As filed with the Securities and Exchange Commission on
March 30, 1995
File No. 811-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
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:
(809) 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 & GOULD
150 FEDERAL STREET
BOSTON, MA 02110
-------------------------------------------------------
* Relates only to Small Cap Equity Portfolio.
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.
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.
Small Cap Equity Portfolio (the "Portfolio") is a
separate series of The Premium Portfolios (the
"Trust"). Citibank, N.A. ("Citibank" or the "Adviser")
is the investment adviser for the Portfolio. The Trust
is an open-end management investment company which was
organized as a trust under the laws of the State of New
York on September 13, 1993. Beneficial interests in
the Portfolio are issued solely in private placement
transactions which do not involve any "public offering"
within the meaning of Section 4(2) of the U.S.
Securities Act of 1933, as amended (the "1933 Act").
Investments in the Portfolio may be made only by
investment companies, common or commingled trust funds
or similar organizations or entities which are
"accredited investors" within the meaning of Regulation
D under the 1933 Act. This Registration Statement does
not constitute an offer to sell, or the solicitation of
an offer to buy, any "security" within the meaning of
the 1933 Act.
BENEFICIAL INTERESTS IN THE PORTFOLIO ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
INVESTMENT OBJECTIVE AND POLICIES:
The investment objective of the Portfolio is long-
term capital growth. Dividend income, if any, is
incidental to this investment objective.
The 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 Portfolio's total assets is invested in
equity securities of these companies. 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.
The Adviser may also select other securities for
the 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, and less than 5% of
the Portfolio's investments consist of securities rated
Baa by Moody's Investors Service, Inc. ("Moody's") or
BBB by Standard & Poor's Ratings Group ("S&P").
CERTAIN ADDITIONAL INVESTMENT POLICIES:
NON-U.S. SECURITIES. While the Portfolio
emphasizes U.S. securities, the Portfolio may invest a
portion of its assets in non-U.S. equity and debt
securities, including depository receipts. The
Portfolio does not intend 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. The Portfolio may invest
up to 5% of its assets in closed-end investment
companies which primarily hold non-U.S. securities.
TEMPORARY INVESTMENTS. During periods of unusual
economic or market conditions or for temporary
defensive purposes or liquidity, the Portfolio may
invest without limit in cash and in U.S. dollar-
denominated high quality money market and short-term
instruments. These investments may result in a lower
yield than would be available from investments with a
lower quality or longer term.
OTHER PERMITTED INVESTMENTS. For more information
regarding the Portfolio's permitted investments and
investment practices, see "Permitted Investments and
Investment Practices" below. The Portfolio will not
necessarily invest or engage in each of the investments
and investment practices described in "Permitted
Investments and Investment Practices" but reserves the
right to do so.
INVESTMENT RESTRICTIONS. Part B of this
Registration Statement contains a list of specific
investment restrictions which govern the investment
policies of the Portfolio, including a limitation that
the Portfolio may borrow money from banks in an amount
not to exceed 33-1/3% of the Portfolio's net assets for
extraordinary or emergency purposes (e.g., to meet
redemption requests). Certain of these specific
restrictions may not be changed without approval by
holders of a majority of the outstanding securities of
the Portfolio. Except as otherwise indicated, the
Portfolio's investment objectives and policies may be
changed without approval by the holders of the
outstanding securities of the Portfolio. If a
percentage or rating restriction (other than a
restriction as to borrowing) is adhered to at the time
an investment is made, a later change in percentage or
rating resulting from changes in the Portfolio's
securities will not be a violation of policy.
PORTFOLIO TURNOVER. Securities of the Portfolio
will be sold whenever the Adviser believes it is
appropriate to do so in light of the Portfolio's
investment objectives, without regard to the length of
time a particular security may have been held. The
turnover rate for the Portfolio is not expected to
exceed 200% annually. The amount of brokerage
commissions and realization of taxable capital gains
will tend to increase as the level of portfolio
activity increases.
BROKERAGE TRANSACTIONS. The primary consideration
in placing the Portfolio's security transactions with
broker-dealers for execution is to obtain and maintain
the availability of execution at the most favorable
prices and in the most effective manner possible.
RISK CONSIDERATIONS:
The risks of investing in the Portfolio vary
depending upon the nature of the securities held, and
the investment practices employed, on its behalf.
Certain of these risks are described below.
CHANGES IN NET ASSET VALUE. The Portfolio's net
asset value will fluctuate based on changes in the
values of the underlying portfolio securities. This
means that an investment in the Portfolio may be worth
more or less at redemption than at the time of
purchase. 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
unrated 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.
SMALL CAP COMPANIES. Investors in the Portfolio
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. An investment in
the Portfolio, therefore, may be subject to greater
fluctuation in value than an investment in an equity
fund investing primarily in securities of larger, more
established companies.
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 Portfolio.
Because non-U.S. securities often are denominated
in currencies other than the U.S. dollar, changes in
currency exchange rates will affect the 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.
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 Portfolio may be higher
than those of investment companies investing
exclusively in U.S. securities.
The Portfolio may invest in securities of issuers
in developing countries, and all of these risks are
increased for investments in issuers in developing
countries.
INVESTMENT PRACTICES. Certain of the investment
practices employed for the Portfolio may entail certain
risks. See "Permitted Investments and Investment
Practices" below.
PERMITTED INVESTMENTS AND INVESTMENT PRACTICES:
REPURCHASE AGREEMENTS. The Portfolio may enter
into repurchase agreements in order to earn a return on
temporarily available cash. Repurchase agreements are
transactions in which an institution sells the
Portfolio a security at one price, subject to the
Portfolio's obligation to resell and the selling
institution's obligation to repurchase that security at
a higher price normally within a seven day period.
There may be delays and risks of loss if the seller is
unable to meet its obligation to repurchase.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may
enter into reverse repurchase agreements. Reverse
repurchase agreements involve the sale of securities
held by the Portfolio and the agreement by the
Portfolio to repurchase the securities at an
agreed-upon price, date and interest payment. When the
Portfolio enters into reverse repurchase transactions,
securities of a dollar amount equal in value to the
securities subject to the agreement will be maintained
in a segregated account with the Portfolio's custodian.
The segregation of assets could impair the Portfolio's
ability to meet its current obligations or impede
investment management if a large portion of the
Portfolio's assets are involved. Reverse repurchase
agreements are considered to be a form of borrowing.
LENDING OF PORTFOLIO SECURITIES. Consistent with
applicable regulatory requirements and in order to
generate additional income, the Portfolio may lend its
portfolio securities to broker-dealers and other
institutional borrowers. Such loans must be callable
at any time and continuously secured by collateral
(cash or U.S. Government securities) in an amount not
less than the market value, determined daily, of the
securities loaned. It is intended that the value of
securities loaned by the Portfolio would not exceed 30%
of the Portfolio's total assets.
In the event of the bankruptcy of the other party
to a securities loan, a repurchase agreement or a
reverse repurchase agreement, the Portfolio could
experience delays in recovering either the securities
lent or cash. To the extent that, in the meantime, the
value of the securities lent has increased or the value
of the securities purchased has decreased, the
Portfolio could experience a loss.
RULE 144A SECURITIES. The Portfolio may purchase
restricted securities that are not registered for sale
to the general public if the Adviser determines that
there is a dealer or institutional market in the
securities. In that case, the securities will not be
treated as illiquid for purposes of the Portfolio's
investment limitations. The Trustees will review these
determinations. These securities are known as "Rule
144A securities", because they are traded under SEC
Rule 144A among qualified institutional buyers.
Institutional trading in Rule 144A securities is
relatively new, and the liquidity of these investments
could be impaired if trading in Rule 144A securities
does not develop or if qualified institutional buyers
become, for a time, uninterested in purchasing Rule
144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. The
Portfolio may invest up to 15% of its net assets in
securities for which there is no readily available
market. These illiquid securities may include
privately placed restricted securities for which no
institutional market exists. The absence of a trading
market can make it difficult to ascertain a market
value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and
legal expenses, and it may be difficult or impossible
for the Portfolio to sell them promptly at an
acceptable price.
"WHEN-ISSUED" SECURITIES. In order to ensure the
availability of suitable securities, the Portfolio may
purchase securities on a "when-issued" or on a "forward
delivery" basis, which means that the securities would
be delivered to the Portfolio at a future date beyond
customary settlement time. Under normal circumstances,
the Portfolio takes delivery of the securities. In
general, the Portfolio does not pay for the securities
until received and does not start earning interest
until the contractual settlement date. While awaiting
delivery of the securities, the Portfolio establishes a
segregated account consisting of cash, cash equivalents
or high quality debt securities equal to the amount of
the Portfolio's commitments to purchase "when-issued"
securities. An increase 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.
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 the
Portfolio for the purchase or sale of non-U.S. currency
for hedging purposes against adverse rate changes or
otherwise to achieve the Portfolio's investment
objectives. 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. The 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.
SHORT SALES "AGAINST THE BOX". In a short sale,
the Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the
identical security. The Portfolio may engage in short
sales only if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This
investment technique is known as a short sale "against
the box." The Portfolio may make a short sale as a
hedge, when it believes that the value of a security
owned by the Portfolio (or a security convertible or
exchangeable for such security) may decline, or when
the Portfolio wants to sell the security at an
attractive current price but wishes to defer
recognition of gain or loss for tax purposes. Not more
than 40% of the Portfolio's total assets would be
involved in short sales "against the box."
Item 5. Management of the Portfolio.
The Portfolio is supervised by a Board of
Trustees. Citibank is the investment adviser. A
majority of the Trustees are not affiliated with the
Adviser. More information on the Trustees and officers
of the Portfolio appears under "Management" in Part B.
The Portfolio draws on the strength and experience
of Citibank. Citibank offers a wide range of banking
and investment services to customers across the United
States and throughout the world, and has been managing
money since 1822. Its portfolio managers are
responsible for investing in money market, equity and
fixed income securities. Citibank and its affiliates
manage more than $73 billion in assets worldwide.
Citibank is a wholly-owned subsidiary of Citicorp.
Citibank manages the Portfolio's assets pursuant
to an investment advisory agreement (the "Advisory
Agreement"). Subject to policies set by the Trustees,
Citibank makes investment decisions. Citibank's
address is 153 East 53rd Street, New York, New York
10043.
David N. Pearl, Linda J. Intini and Marguerite H.
Wagner were appointed as the managers of the Portfolio.
Mr. Pearl is a portfolio manager of U.S. equity assets
for institutional clients, and came to Citibank in
1994. Prior to coming to Citibank, he worked as a
portfolio manager at both Fleming Capital Management
and Bankers Trust Company. Ms. Intini is a portfolio
manager with Citibank's Special Equity Team, and she
came to Citibank in 1992. She most recently held the
position of Portfolio Manager and Research Analyst for
five years with Manufacturers Hanover Trust in their
special equity area. Ms. Wagner is also a portfolio
manager and research analyst with Citibank's Special
Equity Team. She joined Citibank in 1985 and has
previously managed a balanced portfolio for the
Citibank Private Bank.
For its services under the Advisory Agreement, the
Adviser receives an investment advisory fee, which is
accrued daily and paid monthly, equal to 0.75% of the
Portfolio's average daily net assets on an annualized
basis for the Portfolio's then current fiscal year.
The investment advisory fees of the Portfolio are
higher than those paid by most investment companies.
The Adviser may voluntarily agree to waive a portion of
its investment advisory fees.
Citibank and its affiliates may have deposit, loan
and other relationships with the issuers of securities
purchased on behalf of the Portfolio, including
outstanding loans to such issuers which may be repaid
in whole or in part with the proceeds of securities so
purchased. Citibank has informed the Trust that, in
making its investment decisions, it does not obtain or
use material inside information in the possession of
any division or department of Citibank or in the
possession of any affiliate of Citibank.
The Glass-Steagall Act prohibits certain financial
institutions, such as Citibank, from underwriting
securities of open-end investment companies, such as
the Trust. Citibank believes that its services under
the Advisory Agreement and the activities performed by
it as sub-administrator are not underwriting and are
consistent with the Glass-Steagall Act and other
relevant federal and state laws. However, there is no
controlling precedent regarding the performance of the
combination of investment advisory and
sub-administrative activities by banks. State laws on
this issue may differ from applicable federal law, and
banks and financial institutions may be required to
register as dealers pursuant to state securities laws.
Changes in either federal or state statutes or
regulations, or in their interpretations, could prevent
Citibank from continuing to perform these services. If
Citibank were to be prevented from acting as the
Adviser or sub-administrator, the Trust would seek
alternative means for obtaining these services. The
Trust does not expect that shareholders would suffer
any adverse financial consequences as a result of any
such occurrence.
The Portfolio has an administrative services plan
(the "Administrative Services Plan") which provides
that the Portfolio may obtain the services of an
administrator, a transfer agent and a custodian, and
may enter into agreements providing for the payment of
fees for such services. Under the Administrative
Services Plan, fees paid to the Portfolio's
administrator may not exceed 0.05% of the Portfolio's
average daily net assets on an annualized basis for the
Portfolio's then-current fiscal year.
Signature Financial Group (Cayman), Ltd., either
directly or through a wholly-owned subsidiary ("SFG"),
provides certain administrative services to the
Portfolio under an administrative services agreement.
These administrative services include providing general
office facilities, supervising the overall
administration of the Portfolio, and providing persons
satisfactory to the Board of Trustees to serve as
Trustees and officers of the Portfolio. These Trustees
and officers may be directors, officers or employees of
SFG or its affiliates.
For these services, SFG receives fees accrued
daily and paid monthly of 0.05% of the assets of the
Portfolio, on an annualized basis for the Portfolio's
then-current fiscal year. However, SFG has voluntarily
agreed to waive a portion of the fees payable to it as
necessary to maintain the projected rate of total
operating expenses.
SFG is a wholly-owned subsidiary of Signature
Financial Group, Inc.
Pursuant to a sub-administrative services
agreement, Citibank performs such sub-administrative
duties for the Portfolio as from time to time are
agreed upon by Citibank and SFG. Citibank's
compensation as sub-administrator is paid by SFG.
Investors Bank & Trust Company acts as the
custodian of the Portfolio's assets. Securities may be
held by a sub-custodian bank approved by the Trustees.
In addition to amounts payable under the Advisory
Agreement and the Administrative Services Plan, the
Portfolio is responsible for its own expenses,
including, among other things, the costs of securities
transactions, the compensation of Trustees that are not
affiliated with the Adviser, government fees, taxes,
accounting and legal fees, expenses of communicating
with investors, interest expense, and insurance
premiums.
All fee waivers are voluntary and may be reduced
or terminated at any time.
Item 6. Capital Stock and Other Securities.
Investments in the Portfolio have no pre-emptive
or conversion rights and are fully paid and non-
assessable, except as set forth below. The Trust is
not required to hold, and has no current intention of
holding, annual meetings of investors, but the Trust
will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable
to submit matters for an investor vote. Investors have
under certain circumstances (e.g., upon application and
submission of certain specified documents to the
Trustees by a specified number of investors) the right
to communicate with other investors in connection with
requesting a meeting of investors for the purpose of
removing one or more Trustees. Investors also have the
right to remove one or more Trustees without a meeting
by a declaration in writing by a specified number of
investors. Upon liquidation or dissolution of the
Portfolio, investors would be entitled to share pro
rata in the net assets of the Portfolio available for
distribution to its investors.
The Trust reserves the right to create and issue a
number of series, in which case investors in each
series would participate equally in the earnings,
dividends and assets of the particular series.
Currently, the Trust has five series.
The Trust is organized as a trust under the laws
of the State of New York. Under the Declaration of
Trust, the Trustees are authorized to issue beneficial
interests in the Portfolio. Each investor in the
Portfolio is entitled to a vote in proportion to the
amount of its beneficial interest in the Portfolio.
Investments in the Portfolio may not be transferred,
but an investor may withdraw all or any portion of its
investment at any time. The Declaration of Trust of
the Trust provides that entities investing in the
Portfolio are each liable for all obligations of the
Portfolio. It is not expected that the liabilities of
the Portfolio would ever exceed its assets.
The net asset value of the Portfolio (i.e., the
value of its securities and other assets less its
liabilities) is determined each day on which the New
York Stock Exchange (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 such Exchange. Values of the Portfolio's assets are
determined on the basis of their market or other fair
value, as described in Item 19 of Part B.
Each investor in the Portfolio may add to or
reduce its investment in the Portfolio on each Business
Day. As of the close of regular trading on the
Exchange, on each Business Day, the value of each
investor's beneficial interest in the Portfolio is
determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day,
which represents that investor's share of the aggregate
beneficial interests in the Portfolio. Any additions
or withdrawals, which are to be effected on that day,
are then effected. Thereafter, the investor's
percentage of the aggregate beneficial interests in the
Portfolio is then re-computed as the percentage equal
to the fraction (i) the numerator of which is the value
of such investor's investment in the Portfolio as of
the close of regular trading on such day plus or minus,
as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the
Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value
of the Portfolio as of the same time on such day plus
or minus, as the case may be, the amount of the net
additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the
Portfolio. The percentage so determined is then
applied to determine the value of the investor's
interest in the Portfolio as of the close of regular
trading on the following Business Day of the Portfolio.
Subject to an investor's right to make withdrawals
as provided above, the Portfolio does not make
distributions to its investors.
The Trust has determined that the Portfolio is
properly treated as a partnership for U.S. federal and
New York state income tax purposes. Accordingly, the
Trust is not subject to any U.S. federal or New York
state income taxes, but each investor in the Portfolio
must take into account its share of the Portfolio's
ordinary income and capital gains in determining its
income tax liability. The determination of such share
is made in accordance with the governing instruments of
the Trust and the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), and regulations promulgated
thereunder.
The Trust intends to conduct its activities and
those of the Portfolio so that they will not be deemed
to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes.
Therefore, it is not anticipated that an investor in
the Portfolio, other than an investor which would be
deemed a "U.S. person" for U.S. federal income tax
purposes, will be subject to U.S. federal income
taxation (other than a 30% withholding tax on dividends
and certain interest income) solely by reason of its
investment in the Portfolio. There can be no assurance
that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions
that, if successful, might result in the payment of
U.S. federal income taxes by investors in the
Portfolio.
Item 7. Purchase of Securities.
Beneficial interests in the Portfolio are issued
solely in private placement transactions which do not
involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the
Portfolio may only be made by investment companies,
common or commingled trust funds or similar
organizations or entities which are "accredited
investors" within the meaning of Regulation D under the
1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an
offer to buy, any "security" within the meaning of the
1933 Act.
An investment in the Portfolio is made without a
sales load. All investments are made at net asset
value next determined after an order is received by the
Portfolio. There is no minimum initial or subsequent
investment in the Portfolio. However, since the
Portfolio intends to be as fully invested at all times
as is reasonably practicable in order to enhance the
yield on its assets, investments must be made in
federal funds (i.e., moneys credited to the account of
the Portfolio's custodian bank by a U.S. Federal
Reserve Bank).
The Trust reserves the right to cease accepting
investments for the Portfolio at any time or to reject
any investment order.
The exclusive placement agent for the Portfolio is
The Landmark Funds Broker-Dealer Services, Inc.
("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
Portfolio.
Item 8. Redemption or Repurchase.
An investor in the Portfolio may withdraw all or
any portion of its investment at any time after a
withdrawal request in proper form is received by the
Portfolio from the investor. The proceeds of a
withdrawal will be paid by the Portfolio in federal
funds normally on the Business Day the withdrawal is
effected, but in any event within seven days. See
"Purchase, Redemption and Pricing of Securities" in
Part B of this Registration Statement regarding the
Trust's right to pay the redemption price in kind with
readily marketable securities (instead of cash).
Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with
respect to any withdrawal may be suspended or the
payment of the withdrawal proceeds postponed during any
period in which the 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.
PART B
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents.
Page
General Information and History B-01
Investment Objective and Policies B-01
Management of the Trust B-13
Control Persons and Principal
Holders of Securities B-15
Investment Advisory and Other Services B-15
Brokerage Allocation and Other Practices B-18
Capital Stock and Other Securities B-19
Purchase, Redemption and
Pricing of Securities B-20
Tax Status B-22
Underwriters B-25
Calculations of Performance Data B-25
Financial Statements B-25
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objective and Policies.
Part A contains additional information about the
investment objective and policies of the Small Cap
Equity Portfolio (the "Portfolio"), a series of The
Premium Portfolios (the "Trust"). This Part B should
be read in conjunction with Part A.
The investment objective of the Portfolio is long-
term capital growth. Dividend income, if any, is
incidental to this investment objective. The
investment objective of the Portfolio may be changed
without approval by the Portfolio's investors. Of
course, there can be no assurance that the Portfolio
will achieve its investment objective.
Part A contains a discussion of the various types
of securities in which the Portfolio may invest and the
risks involved in such investments. The following
supplements the information contained in Part A
concerning the investment objective, policies and
techniques of the Portfolio.
While it is the policy of the Portfolio to invest
its assets in a broadly diversified portfolio of equity
securities consisting mainly of common stocks of U.S.
issuers, the 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 the Portfolio's investments in (i)
warrants and (ii) securities of issuers with less than
three years' continuous operation. The Trust's
purchases of warrants for the Portfolio 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 Portfolio's assets 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
The Portfolio may invest in repurchase agreements
collateralized by securities in which the Portfolio may
otherwise invest. Repurchase agreements are agreements
by which the Portfolio purchases a security and
simultaneously commits to resell that security to the
seller (which is usually a member bank of the U.S.
Federal Reserve System or a member firm of the New York
Stock Exchange (or a subsidiary thereof)) at an agreed-
upon date within a number of days (usually not more
than seven) from the date of purchase. The resale
price reflects the purchase price plus an agreed-upon
market rate of interest which is unrelated to the
coupon rate or maturity of the purchased security. A
repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation
is in effect secured by the value of the underlying
security, usually U.S. Government or Government agency
issues. Under the Investment Company Act of 1940, as
amended (the "1940 Act), repurchase agreements may be
considered to be loans by the buyer. The Portfolio's
risk is limited to the ability of the seller to pay the
agreed-upon amount on the delivery date. If the seller
defaults, the underlying security constitutes
collateral for the seller's obligation to pay although
the Portfolio may incur certain costs in liquidating
this collateral and in certain cases may not be
permitted to liquidate this collateral. All repurchase
agreements entered into by the Portfolio are fully
collateralized, with such collateral being marked to
market daily.
SECURITIES OF NON-U.S. ISSUERS
The Portfolio may invest in securities of non-U.S.
issuers. Investing in securities issued by companies
whose principal business activities are outside the
United States may involve significant risks not present
in U.S. 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 non-U.S. issuers,
particularly those not subject to the disclosure and
reporting requirements of the U.S. securities laws.
Non-U.S. issuers are generally not bound by uniform
accounting, auditing and financial reporting
requirements comparable to those applicable to U.S.
issuers. Investments in securities of non-U.S. 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 the 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. security trading practices,
including those involving securities settlement where
the Portfolio's assets may be released prior to receipt
of payments, may expose the 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.
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 Portfolio 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 Portfolio 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.
CURRENCY EXCHANGE TRANSACTIONS
Because the Portfolio 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 Portfolio
may enter into currency exchange transactions to
convert U.S. currency to non-U.S. currency and non-U.S.
currency to U.S. currency, as well as convert one non-
U.S. currency to another non-U.S. currency. The
Portfolio either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in
the currency exchange markets, or uses forward
contracts to purchase or sell non-U.S. currencies. The
Portfolio may also enter into currency hedging
transactions in an attempt to protect the value of its
assets as measured in U.S. dollars from unfavorable
changes in currency exchange rates and control
regulations. (Although the Portfolio's assets are
valued daily in terms of U.S. dollars, the Trust does
not intend to convert the Portfolio's holdings of non-
U.S. currencies into U.S. dollars on a daily basis.)
The Portfolio does not currently intend to speculate in
currency exchange rates or forward contracts.
The Portfolio 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 the 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 will 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.
When the Adviser believes that the currency of a
particular country may suffer a substantial decline
against the U.S. dollar, the 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 Portfolio does not
enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of
the contracts obligates the 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 Adviser 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 Portfolio generally would not enter into a
forward contract with a term greater than one year. At
the maturity of a forward contract, the 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 the 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 the 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 the 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 the Portfolio's securities at the
expiration of a forward contract. Accordingly, it may
be necessary for the 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.
The Portfolio may also purchase put 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 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 purchase of such options could offset, at
least partially, the effects of adverse movements in
exchange rates. However, the benefit to the 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, the 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.
The Portfolio may write options on non-U.S.
currencies for hedging purposes or otherwise to achieve
its investment objectives. For example, where the
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, the Portfolio
could write a put option on the relevant currency
which, if rates move in the manner projected, will
expire unexercised and allow the Portfolio to hedge
such increased cost up to the amount of the premium.
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, the
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 the 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, 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 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 ADRs
are traded primarily in non-U.S. currencies, changes in
currency exchange rates will affect the value of ADRs.
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
ADRs covering such securities. The Portfolio may
employ any of the above described non-U.S. currency
hedging techniques to protect the value of its assets
invested in ADRs.
The Portfolio's dealings in non-U.S. currency
contracts are limited to the transactions described
above. Of course, the Portfolio is not required to
enter into such transactions and does not do so unless
deemed appropriate by the Adviser. It should also be
realized that these methods of protecting the value of
the 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.
The 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 the Portfolio's assets equal to the amount of the
purchase be held aside or segregated to be used to pay
for the commitment, the Portfolio expects always to
have cash, cash equivalents or high quality debt
securities available sufficient to cover any
commitments under these contracts or to limit any
potential risk.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Portfolio sells a borrowed
security and has a corresponding obligation to the
lender to return the identical security. The
Portfolio, in accordance with applicable investment
restrictions, may engage in short sales only if at the
time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the
security being sold short. This investment technique
is known as a short sale "against the box."
In a short sale, the seller does not immediately
deliver the securities sold and is said to have a short
position in those securities until delivery occurs. If
the Portfolio engages in a short sale, the collateral
for the short position is maintained for the Portfolio
by the custodian or qualified sub-custodian. While the
short sale is open, an amount of securities equal in
kind and amount to the securities sold short or
securities convertible into or exchangeable for such
equivalent securities are maintained in a segregated
account for the Portfolio. These securities constitute
the Portfolio's long position.
The Portfolio does not engage in short sales
against the box for investment purposes. The Portfolio
may, however, make a short sale against the box as a
hedge, when it believes that the price of a security
may decline, causing a decline in the value of a
security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when
the Portfolio wants to sell the security at an
attractive current price, but also wishes to defer
recognition of gain or loss for federal income tax
purposes or for purposes of satisfying certain tests
applicable to regulated investment companies under the
Internal Revenue Code. In such case, any future losses
in the Portfolio's long position should be reduced by a
gain in the short position. Conversely, any gain in
the long position should be reduced by a loss in the
short position. The extent to which such gains or
losses are reduced depends upon the amount of the
security sold short relative to the amount the
Portfolio owns. There are certain additional
transaction costs associated with short sales against
the box, but the Portfolio endeavors to offset these
costs with the income from the investment of the cash
proceeds of short sales.
The Adviser does not expect that more than 40% of
the Portfolio's total assets would be involved in short
sales against the box. The Adviser does not currently
intend to engage in such sales.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements
and in order to generate income, the Portfolio may lend
its securities to broker-dealers and other
institutional borrowers. Such loans will usually be
made only to member banks of the U.S. Federal Reserve
System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of
securities would be secured 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. The Portfolio would have the
right to call a loan and obtain the securities loaned
at any time on customary industry settlement notice
(which will not usually exceed five days). During the
existence of a loan, the Portfolio would continue to
receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would
also receive compensation based on investment of the
collateral. The Portfolio would not, however, have the
right to vote any securities having voting rights
during the existence of the loan, but would call the
loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or
withholding of their consent on a material matter
affecting the investment. As with other extensions of
credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower
fail financially. However, the loans would be made
only to entities deemed by the Adviser to be of good
standing, and when, in the judgment of the Adviser, the
consideration which can be earned currently from loans
of this type justifies the attendant risk. If the
Adviser determines to make loans, it is not intended
that the value of the securities loaned by the
Portfolio would exceed 33 1/3% of the value of its
total assets.
WHEN-ISSUED SECURITIES
The Portfolio may purchase securities on a "when-
issued" or on a "forward delivery" basis. It is
expected that, under normal circumstances, the
Portfolio would take delivery of such securities. When
the Portfolio commits to purchase a security on a "when-
issued" or on a "forward delivery" basis, it sets up
procedures consistent with SEC policies. Since those
policies currently require that an amount of the
Portfolio's assets equal to the amount of the purchase
be held aside or segregated to be used to pay for the
commitment, the Portfolio will always have cash, cash
equivalents or high quality debt securities sufficient
to cover any commitments or to limit any potential
risk. However, even though the Portfolio does not
intend to make such purchases for speculative purposes
and intends to adhere to the provisions of SEC
policies, purchases of securities on such bases may
involve more risk than other types of purchases. For
example, the Portfolio may have to sell assets which
have been set aside in order to meet redemptions.
Also, if the Adviser determines it is advisable as a
matter of investment strategy to sell the "when-issued"
or "forward delivery" securities, the Portfolio would
be required to meet its obligations from the then
available cash flow or the sale of securities, or,
although it would not normally expect to do so, from
the sale of the "when-issued" or "forward delivery"
securities themselves (which may have a value greater
or less than the Portfolio's payment obligation).
RULE 144A SECURITIES
The Portfolio may purchase securities that are not
registered ("Rule 144A securities") under the
Securities Act of 1933 (the "1933 Act"), but can be
offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act. However, the
Portfolio will not invest more than 15% of its net
assets in illiquid investments, which includes
securities for which there is no readily available
market, securities subject to contractual restrictions
on resale and Rule 144A securities, unless the Trustees
of the Trust determine, based on the trading markets
for the specific Rule 144A security, that it is liquid.
The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining and
monitoring liquidity of Rule 144A securities. The
Trustees, however, retain oversight and are
ultimately responsible for the determinations.
Since it is not possible to predict with assurance
exactly how the market for Rule 144A securities will
develop, the Trustees will carefully monitor the
Portfolio's investments in Rule 144A securities,
focusing on such factors, among others, as valuation,
liquidity and availability of information. The
liquidity of investments in Rule 144A securities could
be impaired if trading in Rule 144A securities does not
develop or if qualified institutional buyers become for
a time uninterested in purchasing Rule 144A securities.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The Trust, on behalf of the Portfolio, has adopted
the following policies which may not be changed without
approval by holders of a majority of the outstanding
voting securities of the Portfolio, which as used in
this Part B means the vote of the lesser of (i) 67% or
more of the outstanding voting securities of the
Portfolio present at a meeting at which the holders of
more than 50% of the outstanding voting securities of
the Portfolio are present or represented by proxy, or
(ii) more than 50% of the outstanding voting securities
of the Portfolio. The term "voting securities" as used
in this paragraph has the same meaning as in the 1940
Act.
The Portfolio may not:
(1) Borrow money, 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
(nor 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
the 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 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.
(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).
(5) Concentrate its investments in any particular
industry, but if it is deemed appropriate for the
achievement of the Portfolio's investment objectives,
up to 25% of its assets, at market value at the time of
each investment, may be invested in any one industry.
(6) Underwrite securities issued by other
persons, except insofar as the Portfolio may
technically be deemed an underwriter under the 1933 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
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, except as
appropriate to evidence a debt incurred without
violating Investment Restriction (1) above.
STATE AND FEDERAL RESTRICTIONS
In order to comply with certain state and federal
statutes and policies the Portfolio does not as a
matter of operating policy:
(i) borrow money for any purpose in excess of 10%
of the net assets of the Portfolio (taken at cost)
(moreover, the Portfolio will not 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)),
(ii) pledge, mortgage or hypothecate for any
purpose in excess of 10% of the net assets of the
Portfolio (taken at market value),
(iii) sell any security which the Portfolio
does not own unless by virtue of the ownership of other
securities there is at the time of sale a right to
obtain securities, without payment of further
consideration, equivalent in kind and amount to the
securities sold and provided that if such right is
conditional the sale is made upon the same conditions,
(iv) invest for the purpose of exercising control
or management,
(v) purchase securities issued by any registered
investment company, except by purchase in the open
market where no commission or profit to a sponsor or
dealer results from such purchase other than the
customary broker's commission, or except when such
purchase, though not made in the open market, is part
of a plan of merger or consolidation; provided,
however, that the Portfolio will not purchase the
securities of any registered investment company if such
purchase at the time thereof would cause more than 10%
of the total assets of the Portfolio (taken in each
case at the greater of cost or market value) to be
invested in the securities of such issuers or would
cause more than 3% of the outstanding voting securities
of any such issuer to be held for the Portfolio (for
purposes of this clause (v) securities of non-U.S.
banks shall be treated as investment company
securities, except that debt securities and non-voting
preferred stock of non-U.S. banks are not subject to
the 10% limitation described herein),
(vi) invest more than 15% of the net assets of the
Portfolio in securities that are not readily
marketable, including debt securities for which there
is no established market and fixed time deposits and
repurchase agreements maturing in more than seven days,
(vii) purchase or retain any securities issued
by an issuer any of whose officers, directors, trustees
or security holders is an officer or Trustee of the
Trust, or is an officer or director of the Adviser, if
after the purchase of the securities of such issuer by
the Portfolio, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such
issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially
more than 5% of such shares or securities, or both, all
taken at market value,
(viii) write, purchase or sell any put or call
option or any combination thereof or enter into any
futures contract, except that this restriction shall
not prevent the Portfolio from entering into
transactions involving non-U.S. currencies as described
in Part A and this Part B,
(ix) make short sales of securities or maintain a
short position, unless at all times when a short
position is open it owns an equal amount of such
securities or securities convertible into or
exchangeable, without payment of any further
consideration, for securities of the same issue as, and
equal in amount to, the securities sold short, and
unless not more than 10% of the net assets of the
Portfolio (taken at market value) is held as collateral
for such sales at any one time (the Portfolio does not
presently intend to make such short sales for
investment purposes).
These policies are not fundamental and may be
changed by the Trust without the approval of the
holders of the beneficial interests in the Portfolio in
response to changes in the various state and federal
requirements.
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 the 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 -- Chairman and Director, Catalyst,
Inc. (Management Consultants)(since August, 1992);
President, Chief Operating Officer and Director, Deven
International, Inc. (International Consultants)(June,
1991 to July 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* -- President of the Trust; Chief
Executive Officer, Signature Financial Group, Inc. and
The Landmark Funds Broker-Dealer Services, Inc. (since
December, 1988).
MARK T. FINN -- 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 -- 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* -- President of the Trust; Chief
Executive Officer, Signature Financial Group, Inc. and
The Landmark Funds Broker-Dealer Services, Inc. (since
December, 1988).
JAMES B. CRAVER* -- Secretary and Treasurer of the
Trust; Senior Vice President and General Counsel,
Signature Financial Group, Inc. and The Landmark Funds
Broker-Dealer Services, Inc. (since January, 1991);
Partner, Baker & Hostetler (Attorneys) (prior to
January, 1991).
Susan Jakuboski* -- Vice President, Assistant Treasurer
and Assistant Secretary of the Trust (since August,
1994); Manager, Signature Financial Group (Cayman) Ltd.
(since August, 1994); Senior Fund Administrator,
Signature Financial Group, Inc. (since August, 1994);
Assistant Treasurer, Signature Broker-Dealer Services,
Inc. (since September, 1994); Fund Compliance
Administrator, Concord Financial Group (November, 1990
to August, 1994); Senior Fund Accountant, Neuberger &
Berman Management, Inc. (from February, 1988 to
November, 1990); Customer Service Representative,
I.B.J. Schroder (prior to 1988). Her address is
Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, British West Indies.
MOLLY S. MUGLER* -- Assistant Secretary of the Trust;
Legal Counsel and Assistant Secretary, Signature
Financial Group, Inc. (since December, 1988); Assistant
Secretary, The Landmark Funds Broker-Dealer Services,
Inc. (since December, 1988).
BARBARA M. O'DETTE* -- Assistant Treasurer of the
Trust; Assistant Treasurer, Signature Financial Group,
Inc. and The Landmark Funds Broker-Dealer Services,
Inc. (since December, 1988).
The Trustees and officers of the Trust also hold
comparable positions with certain other funds for which
SFG or an affiliate serves as the administrator.
The Declaration of Trust provides that the Trust
will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with
litigation in which they may be involved because of
their offices with the Trust, unless, as to liability
to the Trust or its investors, it is finally
adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of
the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated
that they did not act in good faith in the reasonable
belief that their actions were in the best interests of
the Trust. In the case of settlement, such
indemnification will not be provided unless it has been
determined by a court or other body approving the
settlement or other disposition, or by a reasonable
determination, based upon a review of readily available
facts, by vote of a majority of disinterested Trustees
or in a written opinion of independent counsel, that
such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
Item 15. Control Persons and Principal Holders of
Securities.
As of March 24, 1995, there were no holders of
interests in the Portfolio. However it is anticipated
that on April 3, 1995, Landmark Small Cap Equity Fund
(the "Fund") will invest all of its investable assets
in the Portfolio. Upon such investment, it is expected
that the Fund will control the Portfolio by virtue of
owning greater than 99% of the value of the outstanding
interests in the Portfolio. Because the Fund would
control the Portfolio, the Fund could take actions
without the approval of any other investor. The Fund
has informed the Portfolio that whenever it is
requested to vote on matters pertaining to the
fundamental policies of the Portfolio, it will hold a
meeting of its shareholders and will cast its vote as
instructed by its shareholders. It is anticipated that
any other investor in the Portfolio which is an
investment company registered under the 1940 Act would
follow the same or a similar practice. The Fund is a
series of Landmark Funds II, a Massachusetts business
trust organized on April 13, 1984 .
Item 16. Investment Advisory and Other Services.
Citibank, N.A. ("Citibank" or the "Adviser")
manages the assets of the Portfolio pursuant to an
investment advisory agreement (the "Advisory
Agreement"). Subject to such policies as the Board of
Trustees may determine, the Adviser manages the
Portfolio's securities and makes investment decisions
for the Portfolio. The Adviser furnishes at its own
expense all services, facilities and personnel
necessary in connection with managing the Portfolio's
investments and effecting securities transactions for
the Portfolio. The Advisory Agreement continues in
effect until August 19, 1996 and thereafter as long as
such continuance is specifically approved at least
annually by the Board of Trustees or by a vote of a
majority of the outstanding voting securities of the
Portfolio, and, in either case, by a majority of the
Trustees who are not parties to the Advisory Agreement
or interested persons of any such party, at a meeting
called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement provides that the Adviser
may render services to others. The Advisory Agreement
is terminable without penalty on not more than 60 days'
nor less than 30 days' written notice by the Trust when
authorized either by a vote of a majority of the
outstanding voting securities of the Portfolio or by a
vote of a majority of the Board of Trustees, or by the
Adviser on not more than 60 days' nor less than 30
days' written notice, and will automatically terminate
in the event of its assignment. The Advisory Agreement
provides that neither the Adviser nor its personnel
shall be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or
for any act or omission in the execution of security
transactions for the Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless
disregard of its or their obligations and duties under
the Advisory Agreement.
Pursuant to an administrative services agreement
(the "Administrative Services Agreement"), SFG (in its
capacity under the Administrative Services Agreement,
the "Administrator") provides the Trust with general
office facilities and supervises the overall
administration of the Trust, including, among other
responsibilities, the negotiation of contracts and fees
with, and the monitoring of performance and billings
of, the Trust's independent contractors and agents; the
preparation and filing of all documents required for
compliance by the Trust with applicable laws and
regulations; and arranging for the maintenance of books
and records of the Trust. The Administrative Services
Agreement with SFG continues in effect if such
continuance is specifically approved at least annually
by the Board of Trustees or by a vote of a majority of
the outstanding voting securities of the Trust and, in
either case, by a majority of the Trustees who are not
parties to the Administrative Services Agreement or
interested persons of any such party. The
Administrator provides persons satisfactory to the
Board of Trustees to serve as Trustees and officers of
the Trust. Such Trustees and officers, as well as
certain other employees and Trustees of the Trust, may
be directors, officers or employees of the
Administrator or its affiliates.
The Administrative Services Agreement provides
that SFG may render administrative services to others.
The Administrative Services Agreement terminates
automatically if it is assigned and may be terminated
without penalty by vote of a majority of the
outstanding voting securities of the Trust or by either
party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Services Agreement
also provides that neither SFG, as the Administrator,
nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission
in the administration or management of the Trust,
except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or
by reason of reckless disregard of its or their
obligations and duties under the Administrative
Services Agreement.
SFG is a wholly-owned subsidiary of Signature
Financial Group, Inc. SFG is a company organized under
the laws of the Cayman Islands. Its principal place of
business is in George Town, Grand Cayman, British West
Indies.
Pursuant to a sub-administrative services
agreement, Citibank performs such sub-administrative
duties for the Trust as from time to time are agreed
upon by Citibank and SFG. Citibank's sub-
administrative duties may include providing equipment
and clerical personnel necessary for maintaining the
Trust's organization, participation in the preparation
of documents required for compliance by the Trust with
applicable laws and regulations, the preparation of
certain documents in connection with meetings of
Trustees and shareholders, and other functions which
would otherwise be performed by the Administrator. For
performing such sub-administrative services, Citibank
receives compensation as from time to time is agreed
upon by SFG, not in excess of the amount paid to SFG
for its services under the Administrative Services
Agreement with the Trust. All such compensation is
paid by SFG.
The Trust has adopted an administrative services
plan (the "Administrative Plan") which provides that
the Trust may obtain the services of an administrator,
a transfer agent and a custodian, and may enter into
agreements providing for the payment of fees for such
services. Under the Administrative Plan, the
administrative services fee payable to the
Administrator from the Portfolio may not exceed 0.05%
of the Portfolio's average daily net assets on an
annualized basis for its then-current fiscal year.
The Administrative Plan continues in effect if
such continuance is specifically approved at least
annually by a vote of both a majority of the Trustees
and a majority of the Trustees who are not "interested
persons" of the Portfolio and who have no direct or
indirect financial interest in the operation of the
Administrative Plan or in any agreement related to such
Plan ("Qualified Trustees"). The Administrative Plan
requires that the Trust provide to the Board of
Trustees and the Board of Trustees review, at least
quarterly, a written report of the amounts expended
(and the purposes therefor) under the Administrative
Plan. The Administrative Plan may be terminated at any
time by a vote of a majority of the Qualified Trustees
or, with respect to the Portfolio, by a vote of a
majority of the outstanding voting securities of the
Portfolio. The Administrative Plan may not be amended
to increase materially the amount of permitted expenses
thereunder without the approval of a majority of the
outstanding voting securities of the Trust and may not
be materially amended in any case without a vote of the
majority of both the Trustees and the Qualified
Trustees.
The Trust, on behalf of the Portfolio, has entered
into a Custodian Agreement with Investors Bank & Trust
Company ("IBT") pursuant to which IBT acts as custodian
for the Portfolio. The Trust, on behalf of the
Portfolio, has entered into a Fund Accounting Agreement
with Signature Financial Services, Inc. ("SFSI")
pursuant to which SFSI provides fund accounting
services to the Portfolio. Pursuant to a Transfer
Agency and Service Agreement with the Trust, on behalf
of the Portfolio, SFSI provides transfer agency
services to the Portfolio.
The principal business address of IBT is One
Lincoln Plaza, Boston, Massachusetts 02111. The
address of SFSI is 6 St. James Avenue Boston,
Massachusetts 02116.
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, 1 First
Canadian Place, Toronto, Ontario M5X 1H7, Canada.
Item 17. Brokerage Allocation and Other Practices.
The Trust trades securities for the Portfolio if
it believes that a transaction net of costs (including
custodian charges) will help achieve the Portfolio's
investment objectives. Changes in the Portfolio's
investments are made without regard to the length of
time a security has been held, or whether a sale would
result in the recognition of a profit or loss.
Therefore, the rate of turnover is not a limiting
factor when changes are appropriate. The turnover rate
for the Portfolio is not expected to exceed 200%
annually. Specific decisions to purchase or sell
securities for the Portfolio are made by a portfolio
manager who is an employee of the Adviser and who is
appointed and supervised by its senior officers. The
portfolio manager may serve other clients of the
Adviser in a similar capacity.
The primary consideration in placing portfolio
securities transactions with broker-dealers for
execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most
effective manner possible. The Adviser attempts to
achieve this result by selecting broker-dealers to
execute transactions on behalf of the Portfolio and
other clients of the Adviser on the basis of their
professional capability, the value and quality of their
brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the
over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or
markdown), the Adviser normally seeks to deal directly
with the primary market makers, unless in its opinion,
best execution is available elsewhere. In the case of
securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting
commission or concession. From time to time,
soliciting dealer fees are available to the Adviser on
the tender of the Portfolio's securities in so-called
tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for the Portfolio by the
Adviser. At present no other recapture arrangements
are in effect.
Under the Advisory Agreement, in connection with
the selection of such brokers or dealers and the
placing of such orders, the Adviser is directed to seek
for the Portfolio in its best judgment, prompt
execution in an effective manner at the most favorable
price. Subject to this requirement of seeking the most
favorable price, securities may be bought from or sold
to broker-dealers who have furnished statistical,
research and other information or services to the
Adviser or the Portfolio, subject to any applicable
laws, rules and regulations.
The investment advisory fee that the Portfolio
pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and
research services. While such services are not
expected to reduce the expenses of the Adviser, the
Adviser would, through the use of the services, avoid
the additional expenses which would be incurred if it
should attempt to develop comparable information
through its own staff.
In certain instances there may be securities that
are suitable as an investment for the Portfolio as well
as for one or more of the Adviser's other clients.
Investment decisions for the Portfolio and for the
Adviser's other clients are made with a view to
achieving their respective investment objectives. It
may develop that a particular security is bought or
sold for only one client even though it might be held
by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more
clients when one or more clients are selling the same
security. Some simultaneous transactions are
inevitable when several clients receive investment
advice from the same investment adviser, particularly
when the same security is suitable for the investment
objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated
among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system
could adversely affect the price of or the size of the
position obtainable for the security for the Portfolio.
When purchases or sales of the same security for the
Portfolio and for other portfolios managed by the
Adviser occur contemporaneously, the purchase or sale
orders may be aggregated in order to obtain any price
advantages available to large volume purchases or
sales.
Item 18. Capital Stock and Other Securities.
Under the Declaration of Trust, the Trustees are
authorized to issue beneficial interests in the Trust
and to establish series, each of which shall be a
subtrust, the beneficial interests in which shall be
separate and distinct from the beneficial interests in
any other series. The Portfolio is one of the series
of the Trust. Investors in the Portfolio are entitled
to participate pro rata in distributions of taxable
income, loss, gain and credit of the Portfolio. Upon
liquidation or dissolution of the Portfolio, investors
are entitled to share pro rata in the Portfolio's net
assets available for distribution to its investors.
Interests in the Portfolio have no preference, pre-
emptive, conversion or similar rights and are fully
paid and non-assessable, except as set forth below.
Interests in the Portfolio may not be transferred.
Each investor is entitled to a vote in proportion
to the amount of its interest in the Portfolio.
Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of
the aggregate beneficial interests in the Trust may
elect all of the Trustees if they choose to do so and
in such event the other investors in the Trust would
not be able to elect any Trustee. The Trust is not
required to hold, and has no current intention of
holding, annual meetings of investors but the Trust
will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable
to submit matters for an investor vote.
The Trust may enter into a merger or
consolidation, or sell all or substantially all of its
assets, if approved by a vote of a majority, as defined
in the 1940 Act, of the holders of the Trust's
outstanding voting securities voting as a single class,
or of the affected series of the Trust, as the case may
be, or if authorized by an instrument in writing
without a meeting, consented to by holders of not less
than a majority of the interests of the affected
series. However, if the Trust or the affected series
is the surviving entity of the merger, consolidation or
sale of assets, no vote of interest holders is
required. Any series of the Trust may be dissolved (i)
by the affirmative vote of not less than two-thirds of
the outstanding beneficial interests in such series at
any meeting of holders of beneficial interests or by an
instrument in writing signed by a majority of the
Trustees and consented to by not less than two-thirds
of the outstanding beneficial interests, (ii) by the
Trustees by written notice to holders of the beneficial
interests in the series or (iii) upon the bankruptcy or
expulsion of a holder of a beneficial interest in the
series, unless the remaining holders of beneficial
interests, by majority vote, agree to continue the
series. The Trust may be dissolved by action of the
Trustees upon the dissolution of the last remaining
series.
The Portfolio is a series of the Trust, organized
as a trust under the laws of the State of New York.
The Trust's Declaration of Trust provides that
investors in the Portfolio are each liable for all
obligations of the Portfolio. The Declaration of Trust
also provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust,
its investors, Trustees, officers, employees and agents
covering possible tort and other liabilities. Thus,
the risk of an investor incurring financial loss on
account of investor liability is limited to
circumstances in which both inadequate insurance
existed and the Trust itself was unable to meet its
obligations. It is not expected that the liabilities
of the Portfolio would ever exceed its assets.
The Declaration of Trust further provides that
obligations of the Trust are not binding upon the
Trustees individually and that the Trustees will not be
liable for any action or failure to act, but nothing in
the Declaration of Trust protects a Trustee against any
liability to which he 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 office.
Item 19. Purchase, Redemption and Pricing of
Securities.
Beneficial interests in the Portfolio are issued
solely in private placement transactions which do not
involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the
Portfolio may only be made by investment companies,
common or commingled trust funds or similar
organizations or entities which are "accredited
investors" within the meaning of Regulation D under the
1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an
offer to buy, any "security" within the meaning of the
1933 Act.
The net asset value of the Portfolio (i.e., the
value of its securities and other assets less its
liabilities, including expenses payable or accrued) is
determined each day during which the New York Stock
Exchange (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 the 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 the 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 non-U.S. 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
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 non-U.S. 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
non-U.S. securities occur between the time when the
exchange on which they are traded closes and the time
when a Fund'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
the Portfolio is determined on the basis of interest
accrued plus amortization of "original issue discount"
(generally, the difference between issue price and
stated redemption price at maturity) and premiums
(generally, the excess of purchase price over stated
redemption price at maturity). Interest income on
short-term obligations is determined on the basis of
interest accrued less amortization of premium.
Each investor in the Portfolio may add to or
reduce its investment in the Portfolio on each Business
Day. As of the close of regular trading on the
Exchange, on each Business Day, the value of each
investor's beneficial interest in the Portfolio is
determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day,
which represents that investor's share of the aggregate
beneficial interests in the Portfolio. Any additions
or withdrawals, which are to be effected on that day,
are then effected. Thereafter, the investor's
percentage of the aggregate beneficial interests in the
Portfolio is re-computed as the percentage equal to the
fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the
close of regular trading on such day plus or minus, as
the case may be, the amount of any additions to or
withdrawals from the investor's investment in the
Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value
of the Portfolio as of the same time on such day plus
or minus, as the case may be, the amount of the net
additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the
Portfolio. The percentage so determined is then
applied to determine the value of the investor's
interest in the Portfolio as of the close of regular
trading on the following Business Day of the Portfolio.
Subject to compliance with applicable regulations,
the Trust has reserved the right to pay the redemption
price of beneficial interests in the Portfolio, either
totally or partially, by a distribution in kind of
readily marketable securities (instead of cash). The
securities so distributed would be valued at the same
amount as that assigned to them in calculating the net
asset value for the beneficial interests being sold.
If a holder of beneficial interests received a
distribution in kind, such holder could incur brokerage
or other charges in converting the securities to cash.
The Trust may suspend the right of redemption or
postpone the date of payment for beneficial interests
in the Portfolio more than seven days during any period
when (a) trading in the markets the Portfolio normally
utilizes is restricted, or an emergency, as defined by
the rules and regulations of the SEC exists making
disposal of the Portfolio's investments or
determination of its net asset value not reasonably
practicable; (b) the Exchange is closed (other than
customary weekend and holiday closings); or (c) the SEC
has by order permitted such suspension.
Item 20. Tax Status.
The Trust is organized as a trust under New York
law. The Trust has determined that the Portfolio is
properly treated as a partnership for U.S. federal and
New York State income tax purposes. Accordingly, under
those tax laws, the Trust is not subject to any income
tax, but each investor in the Portfolio must take into
account its share of the Portfolio's ordinary income
and capital gains 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's taxable year-end ends December 31.
Although, as described above, the Trust is not subject
to U.S. federal income tax, it files appropriate U.S.
federal income tax returns.
The Trust believes that, in the case of an
investor in the Portfolio that seeks to qualify as a
regulated investment company ("RIC") under the Code,
the investor should be treated for U.S. federal income
tax purposes as an owner of an undivided interest in
the assets and operations of the Portfolio, and
accordingly should be deemed to own a proportionate
share of each of the assets of the Portfolio and be
entitled to treat as earned by it the portion of the
Portfolio's gross income attributable to that share.
The Trust also believes that each such investor should
be deemed to hold its proportionate share of the
Portfolio's assets for the period the Portfolio has
held the assets or for the period the investor has been
a partner in the Portfolio, whichever is shorter. Each
investor should consult its tax advisers regarding
whether, in light of its particular tax status and any
special tax rules applicable to it, this approach
applies to its investment in the Portfolio, or whether
the Portfolio should be treated, as to it, as a
separate entity as to which the investor has no direct
interest in Portfolio assets or operations.
In order to enable an investor in the Portfolio
that is otherwise eligible to qualify as a RIC under
the Code to so qualify, the Trust intends that the
Portfolio will satisfy the requirements of Subchapter M
of the Code relating to the nature of the Portfolio's
gross income and the composition (diversification) and
holding period of the Portfolio's assets as if those
requirements were directly applicable to the Portfolio
and to allocate and permit withdrawals of its net
investment income and any net realized capital gains in
a manner that will enable an investor that is a RIC to
comply with the qualification requirements imposed by
Subchapter M of the Code.
The Trust will allocate at least annually among
the Portfolio's investors each investor's distributive
share of the Portfolio's net investment income, net
realized capital gains, and any other items of income,
gain, loss, deduction, or credit in a manner intended
to comply with the Code and applicable U.S. Treasury
regulations.
To the extent the cash proceeds of any withdrawal
or distribution exceed an investor's adjusted tax basis
in its partnership interest in the Portfolio, the
investor will generally realize gain for U.S. federal
income tax purposes. If, upon a complete withdrawal
(i.e., a redemption of its entire interest in the
Portfolio), the investor's adjusted tax basis in its
partnership interest in the Portfolio exceeds the
proceeds of the withdrawal, the investor will generally
realize a loss for federal income tax purposes. An
investor's adjusted tax basis in its partnership
interest in the Portfolio will generally be the
aggregate price paid therefor, increased by the amounts
of its distributive shares of items of realized net
income and gain (including income, if any, exempt from
U.S. Federal income tax), and reduced, but not below
zero, by the amounts of its distributive shares of
items of net loss and the amounts of any distributions
received by the investor.
The Portfolio may be subject to foreign
withholding 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. Foreign exchange gains and
losses realized by the 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 investment
by the Portfolio 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.
The Portfolio's transactions in forward currency
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 closed
out) 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 the Portfolio that substantially diminish its
risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be
subject to special tax rules that would cause deferral
of Portfolio losses, adjustments in the holding periods
of Portfolio securities, and conversion of short-term
into long-term capital losses. Certain tax elections
exist for straddles that may alter the effects of these
rules.
There are certain tax issues which will be
relevant to only certain investors, specifically,
investors which are segregated asset accounts and
investors who contribute assets other than cash to the
Portfolio. It is intended that such segregated asset
accounts will be able to satisfy diversification
requirements applicable to them and that such
contributions of assets will not be taxable provided
certain requirements are met. Such investors are
advised to consult their own tax advisers as to the tax
consequences of an investment in the Portfolio.
The Trust intends to conduct its activities and
those of the Portfolio so that they will not be deemed
to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes.
Therefore, it is not anticipated that an investor in
the Portfolio, other than an investor which would be
deemed a "U.S. person" for U.S. federal income tax
purposes, will be subject to U.S. federal income
taxation (other than a 30% withholding tax on dividends
and certain interest income) solely by reason of its
investment in the Portfolio. There can be no assurance
that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions
that, if successful, might result in the payment of
U.S. federal income taxes by investors in the
Portfolio.
The above discussion does not address the special
tax rules applicable to certain classes of investors,
such as tax-exempt entities, insurance companies, and
financial institutions, or the state, local, or non-
U.S. tax laws that may be applicable to certain
investors. Investors should consult their own tax
advisers with respect to the special tax rules that may
apply in their particular situations, as well as the
state, local, or foreign tax consequences to them of
investing in the Portfolio.
Item 21. Underwriters.
The Landmark Funds Broker-Dealer Services, Inc.,
exclusive placement agent for the Portfolio, receives
no compensation for serving in this capacity.
Investment companies, insurance company separate
accounts, common and commingled trust funds and similar
organizations and entities may continuously invest in
the Portfolio.
Item 22. Calculations of Performance Data.
Not applicable.
Item 23. Financial Statements.
Not applicable.
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Included in Part A:
Not applicable.
Financial Statements Included in Part B:
Not applicable.
(b) Exhibits
* 1(a) Copy of the Declaration
of Trust of the Trust
** 1(b) Form of Amendment to
Declaration of Trust
* 2 By-laws of the Trust
5 Form of Investment
Advisory Agreement between the
Registrant and Citibank, N.A.,
as investment adviser
8 Form of Custodian
Agreement between the
Registrant and Investors Bank
& Trust Company, as custodian
** 9(a) Form of Fund Accounting
Agreement between the
Registrant and Signature
Financial Services, Inc.
** 9(b) Form of Administrative
Services Agreement between the
Registrant and Signature
Financial Group (Cayman) Ltd.,
as administrator
** 9(c) Form of Amended and
Restated Administrative
Services Plan of the
Registrant
------------------------------------
*Incorporated 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 by reference to the registration
statement on Form N-1A of the Registrant relating to
its series Balanced Portfolio File No. 811-8502, filed
April 28, 1994.
<PAGE>
Item 25. Persons Controlled by or under Common Control
with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
(as of March 24, 1995)
-0-
Item 27. Indemnification.
Reference is hereby made to Article V of the
Declaration of Trust (Exhibits 1(a) and 1(b) to this
Registration Statement).
The Trustees and officers of the Trust and the
personnel of the Registrant's administrator are insured
under an errors and omissions liability 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
throughout the world. Citibank is a wholly-owned
subsidiary of Citicorp, a registered bank holding
company. In addition to Balanced Portfolio, Equity
Portfolio, Government Income Portfolio, and
International Equity Portfolio, other series of the
Trust, Citibank also serves as investment adviser to
the following registered investment companies (or
series thereof): Tax Free Reserves Portfolio, U.S.
Treasury Reserves Portfolio, Cash Reserves Portfolio,
Landmark Multi-State Tax Free Funds (Landmark New York
Tax Free Reserves, Landmark Connecticut Tax Free
Reserves and Landmark California Tax Free 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) and Landmark VIP Funds (Landmark VIP
U.S. Government Portfolio, Landmark VIP Balanced
Portfolio, Landmark VIP Equity Portfolio and Landmark
VIP International Equity Portfolio). As of December
31, 1994, Citibank and its affiliates managed assets in
excess of $73 billion worldwide. The principal place
of business of Citibank is located at 399 Park Avenue,
New York, New York 10043.
The Chairman of the Board and a Director of
Citibank is John S. Reed. The following are Vice
Chairmen of the Board and Directors of Citibank: Paul
J. Collins, Pei-yuan Chia, William R. Rhodes and H.
Onno Ruding. Christopher J. Steffen is a Senior
Executive Vice-President of Citicorp and Director of
Citibank. Other Directors of Citibank are D. Wayne
Calloway, Chairman and Chief Executive Officer,
PepsiCo, Inc., Purchase, New York; Colby H. Chandler,
Former Chairman and Chief Executive Officer, Eastman
Kodak Company; Kenneth T. Derr, Chairman and Chief
Executive Officer, Chevron Corporation; H.J. Haynes,
Senior Counselor, Bechtel Group, Inc., San Francisco,
California; Rozanne L. Ridgway, President, The Atlantic
Council of the United States; Robert B. Shapiro,
President and Chief Operating Officer, Monsanto
Company; Frank A. Shrontz, Chairman and Chief Executive
Officer, The Boeing Company, Seattle, Washington; Mario
Henrique Simonsen, Vice Chairman, Brazilian Institute
of Economics, The Getulio Vargas Foundation; Roger B.
Smith, Former Chairman and Chief Executive Officer,
General Motors Corporation; Franklin A. Thomas,
President, The Ford Foundation, New York, New York; and
Edgar S. Woolard, Jr., Chairman and Chief Executive
Officer, E.I. du Pont de Nemours & Company.
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
Director, Pepsico, Inc.
Colby H. Chandler Director, Digital Equipment Corporation
Director, Ford Motor Company
Director, J.C. Penney Company, Inc.
Pei-yuan Chia none
Paul J. Collins Director, Kimberly-Clark Corporation
Kenneth T. Derr Director, Chevron Corporation
Director, Potlatch Corporation
H.J. Haynes Director, Bechtel Group, Inc.
Director, Boeing Company
Director, Fremont Group, Inc.
Director, Hewlett-Packard Company
Director, Paccar Inc.
Director, Saudi Arabian Oil Company
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
H. Onno Ruding Member, Board of Supervisory Directors,
Amsterdam Trustee's Kantoor
Advisor, Intercena (C&A) (Netherlands)
Member, Board of Supervisory Directors,
Pechiney Nederland N.V.
Member, Board of Advisers, Robeco N.V.
Advisory Director, Unilever N.V.
Advisory Director, Unilever PLC
Robert B. Shapiro Director, G.D. Searle & Co.
Director, Liposome Technology, Inc.
Director, Monsanto Company
Director, The Nutrasweet Company
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director, Boeing Company
Director, Boise Cascade Corp.
Mario Henrique Simonsen Director, Companhia Bozano Simonsen
Comercioe E Industria
Director, Companhia Monteia & Aranha
President, Simposium Consultoria E
Servicos Tecnicos LTDA
Roger B. Smith Director, International Paper Company
Director, Johnson & Johnson
Director, Pepsico, Inc.
Director, Rubatex Corporation
Christopher J. Steffennone
Franklin A. Thomas Director, Aluminum Company of America
Director, American Telephone & Telegraph,
Co.
Director, CBS, Inc.
Director, Cummins Engine
Company, Inc.
Director, Pepsico, Inc.
Edgar S. Woolard, Jr. Director, E.I. DuPont De Nemours &
Company
Director, International Business Machines
Corp.
Director, Seagram Company, Ltd.
Item 29. Principal Underwriters.
(a) The Landmark Funds Broker-Dealer Services,
Inc. ("LFBDS"), the Portfolio's Placement Agent, is
also the placement agent for Balanced Portfolio, Cash
Reserves Portfolio, U.S. Treasury Reserves Portfolio,
Tax Free Reserves Portfolio, International Equity
Portfolio, Equity Portfolio, and Government Income
Portfolio. LFBDS is also the distributor for Landmark
Cash Reserves, Premium Liquid Reserves, Premium U.S.
Treasury Reserves, Landmark Tax Free Reserves, Landmark
New York Tax Free Reserves, Landmark California Tax
Free Reserves, Landmark Connecticut Tax Free Reserves,
Landmark New York Tax Free Income Fund, Landmark
Balanced Fund, Landmark Equity Fund, Landmark Small Cap
Equity Fund, Landmark National Tax Free Income Fund,
Landmark U.S. Government Income Fund, Landmark
Intermediate Income Fund, Landmark U.S. Treasury
Reserves, Landmark Institutional Liquid Reserves,
Landmark Institutional U.S. Treasury Reserves and
Landmark VIP Funds (Landmark VIP U.S. Government
Portfolio, Landmark VIP Balanced Portfolio, Landmark
VIP Equity Portfolio and Landmark VIP International
Equity Portfolio).
(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
Signature Financial Group Elizabethan Square,
(Cayman), Ltd. George Town, Grand
(administrator) Cayman, Cayman Islands, BWI
Investors Bank & Trust Company One Lincoln Plaza
(custodian) Boston, MA 02111
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
The Landmark Funds Broker-Dealer c/o Signature Financial
Services, Inc. Group (Cayman) Ltd.
(placement agent) Elizabethan Square
George Town, Grand Cayman
Cayman Islands BWI
Signature Financial First Canadian Place
Services, Inc. Suite 5850, P.O. Box 231
(accounting services agent) Toronto, Ontario
M5X lC8 CANADA
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 Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly
authorized, in George Town, Grand Cayman, Cayman
Islands, BWI on the 29th day of March, 1995.
THE PREMIUM PORTFOLIOS
By: Susan Jakuboski
--------------------------
Assistant Treasurer of
The Premium Portfolios
<PAGE>
EXHIBIT INDEX
5 Form of Investment Advisory Agreement between the
Registrant and Citibank, N.A., as investment
adviser
8 Form of Custodian Agreement between the Registrant
and Investors Bank & Trust Company, as custodian
<PAGE>
Exhibit 5
INVESTMENT ADVISORY AGREEMENT
THE PREMIUM PORTFOLIOS
SMALL CAP EQUITY PORTFOLIO
INVESTMENT ADVISORY AGREEMENT, dated as of
, 1995, by and between The Premium Portfolios, a
New York trust (the "Trust"), and CITIBANK, N.A., a
national banking association ("Citibank" or the
"Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an
open-end investment company registered under the
Investment Company Act of 1940 (collectively with the
rules and regulations promulgated thereunder, the "1940
Act"), and
WHEREAS, the Trust wishes to engage the Adviser to
provide certain investment advisory services for the
series of the Trust designated as Small Cap Equity
Portfolio (the "Portfolio"), and the Adviser is willing
to provide such investment advisory services for the
Portfolio on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements of the parties hereto as
herein set forth, the parties covenant and agree as
follows:
1. Duties of the Adviser. The Adviser shall
provide the Portfolio with such investment advice
and supervision as the Trust may from time to time
consider necessary for the proper supervision of
the Portfolio's investment assets. Citibank shall
act as the Adviser for the Portfolio and as such
shall furnish continuously an investment program
and shall determine from time to time what
securities shall be purchased, sold or exchanged
and what portion of the assets of the Portfolio
shall be held uninvested, subject always to the
restrictions of the Trust's Declaration of Trust,
dated September 13, 1993, and By-laws, as each may
be amended from time to time (respectively, the
"Declaration" and the "By-Laws"), to the
provisions of the 1940 Act, and to the then-
current Registration Statement of the Trust with
respect to the Portfolio. The Adviser shall also
make recommendations
<PAGE>as to the manner in which voting rights, rights
to consent to corporate action and any other
rights pertaining to the Portfolio's securities
shall be exercised. Should the Board of Trustees
of the Trust at any time, however, make any
definite determination as to investment policy
applicable to the Portfolio and notify the Adviser
thereof in writing, the Adviser shall be bound by
such determination for the period, if any,
specified in such notice or until similarly
notified that such determination has been revoked.
The Adviser shall take, on behalf of the
Portfolio, all actions which it deems necessary to
implement the investment policies determined as
provided above, and in particular to place all
orders for the purchase or sale of securities for
the Portfolio's account with the brokers or
dealers selected by it, and to that end the
Adviser is authorized as the agent of the Trust to
give instructions to the custodian of the
Portfolio as to deliveries of securities and
payments of cash for the account of the Portfolio.
In connection with the selection of such brokers
or dealers and the placing of such orders, the
Adviser is directed to seek for the Portfolio, in
its best judgment, prompt execution in an
effective manner at the most favorable price.
Subject to this requirement of seeking the most
favorable price, securities may be bought from or
sold to broker-dealers who have furnished
statistical, research and other information or
services to the Adviser or the Portfolio, subject
to any applicable laws, rules and regulations. In
making purchases or sales of securities or other
property for the account of the Portfolio, the
Adviser may deal with itself or with the Trustees
of the Trust or the Trust's exclusive placing
agent, to the extent such actions are permitted by
the 1940 Act.
2. Allocation of Charges and Expenses. The
Adviser shall furnish at its own expense all
necessary services, facilities and personnel in
connection with its responsibilities under Section
1 above. It is understood that the Trust will pay
from the assets of the Portfolio all of its own
expenses allocable to the Portfolio including,
without limitation, compensation of Trustees not
"affiliated" with the Adviser; governmental fees;
interest charges; taxes; membership dues in the
Investment Company Institute allocable to the
Trust; fees and expenses of independent auditors,
of legal counsel and of any transfer agent,
administrator, distributor, shareholder servicing
agent, registrar or dividend disbursing agent of
the Trust; expenses of issuing and redeeming
interests and servicing investor accounts;
expenses of preparing, printing and mailing
notices, proxy statements and reports to
governmental officers and commissions and to
investors in the Portfolio; expenses connected
with the execution, recording and settlement of
security transactions; insurance premiums; fees
and expenses of the custodian for all services to
the
<PAGE>Portfolio, including safekeeping of funds and
securities and maintaining required books and
accounts; expenses of calculating the net asset
value of the Portfolio; and expenses of meetings
of the Portfolio's investors.
3. Compensation of the Adviser. For the
services to be rendered, the Trust shall pay to
the Adviser from the assets of the Portfolio an
investment advisory fee computed and paid monthly
at an annual rate equal to 0.75% of the
Portfolio's average daily net assets for the
Portfolio's then-current fiscal year. If Citibank
serves as Adviser for less than the whole of any
period specified in this Section 3, the
compensation to Citibank, as Adviser, shall be
prorated.
4. Covenants of the Adviser. The Adviser agrees
that it will not deal with itself, or with the
Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in
making purchases or sales of securities or other
property for the account of the Portfolio, except
as permitted by the 1940 Act, will not take a long
or short 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 the Adviser and its Directors and
officers.
5. Limitation of Liability of the Adviser. The
Adviser shall not be liable for any error of
judgment or mistake of law or for any loss arising
out of any investment or for any act or omission
in the execution of securities transactions for
the Portfolio, except for willful misfeasance, bad
faith or gross negligence in the performance of
its duties, or by reason of reckless disregard of
its obligations and duties hereunder. As used in
this Section 5, the term "Adviser" shall include
Directors, officers and employees of the Adviser
as well as Citibank itself.
6. Activities of the Adviser. The services of
the Adviser to the Portfolio are not to be deemed
to be exclusive, Citibank being free to render
investment advisory and/or other services to
others. It is understood that Trustees, officers,
and investors of the Trust are or may be or may
become interested in the Adviser, as Directors,
officers, employees, or otherwise and that
Directors, officers and employees of the Adviser
are or may become similarly interested in the
Trust and that the Adviser may be or may become
interested in the Trust as an investor or
otherwise.
<PAGE>
7. Duration, Termination and Amendments of this
Agreement. This Agreement shall become effective
as of the day and year first above written and
shall govern the relations between the parties
hereto thereafter, and shall remain in force until
August 19, 1996 on which date it will terminate
unless its continuance after August 19, 1996 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 the Adviser at a meeting specifically
called for the purpose of voting on such approval,
and (b) by the Board of Trustees of the Trust or
by "vote of a majority of the outstanding voting
securities" of the Portfolio.
This Agreement may be terminated at any time
without the payment of any penalty by the Trustees or
by the "vote of a majority of the outstanding voting
securities" of the Portfolio, or by the Adviser, in
each case on not more than 60 days' nor less than 30
days' written notice to the other party. This
Agreement shall automatically terminate in the event of
its "assignment".
This Agreement may be amended only if such
amendment is approved by the "vote of a majority of the
outstanding voting securities" of the Portfolio.
The terms "specifically approved at least
annually", "vote of a majority of the outstanding
voting securities", "assignment", "affiliated person",
and "interested persons", when used in this Agreement,
shall have the respective meanings specified in, and
shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may
be granted by the Securities and Exchange Commission
under said Act.
Each party acknowledges and agrees that all
obligations of the Trust under this Agreement are
binding only with respect to the Portfolio; that any
liability of the Trust under this Agreement with
respect to the Portfolio, or in connection with the
transactions contemplated herein with respect to the
Portfolio, shall be discharged only out of the assets
of the Portfolio; and that no other series of the Trust
shall be liable with respect to this Agreement or in
connection with the transactions contemplated herein.
The undersigned Trustee or officer of the Trust
has executed this Agreement not individually, but as
Trustee or officer under the Trust's Declaration of
Trust, dated September 13, 1993, as amended, and the
obligations of this Agreement are not binding upon any
of the Trustees or officers of the Trust individually.
<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,
thereunto duly authorized, all as of the day and year
first above written.
THE PREMIUM PORTFOLIOS CITIBANK, N.A.
By: By:
Title: Title:
<PAGE>
Exhibit 8
CUSTODIAN AGREEMENT
BETWEEN
THE PREMIUM PORTFOLIOS, ON BEHALF OF
SMALL CAP EQUITY PORTFOLIO
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
1. Bank Appointed Custodian
2. Definitions .....................................
2.1 Authorized Person ..........................
2.2 Security ...................................
2.3 Portfolio Security .........................
2.4 Officers' Certificate ......................
2.5 Book Entry System ..........................
2.6 Depository .................................
2.7 Proper Instructions ........................
3. Separate Accounts ...............................
4. Certification as to Authorized Persons ..........
5. Custody of Cash .................................
5.1 Purchase of Securities ..................
5.2 Redemptions .............................
5.3 Distributions and Expenses of Fund ......
5.4 Payment in Respect of Securities ........
5.5 Repayment of Loans ......................
5.6 Repayment of Cash .......................
5.7 Foreign Exchange Transactions ...........
5.8 Other Authorized Payments ...............
5.9 Termination ............................
6. Securities ......................................
6.1 Segregation and Registration ............
6.2 Voting and Proxies ......................
6.3 Book-Entry System .......................
6.4 Use of a Depository .....................
6.5 Use of a Book-Entry System for
Commercial Paper ......................
6.6 Use of Immobilization Programs ..........
6.7 Eurodollar CDs ..........................
6.8 Options and Futures Transactions ........
(a) Puts and Calls Traded on
Securities Exchanges, NASDAQ
or Over-the-Counter ..............
(b) Puts, Calls and Futures Traded
on Commodities Exchanges .........
6.9 Segregated Account ......................
<PAGE>
6.10 Interest Bearing Call or
Time Deposits .........................
6.11 Transfer of Securities ..................
7. Redemptions ..............................
8. Merger, Dissolution, etc. of Fund ........
9. Actions of Bank Without Prior Authorization .....
10. Collection; Defaults ............................
11. Maintenance of Records ..........................
12. Opinion of Fund's Independent Accountant ........
13. Reports to Fund by Independent Public Accountants
14. RESERVED ........................................
15. Concerning the Bank .............................
15.1 Performance of Duties;
Standard of Care ......................
15.2 Agents and Subcustodians ................
15.3 Insurance ...............................
15.4 Fees and Expenses of Bank ...............
15.5 Advances by Bank ........................
16. Termination .....................................
17. Notices .........................................
18. Amendments ......................................
19. Parties .........................................
20. Governing Law ...................................
21. Limitations of Liability ........................
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this day of , 1995
between The Premium Portfolios, a New York trust, on
behalf of its series designated as Small Cap Equity
Portfolio (the "Fund") and INVESTORS BANK & TRUST
COMPANY, (the "Bank").
The Fund, an open-end management investment
company, desires to place and maintain all of its
portfolio securities and cash in the custody of the
Bank. The Bank has at least the minimum qualifications
required by Section 17(f)(1) of the Investment Company
Act of 1940 (the "Act") to act as custodian of the
portfolio securities and cash of the Fund, and has
indicated its willingness to so act, subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of
the mutual agreements contained herein, the parties
hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby
appoints the Bank as custodian of its portfolio
securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as
such upon the terms and conditions hereinafter set
forth.
2. Definitions. Whenever used herein, the
terms listed below will have the following meaning:
2.1 Authorized Person. Authorized Person
will mean any of the persons duly authorized to
give Proper Instructions or otherwise act on
behalf of the Fund by appropriate resolution of
its Board of Directors (the "Board"), and set
forth in a certificate as required by Section 4
hereof.
2.2 Security. The term security as used
herein will have the same meaning as when such
term is used in the Securities Act of 1933, as
amended, including, without limitation, any note,
stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or
participation in any profit sharing agreement,
collateral-trust certificate, preorganization
certificate or subscription, transferable share,
investment contract, voting-trust certificate,
certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral
rights, any put, call, straddle, option, or
privilege on any security, certificate of deposit,
or group or index of securities (including any
interest therein or based on the value thereof),
or any put, call, straddle, option, or privilege
entered into on a national securities exchange
relating to a foreign currency, or, in general,
any
<PAGE>
interest or instrument commonly known as a
"security", or any certificate of interest or
participation in, temporary or interim certificate
for, receipt for, guarantee of, or warrant or
right to subscribe to, or option contract to
purchase or sell any of the foregoing and futures,
forward contracts and options thereon.
2.3 Portfolio Security. Portfolio Security
will mean any Security owned by the Fund.
2.4 Officers' Certificate. Officers'
Certificate will mean, unless otherwise indicated,
any request, direction, instruction, or
certification in writing signed by any two
Authorized Persons of the Fund.
2.5 Book-Entry System. Book-Entry System
shall mean the Federal Reserve-Treasury Department
Book Entry System for United States government,
instrumentality and agency securities operated by
the Federal Reserve Bank, its successor or
successors and its nominee or nominees.
2.6 Depository. Depository shall mean The
Depository Trust Company ("DTC"), a clearing
agency registered with the Securities and Exchange
Commission under Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"), its successor or successors and its nominee
or nominees. The term "Depository" shall further
mean and include any other person authorized to
act as a depository under the Act, its successor
or successors and its nominee or nominees,
specifically identified in a certified copy of a
resolution of the Board.
2.7. Proper Instructions. Proper
Instructions shall mean (i) instructions (which
may be continuing instructions) regarding the
purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith,
given by an Authorized Person as shall have been
designated in an Officers' Certificate, such
instructions to be given in such form and manner
as the Bank and the Fund shall agree upon from
time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters
signed or initialed by such one or more persons
from time to time designated in an Officers'
Certificate as having been authorized by the
Board. Oral instructions will be considered
Proper Instructions if the Bank 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 promptly confirmed in
writing. The Bank shall act upon and comply with
any subsequent Proper Instruction which modifies a
prior instruction and the sole obligation of the
Bank with respect to any follow-up or confirmatory
instruction shall
<PAGE>
be to make reasonable efforts to detect any
discrepancy between the original instruction and
such confirmation and to report such discrepancy
to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action,
including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent
such action requires the Bank to act the Fund
shall give the Bank specific Proper Instructions
as to the action required. Upon receipt of an
Officers' Certificate as to the authorization by
the Board accompanied by a detailed description of
procedures approved by the Fund, Proper
Instructions may include communication effected
directly between electro-mechanical or electronic
devices provided that the Board and the Bank are
satisfied that such procedures afford adequate
safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more
than one series or portfolio, the Bank will
segregate the assets of each series or portfolio to
which this Agreement relates into a separate account
for each such series or portfolio containing the
assets of such series or portfolio (and all
investment earnings thereon).
4. Certification as to Authorized Persons.
The Secretary or Assistant Secretary of the Fund
will at all times maintain on file with the Bank his
certification to the Bank, in such form as may be
acceptable to the Bank, of (i) the names and
signatures of the Authorized Persons and (ii) the
names of the members of the Board, it being
understood that upon the occurrence of any change in
the information set forth in the most recent
certification on file (including without limitation
any person named in the most recent certification
who is no longer an Authorized Person as designated
therein), the Secretary or Assistant Secretary of
the Fund will sign a new or amended certification
setting forth the change and the new, additional or
omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers'
Certificate given to it by the Fund which has been
signed by Authorized Persons named in the most
recent certification.
5. Custody of Cash. As custodian for the
Fund, the Bank will open and maintain a separate
account or accounts in the name of the Fund or in
the name of the Bank, as Custodian of the Fund, and
will deposit to the account of the Fund all of the
cash of the Fund, except for cash held by a
subcustodian appointed pursuant to Section 15.2
hereof, including borrowed funds, delivered to the
Bank, subject only to draft or order by the Bank
acting pursuant to the terms of this Agreement.
Upon receipt by the Bank of Proper Instructions
(which may be continuing instructions) or in the
case of payments for redemptions and repurchases of
outstanding beneficial interests
<PAGE>
in the Fund, notification from the Fund's transfer
agent as provided in Section 7, requesting such
payment, designating the payee or the account or
accounts to which the Bank will release funds for
deposit, and stating that it is for a purpose
permitted under the terms of this Section 5,
specifying the applicable subsection, or describing
such purpose with sufficient particularity to permit
the Bank to ascertain the applicable subsection, the
Bank will make payments of cash held for the
accounts of the Fund, insofar as funds are available
for that purpose, only as permitted in subsections
5.1 - 5.9 below.
5.1 Purchase of Securities: upon the
purchase of securities for the Fund, against
contemporaneous receipt of such securities by the
Bank or, for transactions outside the U.S.,
against delivery of such securities to the Bank in
accordance with generally accepted settlement
practices and customs in the jurisdiction or
market in which the transaction occurs, registered
in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the
Bank, or a nominee of the Bank, or receipt for the
account of the Bank pursuant to the provisions of
Section 6 below, each payment to be made at the
purchase price shown on a broker's confirmation
(or transaction report in the case of Book Entry
Paper (as defined in Section 6.5)) of purchase of
the securities received by the Bank before such
payment is made, as confirmed in the Proper
Instructions received by the Bank before such
payment is made. In any and every case where
payment for purchases of securities for the
account of the Fund is made by the Bank in advance
of receipt of the securities purchased in the
absence of Proper Instructions to so pay in
advance, except as expressly permitted by the
first sentence of this paragraph, the Bank shall
be absolutely liable to the Fund for such
securities to the same extent as if the securities
had been received by the Bank except that in the
case of repurchase agreements entered into by the
Fund with a bank which is a member of the Federal
Reserve System, the Bank may transfer funds to the
account of such bank prior to the receipt of
written evidence that the securities subject to
such repurchase agreement have been transferred by
book-entry into a segregated non-proprietary
account of the Bank maintained with the Federal
Reserve Bank of Boston or of the safekeeping
receipt, provided that such securities have in
fact been so transferred by book-entry;
5.2 Redemptions: in such amount as may be
necessary for the repurchase or redemption of
beneficial interests in the Fund offered for
repurchase or redemption in accordance with
Section 7 of this Agreement;
<PAGE>
5.3 Distributions and Expenses of Fund: for
the payment on the account of the Fund of
dividends or other distributions to investors as
may from time to time be declared by the Board,
interest, taxes, management or supervisory fees,
distribution fees, fees of the Bank for its
services hereunder and reimbursement of the
expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for
legal, accounting, and auditing services, or other
operating expenses of the Fund;
5.4 Payment in Respect of Securities: for
payments in connection with the conversion,
exchange or surrender of Portfolio Securities or
securities subscribed to by the Fund held by or to
be delivered to the Bank;
5.5 Repayment of Loans: to repay loans of
money made to the Fund, but, in the case of final
payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated
therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash: to repay the cash
delivered to the Fund for the purpose of
collateralizing the obligation to return to the
Fund certificates borrowed from the Fund
representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed
certificates;
5.7 Foreign Exchange Transactions: for
payments in connection with foreign exchange
contracts or options to purchase and sell foreign
currencies for spot and future delivery which may
be entered into by the Bank on behalf of the Fund
upon the receipt of Proper Instructions, such
Proper Instructions to specify the currency broker
or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting
as principal) with which the contract or option is
made, and the Bank shall have no duty with respect
to the selection of such currency brokers or
banking institutions with which the Fund deals or
for their failure to comply with the terms of any
contract or option;
5.8 Other Authorized Payments: for other
authorized transactions of the Fund, or other
obligations of the Fund incurred for proper Fund
purposes; provided that before making any such
payment the Bank will also receive a certified
copy of a resolution of the Board signed by an
Authorized Person (other than the Person
certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the
person or persons to whom such payment is to be
made, and either describing the transaction for
which payment is to be made and declaring it to be
an authorized transaction of the Fund, or
specifying the amount
<PAGE>
of the obligation for which payment is to be made,
setting forth the purpose for which such
obligation was incurred and declaring such purpose
to be a proper corporate purpose; and
5.9 Termination: upon the termination of
this Agreement as hereinafter set forth pursuant
to Section 8 and Section 16 of this Agreement.
6. Securities
6.1 Segregation and Registration. Except as
otherwise provided herein, and except for
securities to be delivered to any subcustodian
appointed pursuant to Section 15.2 hereof, the
Bank as custodian, will receive and hold pursuant
to the provisions hereof, in a separate account or
accounts and physically segregated at all times
from those of other persons, any and all Portfolio
Securities which may now or hereafter be delivered
to it by or for the account of the Fund. All such
Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the
instructions of the Fund pursuant to the terms of
this Agreement. Subject to the specific
provisions herein relating to Portfolio Securities
that are not physically held by the Bank, the Bank
will register all Portfolio Securities (unless
otherwise directed by Proper Instructions or an
Officers' Certificate), in the name of a
registered nominee of the Bank as defined in the
Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, and will
execute and deliver all such certificates in
connection therewith as may be required by such
laws or regulations or under the laws of any
State. The Bank will use its best efforts to the
end that the specific Portfolio Securities held by
it hereunder will be at all times identifiable.
The Fund will from time to time furnish to
the Bank appropriate instruments to enable it to
hold or deliver in proper form for transfer, or to
register in the name of its registered nominee,
any Portfolio Securities which may from time to
time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank
nor any nominee of the Bank will vote any of the
Portfolio Securities held hereunder, except in
accordance with Proper Instructions or an
Officers' Certificate. The Bank will promptly
execute and deliver, or cause to be executed and
delivered, to the Fund all notices, proxies and
proxy soliciting materials with respect to
Portfolio Securities, such proxies to be executed
by the registered holder of such Securities, (if
registered otherwise than in the name of the
<PAGE>
Fund), but without indicating the manner in which
such proxies are to be voted.
6.3 Book-Entry System. Provided (i) the
Bank has received a certified copy of a resolution
of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for
each year following such approval, the Board has
reviewed and approved the arrangement and has not
delivered an Officers' Certificate to the Bank
indicating that the Board has withdrawn its
approval:
(a) The Bank may keep Portfolio
Securities in the Book-Entry System provided
that such Portfolio Securities are represented
in an account ("Account") of the Bank (or its
agent) in such System which shall not include
any assets of the Bank (or such agent) other
than assets held as a fiduciary, custodian, or
otherwise for customers.
(b) The records of the Bank (and any such
agent) with respect to the Fund's participation
in the Book-Entry System through the Bank (or
any such agent) will identify by book entry
Portfolio Securities which are included with
other securities deposited in the Account and
shall at all times during the regular business
hours of the Bank (or such agent) be open for
inspection by duly authorized officers,
employees or agents of the Fund's account.
Where securities are transferred to the Fund's
account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a
quantity of securities in fungible bulk of
securities (i) registered in the name of the
Bank or its nominee, or (ii) shown on the
Bank's account on the books of the Federal
Reserve Bank.
(c) The Bank (or its agent) shall pay for
Portfolio Securities purchased for the account
of the Fund or shall pay cash collateral
against the return of securities loaned by the
Fund upon (i) receipt of advice from the Book-
Entry System that such Securities have been
transferred to the Account, and (ii) the making
of an entry on the records of the Bank (or its
agent) to reflect such payment and transfer for
the account of the Fund. The Bank (or its
agent) shall transfer securities sold or loaned
for the account of the Fund upon:
(i) receipt of advice from the Book-
Entry System that payment for securities sold
or payment of the initial cash collateral
against the delivery of securities loaned by
the Fund has been transferred to the Account,
and
<PAGE>
(ii) the making of an entry on the
records of the Bank (or its agent) to reflect
such transfer and payment for the account of
the Fund. Copies of all advises from the
Book-Entry System of transfers of Securities
for the account of the Fund shall identify
the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its
request. The Bank shall send the Fund a
confirmation, as defined by Rule 17f-4 under
the Act, of any transfers to or from the
account of the Fund.
(d) The Bank will promptly provide the
Fund with any report obtained by the Bank or
its agent on the Book-Entry System's accounting
system, internal accounting control and
procedures for safeguarding securities
deposited in the Book-Entry System.
(e) The Bank shall be liable to the Fund
for any loss or damage to the Fund resulting
from use of the Book-Entry System by reason of
any negligence, misfeasance or misconduct of
the Bank or any of its agents or of any of its
or their employees or from failure of the Bank
or any such agent to enforce effectively such
rights as it may have against the Book-Entry
System; at the election of the Fund, it shall
be entitled to be subrogated to the Bank in any
claim against the Book-Entry System or any
other person which the Bank or its agent may
have as a consequence of any such loss or
damage if and to the extent that the Fund has
not been made whole for any loss or damage.
6.4 Use of a Depository. Provided (i) the
Bank has received a certified copy of a resolution
of the Board specifically approving deposits in
DTC or other such Depository and (ii) for each
year following such approval, the Board has
reviewed and approved the arrangement and has not
delivered an Officers' Certificate to the Bank
indicating that the Board has withdrawn its
approval:
(a) The Bank may use a Depository to
hold, receive, exchange, release, lend, deliver
and otherwise deal with the Portfolio
Securities including stock dividends, rights
and other items of like nature, and to receive
and remit to the Bank on behalf of the Fund all
income and other payments thereon and to take
all steps necessary and proper in connection
with the collection thereof.
(b) Registration of the Portfolio
Securities may be made in the name of any
nominee or nominees used by such Depository.
<PAGE>
(c) Payment for securities purchased and
sold may be made through the clearing medium
employed by such Depository for transactions of
participants acting through it. Upon any
purchase of Portfolio Securities, payment will
be made only upon delivery of the securities to
or for the account of the Fund and the Fund
shall pay cash collateral against the return of
Securities loaned by the Fund only upon
delivery of the Portfolio Securities to or for
the account of the Fund; and upon any sale of
Portfolio Securities, delivery of the Portfolio
Securities will be made only against payment
therefor, or, in the event Securities are
loaned, delivery of Securities will be made
only against receipt of the initial cash
collateral to or for the account of the Fund.
(d) The Bank shall be liable to the Fund
for any loss or damage to the Fund resulting
from use of a Depository by reason of any
negligence, misfeasance or misconduct of the
Bank or its employees or from failure of the
Bank to enforce effectively such rights as it
may have against a Depository. In this
connection, the Bank shall use its best efforts
to ensure that:
(i) The Depository obtains replacement
of any certificated Portfolio Security
deposited with it in the event such Security
is lost, destroyed, wrongfully taken or
otherwise not available to be returned to the
Bank upon its request;
(ii) Any proxy materials received by a
Depository with respect to Portfolio
Securities deposited with such Depository are
forwarded immediately to the Bank for prompt
transmittal to the Fund;
(iii) Such Depository immediately
forwards to the Bank confirmation of any
purchase or sale of Portfolio Securities and
of the appropriate book entry made by such
Depository to the Fund's account;
(iv) Such Depository prepares and
delivers to the Bank such records with
respect to the performance of the Bank's
obligations and duties hereunder as may be
necessary for the Fund to comply with the
record keeping requirements of Section 31(a)
of the Act and Rule 31a-1 thereunder; and
(v) Such Depository delivers to the Bank
and the Fund all internal accounting control
reports, whether or not audited by an
independent public accountant, as well as such
other reports as the Fund may reasonably
request
<PAGE>
in order to verify the Portfolio Securities
held by such Depository.
6.5 Use of Book-Entry System for Commercial
Paper. Provided (i) the Bank has received a
certified copy of a resolution of the Board
specifically approving participation in a system
maintained by the Bank for the holding of
commercial paper in book-entry form ("Book Entry
Paper") and (ii) for each year following such
approval the Board has received and approved the
arrangements, upon receipt of Proper Instructions
and upon receipt of confirmation from an Issuer
(as defined below) that the Fund has purchased
such Issuer's Book Entry Paper, the Bank shall
issue and hold in book-entry form, on behalf of
the Fund, commercial paper issued by issuers with
whom the Bank has entered into a book-entry
agreement (the "Issuers"). In maintaining its
Book Entry Paper System, the Bank agrees that:
(a) The Bank will maintain all Book Entry
Paper held by the Fund in an account of the
Bank that includes only assets held by it for
customers;
(b) The records of the Bank with respect
to the Fund's purchase of Book Entry Paper
through the Bank will identify, by book entry,
Commercial Paper belonging to the Fund which is
included in the Book Entry Paper System and
shall at all times during the regular business
hours of the Bank be open for inspection by
duly authorized officers, employees or agents
of the Fund;
(c) The Bank shall pay for Book Entry
Paper purchased for the account of the Fund
upon contemporaneous (i) receipt of advice from
the Issuer that such sale of Book Entry Paper
has been effected, and (ii) the making of an
entry on the records of the Bank to reflect
such payment and transfer for the account of
the Fund;
(d) The Bank shall cancel such Book Entry
Paper obligation upon the maturity thereof upon
contemporaneous (i) receipt of advice that
payment for such Book Entry Paper has been
transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect
such payment for the account of the Fund;
(e) The Bank shall transmit to the Fund a
transaction journal confirming each transaction
in Book Entry Paper for the account of the Fund
on the next business day following the
transactions; and
(f) The Bank will send to the Fund such
reports on its system of internal accounting
control with respect to
<PAGE>
the Book Entry Paper System as the Fund may
reasonably request from time to time.
6.6 Use of Immobilization Programs.
Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically
approving the maintenance of Portfolio Securities
in an immobilization program operated by a bank
which meets the requirements of Section 26(a)(1)
of the Act, and (ii) for each year following such
approval the Board has reviewed and approved the
arrangement and has not delivered an Officers'
Certificate to the Bank indicating that the Board
has withdrawn its approval, the Bank shall enter
into such immobilization program with such bank
acting as a subcustodian hereunder.
6.7 Eurodollar CDs. Any Portfolio
Securities which are Eurodollar CDs may be
physically held by the European branch of the U.S.
banking institution that is the issuer of such
Eurodollar CD (a "European Branch"), provided that
such Securities are identified on the books of the
Bank as belonging to the Fund and that the books
of the Bank identify the European Branch holding
such Securities. Notwithstanding any other
provision of this Agreement to the contrary,
except as stated in the first sentence of this
subsection 6.7, the Bank shall be under no other
duty with respect to such Eurodollar CDs belonging
to the Fund, and shall have no liability to the
Fund or its investors with respect to the actions,
inactions, whether negligent or otherwise of such
European Branch in connection with such Eurodollar
CDs, except for any loss or damage to the Fund
resulting from the Bank's own negligence, willful
misfeasance or misconduct in the performance of
its duties hereunder.
6.8 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities
Exchanges, NASDAQ or Over-the-Counter.
1. The Bank shall take action as to put
options ("puts") and call options ("calls")
purchased or sold (written) by the Fund
regarding escrow or other arrangements (i) in
accordance with the provisions of any agreement
entered into upon receipt of Proper
Instructions between the Bank, any broker-
dealer registered under the Exchange Act and a
member of the National Association of
Securities Dealers, Inc. (the "NASD"), and, if
necessary, the Fund relating to the compliance
with the rules of the Options Clearing
Corporation and of any registered national
securities exchange, or of any similar
organization or organizations.
<PAGE>
2. Unless another agreement requires it
to do so, the Bank shall be under no duty or
obligation to see that the Fund has deposited
or is maintaining adequate margin, if required,
with any broker in connection with any option,
nor shall the Bank be under duty or obligation
to present such option to the broker for
exercise unless it receives Proper Instructions
from the Fund. The Bank shall have no
responsibility for the legality of any put or
call purchased or sold on behalf of the Fund,
the propriety of any such purchase or sale, or
the adequacy of any collateral delivered to a
broker in connection with an option or
deposited to or withdrawn from a Segregated
Account (as defined in subsection 6.9 below).
The Bank specifically, but not by way of
limitation, shall not be under any duty or
obligation to: (i) periodically check or notify
the Fund that the amount of such collateral
held by a broker or held in a Segregated
Account is sufficient to protect such broker or
the Fund against any loss; (ii) effect the
return of any collateral delivered to a broker;
or (iii) advise the Fund that any option it
holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility
of the Fund.
(b) Puts, Calls and Futures Traded on
Commodities Exchanges.
1. The Bank shall take action as to
puts, calls and futures contracts ("Futures")
purchased or sold by the Fund in accordance
with the provisions of any agreement among the
Fund, the Bank 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 Fund.
2. The responsibilities and liabilities
of the Bank as to Futures, puts and calls
traded on commodities exchanges, any Futures
Commission Merchant account and the Segregated
Account shall be limited as set forth in
subparagraph (a)(2) of this Section 6.8 as if
such subparagraph referred to Futures
Commission Merchants rather than brokers, and
Futures and puts and calls thereon instead of
options.
6.9 Segregated Account. The Bank shall upon
receipt of Proper Instructions establish and
maintain a Segregated Account or Accounts for and
on behalf of the Fund, into which Account or
Accounts may be transferred upon receipt of Proper
Instructions cash and/or Portfolio Securities:
<PAGE>
(a) in accordance with the provisions of
any agreement among the Fund, the Bank 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 Fund;
(b) for the purpose of segregating cash
or securities in connection with options
purchased, or written by the Fund or commodity
futures purchased or written by the Fund;
(c) for the deposit of liquid assets,
such as cash, U.S. Government securities or
other high grade debt obligations, having a
market value (marked to the market on a daily
basis) at all times equal to not less than the
aggregate purchase price due on the settlement
dates of all the Fund's then outstanding
forward commitment or "when-issued" agreements
relating to the purchase of Portfolio
Securities and all the Fund's then outstanding
commitments under reverse repurchase agreements
entered into with broker-dealer firms;
(d) for the deposit of any Portfolio
Securities which the Fund has agreed to sell on
a forward commitment basis, all in accordance
with Investment Company Act Release No. 10666;
(e) for the purposes of compliance by the
Fund 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;
(f) for other proper corporate purposes,
but only, in the case of this clause (f), upon
receipt of, in addition to Proper Instructions,
a certified copy of a resolution of the Board
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 corporate purposes.
(g) Assets may be withdrawn from the
Segregated Account pursuant to Proper
Instructions only:
<PAGE>
(i) in accordance with the provisions
of any agreements referenced in (a) or (b)
above;
(ii) for sale or delivery to meet the
Fund's obligations under outstanding firm
commitment or when-issued agreements for the
purchase of Portfolio Securities and under
reverse repurchase agreements;
(iii) for exchange for other liquid
assets of equal or greater value deposited in
the Segregated Account;
(iv) to the extent that the Fund's
outstanding forward commitment or when-issued
agreements for the purchase of portfolio
securities or reverse repurchase agreements
are sold to other parties or the Fund's
obligations thereunder are met from assets of
the Fund other than those in the Segregated
Account; or
(v) for delivery upon settlement of a
forward commitment agreement for the sale of
Portfolio Securities.
6.10 Interest Bearing Call or Time Deposits.
The Bank shall, upon receipt of Proper
Instructions relating to the purchase by the Fund
of interest bearing fixed term and call deposits,
transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be
indicated in such Proper Instructions. The Bank
shall include in its records with respect to the
assets of the Fund appropriate notation as to the
amount of each such deposit, the banking
institution with which such deposit is made (the
"Deposit Bank"), and shall retain such forms of
advice or receipt evidencing the deposit, if any,
as may be forwarded to the Bank by the Deposit
Bank. Such deposits shall be deemed Portfolio
Securities of the Fund and the responsibility of
the Bank therefore shall be the same as and no
greater than the Bank's responsibility in respect
of other Portfolio Securities of the Fund.
6.11. Transfer of Securities. The Bank
will transfer, exchange, deliver or release
Portfolio Securities held by it hereunder, insofar
as such Securities are available for such purpose,
provided that before making any transfer,
exchange, delivery or release under this Section
the Bank will receive Proper Instructions
requesting such transfer, exchange or delivery
stating that it is for a purpose permitted under
the terms of this Section 6.11, specifying the
applicable subsection, or describing the purpose
of the transaction with sufficient particularity
to permit the Bank to ascertain the applicable
subsection, only:
<PAGE>
(a) upon sales of Portfolio Securities
for the account of the Fund, against
contemporaneous receipt by the Bank of payment
therefor in full or, for transactions outside
the U.S., against payment to the Bank in
accordance with generally accepted settlement
practices and customs in the jurisdiction or
market in which the transaction occurs, each
such payment to be in the amount of the sale
price shown in a broker's confirmation of sale
of the Portfolio Securities received by the
Bank before such transfer is made, as confirmed
in the Proper Instructions received by the Bank
before such transfer is made;
(b) in exchange for or upon conversion
into other securities alone or other securities
and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up,
change in par value, recapitalization or
readjustment or otherwise, upon exercise of
subscription, purchase or sale or other similar
rights represented by such Portfolio
Securities, or for the purpose of tendering
shares in the event of a tender offer therefor,
provided however that in the event of an offer
of exchange, tender offer, or other exercise of
rights requiring the physical tender or
delivery of Portfolio Securities, the Bank
shall have no liability for failure to so
tender in a timely manner unless such Proper
Instructions are received by the Bank at least
two business days prior to the date required
for tender, and unless the Bank (or its agent
or subcustodian hereunder) has actual
possession of such Security at least two
business days prior to the date of tender;
(c) upon conversion of Portfolio
Securities pursuant to their terms into other
securities;
(d) for the purpose of redeeming in kind
shares of the Fund upon authorization from the
Fund;
(e) in the case of option contracts owned
by the Fund, for presentation to the endorsing
broker;
(f) when such Portfolio Securities are
called, redeemed or retired or otherwise become
payable;
(g) for the purpose of effectuating the
pledge of Portfolio Securities held by the Bank
in order to collateralize loans made to the
Fund by any bank, including the Bank; provided,
however, that such Portfolio Securities will be
released only upon payment
<PAGE>
to the Bank for the account of the Fund of the
moneys borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made, and such fact is made
to appear in the Proper Instructions, further
Portfolio Securities may be released for that
purpose without any such payment. In the event
that any such pledged Portfolio Securities are
held by the Bank, they will be so held for the
account of the lender, and after notice to the
Fund from the lender in accordance with the
normal procedures of the lender, that an event
of deficiency or default on the loan has
occurred, the Bank may deliver such pledged
Portfolio Securities to or for the account of
the lender;
(h) for the purpose of releasing
certificates representing Portfolio Securities,
against contemporaneous receipt by the Bank of
the fair market value of such security, as set
forth in Proper Instructions received by the
Bank before such payment is made;
(i) for the purpose of delivering
securities lent by the Fund to a bank or broker
dealer, but only against receipt in accordance
with street delivery custom except as otherwise
provided herein, of adequate collateral as
agreed upon from time to time by the Fund and
the Bank, and upon receipt of payment in
connection with any repurchase agreement
relating to such securities entered into by the
Fund;
(j) upon sales of Portfolio Securities
for the account of the Fund, 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 Bank 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 Bank's own negligence or willful
misconduct;
(k) for other authorized transactions of
the Fund or for other proper corporate
purposes; provided that before making such
transfer, the Bank will also receive a
certified copy of resolutions of the Board,
signed by an authorized officer of the Fund
(other than the officer certifying such
resolution) and certified by its Secretary or
Assistant Secretary, specifying the Portfolio
Securities to be delivered, setting forth the
transaction in or purpose for which such
delivery is to be made, declaring such
transaction to be an authorized transaction of
the Fund or such purpose to be a proper
<PAGE>
corporate purpose, and naming the person or
persons to whom delivery of such securities
shall be made; and
(l) upon termination of this Agreement as
hereinafter set forth pursuant to Section 8 and
Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to
subsections (a), (b), (c), (e), (f), (g), (h) and (i)
securities or cash receivable in exchange therefor
shall be delivered to the Bank.
7. Redemptions. In the case of payment of
assets of the Fund held by the Bank in connection with
redemptions and repurchases by the Fund of outstanding
beneficial interests, the Bank will rely on
notification by the Fund's transfer agent of receipt of
a request for redemption and certificates, if issued,
in proper form for redemption before such payment is
made. Payment shall be made in accordance with the
Declaration of Trust and By-laws of the Fund, from
assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the
case of the following transactions, not in the ordinary
course of business, namely, the merger of the Fund into
or the consolidation of the Fund with another
investment company, the sale by the Fund of all, or
substantially all, of its assets to another investment
company, or the liquidation or dissolution of the Fund
and distribution of its assets, the Bank will deliver
the Portfolio Securities held by it under this
Agreement and disburse cash only upon the order of the
Fund set forth in an Officers' Certificate, accompanied
by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the
payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate.
9. Actions of Bank Without Prior Authorization.
Notwithstanding anything herein to the contrary, unless
and until the Bank receives an Officers' Certificate to
the contrary, it will without prior authorization or
instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on
behalf of and in the name of the Fund all checks,
drafts, or other negotiable or transferable
instruments or other orders for the payment of
money received by it for the account of the Fund
and hold for the account of the Fund all income,
dividends, interest and other payments or
distribution of cash with respect to the Portfolio
Securities held thereunder;
9.2 Present for payment all coupons and
other income items held by it for the account of
the Fund which call for
<PAGE>
payment upon presentation and hold the cash
received by it upon such payment for the account
of the Fund;
9.3 Receive and hold for the account of the
Fund all securities received as a distribution on
Portfolio Securities as a result of a stock
dividend, share split-up, reorganization,
recapitalization, merger, consolidation,
readjustment, distribution of rights and similar
securities issued with respect to any Portfolio
Securities held by it hereunder;
9.4 Execute as agent on behalf of the Fund
all necessary ownership and other certificates and
affidavits required by the Internal Revenue Code
or the regulations of the Treasury Department
issued thereunder, or by the laws of any state,
now or hereafter in effect, inserting the Fund's
name on such certificates as the owner of the
securities covered thereby, to the extent it may
lawfully do so and as may be required to obtain
payment in respect thereof. The Bank will execute
and deliver such certificates in connection with
Portfolio Securities delivered to it or by it
under this Agreement as may be required under the
provisions of the Internal Revenue Code and any
Regulations of the Treasury Department issued
thereunder, or under the laws of any state;
9.5 Present for payment all Portfolio
Securities which are called, redeemed, retired or
otherwise become payable, and hold cash received
by it upon payment for the account of the Fund;
and
9.6 Exchange interim receipts or temporary
securities for definitive securities.
10. Collection; Defaults. The Bank will use all
reasonable efforts to collect any funds which may to
its knowledge become collectible arising from Portfolio
Securities, including dividends, interest and other
income, and to transmit promptly to the Fund any notice
actually received by it of any call for redemption,
offer of exchange, right of subscription,
reorganization or other proceedings affecting such
Securities.
If Portfolio Securities upon which such income is
payable are in default or payment is refused after due
demand or presentation, the Bank will notify the Fund
in writing of any default or refusal to pay within two
business days from the day on which it receives
knowledge of such default or refusal. In addition, the
Bank will send the Fund a written report once each
month showing any income on any Portfolio Security held
by it which is more than ten days overdue on the date
of such report and which has not previously been
reported.
<PAGE>
11. Maintenance of Records. The Bank will
maintain records with respect to transactions for which
the Bank is responsible pursuant to the terms and
conditions of this Agreement, and in compliance with
the applicable rules and regulations of the Act and
applicable federal and state tax laws, and will furnish
the Fund daily with a statement of condition of the
Fund. The Bank will furnish to the Fund at the end of
every month, and at the close of each quarter of the
Fund's fiscal year, a list of the Portfolio Securities
and the aggregate amount of cash held by it for the
Fund. The books and records of the Bank pertaining to
its actions under this Agreement and reports by the
Bank or its independent accountants concerning its
accounting system, procedures for safeguarding
securities and internal accounting controls will be
open to inspection and audit at reasonable times by
officers of or auditors employed by the Fund and will
be preserved by the Bank in the manner and in
accordance with the applicable rules and regulations
under the Act.
12. Opinion of Fund's Independent Accountant.
The Bank shall take all reasonable action, as the Fund
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.
13. Reports to Fund by Independent Accountants.
The Bank shall provide the Fund, 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, including Securities deposited
and/or maintained in the Book-Entry System or the
Depository, relating to the services provided by the
Bank under this Agreement; 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.
14. [RESERVED]
15. Concerning the Bank.
15.1 Performance of Duties; Standard of Care.
In performing its duties hereunder and any other
duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the
advice of independent counsel of its own
selection, which may be counsel for the Fund, and
will be without liability for any action taken or
thing done or omitted to be done in accordance
with this Agreement in good faith in conformity
with such advice. In the
<PAGE>
performance of its duties hereunder, the Bank will
be protected and not be liable, and will be
indemnified and saved harmless for any action
taken or omitted to be taken by it in good faith
reliance upon the terms of this Agreement, any
Officers' Certificate, Proper Instructions,
resolution of the Board, telegram, notice,
request, certificate or other instrument
reasonably believed by the Bank to be genuine and
for any other loss to the Fund except such as may
arise from its or its nominee's own negligent
action, negligent failure to act, or willful
misconduct.
The Bank will be under no duty or obligation to
inquire into and will not be liable for:
(a) the validity of the issue of any
Portfolio Securities purchased by or for the
Fund, the legality of the purchases thereof or
the propriety of the price incurred therefor;
(b) the legality of any sale of any
Portfolio Securities by or for the Fund or the
propriety of the amount for which the same are
sold;
(c) the legality of an issue or sale of
any beneficial interests in the Fund or the
sufficiency of the amount to be received
therefor;
(d) the legality of the repurchase of any
beneficial interests in the Fund or the
propriety of the amount to be paid therefor;
(e) the legality of the declaration of
any dividend by the Fund or the legality of the
distribution of any Portfolio Securities as
payment in kind of such dividend; or
(f) any property or moneys of the Fund
unless and until received by it, and any such
property or moneys delivered or paid by it
pursuant to the terms hereof.
Moreover, the Bank will not be under any duty
or obligation to ascertain whether any Portfolio
Securities at any time delivered to or held by it
for the account of the Fund are such as may
properly be held by the Fund under the provisions
of its Declaration of Trust, By-laws, any federal
or state statutes or any rule or regulation of any
governmental agency.
Notwithstanding anything in this Agreement to
the contrary, in no event shall the Bank be liable
hereunder or to any third party for any losses or
damages of any kind resulting from acts of God,
earthquakes, fires, floods,
<PAGE>
storms or other disturbances of nature, epidemics,
strikes, riots, nationalization, expropriation,
currency restrictions, acts of war, civil war or
terrorism, insurrection, nuclear fusion, fission
or radiation, the interruption, loss or
malfunction of utilities, transportation, or
computers (hardware or software) and computers
facilities, the unavailability of energy sources
and other similar happenings or events except as
results from the Bank's own negligence.
15.2 Agents and Subcustodians. The Bank may
employ agents in the performance of its duties
hereunder and shall be responsible for the acts
and omissions of such agents as if performed by
the Bank hereunder.
Upon receipt of Proper Instructions, the Bank
may employ subcustodians, provided that any such
subcustodian meets at least the minimum
qualifications required by Section 17(f) of the
Act to act as a custodian of the Fund's assets,
and provided further that the Bank shall have no
more or less responsibility to the Fund on account
of any actions or omissions of any subcustodian so
employed than any such subcustodian has to the
Bank. Each agreement pursuant to which the Bank
employs a subcustodian shall require, unless
otherwise agreed by the Fund, the subcustodian to
exercise reasonable care in the performance of its
duties and to indemnify, and hold harmless, the
Bank and the Fund from and against any loss,
damage, cost, expense, liability or claim arising
out of or in connection with the subcustodian's
performance of such obligations. At the election
of the Fund, it shall be entitled to be subrogated
to the rights of the Bank with respect to any
claims against a subcustodian 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.
The Fund shall pay all fees and expenses of
any subcustodian.
15.3 Insurance. The Bank shall use the same
care with respect to the safekeeping of Portfolio
Securities and cash of the Fund held by it as it
uses in respect of its own similar property but it
need not maintain any special insurance for the
benefit of the Fund.
15.4 Fees and Expenses of Bank. The Fund
will pay or reimburse the Bank from time to time
for any transfer taxes payable upon transfer of
Portfolio Securities made hereunder, and for all
necessary proper disbursements, expenses and
charges made or incurred by the Bank in the
<PAGE>
performance of this Agreement (including any
duties listed on any Schedule hereto, if any)
including any indemnities for any loss,
liabilities or expense to the Bank as provided
above. For the services rendered by the Bank
hereunder, the Fund will pay to the Bank such
compensation or fees at such rate and at such
times as shall be agreed upon in writing by the
parties from time to time. The Bank will also be
entitled to reimbursement by the Fund for all
reasonable expenses incurred in conjunction with
termination of this Agreement by the Fund.
15.5 Advances by Bank. The Bank may, in its
sole discretion, advance funds on behalf of the
Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization
required by this Agreement for such payments by
the Fund. Should such a payment or payments, with
advanced funds, result in an overdraft (due to
insufficiencies of the Fund's account with the
Bank, or for any other reason) this Agreement
deems any such overdraft or related indebtedness,
a loan made by the Bank to the Fund payable on
demand and bearing interest at the current rate
charged by the Bank for such loans unless the Fund
shall provide the Bank with agreed upon
compensating balances. The Fund agrees that the
Bank shall have a continuing lien and security
interest to the extent of any overdraft or
indebtedness, in and to any property at any time
held by it for the Fund's benefit or in which the
Fund has an interest and which is then in the
Bank's possession or control (or in the possession
or control of any third party acting on the Bank's
behalf), in an amount not to exceed 5% of the
Fund's gross assets. The Fund authorizes the
Bank, in its sole discretion, at any time to
charge any overdraft of indebtedness, together
with interest due thereon against any balance of
account standing to the credit of the Fund on the
Bank's books.
16. Termination.
16.1 This Agreement may be terminated at any
time without penalty upon thirty days written
notice delivered by either party to the other by
means of registered mail, and upon the expiration
of such thirty days this Agreement will terminate;
provided, however, that the Fund may immediately
terminate this Agreement in the event of the
appointment of a conservator or receiver for the
Bank or upon the happening of a like event at the
direction of an appropriate regulatory agency or
court of competent jurisdiction. The effective
date of such termination may be postponed upon
mutual agreement. At any time after the
termination of this Agreement, the Fund will, at
its request, have access to the records of the
Bank relating to the performance of its duties as
custodian.
<PAGE>
16.2 In the event of the termination of this
Agreement, the Bank will immediately upon receipt
or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to
completion the transfer of all cash and the
delivery of all Portfolio Securities duly endorsed
and all records maintained under Section 11 to the
successor custodian when appointed by the Fund.
The obligation of the Bank to deliver and transfer
over the assets of the Fund held by it directly to
such successor custodian will commence as soon as
such successor is appointed and will continue
until completed as aforesaid. If the Fund does
not select a successor custodian within ninety
(90) days from the date of delivery of notice of
termination the Bank may, subject to the
provisions of subsection 16.3, deliver the
Portfolio Securities and cash of the Fund held by
the Bank to a bank or trust company of its own
selection which meets the requirements of Section
17(f)(1) of the Act and has a reported capital,
surplus and undivided profits aggregating not less
than $2,000,000, to be held as the property of the
Fund under terms similar to those on which they
were held by the Bank, whereupon such bank or
trust company so selected by the Bank will become
the successor custodian of such assets of the Fund
with the same effect as though selected by the
Board.
16.3 Prior to the expiration of ninety (90)
days after notice of termination has been given,
the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be
found willing and able to act upon reasonable and
customary terms and that there has been submitted
to the investors of the Fund the question of
whether the Fund will be liquidated or will
function without a custodian for the assets of the
Fund held by the Bank. In that event the Bank
will deliver the Portfolio Securities and cash of
the Fund held by it, subject as aforesaid, in
accordance with one of such alternatives which may
be approved by the requisite vote of investors,
upon receipt by the Bank of a copy of the minutes
of the meeting of investors at which action was
taken, certified by the Fund's Secretary and an
opinion of counsel to the Fund in form and content
satisfactory to the Bank.
17. Notices. Any notice or other instrument in
writing authorized or required by this Agreement to be
given to either party hereto will be sufficiently given
if addressed to such party and mailed or delivered to
it at its office at the address set forth below;
namely:
<PAGE>
(a) In the case of notices sent to the Fund to:
The Premium Portfolios
c/o Signature Financial Group (Cayman),
Ltd.
Elizabethan Square
George Town, Grand Cayman
Cayman Islands, BWI
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
One Lincoln Plaza
P.O. Box 1537
Boston, Massachusetts 02205-1537
or at such other place as such party may from time
to time designate in writing.
18. Amendments. This Agreement may not be
altered or amended, except by an instrument in writing,
executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and
approved by its Board.
19. Parties. This Agreement will be binding upon
and shall inure to the benefit of the parties hereto
and their respective successors and assigns; provided,
however, that this Agreement will not be assignable by
the Fund without the written consent of the Bank or by
the Bank without the written consent of the Fund,
authorized and approved by its Board; and provided
further that termination proceedings pursuant to
Section 16 hereof will not be deemed to be an
assignment within the meaning of this provision.
20. Governing Law. This Agreement and all
performances hereunder will be governed by the laws of
the Commonwealth of Massachusetts.
21. Limitations of Liability. A copy of the
Declaration of Trust of The Premium Portfolios is on
file with the Secretary of The Premium Portfolios, and
notice is hereby given that this instrument is executed
on behalf of the Trustees of The Premium Portfolios as
Trustees and not individually and that the obligations
of this instrument are not binding upon any of the
Trustees or Officers of The Premium Portfolios
individually or upon the assets, property or holders of
interests of any series of The Premium Portfolios other
than Small Cap Equity Portfolio.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed in duplicate and their
respective corporate seals to be affixed hereto as of
the date first above written by their respective
officers thereto duly authorized.
THE PREMIUM PORTFOLIOS, on
behalf of
Small Cap Equity Portfolio
By:
ATTEST:
INVESTORS BANK & TRUST COMPANY
By:
Kevin J. Sheehan, President
ATTEST:
