration or termination of this
Agreement.
Section 7.11 SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
Section 7.12 COUNTERPARTS.
This Agreement may be simultaneously executed in several counterparts,
each of which shall be deemed to be an original, and all such counterparts
shall together constitute but one and the same Agreement.
Section 7.13 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the Cayman Islands.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
State Street Cayman Trust Company, Ltd.
By: Jacqueline Henning
Its: Managing Director
The Premium Portfolios
By: Philip Coolidge
Its: President
<PAGE>
SCHEDULE A
REQUIRED INFORMATION RESPONSIBLE PARTY
Portfolio Trade Authorizations Investment Adviser
Currency Transactions Investment Adviser
Cash Transaction Report Custodian
Portfolio Prices Third Party Vendors/Investment
Adviser
Exchange Rates Third Party Vendors/Investment
Adviser
Capital Stock Activity Report Transfer Agent
Dividend/Distribution Schedule Fund
Dividend/Distribution Declaration Fund
Dividend Reconciliation/Confirmation Transfer Agent
Corporate Actions Third Party Vendors/Custodian
Service Provider Fee Schedules Fund
Expense Budget Fund
Expense Payments and other
Cash Disbursements Fund
Amortization Policy Fund
Accounting Policy/Complex Investments Fund
Audit Management Letter Auditor
Annual Interestholder Letter Fund
Annual/Semi-Annual Reports Fund
Master/Feeder Allocation Methodology Fund
Tax Adjustments to Book Capital
Account Fund
<PAGE>
EXHIBIT A
ACCOUNTING SERVICES AGREEMENT
dated
_____ __, 1997
by and between
THE PREMIUM PORTFOLIOS
and
STATE STREET CAYMAN TRUST COMPANY, LTD.
(the "ACCOUNTING AGENT")
Pursuant to the terms of the Accounting Services Agreement, the Fund has
directed the Accounting Agent to calculate the net asset value of each
Portfolio and to perform certain other accounting services in accordance with
the Constitutive Documents (as such term is defined therein) of each Portfolio.
The Fund hereby authorizes and instructs the Accounting Agent to utilize the
pricing sources specified on the attached forms as sources for securities
prices in calculating the net asset value of each Portfolio and acknowledges
and agrees that the Accounting Agent shall have no liability for any incorrect
data provided by pricing sources selected by the Fund or otherwise authorized
by Proper Instructions (as such term is defined in the Accounting Services
Agreement), except as may arise from the Accounting Agent's lack of reasonable
care in performing the agreed-upon tolerance checks as to the data furnished
and calculating the net asset value of a Portfolio in accordance with the data
furnished and the Accounting Agent's performance of the agreed-upon tolerance
checks.
The Premium Portfolios
By:_____________________________
Title:
Date:____________________________
<PAGE>
<TABLE>
<CAPTION>
STATE STREET BANK AND TRUST COMPANY
PRICE SOURCE AUTHORIZATION
FUND:_______________________________________ SIGNATURE:______________________________
-----------------------------------------------------------------------------------------------------------
SECURITY TELEKURS OPTIONS PRICE (3) (2) (1) (1)
TYPE NYSE NASDAQ REPORTING AUTHORITY MANUAL BACK-UP TOLERANCE
AMEX BID MEAN LS/BID LS/MEAN TELEKURS LS BID LS/MEAN QUOTES SOURCE INDEX PERCENTAGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
I. LISTED
EQUITIES
-----------------------------------------------------------------------------------------------------------
II. OTC
EQUITIES
-----------------------------------------------------------------------------------------------------------
III. FOREIGN
EQUITIES
-----------------------------------------------------------------------------------------------------------
IV. EQUITY
OPTIONS
-----------------------------------------------------------------------------------------------------------
V. FUTURES
N/A
-----------------------------------------------------------------------------------------------------------
</TABLE>
INSTRUCTIONS: For each security type, allowed by the Fund prospectus, please
indicate the primary price source and a back-up source to be used in
calculating Net Asset Value for the Fund identified above. Also, please
indicate a published market index and tolerance range (in terms of percent) to
be used for reasonability testing. If you do not wish to use a published index
please indicate N/A but do not leave blank.
(1) * INDEX/TOLERANCE CHECK: The price movement for a particular security is
compared to the index movement. If the security price movement exceeds the
index movement by more than the percentage authorized on this form, then the
security price will be verified using the back-up source authorized. The index
and tolerance information authorized here will be the basis for this
reasonability test.
(2) BACK-UP SOURCE: The following sources are available for back-up, price
verification and historical price and yield information: Bloomberg, Bridge,
Reuters, and Telerate. Please do not leave blank.
(3) MANUAL QUOTES AND PRIVATE PLACEMENTS: Please specify the source for
private placements or manual quotes as necessary. See page 3 to list
additional information if needed.
<PAGE>
<TABLE>
<CAPTION>
STATE STREET BANK AND TRUST COMPANY
PRICE SOURCE AUTHORIZATION
---------------------------------------------------------------------------------------------------------------
SECURITY TYPE MERRILL INTERACTIVE
LYNCH STANDARD MULLER DATA KENNY (3) (2) (1) (1)
CAPITAL & POORS DATA SERVICES INFORMATION IDC/ MANUAL BACK-UP TOLERANCE
MARKETS MEAN BID MEAN BID MEAN BID SYSTEMS EXTEL QUOTES QUOTES INDEX PERCENTAGE
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VI. LISTED BONDS
IS LAST SALE
REQUIRED
WHEN
AVAILABLE
YES_____
NO_______
---------------------------------------------------------------------------------------------------------------
VII. CORPORATE
BONDS
---------------------------------------------------------------------------------------------------------------
VIII.U.S.
GOVERNMENT
OBLIGATIONS
---------------------------------------------------------------------------------------------------------------
IX. MORTAGE
BACKED
SECURITIES
---------------------------------------------------------------------------------------------------------------
X. MUNICIPAL
BONDS
---------------------------------------------------------------------------------------------------------------
XI. FIXED INCOME
OPTIONS
---------------------------------------------------------------------------------------------------------------
XII. FOREIGN BONDS
---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE STREET BANK AND TRUST COMPANY, LTD.
PRICE SOURCE AUTHORIZATION
XII. Private Placements and Other Manual Quotes Information
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SECURITY TYPE ADVISOR BROKER OTHER ADDITIONAL INFORMATION:
CONTACT NAME, TELEPHONE NUMBER
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
</TABLE>
INSTRUCTIONS: For all securities types which require manual quotes, please list
the source of the quotes and any additional information needed to obtain these
quotes.
<PAGE>
The Premium Portfolios
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
___________ ___, 199__
State Street Cayman Trust Company, Ltd.
P.O. Box 2508 GT
Grand Cayman, Cayman Islands
Re: The Premium Portfolios - Accounting
Services Agreement
Ladies and Gentlemen:
Pursuant to Section 7.1 of the Accounting Services Agreement dated as of
September 1, 1997 (the "Agreement"), between The Premium Portfolios (the
"Trust") and State Street Cayman Trust Company, Ltd. ("State Street"), we
hereby request that Growth & Income Portfolio (the "Fund") be added to the list
of series of the Trust to which State Street renders services as accounting
agent pursuant to the terms of the Agreement.
Please sign below to evidence your agreement to provide such services to
the Fund and to add the Fund as a beneficiary under the Agreement.
THE PREMIUM PORTFOLIOS
By:________________________
Title:_____________________
Agreed:
STATE STREET CAYMAN TRUST COMPANY, LTD.
By:______________________
Title:___________________
Exhibit 11
Consent of Price Waterhouse
We hereby consent to the incorporation by reference in Part B constituting part
of this Post-Effective Amendment No. 4 to the registration statement on Form
N-1A (the "Registration Statement") of The Premium Portfolios of our reports
dated February 4, 1997, relating to the financial statements and financial
highlights of Large Cap Growth Portfolio (formerly Equity Portfolio) and Small
Cap Growth Portfolio (formerly Small Cap Equity Portfolio) appearing in the
December 31, 1996 Annual Reports of Landmark Equity Fund and Landmark Small Cap
Equity Fund, respectively, which are also incorporated by reference into the
Registration Statement. We also consent to the reference to us under the
heading "Investment Advisory and Other Services" in Part B.
Price Waterhouse
Chartered Accountants
Toronto, Ontario
October 31, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000927086
<NAME> SMALL CAP EQUITY PORTFOLIO
<SERIES>
<NUMBER> 1
<NAME> THE PREMIUM PORTFOLIOS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 47,121,000
<INVESTMENTS-AT-VALUE> 49,363,702
<RECEIVABLES> 9,459
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49,373,161
<PAYABLE-FOR-SECURITIES> 2,168,062
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 2,168,062
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,142,322
<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> 47,142,322
<DIVIDEND-INCOME> 73,749
<INTEREST-INCOME> 75,339
<OTHER-INCOME> 0
<EXPENSES-NET> 120,552
<NET-INVESTMENT-INCOME> 28,536
<REALIZED-GAINS-CURRENT> 1,063,995
<APPREC-INCREASE-CURRENT> 1,516,882
<NET-CHANGE-FROM-OPS> 2,609,413
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 45,631,942
<NUMBER-OF-SHARES-REDEEMED> (6,088,455)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 42,152,900
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 147,259
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 230,457
<AVERAGE-NET-ASSETS> 19,634,575
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000927086
<NAME> EQUITY PORTFOLIO
<SERIES>
<NUMBER> 2
<NAME> THE PREMIUM PORTFOLIOS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 237,847,517
<INVESTMENTS-AT-VALUE> 289,201,816
<RECEIVABLES> 238,090
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,952
<TOTAL-ASSETS> 289,454,858
<PAYABLE-FOR-SECURITIES> 729,926
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 729,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 288,562,272
<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> 288,562,272
<DIVIDEND-INCOME> 4,073,000
<INTEREST-INCOME> 641,497
<OTHER-INCOME> 0
<EXPENSES-NET> 1,664,707
<NET-INVESTMENT-INCOME> 3,049,790
<REALIZED-GAINS-CURRENT> 28,518,761
<APPREC-INCREASE-CURRENT> 4,832,223
<NET-CHANGE-FROM-OPS> 36,400,774
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 61,756,061
<NUMBER-OF-SHARES-REDEEMED> (55,752,909)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 42,403,926
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,387,227
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,664,707
<AVERAGE-NET-ASSETS> 249,210,123
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
