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As filed with the Securities and Exchange Commission on May 18, 1995
File No. 811-07289
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
HIGH YIELD MUNICIPALS PORTFOLIO
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(Exact Name of Registrant as Specified in Charter)
24 Federal Street
Boston, Massachusetts 02110
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 482-8260
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Thomas Otis
24 Federal Street, Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant
pursuant to Section 8(b) of the Investment Company Act of 1940, as
amended. However, interests in the Registrant are not being registered
under the Securities Act of 1933, as amended (the "1933 Act"), because
such interests will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section
4(2) of the 1933 Act. Investments in the Registrant may be made only by
U.S. and foreign investment companies, common or commingled trust funds,
or similar organizations or entities that are "accredited investors"
within the meaning of Regulation D under the 1933 Act. This Registration
Statement does not constitute an offer to sell, or the solicitation of an
offer to buy, any interest in the Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant
to Paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
High Yield Municipals Portfolio (the "Portfolio") is a non-
diversified, open-end management investment company which was organized as
a trust under the laws of the State of New York on May 1, 1995. Interests
in the Portfolio are issued solely in private placement transactions that
do not involve any "public offering" within the meaning of Section 4(2) of
the Securities Act of 1933, as amended (the "1933 Act"). Investments in
the Portfolio may be made only by U.S. and foreign investment companies,
common or commingled trust funds, or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D under
the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" within the
meaning of the 1933 Act.
The Portfolio's investment objective is to provide high current
income exempt from regular federal income tax. The Portfolio seeks its
objective through investments in a portfolio of high-yielding, below
investment grade securities. The investment objective and policies of the
Portfolio may be changed by the Trustees without a vote of the investors
in the Portfolio; as a matter of policy, the Trustees would not materially
change the Portfolio's investment objective without investor approval.
The Portfolio may not be appropriate for investors who cannot assume the
greater risk of capital depreciation or loss inherent in seeking higher
tax-exempt yields.
THE PORTFOLIO MAY INVEST UP TO 100% OF ITS ASSETS IN BELOW
INVESTMENT GRADE MUNICIPAL BONDS, COMMONLY KNOWN AS "JUNK BONDS", THAT
ENTAIL GREATER RISKS, INCLUDING DEFAULT, THAN THOSE OF HIGHER-RATED
SECURITIES. SEE "HOW THE PORTFOLIO INVESTS ITS ASSETS."
Additional information about the investment policies of the
Portfolio appears in Part B. The Portfolio is not intended to be a
complete investment program, and a prospective investor should take into
account its objectives and other investments when considering the purchase
of an interest in the Portfolio. The Portfolio cannot assure achievement
of its investment objective.
HOW THE PORTFOLIO INVESTS ITS ASSETS
The Portfolio invests primarily in below investment grade
municipal obligations that Boston Management and Research (the "Investment
Adviser" or "BMR") believes do not entail undue risk.
"Below investment grade" municipal obligations are obligations
that are rated Ba or lower by Moody's Investors Service, Inc. ("Moody's")
or BB or lower by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch") or that are unrated but determined by
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the Investment Adviser to be of comparable quality. For a description of
the ratings assigned by the rating agencies, see the Appendix to this Part
A. Below investment grade municipal obligations generally offer higher
current yields than do higher rated securities, but are subject to greater
risks. Securities in the lower-rated categories are considered to be of
poor standing and predominantly speculative. The Portfolio may also
invest a portion of its assets in municipal obligations that are not
paying current income in anticipation of possible future income. For more
detailed information about the risks associated with investing in such
securities, see "Risk Considerations" below.
Although the Portfolio may invest in securities of any maturity,
it is expected that the Portfolio will normally invest a substantial
portion of its assets in securities with maturities of ten years or more.
Those securities generally offer higher yields than securities of shorter
maturities, but are subject to greater fluctuations in value in response
to changes in interest rates. Because the Portfolio's objective is to
provide high current income, the Portfolio will invest in municipal
obligations with an emphasis on income and not on stability of the
Portfolio's net asset value. The average maturity of the Portfolio's
holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
The Portfolio will normally invest at least 65% of its assets in
investment grade and below investment grade municipal obligations. As a
matter of fundamental policy, the Portfolio will normally invest at least
80% of its assets in debt obligations issued by or on behalf of states,
territories and possessions of the United States, and the District of
Columbia and their political subdivisions, agencies or instrumentalities,
the interest on which is, in the opinion of bond counsel, exempt from
regular federal income tax.
At times, the Portfolio may, for temporary defensive purposes,
invest any portion of its assets in higher-rated municipal obligations or
other securities, the interest on which may not be exempt from regular
federal income tax, and may hold any portion of its assets in cash. It
is impossible to predict when, or for how long, the Portfolio would engage
in such strategies.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both
public and private purposes, the interest on which is, in the opinion of
bond counsel, exempt from regular federal income tax. Public purpose
municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or
facility. Municipal notes include bond anticipation, tax anticipation,
revenue anticipation, and construction loan notes. Bond, tax and revenue
anticipation notes are short-term obligations that will be retired with
the proceeds of an anticipated bond issue, tax revenue or facility
revenue, respectively. Construction loan notes are short-term obligations
that will be retired with the proceeds of long-term mortgage financing.
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DISTRIBUTIONS TO CORPORATE INVESTORS OF INTEREST INCOME FROM
CERTAIN TYPES OF MUNICIPAL OBLIGATIONS MAY BE SUBJECT TO FEDERAL
ALTERNATIVE MINIMUM TAX. Such obligations will not be included in the
securities used to determine the Portfolio's compliance with the 80% test
described above.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in
municipal obligations of issuers located in the same state or in municipal
obligations of the same type, including, without limitation, the
following: general obligations of states and localities; lease rental
obligations of state and local authorities; obligations of state and local
housing finance authorities, municipal utilities systems or public housing
authorities; obligations for hospitals or life care facilities; or
industrial development or pollution control bonds issued for electric
utility systems, steel companies, paper companies or other purposes. This
may make the Portfolio more susceptible to adverse economic, political or
regulatory occurrences affecting a particular category of issuer. For
example, health care-related issuers are susceptible to medicaid
reimbursement policies, and national and state health care legislation.
As the Portfolio's concentration in the securities of a particular
category of issuer increases, so does the potential for fluctuation in the
net asset value of the Portfolio's interests.
NON-DIVERSIFIED STATUS. The Portfolio's classification under the
Investment Company Act of 1940 (the "1940 Act") as a "non-diversified"
investment company allows it to invest, with respect to 50% of its assets,
more than 5% (but not more than 25%) of its assets in the securities of
any issuer. The Portfolio is likely to invest a greater percentage of its
assets in the securities of a single issuer than would a diversified fund.
Therefore, the Portfolio will be more susceptible to any single adverse
economic or political occurrence or other adverse development affecting
certain issuers.
OTHER INVESTMENT PRACTICES
The Portfolio may engage in the following other investment
practices, some of which may be considered "derivative" instruments
because they derive their value from another instrument, security or
index.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a
"when-issued" basis, which means that payment and delivery occur on a
future settlement date. The price and yield of such securities are
generally fixed on the date of commitment to purchase. However, the
market value of the securities may fluctuate prior to delivery and upon
delivery the securities may be worth more or less than the Portfolio
agreed to pay for them. The Portfolio may also purchase instruments that
give the Portfolio the option to purchase a municipal obligation when and
if issued.
INVERSE FLOATERS. The Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on
another security or the value of an index ("inverse floaters"). An
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investment in inverse floaters may involve greater risk than an investment
in a fixed rate bond. Because changes in the interest rate on the other
security or index inversely affect the residual interest paid on the
inverse floater, the value of an inverse floater is generally more
volatile than that of a fixed rate bond. Inverse floaters have interest
rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest
rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively
volatile. These securities tend to underperform the market for fixed rate
bonds in a rising interest rate environment, but tend to outperform the
market for fixed rate bonds when interest rates decline. Shifts in long-
term interest rates may alter this tendency, however. Although volatile,
inverse floaters typically offer the potential for yields exceeding the
yields available on fixed rate bonds with comparable credit quality and
maturity. These securities usually permit the investor to convert the
floating rate to a fixed rate (normally adjusted downward), and this
optional conversion feature may provide a partial hedge against rising
interest rates if exercised at an opportune time. Inverse floaters are
leveraged because they provide two or more dollars of bond market exposure
for every dollar invested. As a matter of operating policy, the Portfolio
currently may invest up to 7.5% of its net assets in inverse floaters.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds
of financial futures contracts and options thereon to hedge against
changes in interest rates and to enhance total return by using a futures
position as a lower cost substitute for a securities position. The
futures contracts may be based on various debt securities (such as U.S.
Government securities), securities indices (such as the Municipal Bond
Index traded on the Chicago Board of Trade) and other financial
instruments and indices. Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices,
which may exceed the Portfolio's initial investment in these contracts.
The Portfolio may not purchase or sell futures contracts or related
options, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of margin deposits and premiums paid on
the Portfolio's outstanding positions would exceed 5% of the market value
of the Portfolio's net assets. Nonetheless, at least 80% of the
Portfolio's assets will be invested in municipal obligations. These
transactions involve transaction costs. To the extent that the Portfolio
enters into futures contracts and options thereon traded on an exchange
regulated by the Commodity Futures Trading Commission, in each case that
are not for BONA FIDE hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money") may
not exceed 5% of the liquidation value of the Portfolio's portfolio, after
taking into account unrealized profits and unrealized losses on any
contracts the Portfolio has entered into. There can be no assurance that
the Investment Adviser's use of futures will be advantageous to the
Portfolio. Distributions by the Fund of any gains realized on the
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Portfolio's transactions in futures and options on futures will be
taxable.
RISK CONSIDERATIONS
Investors should carefully consider their ability to assume the
risks of owning interests of a mutual fund that invests in below
investment grade municipal obligations (sometimes referred to as "junk
bonds") before making an investment in the Portfolio. The lower ratings
of certain securities held by the Portfolio reflect a greater possibility
that adverse changes in the financial condition of an issuer, or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest
and principal. The inability (or perceived inability) of issuers to make
timely payment of interest and principal would likely make the values of
securities held by the Portfolio more volatile and could limit the
Portfolio's ability to sell its securities at prices approximating the
values the Portfolio has placed on such securities. It is possible that
legislation may be adopted in the future limiting the ability of certain
financial institutions to purchase such securities; such legislation may
adversely affect the liquidity of such securities. In the absence of a
liquid trading market for securities held by it, the Portfolio may be
unable at times to establish the fair market value of such securities.
The rating assigned to a security by a rating agency does not reflect an
assessment of the volatility of the security's market value or of the
liquidity of an investment in the securities. Credit ratings are based
largely on the issuer's historical financial condition and the rating
agency's investment analysis at the timing of rating, and the rating
assigned to any particular security is not necessarily a reflection of the
issuer's current financial condition. Credit quality in the high yield,
high risk municipal bond market can change from time to time, and recently
issued credit ratings may not fully reflect the actual risks posed by a
particular high yield security.
THE NET ASSET VALUE OF THE PORTFOLIO WILL CHANGE IN RESPONSE TO
FLUCTUATIONS IN PREVAILING INTEREST RATES AND CHANGES IN THE VALUE OF THE
SECURITIES HELD BY THE PORTFOLIO. When interest rates decline, the value
of securities already held by the Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of existing portfolio
security holdings can be expected to decline. Changes in the credit
quality of issuers of municipal obligations held by the Portfolio will
affect the principal value (and possibly the income earned) on such
obligations. In addition, the values of such securities are affected by
changes in general economic conditions and business conditions affecting
the specific industries of their issuers. Changes by recognized rating
services in their ratings of any fixed-income security and in the ability
of an issuer to make payments of interest and principal may also affect
the value of these investments. The Portfolio will not dispose of a
security solely because its rating is reduced below its rating at the time
of purchase, although the Investment Adviser will monitor the investment
to determine whether continued investment in the security will assist in
meeting the Portfolio's investment objective.
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At times, a substantial portion of the Portfolio's assets may be
invested in securities as to which the Portfolio, by itself or together
with other accounts managed by the Investment Adviser and its affiliates,
holds a major portion or all of such securities. Under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, the Portfolio could find it more difficult to
sell such securities when the Investment Adviser believes it advisable to
do so or may be able to sell such securities only at prices lower than if
such securities were more widely held. Under such circumstances, it may
also be more difficult to determine the fair value of such securities for
purposes of computing the Portfolio's net asset value. Interest and/or
principal payments on securities in default could be in arrears when such
securities are acquired, and the issuer may be in bankruptcy or undergoing
a debt restructuring or reorganization. In order to enforce its rights in
the event of a default under such securities, the Portfolio may be
required to take possession of and manage assets securing the issuer's
obligations on such securities, which may increase the Portfolio's
operating expenses and adversely affect the Portfolio's net asset value.
Any income derived from the Portfolio's ownership or operation of such
assets may not be tax-exempt.
The secondary market for such municipal obligations in which the
Portfolio may invest is less liquid than that for many taxable debt
obligations or other more widely traded municipal obligations. The
Portfolio will not invest in illiquid securities if more than 15% of its
net assets would be invested in securities not readily marketable. No
established resale market exists for certain of the municipal obligations
in which the Portfolio may invest. As a result, the Portfolio may be
unable to dispose of some of these municipal obligations at times when it
would otherwise wish to do to at the prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at
its option to "call", or redeem, its securities. If an issuer were to
redeem securities held by the Portfolio during a time of declining
interest rates, the Portfolio may not be able to reinvest the proceeds in
securities providing the same investment return as the securities
redeemed.
Some of the securities in which the Portfolio invests may include
so-called "zero-coupon" bonds, whose values are subject to greater
fluctuation in response to changes in market interest rates than bonds
which pay interest currently. Zero-coupon bonds are issued at a
significant discount from face value and pay interest only at maturity
rather than at intervals during the life of the security. The Portfolio
is required to accrue and distribute income from zero-coupon bonds on a
current basis, even though it does not receive that income currently in
cash. Thus, the Portfolio may have to sell other investments to obtain
cash needed to make income distributions.
The Portfolio may invest in municipal leases, and participations
in municipal leases. The obligations of the issuer to meet its
obligations under such leases is often subject to the appropriation by the
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appropriate legislative body, on an annual or other basis, to appropriate
funds for the payment of the obligations. Investments in municipal leases
are thus subject to the risk that the legislative body will not make the
necessary appropriation and the issuer will not otherwise be willing or
able to meet its obligations.
The Investment Adviser seeks to minimize the risks of investing
in below investment grade securities through professional investment
analysis and attention to current developments in interest rates and
economic conditions. When the Portfolio invests in such municipal
obligations, the achievement of the Portfolio's goals is more dependent on
the Investment Adviser's ability than would be the case if the Portfolio
were investing in municipal obligations in the higher rating categories.
The amount of information about the financial conditions of an issuer of
municipal obligations may not be as extensive as that which is made
available by corporations whose securities are publicly traded.
INVESTMENT RESTRICTIONS. The Portfolio has adopted certain fundamental
investment restrictions which are enumerated in detail in Part B and which
may not be changed unless authorized by an investor vote. Except for such
enumerated restrictions and as otherwise indicated in this Part A, the
investment objective and policies of the Portfolio are not fundamental
policies and accordingly may be changed by the Trustees without obtaining
the approval of the investors in the Portfolio. The Portfolio's investors
will receive written notice thirty days prior to any change in the
investment objective of the Portfolio. If any changes were made, the
Portfolio might have investment objectives different from the objectives
which an investor considered appropriate at the time of its initial
investment.
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ITEM 5. MANAGEMENT OF THE PORTFOLIO
The Portfolio was organized as a trust under the laws of the
State of New York on May 1, 1995. The Portfolio intends to comply with
all applicable federal and state securities laws.
INVESTMENT ADVISER. The Portfolio engages BMR, a wholly-owned
subsidiary of Eaton Vance Management ("Eaton Vance"), as its investment
adviser. Eaton Vance, its affiliates and its predecessor companies have
been managing assets of individuals and institutions since 1924 and
managing investment companies since 1931.
Acting under the general supervision of the Board of Trustees,
BMR manages the Portfolio's investments and affairs. Under its investment
advisory agreement with the Portfolio, BMR receives a monthly advisory fee
equal to the aggregate of:
(a) a daily asset-based fee computed by applying the annual
asset rate applicable to that portion of the total daily
net assets in each Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily
income rate applicable to that portion of the total daily
gross income (which portion shall bear the sam
e relationship to the total daily gross income on such day as that portion
of the total daily net assets in the same Category bears to the total
daily net assets on such day) in each Category as indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Annual Daily
Asset Income
Category Daily Net Assets Rate Rate
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1 Up to $500 million 0.400% 4.00%
2 $500 million but less than $1 billion 0.375% 3.75%
3 $1 billion but less than $1.5 billion 0.350% 3.50%
4 $1.5 billion but less than $2 billion 0.325% 3.25%
5 $2 billion but less than $3 billion 0.300% 3.00%
6 $3 billion and over 0.275% 2.75%
</TABLE>
BMR also furnishes for the use of the Portfolio office space and
all necessary office facilities, equipment and personnel for servicing the
investments of the Portfolio. The Portfolio is responsible for the
payment of all expenses other than those expressly stated to be payable by
BMR under the investment advisory agreement.
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Thomas M. Metzold has acted as the portfolio manager of the
Portfolio since it commenced operations. He has been a Vice President of
Eaton Vance since 1991 and of BMR since 1992, and an employee of Eaton
Vance since 1987.
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account.
Such firms attempt to profit from such transactions by buying at the bid
price and selling at the higher asked price of the market, and the
difference is customarily referred to as the spread. In selecting firms
which will execute portfolio transactions, BMR judges their professional
ability and quality of service and uses its best efforts to obtain
execution at prices which are advantageous to the Portfolio and at
reasonably competitive spreads. Subject to the foregoing, BMR may
consider sales of shares of other investment companies sponsored by BMR or
Eaton Vance as a factor in the selection of firms to execute portfolio
transactions.
BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with assets
under management of approximately $15 billion. Eaton Vance is a
wholly-owned subsidiary of Eaton Vance Corp., a publicly held holding
company. Eaton Vance Corp., through its subsidiaries and affiliates,
engages in investment management and marketing activities, fiduciary and
banking services, oil and gas operations, real estate investment,
consulting and management, and development of precious metals properties.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Portfolio is organized as a trust under the laws of the State
of New York and intends to be treated as a partnership for federal tax
purposes. Under the Declaration of Trust, the Trustees are authorized to
issue interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments
in the Portfolio may not be transferred, but an investor may withdraw all
or any portion of its investment at any time at net asset value.
Investors in the Portfolio will each be liable for all obligations of the
Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance exists and the Portfolio itself is unable
to meet its obligations.
The Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of any investor in the
Portfolio unless either the remaining investors, by unanimous vote at a
meeting of such investors, or a majority of the Trustees of the Portfolio,
by written instrument consented to by all investors, agree to continue the
business of the Portfolio. This provision is consistent with the
treatment of the Portfolio as a partnership for federal income tax
purposes.
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Investments in the Portfolio have no preemptive or conversion
rights and are fully paid and nonassessable by the Portfolio, except as
set forth above. The Portfolio is not required and has no current
intention to hold annual meetings of investors, but the Portfolio may hold
special meetings of investors when in the judgment of the Trustees it is
necessary or desirable to submit matters for an investor vote. Changes in
fundamental policies or restrictions will be submitted to investors for
approval. The investment objective and all nonfundamental investment
policies of the Portfolio may be changed by the Trustees of the Portfolio
without obtaining the approval of the investors in the Portfolio.
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. Any Trustee may be removed by the
affirmative vote of holders of two-thirds of the interest in the
Portfolio.
Information regarding pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance
Distributors, Inc., 24 Federal Street, Boston, MA 02110 (617) 482-8260.
Smaller investors in the Portfolio may be adversely affected by the
actions of larger investors in the Portfolio. For example, if a large
investor withdraws from the Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse, resulting
in increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured funds
which have large or institutional investors.
As of May 15, 1995, BMR controlled the Portfolio by virtue of
owning more than 98% of the outstanding voting securities of the
Portfolio.
The Portfolio's net asset value is determined each day on which
the New York Stock Exchange (the "Exchange") is open for trading
("Portfolio Business Day"). This determination is made each Portfolio
Business Day as of the close of regular trading on the Exchange (currently
4:00 p.m., New York time) (the "Portfolio Valuation Time").
Each investor in the Portfolio may add to or reduce its
investment in the Portfolio on each Portfolio Business Day as of the
Portfolio Valuation Time. The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, determined on the prior Portfolio Business
Day, which represents that investor's share of the aggregate interest in
the Portfolio on such prior day. Any additions or withdrawals for the
current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which
is the value of such investor's investment in the Portfolio as of the
Portfolio Valuation Time on the prior Portfolio Business Day plus or
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minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate net asset
value of the Portfolio as of the Portfolio Valuation Time on the prior
Portfolio Business Day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio for the current
Portfolio Business Day.
The Portfolio will allocate at least annually among its investors
its net taxable (if any) and tax-exempt investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or
credit. The Portfolio's net investment income consists of all income
accrued on the Portfolio's assets, less all actual and accrued expenses of
the Portfolio, determined in accordance with generally accepted accounting
principles.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any federal income tax. (See Part B,
Item 20.) However, each investor in the Portfolio will take into account
its allocable share of the Portfolio's ordinary income and capital gain in
determining its federal income tax liability; and each such investor that
intends to qualify as a regulated investment company also will take into
account its share of the Portfolio's tax-exempt income. The determination
of each such share will be made in accordance with the governing
instruments of the Portfolio which are intended to comply with the
requirements of the Code and the regulations promulgated thereunder.
It is intended that the Portfolio's assets and income will be
managed in such a way that an investor in the Portfolio which seeks to
qualify as a regulated investment company under the Code will be able to
satisfy the requirements for such qualification.
ITEM 7. PURCHASE OF INTERESTS IN THE PORTFOLIO
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the 1933 Act. See "General Description of Registrant"
above.
An investment in the Portfolio will be made without a sales load.
All investments received by the Portfolio will be effected as of the next
Portfolio Valuation Time. The net asset value of the Portfolio is
determined at the Portfolio Valuation Time on each Portfolio Business Day.
The Portfolio will be closed for business and will not determine its net
asset value on the following business holidays: New Year's Day,
Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
Portfolio's net asset value is computed in accordance with procedures
established by the Portfolio's Trustees.
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The Portfolio's net asset value is determined by Investors Bank &
Trust Company (as custodian and agent for the Portfolio) in the manner
authorized by the Trustees of the Portfolio. The net asset value is
computed by subtracting the liabilities of the Portfolio from the value of
its total assets. Inasmuch as the market for municipal obligations is a
dealer market with no central trading location or continuous quotation
system, it is not feasible to obtain last transaction prices for most
municipal obligations held by the Portfolio, and such obligations,
including those purchased on a when-issued basis, will normally be valued
on the basis of valuations furnished by a pricing service. The pricing
service uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities, various
relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available
bid and asked prices. Open futures positions on debt securities are
valued at the most recent settlement prices, unless such price does not
reflect the fair value of the contract, in which case the positions will
be valued by or at the direction of the Trustees. Other assets are valued
at fair value using methods determined in good faith by or at the
discretion of the Trustees. For further information regarding the
valuation of the Portfolio's assets, see Part B.
There is no minimum initial or subsequent investment in the
Portfolio. The Portfolio reserves the right to cease accepting
investments at any time or to reject any investment order.
The placement agent for the Portfolio is Eaton Vance
Distributors, Inc. ("EVD"). The principal business address of EVD is 24
Federal Street, Boston, Massachusetts 02110. EVD receives no compensation
for serving as the placement agent for the Portfolio.
ITEM 8. REDEMPTION OR DECREASE OF INTEREST
An investor in the Portfolio may withdraw all (redeem) or any
portion (decrease) of its interest in the Portfolio if a withdrawal
request in proper form is furnished by the investor to the Portfolio. All
withdrawals will be effected as of the next Portfolio Valuation Time. The
proceeds of a withdrawal will be paid by the Portfolio normally on the
Portfolio Business Day the withdrawal is effected, but in any event within
seven days. The Portfolio reserves the right to pay the proceeds of a
withdrawal (whether a redemption or decrease) by a distribution in kind of
portfolio 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 interest (whether complete or partial) being
withdrawn. If an investor received a distribution in kind upon such
withdrawal, the investor could incur brokerage and other charges in
converting the securities to cash. The Portfolio has filed with the
Securities and Exchange Commission (the "Commission") a notification of
election on Form N-18F-1 committing to pay in cash all requests for
withdrawals by any investor, limited in amount with respect to such
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investor during any 90 day period to the lesser of (a) $250,000 or (b) 1%
of the net asset value of the Portfolio at the beginning of such period.
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, or
during any other period permitted by order of the Commission for the
protection of investors.
ITEM 9. PENDING LEGAL PROCEEDINGS
Not applicable.
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APPENDIX
Description of Securities Ratings+
Moody's Investors Service, Inc.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risk appear
somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
---------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Registration Statement for the securities
listed. Ratings are generally given to securities at the time of
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issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated
do not necessarily represent ratings which would be given to these
securities on the date of the Portfolio's fiscal year end.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and differs
from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
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payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated 'AAA'. Because
bonds rated in the 'AAA' and 'AA' categories are not significantly
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vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated 'F-1+'.
A: Bonds considered to be investment grade and of high credit quality.
The obligors ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
that could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. `DDD' represents the highest potential for
recovery on these bonds, and `D' represents the lowest potential for
recovery.
Plus (+) or Minus (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a
credit within the rating category.
* * * * * * * *
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NOTE: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks
of lower-rated speculative bonds. The Portfolio is dependent on the
Investment Adviser's judgment, analysis and experience in the evaluation
of such bonds.
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PART B
ITEM 10. COVER PAGE
Not applicable.
ITEM 11. TABLE OF CONTENTS
Page
General Information and History . . . . . . . . . . . . . . . . . . B-1
Investment Objectives and Policies . . . . . . . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . . . . . . . . B-13
Control Persons and Principal Holder of Securities . . . . . . . . B-17
Investment Advisory and Other Services . . . . . . . . . . . . . . B-17
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . B-20
Capital Stock and Other Securities . . . . . . . . . . . . . . . . B-22
Purchase, Redemption and Pricing of Securities . . . . . . . . . . . B-24
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-24
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-28
Calculation of Performance Data . . . . . . . . . . . . . . . . . . B-28
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . B-29
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a-1
ITEM 12. GENERAL INFORMATION AND HISTORY
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES
Part A contains additional information about the investment
objective and policies of the High Yield Municipals Portfolio (the
"Portfolio"). This Part B should be read in conjunction with Part A.
Capitalized terms used in this Part B and not otherwise defined have the
meanings given them in Part A.
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public
and private purposes. Such obligations include bonds, as well as tax-
exempt commercial paper, project notes and municipal notes such as tax,
revenue and bond anticipation notes of short maturity, generally less than
three years. In general, there are three categories of municipal
obligations the interest on which is exempt from federal income tax and is
not a tax preference item for purposes of the federal alternative minimum
tax: (i) certain "public purpose" obligations (whenever issued), which
include obligations issued directly by state and local governments or
their agencies to fulfill essential governmental functions; (ii) certain
obligations issued before August 8, 1986 for the benefit of non-
governmental persons or entities; and (iii) certain "private activity
bonds" issued after August 7, 1986, which include "qualified Section
501(c)(3) bonds" or refundings of certain obligations included in the
second category. In assessing the federal income tax treatment of
interest on any municipal obligation, the Portfolio will generally rely on
an opinion of the issuer's counsel (when available) and will not undertake
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any independent verification of the basis for the opinion. The two
principal classifications of municipal bonds are "general obligation"
bonds and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7,
1986 is exempt from regular federal income tax, but such interest is
treated as a tax preference item which could subject the recipient to or
increase the recipient's liability for the federal alternative minimum
tax. It should be noted that, for a corporate holder (other than a
regulated investment company) of an interest in the Portfolio, interest on
all municipal obligations (whenever issued) is included in "adjusted
current earnings" for purposes of the federal alternative minimum tax as
applied to corporations (only to the extent not already included in
alternative minimum taxable income as income attributable to private
activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 is taxable as ordinary income. A long-term
debt obligation is generally treated as acquired at a market discount if
the secondary market purchase price is less than (i) the stated principal
amount payable at maturity, in the case of an obligation that does not
have original issue discount, or (ii) in the case of an obligation that
does have original issue discount, the sum of the issue price and any
original issue discount that accrued before the obligation was purchased,
subject to a de minimus amount.
Issuers of general obligation bonds include states, counties,
cities, towns and regional districts. The proceeds of these obligations
are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and
sewer systems and a variety of other public purposes. The basic security
of general obligation bonds is the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. The taxes
that can be levied for the payment of debt service may be limited or
unlimited as to rate and amount.
The principal security for a revenue bond is generally the net
revenues derived from a particular facility or group of facilities or, in
some cases, from the proceeds of a special excise or other specific
revenue source. Revenue bonds have been issued to fund a wide variety of
capital projects including: electric, gas, water, sewer and solid waste
disposal systems; highways, bridges and tunnels; port, airport and parking
facilities; transportation systems; housing facilities, colleges and
universities and hospitals. Although the principal security behind these
bonds varies widely, many provide additional security in the form of a
debt service reserve fund whose monies may be used to make principal and
interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt
service reserve fund, some authorities provide further security in the
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form of a state's ability (without legal obligation) to make up
deficiencies in the debt service reserve fund. Lease rental revenue bonds
issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds, although
normally issued by municipal authorities, are in most cases revenue bonds
and are generally not secured by the taxing power of the municipality, but
are usually secured by the revenues derived by the authority from payments
of the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry
warrants or similar rights covering equity securities. Such warrants or
rights may be held indefinitely, but if exercised, the Portfolio
anticipates that it would, under normal circumstances, dispose of any
equity securities so acquired within a reasonable period of time.
While most municipal bonds pay a fixed rate of interest
semi-annually in cash, there are exceptions. Some bonds pay no periodic
cash interest, but rather make a single payment at maturity representing
both principal and interest. Bonds may be issued or subsequently offered
with interest coupons materially greater or less than those then
prevailing, with price adjustments reflecting such deviation.
The obligations of any person or entity to pay the principal of and
interest on a municipal obligation are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may
be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations. There is also the possibility that
as a result of litigation or other conditions the power or ability of any
person or entity to pay when due principal of and interest on a municipal
obligation may be materially affected. There have been recent instances
of defaults and bankruptcies involving municipal obligations which were
not foreseen by the financial and investment communities. The Portfolio
will take whatever action it considers appropriate in the event of
anticipated financial difficulties, default or bankruptcy of either the
issuer of any municipal obligation or of the underlying source of funds
for debt service. Such action may include retaining the services of
various persons or firms (including affiliates of the Investment Adviser)
to evaluate or protect any real estate, facilities or other assets
securing any such obligation or acquired by the Portfolio as a result of
any such event, and the Portfolio may also manage (or engage other persons
to manage) or otherwise deal with any real estate, facilities or other
assets so acquired. The Portfolio anticipates that real estate consulting
and management services may be required with respect to properties
securing various municipal obligations in its portfolio or subsequently
acquired by the Portfolio. The Portfolio will incur additional
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expenditures in taking protective action with respect to portfolio
obligations in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety
of factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and
rating of the issue. The ratings of Moody's, S&P and Fitch represent
their opinions as to the quality of the obligations which they undertake
to rate. It should be emphasized, however, that ratings are based on
judgment and are not absolute standards of quality. Consequently,
municipal obligations with the same maturity, coupon and rating may have
different yields while obligations of the same maturity and coupon with
different ratings may have the same yield. In addition, the market price
of municipal obligations will normally fluctuate with changes in interest
rates, and therefore the net asset value of the Portfolio will be affected
by such changes.
RISKS OF CONCENTRATION
OBLIGATIONS OF PARTICULAR TYPES OF ISSUERS. The Portfolio may
invest 25% or more of its total assets in municipal obligations of issuers
located in the same state or in municipal obligations of the same type.
There could be economic, business or political developments which might
affect all municipal obligations of a similar type. In particular,
investments in the industrial revenue bonds listed above might involve
without limitation the following risks.
Hospital bond ratings are often based on feasibility studies which
contain projections of expenses, revenues and occupancy levels. Among the
influences affecting a hospital's gross receipts and net income available
to service its debt are demand for hospital services, the ability of the
hospital to provide the services required, management capabilities,
economic developments in the service area, efforts by insurers and
government agencies to limit rates and expenses, confidence in the
hospital, service area economic developments, competition, availability
and expense of malpractice insurance, Medicaid and Medicare funding and
possible federal legislation limiting the rates of increase of hospital
charges.
Electric utilities face problems in financing large construction
programs in an inflationary period, cost increases and delay occasioned by
safety and environmental considerations (particularly with respect to
nuclear facilities), difficulty in obtaining fuel at reasonable prices,
and in achieving timely and adequate rate relief from regulatory
commissions, effects of energy conservation and limitations on the
capacity of the capital market to absorb utility debt.
Pollution control and other industrial development bonds are issued
by state or local agencies to finance various projects, including those of
domestic steel producers, and may be backed solely by agreements with such
companies. Domestic steel companies are expected to suffer the
consequences of such adverse trends as high labor costs, high foreign
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imports encouraged by foreign productivity increases and a strong U.S.
dollar, and other cost pressures such as those imposed by anti-pollution
legislation. Domestic steel capacity is being reduced currently by
large-scale plant closings and this period of rationalization may not end
until further legislative protection is provided through tariff price
supports or mandatory import quotas, such as those recently enacted for
certain specialty steel products.
Life care facilities are an alternative form of long-term housing
for the elderly which offer residents the independence of a condominium
life style and, if needed, the comprehensive care of nursing home
services. Bonds to finance these facilities have been issued by various
state industrial development authorities. Because the bonds are normally
secured only by the revenues of each facility and not by state or local
government tax payments, they are subject to a wide variety of risks.
Primarily, the projects must maintain adequate occupancy levels to be able
to provide revenues sufficient to meet debt service payments. Moreover,
because a portion of housing, medical care and other services may be
financed by an initial deposit, it is important that the facility maintain
adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost
pressures is an important factor in this process. The facilities may also
be affected adversely by regulatory cost restrictions applied to health
care delivery in general, particularly state regulations or changes in
Medicare and Medicaid payments or qualifications, or restrictions imposed
by medical insurance companies. They may also face competition from
alternative health care or conventional housing facilities in the private
or public sector.
OBLIGATIONS OF PUERTO RICO, U.S. VIRGIN ISLANDS AND GUAM. Subject
to the Portfolio's investment policies as set forth in Part A, the
Portfolio may invest in the obligations of the governments of Puerto Rico,
the U.S. Virgin Islands and Guam. Accordingly, the Portfolio may be
adversely affected by local political and economic conditions and
developments within Puerto Rico affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing
and service sectors. Manufacturing is the largest sector in terms of
gross domestic product and is more diversified than during earlier phases
of Puerto Rico's industrial development. The three largest sectors of the
economy (as a percentage of employment) are services (47%), government
(22%) and manufacturing (16.4%). These three sectors represent 39%, 11%
and 39%, respectively, of the gross domestic product. The service sector
is the fastest growing, while the government and manufacturing sectors
have been stagnant for the past five years. The North American Free Trade
Agreement (NAFTA), which became effective January 1, 1994, could lead to
the loss of Puerto Rico's lower salaried or labor intensive jobs to
Mexico. The August, 1994 unemployment rate was 14.5%, down from 18.2% in
August, 1993.
The Commonwealth of Puerto Rico exercises virtually the same
control over its internal affairs as do the fifty states; however, it
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differs from the states in its relationship with the federal government.
Most federal taxes, except those such as social security taxes that are
imposed by mutual consent, are not levied in Puerto Rico. However, in
conjunction with the 1993 U.S. budget plan, Section 936 of the Code was
amended and provided for two alternative limitations to the Section 936
credit. The first option will limit the credit against such income to 40%
of the credit allowable under current law, with a five year phase-in
period starting at 60% of the allowable credit. The second option is a
wage and depreciation based credit. The reduction of the tax benefits to
those U.S. companies with operations in Puerto Rico may lead to slower
growth in the future. There can be no assurance that these modifications
will not lead to a weakened economy, a lower rating on Puerto Rico's debt
or lower prices for Puerto Rican bonds that may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have
been used frequently to balance recent years' budgets. In November, 1993
Puerto Ricans voted on whether they wished to retain their Commonwealth
status, become a state or establish an independent nation. The measure
was defeated, with 48.5% voting to remain a Commonwealth, 46% voting for
statehood and 4% voting for independence. Retaining Commonwealth status
leaves intact the current relationship with the federal government. There
can be no assurance that the statehood issue will not be brought to a vote
in the future. A successful statehood vote in Puerto Rico would then
require the U.S. Congress to ratify the election.
The United States Virgin Islands (USVI) are located approximately
1,100 miles east-southeast of Miami and are made up of St. Croix, St.
Thomas and St. John. Population, after reaching a peak of 110,800 in
1985, declined to 101,809 in 1990. The economy is heavily reliant on the
tourism industry, with roughly 43% of non-agricultural employment in
tourist-related trade and services. As of April, 1993, unemployment stood
at 2.7%. The tourism industry is economically sensitive and would likely
be adversely affected by a recession in either the United States or
Europe.
An important component of the USVI revenue base is the federal
excise tax on rum exports. Tax revenues rebated by the federal government
to the USVI provide the primary security of many outstanding USVI bonds.
Since more than 90% of the rum distilled in the USVI is distilled at one
plant, any interruption in its operations (as occurred after Hurricane
Hugo in 1989) would adversely affect these revenues. Consequently, there
can be no assurance that rum exports to the United States and the rebate
of tax revenues to the USVI will continue at their present levels. The
preferential tariff treatment the USVI rum industry currently enjoys could
be reduced under NAFTA. Increased competition from Mexican rum producers
could reduce USVI rum imported to the U.S., decreasing excise tax revenues
generated. The USVI experienced budget deficits in fiscal years 1989 and
1990: in 1989 due to wage settlements with the unionized government
employees, and in 1990 as a result of Hurricane Hugo. The USVI recorded a
small surplus in fiscal year 1991. At the end of fiscal 1992, the last
year for which results are available, the USVI had an unreserved General
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Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of
$45.6 million, the Department of Finance has proposed several tax
increases and fund transfers. There is currently no rated, unenhanced
U.S. Virgin Islands debt outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles
southeast of Tokyo. Population, 133,000 in 1990, is up 26% from the 1980
census level. The U.S. military is a key component of Guam's economy.
The federal government directly comprises more than 10% of the employment
base, with a substantial component of the service sector to support these
personnel. Guam is expected to benefit from the closure of the Subic Bay
Naval Base and the Clark Air Force Base in the Philippines. The Naval Air
Station, one of several U.S. military facilities on the island, has been
slated for closure by the Defense Base Closure and Realignment Committee;
however, the administration plans to use these facilities to expand the
Island's commercial airport. Guam is also heavily reliant on tourists,
particularly the Japanese. Unemployment was 3.2% in 1991. For 1994, the
financial position of Guam has weakened further as it incurred an
unaudited General Fund operating deficit. The administration has taken
steps to improve its financial position; however, there are no guarantees
that an improvement will be realized. Guam's general obligation debt is
rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations
therein, which arrangements frequently involve special risks. Municipal
leases are obligations in the form of a lease or installment purchase
arrangement which is entered into by a state or local government to
acquire equipment and facilities. Interest income from such obligations
is generally exempt from local and state taxes in the state of issuance.
"Participations" in such leases are undivided interests in a portion of
the total obligation. Participations entitle their holders to receive a
pro rata share of all payments under the lease. A trustee is usually
responsible for administering the terms of the participation and enforcing
the participants' rights in the underlying lease. Leases and installment
purchase or conditional sale contracts (which normally provide for title
to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements
for the issuance of debt. State debt-issuance limitations are deemed to
be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Such
arrangements are, therefore, subject to the risk that the governmental
issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be
deemed illiquid for purposes of the Portfolio's 15% limitation on
investments in illiquid securities, unless determined by the Investment
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Adviser, pursuant to guidelines adopted by the Trustees of the Portfolio,
to be liquid securities for the purpose of such limitation. In
determining the liquidity of municipal lease obligations, the Investment
Adviser will consider a variety of factors including: (1) the willingness
of dealers to bid for the security; (2) the number of dealers willing to
purchase or sell the obligation and the number of other potential buyers;
(3) the frequency of trades and quotes for the obligation; and (4) the
nature of the marketplace trades. In addition, the Investment Adviser
will consider factors unique to particular lease obligations affecting the
marketability thereof. These include the general creditworthiness of the
municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation
will be maintained throughout the time the obligation is held by the
Portfolio. In the event the Portfolio acquires an unrated municipal lease
obligation, the Investment Adviser will be responsible for determining the
credit quality of such obligation on an ongoing basis, including an
assessment of the likelihood that the lease may or may not be canceled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the
periodic payment of interest and are issued at a significant discount from
face value. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity at a rate of
interest reflecting the market rate of the security at the time of
issuance. Zero coupon bonds benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to
attract investors who are willing to defer receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be
insured as to their scheduled payment of principal and interest under
either (i) an insurance policy obtained by the issuer or underwriter of
the obligation at the time of its original issuance or (ii) an insurance
policy obtained by the Portfolio or a third party subsequent to the
obligation's original issuance (which may not be reflected in the
obligation's market value). In either event, such insurance may provide
that, in the event of nonpayment of interest or principal when due with
respect to an insured obligation, the insurer is not required to make such
payment until a specified time has lapsed (which may be 30 days or more
after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment,
analysis and experience in evaluating the quality of municipal
obligations. In evaluating the credit quality of a particular issue, when
rated or unrated, the Investment Adviser will normally take into
consideration, among other things, the financial resources of the issuer
(or, as appropriate, of the underlying source of funds for debt service),
its sensitivity to economic conditions and trends, any operating history
of and the community support for the facility financed by the issuer, the
ability of the issuer's management and regulatory matters. The Investment
Adviser will attempt to reduce the risks of investing in the lowest
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investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and
attention to current developments and trends in the economy and the
financial markets.
SHORT-TERM TRADING
The Portfolio may sell securities in anticipation of a market
decline (a rise in interest rates) or purchase and later sell securities
in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately
the same time to take advantage of what the Portfolio believes to be a
temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related
to the investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for or supply of
various types of municipal obligations or changes in the investment
objectives of investors. Such trading may be expected to increase the
portfolio turnover rate, which may increase capital gains and the expenses
incurred in connection with such trading. The Portfolio anticipates that
its annual portfolio turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less).
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a
"when-issued" basis, that is, delivery and payment for the securities
normally take place within a specified number of days after the date of
the Portfolio's commitment and are subject to certain conditions such as
the issuance of satisfactory legal opinions. The Portfolio may also
purchase securities on a when-issued basis pursuant to refunding contracts
in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts generally require the issuer to sell
and the Portfolio to buy such securities on a settlement date that could
be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued
securities only with the intention of actually acquiring the securities,
but may sell such securities before the settlement date if it is deemed
advisable as a matter of investment strategy. The payment obligation and
the interest rate that will be received on the securities are fixed at the
time the Portfolio enters into the purchase commitment. The Portfolio's
custodian will segregate cash or high grade liquid debt securities in a
separate account of the Portfolio in an amount at least equal to the
when-issued commitments. If the value of the securities placed in the
separate account declines, additional cash or high grade liquid debt
securities will be placed in the account on a daily basis so that the
value of the account will at least equal the amount of the Portfolio's
when-issued commitments. When the Portfolio commits to purchase a
security on a when-issued basis, it records the transaction and reflects
the value of the security in determining its net asset value. Securities
purchased on a when-issued basis and the securities held by the Portfolio
are subject to changes in value based upon the perception of the
creditworthiness of the issuer and changes in the level of interest rates
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(i.e., appreciation when interest rates decline and depreciation when
interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased
securities on a when-issued basis, there will be greater fluctuations in
the Portfolio's net asset value than if it solely set aside cash to pay
for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified
intervals (weekly, monthly, semi-annually, etc.). The revised rates are
usually set at the issuer's discretion, in which case the investor
normally enjoys the right to "put" the security back to the issuer or his
agent. Rate revisions may alternatively be determined by formula or in
some other contractual fashion. Variable rate obligations normally
provide that the holder can demand payment of the obligation on short
notice at par with accrued interest and are frequently secured by letters
of credit or other credit support arrangements provided by banks. To the
extent that such letters of credit or other arrangements constitute an
unconditional guarantee of the issuer's obligations, a bank may be treated
as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the 1940 Act and
Rule 5b-2 thereunder. The Portfolio would anticipate using these
obligations as cash equivalents pending longer term investment of its
funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it
is commonplace for the issuer to reserve the right to call the bond
earlier. Also, some bonds may have "put" or "demand" features that allow
early redemption by the bondholder. Interest income generated by certain
bonds having demand features may not qualify as tax-exempt interest.
Longer term fixed-rate bonds may give the holder a right to request
redemption at certain times (often annually after the lapse of an
intermediate term). These bonds are more defensive than conventional long
term bonds (protecting to some degree against a rise in interest rates)
while providing greater opportunity than comparable intermediate term
bonds, because the Portfolio may retain the bond if interest rates
decline. By acquiring these kinds of obligations the Portfolio obtains
the contractual right to require the issuer of the security or some other
person (other than a broker or dealer) to purchase the security at an
agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
Because this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not
assign any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the
seller of the security or some other person granting the Portfolio the
right to put the security to the seller thereof or the other person at an
agreed upon price. The Portfolio intends to limit this type of
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transaction to institutions (such as banks or securities dealers) which
the Investment Adviser believes present minimal credit risks and would
engage in this type of transaction to facilitate portfolio liquidity or
(if the seller so agrees) to hedge against rising interest rates. There
is no assurance that this kind of put option will be available to the
Portfolio or that selling institutions will be willing to permit the
Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and
sale of the security to a third party or lapse of time with the put
unexercised may terminate the right to exercise the put. The Portfolio
does not expect to assign any value to any separate put option which may
be acquired to facilitate portfolio liquidity, inasmuch as the value (if
any) of the put will be reflected in the value assigned to the associated
security; any put acquired for hedging purposes would be valued in good
faith under methods or procedures established by the Trustees after
consideration of all relevant factors, including its expiration date, the
price volatility of the associated security, the difference between the
market price of the associated security and the exercise price of the put,
the creditworthiness of the issuer of the put and the market prices of
comparable put options. Interest income generated by certain bonds having
put features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by
the Portfolio's custodian and maintained on a current basis at an amount
at least equal to the market value of the securities loaned, which will be
marked to market daily. Cash equivalents include short-term municipal
obligations as well as taxable certificates of deposit, commercial paper
and other short-term money market instruments. The Portfolio would have
the right to call a loan and obtain the securities loaned at any time on
up to five business days' notice. During the existence of a loan, the
Portfolio will continue to receive the equivalent of the interest paid by
the issuer on the securities loaned and will also receive a fee, or all or
a portion of the interest on investment of the collateral, if any.
However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not 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 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 securities
loaned if the borrower of the securities fails financially. However, the
loans will be made only to organizations deemed by the Portfolio's
management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from
securities loans of this type justifies the attendant risk. Income
realized by the Portfolio from securities loans will be taxable. If the
management of the Portfolio decides to make securities loans, it is
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intended that the value of the securities loaned would not exceed 30% of
the Portfolio's total assets.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio
expects to purchase). To hedge against changes in rates or for
non-hedging purposes, the Portfolio may enter into (i) futures contracts
for the purchase or sale of debt securities, (ii) futures contracts on
securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is
a member of the relevant exchange. The Portfolio may purchase and write
call and put options on futures contracts which are traded on a United
States or foreign exchange or board of trade.
The Portfolio will engage in futures and related options
transactions only for BONA FIDE hedging or non-hedging purposes as defined
in or permitted by CFTC regulations. The Portfolio will determine that
the price fluctuations in the futures contracts and options on futures
used for hedging purposes are substantially related to price fluctuations
in securities held by the Portfolio or which it expects to purchase.
Except as stated below, the Portfolio's futures transactions will be
entered into for traditional hedging purposes - that is, futures contracts
will be sold to protect against a decline in the price of securities that
the Portfolio owns, or futures contracts will be purchased to protect the
Portfolio against an increase in the price of securities it intends to
purchase. As evidence of this hedging intent, the Portfolio expects that
on 75% or more of the occasions on which it takes a long futures (or
option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the time
when the futures (or option) position is closed out. However, in
particular cases, when it is economically advantageous for the Portfolio
to do so, a long futures position may be terminated (or an option may
expire) without the corresponding purchase of securities. As an
alternative to compliance with the BONA FIDE hedging definition, a CFTC
regulation permits the Portfolio to elect to comply with a different test,
under which the aggregate initial margin and premiums required to
establish non-hedging positions in futures contracts and options on
futures will not exceed 5% of the Portfolio's net asset value after taking
into account unrealized profits and losses on such positions and excluding
the in-the-money amount of such options. The Portfolio will engage in
transactions in futures and related options contracts only to the extent
such transactions are consistent with the requirements of the Internal
Revenue Code for maintaining the qualification of each of the Portfolio's
investment company investors as a regulated investment company for federal
income tax purposes (see "Tax Status").
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The Portfolio will be required, in connection with transactions in
futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit
of the futures commission merchant through whom the Portfolio engages in
such futures and options transactions. Cash or liquid high-grade debt
securities required to be segregated in connection with a "long" futures
position taken by the Portfolio will also be held by the custodian in a
segregated account and will be marked to market daily.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate,
but it is anticipated that the annual turnover rate will generally not
exceed 100% (excluding turnover of securities having a maturity of one
year or less). A 100% annual turnover rate would occur, for example, if
all the securities held by the Portfolio were replaced once in a period of
one year. A high turnover rate (100% or more) necessarily involves
greater expenses to the Portfolio. The Portfolio engages in portfolio
trading (including short-term trading) if it believes that a transaction
including all costs will help in achieving its investment objective.
INVESTMENT RESTRICTIONS
Whenever an investment policy or investment restriction set forth in
Part A or this Part B states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding
quality standards, such percentage limitation or standard shall be
determined immediately after and as a result of the Portfolio's
acquisition of such security or other asset. Accordingly, any later
increase or decrease resulting from a change in values, assets or other
circumstances, other than a subsequent rating change below investment
grade made by a rating service, will not compel the Portfolio to dispose
of such security or other asset.
The Portfolio has adopted the following investment restrictions
which may not be changed without the approval of the holders of a
"majority of the outstanding voting securities" of the Portfolio, which as
used in this Part B means the lesser of (a) 67% or more of the outstanding
voting securities of the Portfolio present or represented by proxy at a
meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or
(b) 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. As a matter of fundamental policy, the
Portfolio may not:
(1) Borrow money or issue senior securities except as permitted by
the Investment Company Act of 1940;
(2) Purchase securities on margin (but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities). The deposit or payment by the Portfolio of initial
or maintenance margin in connection with futures contracts or related
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options transactions is not considered the purchase of a security on
margin;
(3) Underwrite or participate in the marketing of securities of
others, except insofar as it may technically be deemed to be an
underwriter in selling a portfolio security under circumstances which may
require the registration of the same under the Securities Act of 1933;
(4) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies
which invest or deal in real estate;
(5) Purchase or sell physical commodities or contracts for the
purchase or sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
The Portfolio has adopted the following investment policies which
may be changed by the Portfolio without approval of its investors. As a
matter of nonfundamental policy, the Portfolio may not: (a) engage in
options, futures or forward transactions if more than 5% of its net
assets, as measured by the aggregate of the premiums paid by the
Portfolio, would be so invested; (b) make short sales of securities or
maintain a short position, unless at all times when a short position is
open the Portfolio owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount
to, the securities sold short; (c) invest more than 15% of its net assets
in investments which are not readily marketable, including restricted
securities and repurchase agreements maturing in more than seven days.
Restricted securities for the purposes of this limitation do not include
securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933 that the Board of Trustees, or its delegate, determines to be
liquid, based upon the trading markets for the specific security; (d)
purchase or retain in its portfolio any securities issued by an issuer any
of whose officers, directors, trustees or security holders is an officer
or Trustee of the Portfolio or is a member, officer, director or trustee
of any investment adviser of the Portfolio, 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);
or (e) purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
For purposes of the Portfolio's investment restrictions, the
determination of the "issuer" of a municipal obligation which is not a
general obligation bond will be made by the Investment Adviser on the
basis of the characteristics of the obligation and other relevant factors,
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the most significant of which is the source of funds committed to meeting
interest and principal payments of such obligation.
In order to permit the sale in certain states of shares of certain
open-end investment companies which are investors in the Portfolio, the
Portfolio may adopt policies more restrictive than the policies described
above. Should the Portfolio determine that any such policy is no longer
in the best interests of the Portfolio and its investors, it will revoke
such policy.
ITEM 14. MANAGEMENT OF THE PORTFOLIO
The Trustees and officers of the Portfolio are listed below. Except
as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's
investment adviser, Boston Management and Research ("BMR" or the
"Investment Adviser"), which is a wholly-owned subsidiary of Eaton Vance
Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance Corp.
("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Trustees who are "interested persons" of the Portfolio, BMR, Eaton Vance,
EVC or EV, as defined in the 1940 Act, by virtue of their affiliation with
any one or more of the Portfolio, BMR, Eaton Vance, EVC or EV, are
indicated by an asterisk (*).
TRUSTEES OF THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and
communications company) founded in 1988; Chairman of the Board of
Newspapers of New England, Inc. since 1983. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director
of EVC and EV. Director or Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University
Graduate School of Business Administration. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding
company owning institutional investment management firms. Chairman,
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President and Director, The Regis Fund, Inc. (mutual fund). Director or
Trustee of various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
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OFFICERS OF THE PORTFOLIO
THOMAS J. FETTER (51), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV.
Employee of Eaton Vance since March 8, 1991. Fidelity Investments -
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Treasurer and Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor,
The Boston Company (1991-1993) and Registration Specialist, Fidelity
Management & Research Co. (1986-1991). Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS M. METZOLD (36), Vice President
Vice President of BMR, Eaton Vance and EV.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the
Special Committee of the Board of Trustees. The Special Committee's
functions include a continuous review of the Portfolio's contractual
relationship with the Investment Adviser, making recommendations to the
Trustees regarding the compensation of those Trustees who are not members
of the Eaton Vance organization, and making recommendations to the
Trustees regarding candidates to fill vacancies, as and when they occur,
in the ranks of those Trustees who are not "interested persons" of the
Portfolio or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit
Committee of the Board of Trustees. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection of
the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Portfolio matters relative to
accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian
and transfer agent of the Portfolio.
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The fees and expenses of those Trustees of the Portfolio who are not
members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Portfolio. (The Trustees of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Portfolio).
During the fiscal year ending January 31, 1996, it is estimated that the
noninterested Trustees of the Portfolio will earn the following
compensation in their capacities as Trustees of the Portfolio, and during
the quarter ended March 31, 1995, the noninterested Trustees of the
Portfolio earned the following compensation in their capacities as
Trustees of the other funds in the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Aggregate Retirement Total
Compensation Benefit Compensation from
from Accrued from Trust and Fund
Name Portfolio Fund Complex Complex
----- --------- ------------ -----------------
Donald R. Dwight $250(2) $ 8,750 $33,750
Samuel L. Hayes, III 250(3) 24,885 41,250
Norton H. Reamer 250 -0- 33,750
John L. Thorndike 250 -0- 35,000
Jack L. Treynor 250 -0- 35,000
</TABLE>
(1) The Eaton Vance fund complex consists of 201 registered investment
companies or series thereof.
(2) Includes $3 of deferred compensation.
(3) Includes $3 of deferred compensation.
Trustees of the Portfolio who are not affiliated with BMR may
elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his
deferred fees invested by the Portfolio in the shares of one or more funds
in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Plan will
have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the
services of any Trustee or obligate the Portfolio to pay any particular
level of compensation to the Trustee.
The Portfolio's Declaration of Trust provides that it will
indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved
because of their offices with the Portfolio, unless, as to liability to
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the Portfolio or its investors, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect
to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Portfolio. In the case of settlement, such
indemnification will not be provided unless it has been determined by a
court or other body approving the settlement or other disposition, or by a
reasonable determination, based upon a review of readily available facts,
by vote of a majority of noninterested 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 HOLDER OF SECURITIES
As of May 15, 1995, BMR controlled the Portfolio by virtue of
owning more than 98% of the outstanding voting securities of the
Portfolio. BMR is a Massachusetts business trust and a wholly-owned
subsidiary of Eaton Vance.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER. The Portfolio engages BMR as investment
adviser pursuant to an Investment Advisory Agreement dated _______, 1995.
BMR or Eaton Vance acts as investment adviser to investment companies and
various individual and institutional clients with combined assets under
management of approximately $15 billion.
BMR manages the investments and affairs of the Portfolio subject
to the supervision of the Portfolio's Board of Trustees. BMR furnishes to
the Portfolio investment research, advice and supervision, furnishes an
investment program and determines what securities will be purchased, held
or sold by the Portfolio and what portion, if any, of the Portfolio's
assets will be held uninvested. The Investment Advisory Agreement
requires the Investment Adviser to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the Investment
Adviser's organization and all personnel of the Investment Adviser
performing services relating to research and investment activities. The
Portfolio is responsible for all expenses not expressly stated to be
payable by the Investment Adviser under the Investment Advisory Agreement,
including, without implied limitation, (i) expenses of maintaining the
Portfolio and continuing its existence, (ii) registration of the Portfolio
under the 1940 Act, (iii) commissions, fees and other expenses connected
with the acquisition, holding and disposition of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and
redemption of interests in the Portfolio, (viii) expenses of registering
and qualifying the Portfolio and interests in the Portfolio under federal
and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and
for distributing the same to investors, and fees and expenses of
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registering and maintaining registrations of the Portfolio and of the
Portfolio's placement agent as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to investors and of
meetings of investors and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and disbursements
of custodians and subcustodians for all services to the Portfolio
(including without limitation safekeeping for funds, securities and other
investments, keeping of books, accounts and records, and determination of
net asset values, book capital account balances and tax capital account
balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for
all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees
of the Portfolio, (xvii) compensation and expenses of Trustees of the
Portfolio who are not members of the Investment Adviser's organization,
and (xviii) such nonrecurring items as may arise, including expenses
incurred in connection with litigation, proceedings and claims and the
obligation of the Portfolio to indemnify its Trustees, officers and
investors with respect thereto.
The Portfolio pays the Investment Adviser as compensation under
the Investment Advisory Agreement a monthly fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each Category
as indicated below, plus (b) a daily income-based fee computed by applying
the daily income rate applicable to that portion of the total daily gross
income (which portion shall bear the same relationship to the total daily
gross income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Annual Daily
Asset Income
Category Daily Net Assets Rate Rate
-------- ---------------- ------ ------
1 up to $500 million 0.400% 4.00%
2 $500 million but less than $1 billion 0.375% 3.75%
3 $1 billion but less than $1.5 billion 0.350% 3.50%
4 $1.5 billion but less than $2 billion 0.325% 3.25%
5 $2 billion but less than $3 billion 0.300% 3.00%
6 $3 billion and over 0.275% 2.75%
</TABLE>
The Investment Advisory Agreement with the Investment Adviser
remains in effect until February 28, 1996. It may be continued
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indefinitely thereafter so long as such continuance is approved at least
annually (i) by the vote of a majority of the Trustees of the Portfolio
who are not interested persons of the Portfolio or of the Investment
Adviser cast in person at a meeting specifically called for the purpose of
voting on such approval and (ii) by the Board of Trustees of the Portfolio
or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on
sixty (60) days' written notice by the Board of Trustees of either party,
or by vote of the majority of the outstanding voting securities of the
Portfolio, and the Agreement will terminate automatically in the event of
its assignment. The Agreement provides that the Investment Adviser may
render services to others and engage in other business activities and may
permit other fund clients and other corporations and organizations to use
the words "Eaton Vance" or "Boston Management and Research" in their
names. The Agreement also provides that the Investment Adviser shall not
be liable for any loss incurred in connection with the performance of its
duties, or action taken or omitted under that Agreement, in the absence of
willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and
duties thereunder, or for any losses sustained in the acquisition, holding
or disposition of any security or other investment.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and
EV are both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are
both Massachusetts business trusts, and EV is the Trustee of the
Investment Adviser and Eaton Vance. The Directors of EV are Landon T.
Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes and Benjamin
A. Rowland, Jr. The Directors of EVC consist of the same persons and John
G.L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner is
president and chief executive officer of EVC, the Investment Adviser,
Eaton Vance and EV. All of the issued and outstanding shares of Eaton
Vance and EV are owned by EVC. All of the issued and outstanding shares
of the Investment Adviser are owned by Eaton Vance. All shares of the
outstanding Voting Common Stock of EVC are deposited in a Voting Trust,
which expires on December 31, 1996, the Voting Trustees of which are
Messrs. Clay, Brigham, Gardner, Hawkes and Rowland. The Voting Trustees
have unrestricted voting rights for the election of Directors of EVC. All
of the outstanding voting trust receipts issued under said Voting Trust
are owned by certain of the officers of the Investment Adviser and Eaton
Vance who are also officers and Directors of EVC and EV. As of April 30,
1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively,
of such voting trust receipts. Messrs. Hawkes and Otis are officers or
Trustees of the Portfolio and are members of the EVC, Investment Adviser,
Eaton Vance and EV organizations. Messrs. Fetter, MacIntosh, Metzold,
Murphy and O'Connor and Ms. Sanders are officers of the Portfolio and are
members of the Investment Adviser, Eaton Vance and EV organizations. BMR
will receive the fees paid under the Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which
is engaged in oil and gas operations. EVC owns all of the stock of
Marblehead Energy Corp. (which is engaged in oil and gas operations) and
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77.3% of the stock of Investors Bank & Trust Company, custodian of the
Portfolio, which provides custodial, trustee and other fiduciary services
to investors, including individuals, employee benefit plans, corporations,
investment companies, savings banks and other institutions. In addition,
Eaton Vance owns all of the stock of Northeast Properties, Inc., which is
engaged in real estate investment, consulting and management. EVC owns
all of the stock of Fulcrum Management, Inc. and MinVen Inc., which are
engaged in the development of precious metal properties. EVC, the
Investment Adviser, Eaton Vance and EV may also enter into other
businesses.
EVC and its affiliates and their officers and employees from time
to time have transactions with various banks, including the custodian of
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's
opinion that the terms and conditions of such transactions were not and
will not be influenced by existing or potential custodial or other
relationships between the Portfolio and such banks.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 24 Federal
Street, Boston, Massachusetts (a 77.3% owned subsidiary of EVC), acts as
custodian for the Portfolio. IBT has the custody of all of the
Portfolio's assets, maintains the general ledger of the Portfolio and
computes the daily net asset value of interests in the Portfolio. In such
capacity it attends to details in connection with the sale, exchange,
substitution or transfer of, or other dealings with, the Portfolio's
investments, receives and disburses all funds, and performs various other
ministerial duties upon receipt of proper instructions from the Portfolio.
IBT charges fees which are competitive within the industry. A portion of
the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Portfolio net assets and a portion of the fee
relates to activity charges, primarily the number of portfolio
transactions. These fees are then reduced by a credit for cash balances
of the particular investment company at the custodian equal to 75% of the
91-day, U.S. Treasury Bill auction rate applied to the particular
investment company's average daily collected balances for the week. In
view of the ownership of EVC in IBT, the Portfolio is treated as a
self-custodian pursuant to Rule 17f-2 under the 1940 Act, and the
Portfolio's investments held by IBT as custodian are thus subject to the
additional examinations by the Portfolio's independent certified public
accountants as called for by such Rule.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. Deloitte & Touche LLP,
125 Summer Street, Boston, Massachusetts, are the independent certified
public accountants of the Portfolio, providing audit services, tax return
preparation, and assistance and consultation with respect to the
preparation of filings with the Commission.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
Decisions concerning the execution of portfolio security
transactions, including the selection of the market and the executing
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firm, are made by BMR. BMR is also responsible for the execution of
transactions for all other accounts managed by it.
BMR places the portfolio security transactions of the Portfolio
and of all other accounts managed by it for execution with many firms.
BMR uses its best efforts to obtain execution of portfolio security
transactions at prices which are advantageous to the Portfolio and at
reasonably competitive spreads or (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such
execution, BMR will use its best judgment in evaluating the terms of a
transaction and will give consideration to various relevant factors
including, without limitation, the size and type of the transaction, the
nature and character of the market for the security, the confidentiality,
speed and certainty of effective execution required for the transaction,
the general execution and operational capabilities of the executing firm,
the reputation, reliability, experience and financial condition of the
firm, the value and quality of the services rendered by the firm in this
and other transactions, and the reasonableness of the spread or
commission, if any. Municipal obligations purchased and sold by the
Portfolio are generally traded in the over-the-counter market on a net
basis (i.e., without commission) through broker-dealers and banks acting
for their own account rather than as brokers, or otherwise involve
transactions directly with the issuer of such obligations. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked price is customarily referred to
as the spread. The Portfolio may also purchase municipal obligations from
underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the
Portfolio will not pay significant brokerage commissions in connection
with such portfolio security transactions, on occasion it may be necessary
or appropriate to purchase or sell a security through a broker on an
agency basis, in which case the Portfolio will incur a brokerage
commission. Although spreads or commissions on portfolio security
transactions will, in the judgment of BMR, be reasonable in relation to
the value of the services provided, spreads or commissions exceeding those
which another firm might charge may be paid to firms who were selected to
execute transactions on behalf of the Portfolio and BMR's other clients
for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of
1934, a broker or dealer who executes a portfolio transaction on behalf of
the Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which
BMR and its affiliates have for accounts over which they exercise
investment discretion. In making any such determination, BMR will not
attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
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<PAGE>
related to such services. Brokerage and research services may include
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; effecting securities
transactions and performing functions incidental thereto (such as
clearance and settlement); and the "Research Services" referred to in the
next paragraph.
It is a common practice of the investment advisory industry and
of the advisers of investment companies, institutions and other investors
to receive research, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in
the performance of their investment responsibilities ("Research Services")
from broker-dealer firms which execute portfolio transactions for the
clients of such advisers and from third parties with which such
broker-dealers have arrangements. Consistent with this practice, BMR
receives Research Services from many broker-dealer firms with which BMR
places the Portfolio's transactions and from third parties with which
these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and
transactions and recommendations as to the purchase and sale of securities
and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation
equipment and services, and research oriented computer hardware, software,
data bases and services. Any particular Research Service obtained through
a broker-dealer may be used by BMR in connection with client accounts
other than those accounts which pay commissions to such broker-dealer.
Any such Research Service may be broadly useful and of value to BMR in
rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid
by the Portfolio is not reduced because BMR receives such Research
Services. BMR evaluates the nature and quality of the various Research
Services obtained through broker-dealer firms and attempts to allocate
sufficient commissions to such firms to ensure the continued receipt of
Research Services which BMR believes are useful or of value to it in
rendering investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to
seek and execute portfolio security transactions at advantageous prices
and at reasonably competitive spreads or commission rates, BMR is
authorized to consider as a factor in the selection of any firm with whom
portfolio orders may be placed the fact that such firm has sold or is
selling shares of any investment company sponsored by BMR or Eaton Vance.
This policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc., which rule provides that no firm which is a
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<PAGE>
member of the Association shall favor or disfavor the distribution of
shares of any particular investment company or group of investment
companies on the basis of brokerage commissions received or expected by
such firm from any source.
Municipal obligations considered as investments for the Portfolio
may also be appropriate for other investment accounts managed by BMR or
its affiliates. BMR will attempt to allocate equitably portfolio security
transactions among the Portfolio and the portfolios of its other
investment accounts purchasing municipal obligations whenever decisions
are made to purchase or sell securities by the Portfolio and one or more
of such other accounts simultaneously. In making such allocations, the
main factors to be considered are the respective investment objectives of
the Portfolio and such other accounts, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash
for investment by the Portfolio and such accounts, the size of investment
commitments generally held by the Portfolio and such accounts and the
opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a
detrimental effect on the price or amount of the securities available to
the Portfolio from time to time, it is the opinion of the Trustees of the
Portfolio that the benefits available from the BMR organization outweigh
any disadvantage that may arise from exposure to simultaneous
transactions.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
Under the Portfolio's Declaration of Trust, the Trustees are
authorized to issue interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain and
credit of the Portfolio. Upon dissolution of the Portfolio, the Trustees
shall liquidate the assets of the Portfolio and apply and distribute the
proceeds thereof as follows: (a) first, to the payment of all debts and
obligations of the Portfolio to third parties including, without
limitation, the retirement of outstanding debt, including any debt owed to
holders of record of interests in the Portfolio ("Holders") or their
affiliates, and the expenses of liquidation, and to the setting up of any
reserves for contingencies which may be necessary; and (b) second, in
accordance with the Holders' positive Book Capital Account balances after
adjusting Book Capital Accounts for certain allocations provided in the
Declaration of Trust and in accordance with the requirements described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2). Notwithstanding the
foregoing, if the Trustees shall determine that an immediate sale of part
or all of the assets of the Portfolio would cause undue loss to the
Holders, the Trustees, in order to avoid such loss, may, after having
given notification to all the Holders, to the extent not then prohibited
by the law of any jurisdiction in which the Portfolio is then formed or
qualified and applicable in the circumstances, either defer liquidation of
and withhold from distribution for a reasonable time any assets of the
Portfolio except those necessary to satisfy the Portfolio's debts and
obligations or distribute the Portfolio's assets to the Holders in
liquidation. Interests in the Portfolio have no preference, preemptive,
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<PAGE>
conversion or similar rights and are fully paid and nonassessable, except
as set forth below. Interests in the Portfolio may not be transferred.
Certificates representing an investor's interest in the Portfolio are
issued only upon the written request of a Holder.
Each Holder is entitled to vote in proportion to the amount of
its interest in the Portfolio. Holders do not have cumulative voting
rights. The Portfolio is not required and has no current intention to
hold annual meetings of Holders, but the Portfolio will hold meetings of
Holders when in the judgment of the Portfolio's Trustees it is necessary
or desirable to submit matters to a vote of Holders at a meeting. Any
action which may be taken by Holders may be taken without a meeting if
Holders holding more than 50% of all interests entitled to vote (or such
larger proportion thereof as shall be required by any express provision of
the Declaration of Trust of the Portfolio) consent to the action in
writing and the consents are filed with the records of meetings of
Holders.
The Portfolio's Declaration of Trust may be amended by vote of
Holders of more than 50% of all interests in the Portfolio at any meeting
of Holders or by an instrument in writing without a meeting, executed by a
majority of the Trustees and consented to by the Holders of more than 50%
of all interests. The Trustees may also amend the Declaration of Trust
(without the vote or consent of Holders) to change the Portfolio's name or
the state or other jurisdiction whose law shall be the governing law, to
supply any omission or cure, correct or supplement any ambiguous,
defective or inconsistent provision, to conform the Declaration of Trust
to applicable federal law or regulations or to the requirements of the
Internal Revenue Code, or to change, modify or rescind any provision,
provided that such change, modification or rescission is determined by the
Trustees to be necessary or appropriate and not to have a materially
adverse effect on the financial interests of the Holders. No amendment of
the Declaration of Trust which would change any rights with respect to any
Holder's interest in the Portfolio by reducing the amount payable thereon
upon liquidation of the Portfolio may be made, except with the vote or
consent of the Holders of two-thirds of all interests. References in the
Declaration of Trust and in Part A or this Part B to a specified
percentage of, or fraction of, interests in the Portfolio, means Holders
whose combined Book Capital Account balances represent such specified
percentage or fraction of the combined Book Capital Account balance of
all, or a specified group of, Holders.
The Portfolio may merge or consolidate with any other
corporation, association, trust or other organization or may sell or
exchange all or substantially all of its assets upon such terms and
conditions and for such consideration when and as authorized by the
Holders of (a) 67% or more of the interests in the Portfolio present or
represented at the meeting of Holders, if Holders of more than 50% of all
interests are present or represented by proxy, or (b) more than 50% of all
interests, whichever is less. The Portfolio may be terminated (i) by the
affirmative vote of Holders of not less than two-thirds of all interests
at any meeting of Holders or by an instrument in writing without a
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<PAGE>
meeting, executed by a majority of the Trustees and consented to by
Holders of not less than two-thirds of all interests, or (ii) by the
Trustees by written notice to the Holders.
In accordance with the Declaration of Trust, there normally will
be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event, the Trustees of
the Portfolio then in office will call an investors' meeting for the
election of Trustees. Except for the foregoing circumstances, and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust provides that no person shall serve as a
Trustee if investors holding two-thirds of the outstanding interests have
removed him from that office either by a written declaration or by votes
cast at a meeting called for that purpose. The Declaration of Trust
further provides that under certain circumstances, the investors may call
a meeting to remove a Trustee and that the Portfolio is required to
provide assistance in communicating with investors about such a meeting.
The Portfolio is organized as a trust under the laws of the State
of New York. Investors in the Portfolio will be held personally liable
for its obligations and liabilities, subject, however, to indemnification
by the Portfolio in the event that there is imposed upon an investor a
greater portion of the liabilities and obligations of the Portfolio than
its proportionate interest in the Portfolio. The Portfolio intends to
maintain fidelity and errors and omissions insurance deemed adequate by
the Trustees. Therefore, the risk of an investor incurring financial loss
on account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet
its obligations.
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects
a Trustee against any liability to which he would otherwise be subject by
reason of 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
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the Securities Act of 1933. See "Purchase of Interests
in the Portfolio" and "Redemption or Decrease of Interest" in Part A.
ITEM 20. TAX STATUS
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<PAGE>
The Portfolio has been advised by tax counsel that, provided the
Portfolio is operated at all times during its existence in accordance with
certain organizational and operational documents, the Portfolio should be
classified as a partnership under the Internal Revenue Code of 1986, as
amended (the "Code"), and it should not be a "publicly traded partnership"
within the meaning of Section 7704 of the Code. Consequently, the
Portfolio does not expect that it will be required to pay any federal
income tax, and a Holder will be required to take into account in
determining its federal income tax liability its share of the Portfolio's
income, gains, losses, deductions and tax preference items.
Under Subchapter K of the Code, a partnership is considered to be
either an aggregate of its members or a separate entity depending upon the
factual and legal context in which the question arises. Under the
aggregate approach, each partner is treated as an owner of an undivided
interest in partnership assets and operations. Under the entity approach,
the partnership is treated as a separate entity in which partners have no
direct interest in partnership assets and operations. The Portfolio has
been advised by tax counsel that, in the case of a Holder that seeks to
qualify as a RIC, the aggregate approach should apply, and each such
Holder should accordingly be deemed to own a proportionate share of each
of the assets of the Portfolio and to be entitled to the gross income of
the Portfolio attributable to that share for purposes of all requirements
of Sections 851(b) and 852(b)(5) of the Code. Further, the Portfolio has
been advised by tax counsel that each Holder that seeks to qualify as a
RIC 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 Holder has been an investor in the Portfolio, whichever is shorter.
Investors should consult their tax advisers regarding whether the entity
or the aggregate approach applies to their investment in the Portfolio in
light of their particular tax status and any special tax rules applicable
to them.
In order to enable a Holder that is otherwise eligible to qualify
as a RIC, the Portfolio intends to satisfy the requirements of Subchapter
M of the Code relating to sources of income and diversification of assets
as if they were applicable to the Portfolio and to allocate and permit
withdrawals in a manner that will enable a Holder which is a RIC to comply
with those requirements. The Portfolio will allocate at least annually to
each Holder it'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 Treasury regulations. Tax counsel has advised the Portfolio
that the Portfolio's allocations of taxable income and loss should have
"economic effect" under applicable Treasury regulations.
To the extent the cash proceeds of any withdrawal (or, under
certain circumstances, such proceeds plus the value of any marketable
securities distributed to an investor) ("liquid proceeds") exceed a
Holder's adjusted basis of his interest in the Portfolio, the Holder will
generally realize a gain for federal income tax purposes. If, upon a
complete withdrawal (redemption of the entire interest), the Holder's
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adjusted basis of his interest exceeds the liquid proceeds of such
withdrawal, the Holder will generally realize a loss for federal income
tax purposes. The tax consequences of a withdrawal of property (instead
of or in addition to liquid proceeds) will be different and will depend on
the specific factual circumstances. A Holder's adjusted basis of an
interest in the Portfolio will generally be the aggregate prices paid
therefor (including the adjusted basis of contributed property and any
gain recognized on such contribution), increased by the amounts of the
Holder's distributive share of items of income (including interest income
exempt from federal income tax) and realized net gain of the Portfolio,
and reduced, but not below zero, by (i) the amounts of the Holder's
distributive share of items of Portfolio loss, and (ii) the amount of any
cash distributions (including distributions of interest income exempt from
federal income tax and cash distributions on withdrawals from the
Portfolio) and the basis to the Holder of any property received by such
Holder other than in liquidation, and (iii) the Holder's distributive
share of the Portfolio's nondeductible expenditures not properly
chargeable to capital account. Increases or decreases in a Holder's share
of the Portfolio's liabilities may also result in corresponding increases
or decreases in such adjusted basis. Distributions of liquid proceeds in
excess of a Holder's adjusted basis in its interest in the Portfolio
immediately prior thereto generally will result in the recognition of gain
to the Holder in the amount of such excess.
The Portfolio may acquire zero coupon or other securities issued
with original issue discount. As the holder of those securities, the
Portfolio must account for the original issue discount (even on municipal
securities) that accrues on the securities during the taxable year, even
if it receives no corresponding payment on the securities during the year.
Because each Holder that is a RIC annually must distribute substantially
all of its investment company taxable income and net tax-exempt income,
including any original issue discount, to qualify for treatment as a RIC,
any such Holder may be required in a particular year to distribute as an
"exempt-interest dividend" an amount that is greater than its pro-
portionate share of the total amount of cash the Portfolio actually
receives. Those distributions will be made from the Holder's cash assets,
if any, or from its proportionate share of the Portfolio's cash assets or
the proceeds of sales of the Portfolio's securities, if necessary. The
Portfolio may realize capital gains or losses from those sales, which
would increase or decrease the investment company taxable income and/or
net capital gain (the excess of net long-term capital gain over net short-
term capital loss) of a Holder that is a RIC. In addition, any such gains
may be realized on the disposition of securities held for less than three
months. Because of the Short-Short Limitation (defined below), any such
gains would reduce the Portfolio's ability to sell other securities, or
options or futures contracts, held for less than three months that it
might wish to sell in the ordinary course of its portfolio management.
Investments in lower rated or unrated securities may present
special tax issues for the Portfolio and hence to an investor in the
Portfolio to the extent actual or anticipated defaults may be more likely
with respect to such securities. Tax rules are not entirely clear about
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issues such as when the Portfolio may cease to accrue interest, original
issue discount, or market discount; when and to what extent deductions may
be taken for bad debts or worthless securities; how payments received on
obligations in default should be allocated between principal and income;
and whether exchanges of debt obligations in a workout context are
taxable.
In order for a Holder that is a RIC to be entitled to pay the
tax-exempt interest income the Portfolio allocates to it as
exempt-interest dividends to its shareholders, the Holder must satisfy
certain requirements, including the requirement that, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which is excludable from gross
income under Section 103(a) of the Code. The Portfolio intends to
concentrate its investments in such tax-exempt obligations to an extent
that will enable a RIC that invests its investable assets in the Portfolio
to satisfy this 50% requirement.
Interest on certain municipal obligations is treated as a tax
preference item for purposes of the federal alternative minimum tax.
Holders that are required to file federal income tax returns are required
to report tax-exempt interest allocated to them by the Portfolio on such
returns.
From time to time proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income tax
exemption for interest on certain types of municipal obligations, and it
can be expected that similar proposals may be introduced in the future.
Under federal tax legislation enacted in 1986, the federal income tax
exemption for interest on certain municipal obligations was eliminated or
restricted. As a result of such legislation, the availability of
municipal obligations for investment by the Portfolio and the value of the
Portfolio may be affected.
In the course of managing its investments, the Portfolio may
realize some short-term and long-term capital gains (and/or losses) as a
result of market transactions, including sales of portfolio securities and
rights to when-issued securities and options and futures transactions.
The Portfolio may also realize taxable income from certain short-term
taxable obligations, securities loans, a portion of original issue
discount with respect to certain stripped municipal obligations or their
stripped coupons and certain realized accrued market discount. Any
allocations of such capital gains or other taxable income to Holders would
be taxable to Holders that are subject to tax. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to
the tax-exempt interest earned by the Portfolio.
The Portfolio's transactions in options and futures contracts
will be subject to special tax rules that may affect the amount, timing
and character of its items of income, gain or loss and hence the
allocations of such items to investors. For example, certain positions
held by the Portfolio on the last business day of each taxable year will
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<PAGE>
be marked to market (i.e., treated as if closed out on such day), and any
resulting gain or loss will generally be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by the Portfolio
that substantially diminish the Portfolio's risk of loss with respect to
other positions in its portfolio may constitute "straddles," which are
subject to tax rules that may cause deferral of Portfolio losses,
adjustments in the holding period of Portfolio securities and conversion
of short-term into long-term capital losses.
Income from transactions in options and futures contracts derived
by the Portfolio with respect to its business of investing in securities
will qualify as permissible income for its Holders that are RICs under the
requirement that at least 90% of a RIC's gross income each taxable year
consist of specified types of income. However, income from the dispo-
sition by the Portfolio of options and futures contracts held for less
than three months will be subject to the requirement applicable to those
Holders that less than 30% of a RIC's gross income each taxable year
consist of certain short-term gains ("Short-Short Limitation").
If the Portfolio satisfies certain requirements, any increase in
value of a position that is part of a "designated hedge" will be offset by
any decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining
whether the Holders that are RICs satisfy the Short-Short Limitation.
Thus, only the net gain (if any) from the designated hedge will be
included in gross income for purposes of that limitation. The Portfolio
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Portfolio does not so qualify, it
may be forced to defer the closing out of options and futures contracts
beyond the time when it otherwise would be advantageous to do so, in order
for Holders that are RICs to continue to qualify as such.
Interest on indebtedness incurred or continued by an investor to
purchase or carry an investment in the Portfolio is not deductible to the
extent it is deemed attributable to the investor's investment, through the
Portfolio, in tax-exempt obligations. Further, persons who are
"substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds
should consult their tax advisers before investing in the Portfolio.
"Substantial user" is defined in applicable Treasury regulations to
include a "non-exempt person" who regularly uses in trade or business a
part of a facility financed from the proceeds of industrial development
bonds and would likely be interpreted to include private activity bonds
issued to finance similar facilities.
An entity that is treated as a partnership under the Code, such
as the Portfolio, is generally treated as a partnership under state and
local tax laws, but certain states may have different entity
classification criteria and may therefore reach a different conclusion.
Entities that are classified as partnerships are not treated as separate
taxable entities under most state and local tax laws, and the income of a
partnership is considered to be income of partners both in timing and in
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<PAGE>
character. The exemption of interest income for federal income tax
purposes does not necessarily result in exemption under the income or tax
laws of any state or local taxing authority. The laws of the various
states and local taxing authorities vary with respect to the taxation of
such interest income, as well as to the status of a partnership interest
under state and local tax laws, and each holder of an interest in the
Portfolio is advised to consult his or her own tax adviser.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Investors should consult
their own tax advisers with respect to special tax rules that may apply in
their particular situations, as well as the state, local or foreign tax
consequences of investing in the Portfolio.
ITEM 21. UNDERWRITERS
The placement agent for the Portfolio is Eaton Vance
Distributors, Inc., which receives no compensation for serving in this
capacity. Investment companies, common and commingled trust funds and
similar organizations and entities may continuously invest in the
Portfolio.
ITEM 22. CALCULATION OF PERFORMANCE DATA
Not applicable.
ITEM 23. FINANCIAL STATEMENTS
The following financial statements of the Portfolio included
herein have been included in reliance upon the report of Deloitte and
Touche LLP, independent certified public accountants, as experts in
accounting and auditing.
Statement of Assets and Liabilities as of May 1, 1995
Independent Auditors' Report
B-32
<PAGE>
FINANCIAL STATEMENTS
HIGH YIELD MUNICIPALS PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
May 1, 1995
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $100,020
Deferred organization expenses . . . . . . . . . . . . . 22,050
--------
Total assets . . . . . . . . . . . . . . . . . $122,070
Liabilities:
Accrued organization expenses . . . . . . . . . . . . . 22,050
--------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,020
========
NOTES:
(1) High Yield Municipals Portfolio (the "Portfolio") was organized
as a New York Trust on May 1, 1995 and has been inactive since
that date, except as to matters relating to its organization and
registration as an investment company under the Investment
Company Act of 1940 and the sale of its interests therein at the
purchase price of $100,000 to Boston Management and Research and
the sale of interests therein at the purchase price of $20 to
Eaton Vance Management (the "Initial Interests").
(2) Organization expenses are being deferred and will be amortized on
a straight line basis over a period not exceeding five years,
commencing on the effective date of the Portfolio's initial
offering of its interests. The amount paid by the Portfolio on
any withdrawal by the holders of the initial interests of any of
the respective Initial Interests will be reduced by a portion of
any unamortized organization expenses, determined by the
proportion of the amount of the initial interests withdrawn to
the Initial Interest then outstanding.
(3) At 4:00 p.m., New York City time, on each business day of the
Portfolio, the value of an investor's interest in the Portfolio
is equal to the product of (i) the aggregate net asset value of
the Portfolio multiplied by (ii) the percentage representing that
investor's share of the aggregate interest in the Portfolio
effective for that day.
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors of High Yield Municipals Portfolio:
We have audited the accompanying statement of assets and
liabilities of High Yield Municipals Portfolio (a New York Trust) as of
May 1, 1995. This financial statement is the responsibility of the
Trust's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted
accounting standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such statement as assets and liabilities presents
fairly, in all material respects, the financial position of High Yield
Municipals Portfolio as of May 1, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
May 3, 1995
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<PAGE>
APPENDIX
Description of Securities Ratings+
Moody's Investors Service, Inc.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risk appear
somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
---------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Registration Statement for the securities
listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated
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<PAGE>
do not necessarily represent ratings which would be given to these
securities on the date of the Portfolio's fiscal year end.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or
companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue
or issuer.
4. The issue was privately placed, in which case the rating
is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations
will be designated Moody's Investment Grade or (MIG). Such rating
recognizes the differences between short term credit risk and long term
risk. Factors affecting the liquidity of the borrower and short term
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<PAGE>
cyclical elements are critical in short term ratings, while other factors
of major importance in bond risk, long term secular trends for example,
may be less important over the short run.
A short term rating may also be assigned on an issue having a demand
feature, variable rate demand obligation (VRDO). Such ratings will be
designated as VMIGI, SG or if the demand feature is not rated, NR. A
short term rating on issues with demand features are differentiated by the
use of the VMIGI symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. Additionally, investors should be alert to the fact
that the source of payment may be limited to the external liquidity with
no or limited legal recourse to the issuer in the event the demand is not
met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 365 days.
Issuers (or supporting institutions) rated PRIME-1 (P-1) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or
P-1 repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
PRIME-3
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<PAGE>
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an
acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
a-4
<PAGE>
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and differs
from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
a-5
<PAGE>
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by
the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment
on the likelihood of, or the risk of default upon failure of such
completion. The investor should exercise his own judgment with respect to
such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit collateral
is insured by the Federal Deposit Insurance Corp. and interest is
adequately collateralized. In the case of certificates of deposit the
letter "L" indicates that the deposit, combined with other deposits, being
held in the same right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance limits within 30
days after closing of the insured institution or, in the event that the
deposit is assumed by a successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P's note ratings reflect the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a
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<PAGE>
long-term debt rating. The following criteria will be used in making that
assessment:
- Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note).
- Sources of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a
note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2: Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the terms of
the note.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
S&P's commercial paper ratings are a current assessment of the likelihood
of timely payment of debts considered short-term in the relevant market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due,
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<PAGE>
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
a-8
<PAGE>
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated 'AAA'. Because
bonds rated in the 'AAA' and 'AA' categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated 'F-1+'.
A: Bonds considered to be investment grade and of high credit quality.
The obligors ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
that could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
a-9
<PAGE>
DDD, DD, and D: Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. `DDD' represents the highest potential for
recovery on these bonds, and `D' represents the lowest potential for
recovery.
Plus (+) or Minus (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a
credit within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
'F-1+'.
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the `F-1+' and `F-1' categories.
F-3: Fair Credit Quality. Issues carrying this rating have
characteristics suggesting that the degree of assurance for timely payment
is adequate; however, near-term adverse change could cause these
securities to be rated below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect
to capacity to pay interest or repay principal which are similar to the
risks of lower-rated speculative bonds. The Portfolio is dependent on the
Investment Adviser's judgment, analysis and experience in the evaluation
of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
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<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements called for by this Item are
included in Part B and listed in Item 23 hereof.
(b) Exhibits
1. Declaration of Trust dated May 1, 1995 filed
herewith.
2. By-Laws of the Registrant adopted May 1, 1995
filed herewith.
5. Form of Investment Advisory Agreement between the
Registrant and Boston Management and Research
filed herewith.
6. Form of Placement Agent Agreement with Eaton
Vance Distributors, Inc. filed herewith.
8. Custodian Agreement with Investors Bank & Trust
Company filed herewith.
13. Investment representation letter of Boston
Management and Research dated May 1, 1995 filed
herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
Number of
Title of Class Record Holders
------------- ------------------
As of May 15, 1995
Interests 2
c-1
<PAGE>
ITEM 27. INDEMNIFICATION
Reference is hereby made to Article V of the Registrant's
Declaration of Trust, filed as an Exhibit herewith.
The Trustees and officers of the Registrant and the personnel of
the Registrant's investment adviser are insured under an errors and
omissions liability insurance policy. The Registrant and its officers are
also insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS
To the knowledge of the Portfolio, none of the trustees or
officers of the Portfolio's investment adviser, except as set forth on its
Form ADV as filed with the Securities and Exchange Commission, is engaged
in any other business, profession, vocation or employment of a substantial
nature, except that certain trustees and officers also hold various
positions with and engage in business for affiliates of the investment
adviser.
ITEM 29. PRINCIPAL UNDERWRITERS
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be
maintained by the Registrant by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder are in the possession and
custody of the Registrant's custodian, Investors Bank & Trust Company, 24
Federal Street, Boston, MA 02110 and 89 South Street, Boston, MA 02111,
and its transfer agent, The Shareholder Services Group, Inc., 53 State
Street, Boston, MA 02104, with the exception of certain corporate
documents and portfolio trading documents which are in the possession and
custody of the Registrant's investment adviser at 24 Federal Street,
Boston, MA 02110. The Registrant is informed that all applicable
accounts, books and documents required to be maintained by registered
investment advisers are in the custody and possession of the Registrant's
investment adviser.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Not applicable.
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<PAGE>
SIGNATURES
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 the City of Boston and the Commonwealth of Massachusetts on
the 17th day of May, 1995.
HIGH YIELD MUNICIPALS PORTFOLIO
By:/s/ Thomas J. Fetter
-----------------------------
Thomas J. Fetter
President
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<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
1. Declaration of Trust dated May 1, 1995.
2. By-Laws of the Registrant adopted May 1, 1995.
5. Form of Investment Advisory Agreement between the
Registrant and Boston Management and Research.
6. Form of Placement Agent Agreement with Eaton Vance
Distributors, Inc.
8. Custodian Agreement with Investors Bank & Trust Company.
13. Investment representation letter of Boston Management and
Research dated May 1, 1995.
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HIGH YIELD MUNICIPALS PORTFOLIO
--------------------------------
DECLARATION OF TRUST
Dated as of May 1, 1995
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TABLE OF CONTENTS
Page
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ARTICLE I--The Trust . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . . 1
ARTICLE II--Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Number and Qualification . . . . . . . . . . 3
Section 2.2 Term and Election . . . . . . . . . . . . . . 3
Section 2.3 Resignation, Removal and Retirement . . . . . 4
Section 2.4 Vacancies . . . . . . . . . . . . . . . . . . 4
Section 2.5 Meetings . . . . . . . . . . . . . . . . . . 4
Section 2.6 Officers; Chairman of the Board . . . . . . . 5
Section 2.7 By-Laws . . . . . . . . . . . . . . . . . . . 5
ARTICLE III--Powers of Trustees . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 General . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Investments . . . . . . . . . . . . . . . . . 6
Section 3.3 Legal Title . . . . . . . . . . . . . . . . . 6
Section 3.4 Sale and Increases of Interests . . . . . . . 7
Section 3.5 Decreases and Redemptions of Interests . . . 7
Section 3.6 Borrow Money . . . . . . . . . . . . . . . . 7
Section 3.7 Delegation; Committees . . . . . . . . . . . 7
Section 3.8 Collection and Payment . . . . . . . . . . . 7
Section 3.9 Expenses . . . . . . . . . . . . . . . . . . 8
Section 3.10 Miscellaneous Powers . . . . . . . . . . . . 8
Section 3.11 Further Powers . . . . . . . . . . . . . . . 8
Section 3.12 Litigation . . . . . . . . . . . . . . . . . 8
ARTICLE IV- Investment Advisory, Administration and
Placement Agent Arrangements . . . . . . . . . . . . . . . 9
Section 4.1 Investment Advisory, Administration and Other
Arrangements . . . . . . . . . . . . . . . . 9
Section 4.2 Parties to Contract . . . . . . . . . . . . . 9
ARTICLE V--Liability of Holders; Limitations of Liability of Trustees,
Officers, etc. . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.1 Liability of Holders; Indemnification . . . . 10
Section 5.2 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Third Parties . . . . . . . . . . . . . . 10
Section 5.3 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Trust, Holders, etc. . . . . . . . . . . . 10
Section 5.4 Mandatory Indemnification . . . . . . . . . . 10
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Section 5.5 No Bond Required of Trustees . . . . . . . . 11
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc . . . . . . . . . . . . . . 11
Section 5.7 Reliance on Experts, etc . . . . . . . . . . 12
ARTICLE VI--Interests . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1 Interests . . . . . . . . . . . . . . . . . . 12
Section 6.2 Non-Transferability . . . . . . . . . . . . . 12
Section 6.3 Register of Interests . . . . . . . . . . . . 12
ARTICLE VII--Increases, Decreases And Redemptions of Interests . . . . 12
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions . . . . . . . . . . . . . . . . . . . 13
Section 8.1 Book Capital Account Balances . . . . . . . . 13
Section 8.2 Allocations and Distributions to Holders . . 13
Section 8.3 Power to Modify Foregoing Procedures . . . . 13
ARTICLE IX--Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.1 Rights of Holders . . . . . . . . . . . . . . 14
Section 9.2 Meetings of Holders . . . . . . . . . . . . . 14
Section 9.3 Notice of Meetings . . . . . . . . . . . . . 14
Section 9.4 Record Date for Meetings, Distributions, etc. 14
Section 9.5 Proxies, etc. . . . . . . . . . . . . . . . . 15
Section 9.6 Reports . . . . . . . . . . . . . . . . . . . 15
Section 9.7 Inspection of Records . . . . . . . . . . . . 15
Section 9.8 Holder Action by Written Consent . . . . . . 15
Section 9.9 Notices . . . . . . . . . . . . . . . . . . . 16
ARTICLE X--Duration; Termination; Amendment; Mergers; Etc. . . . . . . 16
Section 10.1 Duration . . . . . . . . . . . . . . . . . . 16
Section 10.2 Termination . . . . . . . . . . . . . . . . . 17
Section 10.3 Dissolution . . . . . . . . . . . . . . . . . 18
Section 10.4 Amendment Procedure . . . . . . . . . . . . . 18
Section 10.5 Merger, Consolidation and Sale of Assets . . 19
Section 10.6 Incorporation . . . . . . . . . . . . . . . . 19
ARTICLE XI--Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 20
Section 11.1 Governing Law . . . . . . . . . . . . . . . . 20
Section 11.2 Counterparts . . . . . . . . . . . . . . . . 20
Section 11.3 Reliance by Third Parties . . . . . . . . . . 20
Section 11.4 Provisions in Conflict With Law or
Regulations . . . . . . . . . . . . . . . . . 20
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DECLARATION OF TRUST
OF
HIGH YIELD MUNICIPALS PORTFOLIO
-------------------------------
This DECLARATION OF TRUST of High Yield Municipals Portfolio is
made as of the 1st day of May, 1995 by the parties signatory hereto, as
Trustees (as defined in Section 1.2 hereof).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trustees desire to form a trust fund under the law
of the State of New York for the investment and reinvestment of its
assets; and
WHEREAS, it is proposed that the trust assets be composed of
money and property contributed thereto by the holders of interests in the
trust entitled to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will hold
in trust all money and property contributed to the trust fund and will
manage and dispose of the same for the benefit of the holders of interests
in the Trust and subject to the provisions hereof, to wit:
ARTICLE I
The Trust
---------
1.1. NAME. The name of the trust created hereby (the "Trust")
shall be High Yield Municipals Portfolio and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all documents
and sue or be sued under that name, which name (and the word "Trust"
wherever hereinafter used) shall refer to the Trustees as Trustees, and
not individually, and shall not refer to the officers, employees, agents
or independent contractors of the Trust or holders of interests in the
Trust.
1.2. DEFINITIONS. As used in this Declaration, the following
terms shall have the following meanings:
"ADMINISTRATOR" shall mean any party furnishing services to the
Trust pursuant to any administration contract described in Section 4.1
hereof.
"BOOK CAPITAL ACCOUNT" shall mean, for any Holder at any time,
the Book Capital Account of the Holder for such day, determined in
accordance with Section 8.1 hereof.
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"CODE" shall mean the U.S. Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
U.S. Internal Revenue Code of 1954, as amended (or any corresponding
provision or provisions of succeeding law).
"COMMISSION" shall mean the U.S. Securities and Exchange
Commission.
"DECLARATION" shall mean this Declaration of Trust as amended
from time to time. References in this Declaration to "DECLARATION",
"HEREOF", "HEREIN" and "HEREUNDER" shall be deemed to refer to this
Declaration rather than the article or section in which any such word
appears.
"FISCAL YEAR" shall mean an annual period determined by the
Trustees which ends on January 31 of each year or on such other day as is
permitted or required by the Code.
"HOLDERS" shall mean as of any particular time all holders of
record of Interests in the Trust.
"INSTITUTIONAL INVESTOR(s)" shall mean any regulated investment
company, segregated asset account, foreign investment company, common
trust fund, group trust or other investment arrangement, whether organized
within or without the United States of America, other than an individual,
S corporation, partnership or grantor trust beneficially owned by any
individual, S corporation or partnership.
"INTEREST(s)" shall mean the interest of a Holder in the Trust,
including all rights, powers and privileges accorded to Holders by this
Declaration, which interest may be expressed as a percentage, determined
by calculating, at such times and on such basis as the Trustees shall from
time to time determine, the ratio of each Holder's Book Capital Account
balance to the total of all Holders' Book Capital Account balances.
Reference herein to a specified percentage of, or fraction of, Interests,
means Holders whose combined Book Capital Account balances represent such
specified percentage or fraction of the combined Book Capital Account
balances of all, or a specified group of, Holders.
"INTERESTED PERSON" shall have the meaning given it in the 1940
Act.
"INVESTMENT ADVISER" shall mean any party furnishing services to
the Trust pursuant to any investment advisory contract described in
Section 4.1 hereof.
"MAJORITY INTERESTS VOTE" shall mean the vote, at a meeting of
Holders, of (A) 67% or more of the Interests present or represented at
such meeting, if Holders of more than 50% of all Interests are present or
represented by proxy, or (B) more than 50% of all Interests, whichever is
less.
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"PERSON" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
"REDEMPTION" shall mean the complete withdrawal of an Interest of
a Holder the result of which is to reduce the Book Capital Account balance
of that Holder to zero, and the term "REDEEM" shall mean to effect a
Redemption.
"TRUSTEES" shall mean each signatory to this Declaration, so long
as such signatory shall continue in office in accordance with the terms
hereof, and all other individuals who at the time in question have been
duly elected or appointed and have qualified as Trustees in accordance
with the provisions hereof and are then in office, and reference in this
Declaration to a Trustee or Trustees shall refer to such individual or
individuals in their capacity as Trustees hereunder.
"TRUST PROPERTY" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees.
The "1940 ACT" shall mean the U.S. Investment Company Act of
1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE II
Trustees
--------
2.1. NUMBER AND QUALIFICATION. The number of Trustees shall
be fixed from time to time by action of the Trustees taken as provided in
Section 2.5 hereof; provided, however, that the number of Trustees so
fixed shall in no event be less than three or more than 15. Any vacancy
created by an increase in the number of Trustees may be filled by the
appointment of an individual having the qualifications described in this
Section 2.1 made by action of the Trustees taken as provided in Section
2.5 hereof. Any such appointment shall not become effective, however,
until the individual named in the written instrument of appointment shall
have accepted in writing such appointment and agreed in writing to be
bound by the terms of this Declaration. No reduction in the number of
Trustees shall have the effect of removing any Trustee from office.
Whenever a vacancy occurs, until such vacancy is filled as provided in
Section 2.4 hereof, the Trustees continuing in office, regardless of their
number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration. A
Trustee shall be an individual at least 21 years of age who is not under
legal disability.
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2.2. TERM AND ELECTION. Each Trustee named herein, or elected
or appointed prior to the first meeting of Holders, shall (except in the
event of resignations, retirements, removals or vacancies pursuant to
Section 2.3 or Section 2.4 hereof) hold office until a successor to such
Trustee has been elected at such meeting and has qualified to serve as
Trustee, as required under the 1940 Act. Subject to the provisions of
Section 16(a) of the 1940 Act and except as provided in Section 2.3
hereof, each Trustee shall hold office during the lifetime of the Trust
and until its termination as hereinafter provided.
2.3. RESIGNATION, REMOVAL AND RETIREMENT. Any Trustee may
resign his or her trust (without need for prior or subsequent accounting)
by an instrument in writing executed by such Trustee and delivered or
mailed to the Chairman, if any, the President or the Secretary of the
Trust and such resignation shall be effective upon such delivery, or at a
later date according to the terms of the instrument. Any Trustee may be
removed by the affirmative vote of Holders of two-thirds of the Interests
or (provided the aggregate number of Trustees, after such removal and
after giving effect to any appointment made to fill the vacancy created by
such removal, shall not be less than the number required by Section 2.1
hereof) with cause, by the action of two-thirds of the remaining Trustees.
Removal with cause includes, but is not limited to, the removal of a
Trustee due to physical or mental incapacity or failure to comply with
such written policies as from time to time may be adopted by at least
two-thirds of the Trustees with respect to the conduct of the Trustees and
attendance at meetings. Any Trustee who has attained a mandatory
retirement age, if any, established pursuant to any written policy adopted
from time to time by at least two-thirds of the Trustees shall,
automatically and without action by such Trustee or the remaining
Trustees, be deemed to have retired in accordance with the terms of such
policy, effective as of the date determined in accordance with such
policy. Any Trustee who has become incapacitated by illness or injury as
determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the
date of such Trustee's retirement. Upon the resignation, retirement or
removal of a Trustee, or a Trustee otherwise ceasing to be a Trustee, such
resigning, retired, removed or former Trustee shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held
in the name of such resigning, retired, removed or former Trustee. Upon
the death of any Trustee or upon removal, retirement or resignation due to
any Trustee's incapacity to serve as Trustee, the legal representative of
such deceased, removed, retired or resigning Trustee shall execute and
deliver on behalf of such deceased, removed, retired or resigning Trustee
such documents as the remaining Trustees shall require for the purpose set
forth in the preceding sentence.
2.4. VACANCIES. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death,
resignation, retirement, adjudicated incompetence or other incapacity to
perform the duties of the office, or removal, of a Trustee. No such
vacancy shall operate to annul this Declaration or to revoke any existing
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agency created pursuant to the terms of this Declaration. In the case of
a vacancy, Holders of at least a majority of the Interests entitled to
vote, acting at any meeting of Holders held in accordance with Section 9.2
hereof, or, to the extent permitted by the 1940 Act, a majority vote of
the Trustees continuing in office acting by written instrument or
instruments, may fill such vacancy, and any Trustee so elected by the
Trustees or the Holders shall hold office as provided in this Declaration.
2.5. MEETINGS. Meetings of the Trustees shall be held from
time to time upon the call of the Chairman, if any, the President, the
Secretary, an Assistant Secretary or any two Trustees, at such time, on
such day and at such place, as shall be designated in the notice of the
meeting. The Trustees shall hold an annual meeting for the election of
officers and the transaction of other business which may come before such
meeting. Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be given by mail, by telegram
(which term shall include a cablegram), by telecopier or delivered
personally (which term shall include by telephone). If notice is given by
mail, it shall be mailed not later than 48 hours preceding the meeting and
if given by telegram, telecopier or personally, such notice shall be sent
or delivery made not later than 24 hours preceding the meeting. Notice of
a meeting of Trustees may be waived before or after any meeting by signed
written waiver. Neither the business to be transacted at, nor the purpose
of, any meeting of the Trustees need be stated in the notice or waiver of
notice of such meeting. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except in the situation in
which a Trustee attends a meeting for the express purpose of objecting, at
the commencement of such meeting, to the transaction of any business on
the ground that the meeting was not lawfully called or convened. The
Trustees may act with or without a meeting, but no notice need be given of
action proposed to be taken by written consent. A quorum for all meetings
of the Trustees shall be a majority of the Trustees. Unless provided
otherwise in this Declaration, any action of the Trustees may be taken at
a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the
Trustees.
Any committee of the Trustees, including an executive committee,
if any, may act with or without a meeting. A quorum for all meetings of
any such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee
may be taken at a meeting by vote of a majority of the members present (a
quorum being present) or without a meeting by written consent of a
majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes
under this Section 2.5 and shall be entitled to vote to the extent
permitted by the 1940 Act.
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All or any one or more Trustees may participate in a meeting of
the Trustees or any committee thereof by means of a conference telephone
or similar communications equipment by means of which all individuals
participating in the meeting can hear each other and participation in a
meeting by means of such communications equipment shall constitute
presence in person at such meeting.
2.6. OFFICERS; CHAIRMAN OF THE BOARD. The Trustees shall,
from time to time, elect a President, a Secretary and a Treasurer. The
Trustees may elect or appoint, from time to time, a Chairman of the Board
who shall preside at all meetings of the Trustees and carry out such other
duties as the Trustees may designate. The Trustees may elect or appoint
or authorize the President to appoint such other officers, agents or
independent contractors with such powers as the Trustees may deem to be
advisable. The Chairman, if any, shall be and each other officer may, but
need not, be a Trustee.
2.7. BY-LAWS. The Trustees may adopt and, from time to time,
amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
Powers of Trustees
------------------
3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the
same extent as if the Trustees were the sole owners of the Trust Property
and such business in their own right, but with such powers of delegation
as may be permitted by this Declaration. The Trustees may perform such
acts as in their sole discretion they deem proper for conducting the
business of the Trust. The enumeration of or failure to mention any
specific power herein shall not be construed as limiting such exclusive
and absolute control. The powers of the Trustees may be exercised without
order of or resort to any court.
3.2. INVESTMENTS. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase
or otherwise acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of U.S. and foreign currencies
and related instruments including forward contracts, and securities,
including common and preferred stock, warrants, bonds, debentures, time
notes and all other evidences of indebtedness, negotiable or non-
negotiable instruments, obligations, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse repurchase
agreements, convertible securities, forward contracts, options, futures
contracts, and other securities, including, without limitation, those
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issued, guaranteed or sponsored by any state, territory or possession of
the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the U.S. Government,
any foreign government, or any agency, instrumentality or political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank, savings institution,
corporation or other business entity organized under the laws of the
United States or under any foreign laws; and to exercise any and all
rights, powers and privileges of ownership or interest in respect of any
and all such investments of any kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto,
with power to designate one or more Persons to exercise any of such
rights, powers and privileges in respect of any of such investments; and
the Trustees shall be deemed to have the foregoing powers with respect to
any additional instruments in which the Trustees may determine to invest.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the
Trustees be limited by any law limiting the investments which may be made
by fiduciaries.
3.3. LEGAL TITLE. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall
have the power to cause legal title to any Trust Property to be held by or
in the name of one or more of the Trustees, or in the name of the Trust,
or in the name or nominee name of any other Person on behalf of the Trust,
on such terms as the Trustees may determine.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each individual who may hereafter
become a Trustee upon his due election and qualification. Upon the
resignation, removal or death of a Trustee, such resigning, removed or
deceased Trustee shall automatically cease to have any right, title or
interest in any Trust Property, and the right, title and interest of such
resigning, removed or deceased Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of
title shall be effective whether or not conveyancing documents have been
executed and delivered.
3.4. SALE AND INCREASES OF INTERESTS. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit
any Institutional Investor to purchase an Interest, or increase its
Interest, for such type of consideration, including cash or property, at
such time or times (including, without limitation, each business day), and
on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including the acquisition of assets subject to, and
in connection with the assumption of, liabilities) and businesses.
Individuals, S corporations, partnerships and grantor trusts that are
beneficially owned by any individual, S corporation or partnership may not
purchase Interests. A Holder which has redeemed its Interest may not be
permitted to purchase an Interest until the later of 60 calendar days
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after the date of such Redemption or the first day of the Fiscal Year next
succeeding the Fiscal Year during which such Redemption occurred.
3.5 DECREASES AND REDEMPTIONS OF INTERESTS. Subject to
Article VII hereof, the Trustees, in their discretion, may, from time to
time, without a vote of the Holders, permit a Holder to redeem its
Interest, or decrease its Interest, for either cash or property, at such
time or times (including, without limitation, each business day), and on
such terms as the Trustees may deem best.
3.6. BORROW MONEY. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging,
pledging or otherwise subjecting as security the assets of the Trust,
including the lending of portfolio securities, and to endorse, guarantee,
or undertake the performance of any obligation, contract or engagement of
any other Person.
3.7. DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive and absolute control over the
Trust Property and over the business of the Trust, to delegate from time
to time to such of their number or to officers, employees, agents or
independent contractors of the Trust the doing of such things and the
execution of such instruments in either the name of the Trust or the names
of the Trustees or otherwise as the Trustees may deem expedient.
3.8. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; and to pay all claims, including
taxes, against the Trust Property; to prosecute, defend, compromise or
abandon any claims relating to the Trust or the Trust Property; to
foreclose any security interest securing any obligation, by virtue of
which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.
3.9. EXPENSES. The Trustees shall have power to incur and pay
any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to
pay reasonable compensation from the Trust Property to themselves as
Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees may pay themselves such compensation
for special services, including legal and brokerage services, as they in
good faith may deem reasonable, and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
3.10. MISCELLANEOUS POWERS. The Trustees shall have power to:
(a) employ or contract with such Persons as the Trustees may deem
appropriate for the transaction of the business of the Trust and terminate
such employees or contractual relationships as they consider appropriate;
(b) enter into joint ventures, partnerships and any other combinations or
associations; (c) purchase, and pay for out of Trust Property, insurance
policies insuring the Investment Adviser, Administrator, placement agent,
Holders, Trustees, officers, employees, agents or independent contractors
of the Trust against all claims arising by reason of holding any such
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position or by reason of any action taken or omitted by any such Person in
such capacity, whether or not the Trust would have the power to indemnify
such Person against such liability; (d) establish pension, profit-sharing
and other retirement, incentive and benefit plans for the Trustees,
officers, employees or agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious,
educational, scientific, civic or similar purposes; (f) to the extent
permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Administrator, placement agent, Holders,
Trustees, officers, employees, agents or independent contractors of the
Trust, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and
change the Fiscal Year and the method by which the accounts of the Trust
shall be kept; and (i) adopt a seal for the Trust, but the absence of such
a seal shall not impair the validity of any instrument executed on behalf
of the Trust.
3.11. FURTHER POWERS. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of
its branches and maintain offices, whether within or without the State of
New York, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary,
proper, appropriate or desirable in order to promote the interests of the
Trust although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust which is made by
the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration, the presumption shall be in favor of a
grant of power to the Trustees. The Trustees shall not be required to
obtain any court order in order to deal with Trust Property.
3.12 LITIGATION. The Trustees shall have full power and
authority, in the name and on behalf of the Trust, to engage in and to
prosecute, defend, compromise, settle, abandon, or adjust by arbitration
or otherwise, any actions, suits, proceedings, disputes, claims and
demands relating to the Trust, and out of the assets of the Trust to pay
or to satisfy any liabilities, losses, debts, claims or expenses
(including without limitation attorneys' fees) incurred in connection
therewith, including those of litigation, and such power shall include
without limitation the power of the Trustees or any committee thereof, in
the exercise of their or its good faith business judgment, to dismiss or
terminate any action, suit, proceeding, dispute, claim or demand,
derivative or otherwise, brought by any Person, including a Holder in its
own name or in the name of the Trust, whether or not the Trust or any of
the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
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ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements
-------------------------------------
4.1. INVESTMENT ADVISORY, ADMINISTRATION AND OTHER
ARRANGEMENTS. The Trustees may in their discretion, from time to time,
enter into investment advisory contracts, administration contracts or
placement agent agreements whereby the other party to such contract or
agreement shall undertake to furnish the Trustees such investment
advisory, administration, placement agent and/or other services as the
Trustees shall, from time to time, consider appropriate or desirable and
all upon such terms and conditions as the Trustees may in their sole
discretion determine. Notwithstanding any provision of this Declaration,
the Trustees may authorize any Investment Adviser (subject to such general
or specific instructions as the Trustees may, from time to time, adopt) to
effect purchases, sales, loans or exchanges of Trust Property on behalf of
the Trustees or may authorize any officer, employee or Trustee to effect
such purchases, sales, loans or exchanges pursuant to recommendations of
any such Investment Adviser (all without any further action by the
Trustees). Any such purchase, sale, loan or exchange shall be deemed to
have been authorized by the Trustees.
4.2. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1 hereof or in the By-Laws of the Trust may be
entered into with any corporation, firm, trust or association, although
one or more of the Trustees or officers of the Trust may be an officer,
director, Trustee, shareholder or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable
by reason of the existence of any such relationship, nor shall any
individual holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of
any such contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this
Article IV or the By-Laws of the Trust. The same Person may be the other
party to one or more contracts entered into pursuant to Section 4.1 hereof
or the By-Laws of the Trust, and any individual may be financially
interested or otherwise affiliated with Persons who are parties to any or
all of the contracts mentioned in this Section 4.2 or in the By-Laws of
the Trust.
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ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
-------------------------------------
5.1. LIABILITY OF HOLDERS; INDEMNIFICATION. Each Holder shall
be jointly and severally liable (with rights of contribution inter se in
proportion to their respective Interests in the Trust) for the liabilities
and obligations of the Trust in the event that the Trust fails to satisfy
such liabilities and obligations; provided, however, that, to the extent
assets are available in the Trust, the Trust shall indemnify and hold each
Holder harmless from and against any claim or liability to which such
Holder may become subject by reason of being or having been a Holder to
the extent that such claim or liability imposes on the Holder an
obligation or liability which, when compared to the obligations and
liabilities imposed on other Holders, is greater than such Holder's
Interest (proportionate share), and shall reimburse such Holder for all
legal and other expenses reasonably incurred by such Holder in connection
with any such claim or liability. The rights accruing to a Holder under
this Section 5.1 shall not exclude any other right to which such Holder
may be lawfully entitled, nor shall anything contained herein restrict the
right of the Trust to indemnify or reimburse a Holder in any appropriate
situation even though not specifically provided herein. Notwithstanding
the indemnification procedure described above, it is intended that each
Holder shall remain jointly and severally liable to the Trust's creditors
as a legal matter.
5.2. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS, EMPLOYEES,
AGENTS, INDEPENDENT CONTRACTORS TO THIRD PARTIES. No Trustee, officer,
employee, agent or independent contractor (except in the case of an agent
or independent contractor to the extent expressly provided by written
contract) of the Trust shall be subject to any personal liability
whatsoever to any Person, other than the Trust or the Holders, in
connection with Trust Property or the affairs of the Trust; and all such
Persons shall look solely to the Trust Property for satisfaction of claims
of any nature against a Trustee, officer, employee, agent or independent
contractor (except in the case of an agent or independent contractor to
the extent expressly provided by written contract) of the Trust arising in
connection with the affairs of the Trust.
5.3. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS,
EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS TO TRUST, HOLDERS, ETC. No
Trustee, officer, employee, agent or independent contractor (except in the
case of an agent or independent contractor to the extent expressly
provided by written contract) of the Trust shall be liable to the Trust or
the Holders for any action or failure to act (including, without
limitation, the failure to compel in any way any former or acting Trustee
to redress any breach of trust) except for such Person's own bad faith,
willful misfeasance, gross negligence or reckless disregard of such
Person's duties.
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5.4. MANDATORY INDEMNIFICATION. The Trust shall indemnify, to
the fullest extent permitted by law (including the 1940 Act), each
Trustee, officer, employee, agent or independent contractor (except in the
case of an agent or independent contractor to the extent expressly
provided by written contract) of the Trust (including any Person who
serves at the Trust's request as a director, officer or trustee of another
organization in which the Trust has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including
amounts paid in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by such Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to
any matter as to which such Person shall have been adjudicated to have
acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of such Person's duties; provided, however, that as to any
matter disposed of by a compromise payment by such Person, pursuant to a
consent decree or otherwise, no indemnification either for such payment or
for any other expenses shall be provided unless there has been a
determination that such Person did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of such Person's office by the court or other body approving
the settlement or other disposition or by a reasonable determination,
based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that such Person did not engage in such conduct by
written opinion from independent legal counsel approved by the Trustees.
The rights accruing to any Person under these provisions shall not exclude
any other right to which such Person may be lawfully entitled; provided
that no Person may satisfy any right of indemnity or reimbursement granted
in this Section 5.4 or in Section 5.2 hereof or to which such Person may
be otherwise entitled except out of the Trust Property. The Trustees may
make advance payments in connection with indemnification under this
Section 5.4, provided that the indemnified Person shall have given a
written undertaking to reimburse the Trust in the event it is subsequently
determined that such Person is not entitled to such indemnification.
5.5. NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as such,
be obligated to give any bond or surety or other security for the
performance of any of such Trustee's duties hereunder.
5.6. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender or other Person dealing with any Trustee,
officer, employee, agent or independent contractor of the Trust shall be
bound to make any inquiry concerning the validity of any transaction
purporting to be made by such Trustee, officer, employee, agent or
independent contractor or be liable for the application of money or
property paid, loaned or delivered to or on the order of such Trustee,
officer, employee, agent or independent contractor. Every obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust, and every other act or thing whatsoever executed in connection with
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the Trust shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees,
agents or independent contractors of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust made or sold by any Trustee, officer, employee, agent or independent
contractor of the Trust, in such capacity, shall contain an appropriate
recital to the effect that the Trustee, officer, employee, agent or
independent contractor of the Trust shall not personally be bound by or
liable thereunder, nor shall resort be had to their private property for
the satisfaction of any obligation or claim thereunder, and appropriate
references shall be made therein to the Declaration, and may contain any
further recital which they may deem appropriate, but the omission of such
recital shall not operate to impose personal liability on any Trustee,
officer, employee, agent or independent contractor of the Trust. Subject
to the provisions of the 1940 Act, the Trust may maintain insurance for
the protection of the Trust Property, the Holders, and the Trustees,
officers, employees, agents and independent contractors of the Trust in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
5.7. RELIANCE ON EXPERTS, ETC. Each Trustee, officer,
employee, agent or independent contractor of the Trust shall, in the
performance of such Person's duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from
reliance in good faith upon the books of account or other records of the
Trust (whether or not the Trust would have the power to indemnify such
Persons against such liability), upon an opinion of counsel, or upon
reports made to the Trust by any of its officers or employees or by any
Investment Adviser or Administrator, accountant, appraiser or other
experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.
ARTICLE VI
Interests
---------
6.1. INTERESTS. The beneficial interest in the Trust Property
shall consist of non-transferable Interests. The Interests shall be
personal property giving only the rights in this Declaration specifically
set forth. The value of an Interest shall be equal to the Book Capital
Account balance of the Holder of the Interest.
6.2. NON-TRANSFERABILITY. A Holder may not transfer, sell or
exchange its Interest.
6.3. REGISTER OF INTERESTS. A register shall be kept at the
Trust under the direction of the Trustees which shall contain the name,
address and Book Capital Account balance of each Holder. Such register
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shall be conclusive as to the identity of the Holders, and the Trust shall
not be bound to recognize any equitable or legal claim to or interest in
an Interest which is not contained in such register. No Holder shall be
entitled to receive payment of any distribution, nor to have notice given
to it as herein provided, until it has given its address to such officer
or agent of the Trust as is keeping such register for entry thereon.
ARTICLE VII
Increases, Decreases And Redemptions of Interests
---------------------------------------------------
Subject to applicable law, to the provisions of this Declaration
and to such restrictions as may from time to time be adopted by the
Trustees, each Holder shall have the right to vary its investment in the
Trust at any time without limitation by increasing (through a capital
contribution) or decreasing (through a capital withdrawal) or by a
Redemption of its Interest. An increase in the investment of a Holder in
the Trust shall be reflected as an increase in the Book Capital Account
balance of that Holder and a decrease in the investment of a Holder in the
Trust or the Redemption of the Interest of a Holder shall be reflected as
a decrease in the Book Capital Account balance of that Holder. The Trust
shall, upon appropriate and adequate notice from any Holder increase,
decrease or redeem such Holder's Interest for an amount determined by the
application of a formula adopted for such purpose by resolution of the
Trustees; provided that (a) the amount received by the Holder upon any
such decrease or Redemption shall not exceed the decrease in the Holder's
Book Capital Account balance effected by such decrease or Redemption of
its Interest, and (b) if so authorized by the Trustees, the Trust may, at
any time and from time to time, charge fees for effecting any such
decrease or Redemption, at such rates as the Trustees may establish, and
may, at any time and from time to time, suspend such right of decrease or
Redemption. The procedures for effecting decreases or Redemptions shall
be as determined by the Trustees from time to time.
ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
--------------------------------------
8.1. BOOK CAPITAL ACCOUNT BALANCES. The Book Capital Account
balance of each Holder shall be determined on such days and at such time
or times as the Trustees may determine. The Trustees shall adopt
resolutions setting forth the method of determining the Book Capital
Account balance of each Holder. The power and duty to make calculations
pursuant to such resolutions may be delegated by the Trustees to the
Investment Adviser, Administrator, custodian, or such other Person as the
Trustees may determine. Upon the Redemption of an Interest, the Holder of
that Interest shall be entitled to receive the balance of its Book Capital
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Account. A Holder may not transfer, sell or exchange its Book Capital
Account balance.
8.2. ALLOCATIONS AND DISTRIBUTIONS TO HOLDERS. The Trustees
shall, in compliance with the Code, the 1940 Act and generally accepted
accounting principles, establish the procedures by which the Trust shall
make (i) the allocation of unrealized gains and losses, taxable income and
tax loss, and profit and loss, or any item or items thereof, to each
Holder, (ii) the payment of distributions, if any, to Holders, and
(iii) upon liquidation, the final distribution of items of taxable income
and expense. Such procedures shall be set forth in writing and be
furnished to the Trust's accountants. The Trustees may amend the
procedures adopted pursuant to this Section 8.2 from time to time. The
Trustees may retain from the net profits such amount as they may deem
necessary to pay the liabilities and expenses of the Trust, to meet
obligations of the Trust, and as they may deem desirable to use in the
conduct of the affairs of the Trust or to retain for future requirements
or extensions of the business.
8.3. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding
any of the foregoing provisions of this Article VIII, the Trustees may
prescribe, in their absolute discretion, such other bases and times for
determining the net income of the Trust, the allocation of income of the
Trust, the Book Capital Account balance of each Holder, or the payment of
distributions to the Holders as they may deem necessary or desirable to
enable the Trust to comply with any provision of the 1940 Act or any order
of exemption issued by the Commission or with the Code.
ARTICLE IX
Holders
-------
9.1. RIGHTS OF HOLDERS. The ownership of the Trust Property
and the right to conduct any business described herein are vested
exclusively in the Trustees, and the Holders shall have no right or title
therein other than the beneficial interest conferred by their Interests
and they shall have no power or right to call for any partition or
division of any Trust Property.
9.2. MEETINGS OF HOLDERS. Meetings of Holders may be called
at any time by a majority of the Trustees and shall be called by any
Trustee upon written request of Holders holding, in the aggregate, not
less than 10% of the Interests, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall
be held within or without the State of New York and within or without the
United States of America on such day and at such time as the Trustees
shall designate. Holders of one-third of the Interests, present in person
or by proxy, shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act, other
applicable law, this Declaration or the By-Laws of the Trust. If a quorum
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<PAGE>
is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the
Holders present, either in person or by proxy, at such meeting constitutes
the action of the Holders, unless a greater number of affirmative votes is
required by the 1940 Act, other applicable law, this Declaration or the
By-Laws of the Trust. All or any one of more Holders may participate in a
meeting of Holders by means of a conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other and participation in a meeting by means of
such communications equipment shall constitute presence in person at such
meeting.
9.3. NOTICE OF MEETINGS. Notice of each meeting of Holders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at
least 10 days and not more than 60 days before the meeting. Notice of any
meeting may be waived in writing by any Holder either before or after such
meeting. The attendance of a Holder at a meeting shall constitute a
waiver of notice of such meeting except in the situation in which a Holder
attends a meeting for the express purpose of objecting to the transaction
of any business on the ground that the meeting was not lawfully called or
convened. At any meeting, any business properly before the meeting may be
considered whether or not stated in the notice of the meeting. Any
adjourned meeting may be held as adjourned without further notice.
9.4. RECORD DATE FOR MEETINGS, DISTRIBUTIONS, ETC. For the
purpose of determining the Holders who are entitled to notice of and to
vote or act at any meeting, including any adjournment thereof, or to
participate in any distribution, or for the purpose of any other action,
the Trustees may from time to time fix a date, not more than 90 days prior
to the date of any meeting of Holders or the payment of any distribution
or the taking of any other action, as the case may be, as a record date
for the determination of the Persons to be treated as Holders for such
purpose. If the Trustees do not, prior to any meeting of the Holders, so
fix a record date, then the date of mailing notice of the meeting shall be
the record date.
9.5. PROXIES, ETC. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such
vote is to be taken. A proxy may be revoked by a Holder at any time
before it has been exercised by placing on file with the Secretary, or
with such other officer or agent of the Trust as the Secretary may direct,
a later dated proxy or written revocation. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of the
Trust or of one or more Trustees or of one or more officers of the Trust.
Only Holders on the record date shall be entitled to vote. Each such
Holder shall be entitled to a vote proportionate to its Interest. When an
Interest is held jointly by several Persons, any one of them may vote at
any meeting in person or by proxy in respect of such Interest, but if more
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<PAGE>
than one of them is present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to
be cast, such vote shall not be received in respect of such Interest. A
proxy purporting to be executed by or on behalf of a Holder shall be
deemed valid unless challenged at or prior to its exercise, and the burden
of proving invalidity shall rest on the challenger. No proxy shall be
valid after one year from the date of execution, unless a longer period is
expressly stated in such proxy. The Trust may also permit a Holder to
authorize and empower individuals named as proxies on any form of proxy
solicited by the Trustees to vote that Holder's Interest on any matter by
recording his voting instructions on any recording device maintained for
that purpose by the Trust or its agent, provided the Holder complies with
such procedures as the Trustees may designate to be necessary or
appropriate to determine the authenticity of the voting instructions so
recorded; such instructions shall be deemed to constitute a written proxy
signed by the Holder and delivered to the Trust and shall be deemed to be
dated as of the date such instructions were transmitted, and the Holder
shall be deemed to have approved and ratified all actions taken by such
proxies in accordance with the voting instructions so recorded.
9.6. REPORTS. The Trustees shall cause to be prepared and
furnished to each Holder, at least annually as of the end of each Fiscal
Year, a report of operations containing a balance sheet and a statement of
income of the Trust prepared in conformity with generally accepted
accounting principles and an opinion of an independent public accountant
on such financial statements. The Trustees shall, in addition, furnish to
each Holder at least semi-annually interim reports of operations
containing an unaudited balance sheet as of the end of such period and an
unaudited statement of income for the period from the beginning of the
then-current Fiscal Year to the end of such period.
9.7. INSPECTION OF RECORDS. The books and records of the
Trust shall be open to inspection by Holders during normal business hours
for any purpose not harmful to the Trust.
9.8. HOLDER ACTION BY WRITTEN CONSENT. Any action which may
be taken by Holders may be taken without a meeting if Holders holding more
than 50% of all Interests entitled to vote (or such larger proportion
thereof as shall be required by any express provision of this Declaration)
consent to the action in writing and the written consents are filed with
the records of the meetings of Holders. Such consents shall be treated
for all purposes as a vote taken at a meeting of Holders. Each such
written consent shall be executed by or on behalf of the Holder delivering
such consent and shall bear the date of such execution. No such written
consent shall be effective to take the action referred to therein unless,
within one year of the earliest dated consent, written consents executed
by a sufficient number of Holders to take such action are filed with the
records of the meetings of Holders.
9.9. NOTICES. Any and all communications, including any and
all notices to which any Holder may be entitled, shall be deemed duly
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served or given if mailed, postage prepaid, addressed to a Holder at its
last known address as recorded on the register of the Trust.
ARTICLE X
Duration; Termination;
Amendment; Mergers; Etc.
-------------------------
10.1. DURATION. Subject to possible termination or dissolution
in accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration
of 20 years after the death of the last survivor of the initial Trustees
named herein and the following named persons:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Address Date of Birth
---- ------- -------------
Cassius Marcellus Cornelius 742 Old Dublin Road November 9, 1990
Clay Hancock, NH 03449
Sara Briggs Sullivan 1308 Rhodes Street September 17, 1990
Dubois, WY 82513
Myles Bailey Rawson Winhall Hollow Road May 13, 1990
R.R. #1, Box 178B
Bondville, VT 05340
Zeben Curtis Kopchak Box 1126 October 31, 1989
Cordova, AK 99574
Landon Harris Clay 742 Old Dublin Road February 15, 1989
Hancock, NH 03449
Kelsey Ann Sullivan 1308 Rhodes Street May 1, 1988
Dubois, WY 82513
Carter Allen Rawson Winhall Hollow Road January 28, 1988
R.R. #1, Box 178B
Bondville, VT 05340
Obadiah Barclay Kopchak Box 1126 August 29, 1987
Cordova, AK 99574
Richard Tubman Clay 742 Old Dublin Road April 12, 1987
Hancock, NH 03449
Thomas Moragne Clay 742 Old Dublin Road April 11, 1985
Hancock, NH 03449
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<PAGE>
<S> <C> <C>
Name Address Date of Birth
---- ------- -------------
Zachariah Bishop Kopchak Box 1126 January 11, 1985
Cordova, AK 99574
Sager Anna Kopchak Box 1126 May 22, 1983
Cordova, AK 99574
</TABLE>
10.2. Termination.
-----------
(a) The Trust may be terminated (i) by the
affirmative vote of Holders of not less than two-thirds of all Interests
at any meeting of Holders or by an instrument in writing without a
meeting, executed by a majority of the Trustees and consented to by
Holders of not less than two-thirds of all Interests, or (ii) by the
Trustees by written notice to the Holders. Upon any such termination,
(i) the Trust shall carry on no business except for the
purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the
Trustees under this Declaration shall continue until the
affairs of the Trust have been wound up, including the
power to fulfill or discharge the contracts of the Trust,
collect the assets of the Trust, sell, convey, assign,
exchange or otherwise dispose of all or any part of the
Trust Property to one or more Persons at public or
private sale for consideration which may consist in whole
or in part of cash, securities or other property of any
kind, discharge or pay the liabilities of the Trust, and
do all other acts appropriate to liquidate the business
of the Trust; provided that any sale, conveyance,
assignment, exchange or other disposition of all or
substantially all the Trust Property shall require
approval of the principal terms of the transaction and
the nature and amount of the consideration by the vote of
Holders holding more than 50% of all Interests; and
(iii) after paying or adequately providing for
the payment of all liabilities, and upon receipt of such
releases, indemnities and refunding agreements as they
deem necessary for their protection, the Trustees shall
distribute the remaining Trust Property, in cash or in
kind or partly each, among the Holders according to their
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respective rights as set forth in the procedures
established pursuant to Section 8.2 hereof.
(b) Upon termination of the Trust and distribution to
the Holders as herein provided, a majority of the Trustees shall execute
and file with the records of the Trust an instrument in writing setting
forth the fact of such termination and distribution. Upon termination of
the Trust, the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Holders shall thereupon cease.
10.3. DISSOLUTION. Upon the bankruptcy of any Holder, or upon
the Redemption of any Interest, the Trust shall be dissolved effective 120
days after the event. However, the Holders (other than such bankrupt or
redeeming Holder) may, by a unanimous affirmative vote at any meeting of
such Holders or by an instrument in writing without a meeting executed by
a majority of the Trustees and consented to by all such Holders, agree to
continue the business of the Trust even if there has been such a
dissolution.
10.4. AMENDMENT PROCEDURE.
(a) This Declaration may be amended by the vote of
Holders of more than 50% of all Interests at any meeting of Holders or by
an instrument in writing without a meeting, executed by a majority of the
Trustees and consented to by the Holders of more than 50% of all
Interests. Notwithstanding any other provision hereof, this Declaration
may be amended by an instrument in writing executed by a majority of the
Trustees, and without the vote or consent of Holders, for any one or more
of the following purposes: (i) to change the name of the Trust, (ii) to
supply any omission, or to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, (iii) to conform this
Declaration to the requirements of applicable federal law or regulations
or the requirements of the applicable provisions of the Code, (iv) to
change the state or other jurisdiction designated herein as the state or
other jurisdiction whose law shall be the governing law hereof, (v) to
effect such changes herein as the Trustees find to be necessary or
appropriate (A) to permit the filing of this Declaration under the law of
such state or other jurisdiction applicable to trusts or voluntary
associations, (B) to permit the Trust to elect to be treated as a
"regulated investment company" under the applicable provisions of the
Code, or (C) to permit the transfer of Interests (or to permit the
transfer of any other beneficial interest in or share of the Trust,
however denominated), (vi) in conjunction with any amendment contemplated
by the foregoing clause (iv) or the foregoing clause (v) to make any and
all such further changes or modifications to this Declaration as the
Trustees find to be necessary or appropriate, any finding of the Trustees
referred to in the foregoing clause (v) or the foregoing clause (vi) to be
conclusively evidenced by the execution of any such amendment by a
majority of the Trustees, and (vii) change, modify or rescind any
provision of this Declaration provided such change, modification or
rescission is found by the Trustees to be necessary or appropriate and to
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<PAGE>
not have a materially adverse effect on the financial interests of the
Holders, any such finding to be conclusively evidenced by the execution of
any such amendment by a majority of the Trustees; provided, however, that
unless effected in compliance with the provisions of Section 10.4(b)
hereof, no amendment otherwise authorized by this sentence may be made
which would reduce the amount payable with respect to any Interest upon
liquidation of the Trust and; provided, further, that the Trustees shall
not be liable for failing to make any amendment permitted by this Section
10.4(a).
(b) No amendment may be made under Section 10.4(a)
hereof which would change any rights with respect to any Interest by
reducing the amount payable thereon upon liquidation of the Trust, except
with the vote or consent of Holders of two-thirds of all Interests.
(c) A certification in recordable form executed by a
majority of the Trustees setting forth an amendment and reciting that it
was duly adopted by the Holders or by the Trustees as aforesaid or a copy
of the Declaration, as amended, in recordable form, and executed by a
majority of the Trustees, shall be conclusive evidence of such amendment
when filed with the records of the Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in
any respect by the affirmative vote of a majority of the Trustees at any
meeting of Trustees or by an instrument executed by a majority of the
Trustees.
10.5. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all
of the Trust Property, including good will, upon such terms and conditions
and for such consideration when and as authorized at any meeting of
Holders called for such purpose by a Majority Interests Vote, and any such
merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the statutes of
the State of New York.
10.6. INCORPORATION. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation
or corporations under the law of any jurisdiction or a trust, partnership,
association or other organization to take over the Trust Property or to
carry on any business in which the Trust directly or indirectly has any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, partnership, association or other organization in
exchange for the equity interests thereof or otherwise, and to lend money
to, subscribe for the equity interests of, and enter into any contract
with any such corporation, trust, partnership, association or other
organization, or any corporation, trust, partnership, association or other
organization in which the Trust holds or is about to acquire equity
interests. The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust,
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<PAGE>
partnership, association or other organization if and to the extent
permitted by law. Nothing contained herein shall be construed as
requiring approval of the Holders for the Trustees to organize or assist
in organizing one or more corporations, trusts, partnerships, associations
or other organizations and selling, conveying or transferring a portion of
the Trust Property to one or more of such organizations or entities.
ARTICLE XI
Miscellaneous
-------------
11.1. GOVERNING LAW. This Declaration is executed by the
Trustees and delivered in the State of New York and with reference to the
law thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
in accordance with the law of the State of New York and reference shall be
specifically made to the trust law of the State of New York as to the
construction of matters not specifically covered herein or as to which an
ambiguity exists.
11.2. COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any one such
original counterpart.
11.3. RELIANCE BY THIRD PARTIES. Any certificate executed by
an individual who, according to the records of the Trust or of any
recording office in which this Declaration may be recorded, appears to be
a Trustee hereunder, certifying to: (a) the number or identity of
Trustees or Holders, (b) the due authorization of the execution of any
instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Holders, (d) the fact that the number of Trustees or Holders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by
or the identity of any officer elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs
of the Trust, shall be conclusive evidence as to the matters so certified
in favor of any Person dealing with the Trustees.
11.4. Provisions in Conflict with Law or Regulations.
-----------------------------------------------
(a) The provisions of this Declaration are severable,
and if the Trustees shall determine, with the advice of counsel, that any
of such provisions is in conflict with the 1940 Act, or with other
applicable law and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Declaration; provided, however,
that such determination shall not affect any of the remaining provisions
22
<PAGE>
of this Declaration or render invalid or improper any action taken or
omitted prior to such determination.
(b) If any provision of this Declaration shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction
and shall not in any manner affect such provision in any other
jurisdiction or any other provision of this Declaration in any
jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this instrument
as of the day and year first above written.
/s/ Donald R. Dwight /s/ Norton H. Reamer
-------------------------------- ------------------------------
Donald R. Dwight, as Trustee and Norton H. Reamer, as Trustee and
not individually not individually
/s/ James B. Hawkes /s/ John L. Thorndike
-------------------------------- -------------------------------
James B. Hawkes, as Trustee and John L. Thorndike, as Trustee
not individually and not individually
/s/ Samuel L. Hayes /s/ Jack L. Treynor
-------------------------------- ------------------------------
Samuel L. Hayes, III, as Trustee and Jack L. Treynor, as Trustee and
not individually not individually
23
<PAGE>
HIGH YIELD MUNICIPALS PORTFOLIO
---------------------------------
BY-LAWS
As Adopted May 1, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I -- Meetings of Holders . . . . . . . . . . . . . . . . . . 1
Section 1.1 Records at Holder Meetings . . . . 1
Section 1.2 Inspectors of Election . . . . . . 1
ARTICLE II -- Officers . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Officers of the Trust . . . . . . . 2
Section 2.2 Election and Tenure . . . . . . . . 2
Section 2.3 Removal of Officers . . . . . . . . 2
Section 2.4 Bonds and Surety . . . . . . . . . 2
Section 2.5 Chairman, President and Vice President 2
Section 2.6 Secretary . . . . . . . . . . . . . 3
Section 2.7 Treasurer . . . . . . . . . . . . . 3
Section 2.8 Other Officers and Duties . . . . . 3
ARTICLE III -- Miscellaneous . . . . . . . . . . . . . . . . . . . . 4
Section 3.1 Depositories . . . . . . . . . . . 4
Section 3.2 Signatures . . . . . . . . . . . . 4
Section 3.3 Seal . . . . . . . . . . . . . . . . 4
Section 3.4 Indemnification . . . . . . . . . . 4
Section 3.5 Distribution Disbursing Agents and the
Like . . . . . . . . . . . . . . . 4
ARTICLE IV -- Regulations; Amendment of By-Laws . . . . . . . . . . . 5
Section 4.1 Regulations . . . . . . . . . . . . 5
Section 4.2 Amendment and Repeal of By-Laws . . 5
i
<PAGE>
BY-LAWS
OF
HIGH YIELD MUNICIPALS PORTFOLIO
-------------------------------
These By-Laws are made and adopted pursuant to Section
2.7 of the Declaration of Trust establishing HIGH YIELD MUNICIPALS
PORTFOLIO (the "Trust"), dated May 1, 1995, as from time to time amended
(the "Declaration"). All words and terms capitalized in these By-Laws
shall have the meaning or meanings set forth for such words or terms in
the Declaration.
ARTICLE I
Meetings of Holders
--------------------
Section 1.1. RECORDS AT HOLDER MEETINGS. At each
meeting of the Holders there shall be open for inspection the minutes of
the last previous meeting of Holders of the Trust and a list of the
Holders of the Trust, certified to be true and correct by the Secretary or
other proper agent of the Trust, as of the record date of the meeting.
Such list of Holders shall contain the name of each Holder in alphabetical
order and the address and Interest owned by such Holder on such record
date.
Section 1.2. INSPECTORS OF ELECTION. In advance of any
meeting of the Holders, the Trustees may appoint Inspectors of Election to
act at the meeting or any adjournment thereof. If Inspectors of Election
are not so appointed, the chairman, if any, of any meeting of the Holders
may, and on the request of any Holder or his proxy shall, appoint
Inspectors of Election. The number of Inspectors of Election shall be
either one or three. If appointed at the meeting on the request of one or
more Holders or proxies, a Majority Interests Vote shall determine whether
one or three Inspectors of Election are to be appointed, but failure to
allow such determination by the Holders shall not affect the validity of
the appointment of Inspectors of Election. In case any individual
appointed as an Inspector of Election fails to appear or fails or refuses
to so act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the
individual acting as chairman of the meeting. The Inspectors of Election
1
<PAGE>
shall determine the Interest owned by each Holder, the Interests
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents,
shall hear and determine all challenges and questions in any way arising
in connection with the right to vote, shall count and tabulate all votes
or consents, shall determine the results, and shall do such other acts as
may be proper to conduct the election or vote with fairness to all
Holders. If there are three Inspectors of Election, the decision, act or
certificate of a majority is effective in all respects as the decision,
act or certificate of all. On request of the chairman, if any, of the
meeting, or of any Holder or its proxy, the Inspectors of Election shall
make a report in writing of any challenge or question or matter determined
by them and shall execute a certificate of any facts found by them.
ARTICLE II
Officers
--------
Section 2.1. OFFICERS OF THE TRUST. The officers of the
Trust shall consist of a Chairman, if any, a President, a Secretary, a
Treasurer and such other officers or assistant officers, including Vice
Presidents, as may be elected by the Trustees. Any two or more of the
offices may be held by the same individual. The Trustees may designate a
Vice President as an Executive Vice President and may designate the order
in which the other Vice Presidents may act. The Chairman shall be a
Trustee, but no other officer of the Trust, including the President, need
be a Trustee.
Section 2.2. ELECTION AND TENURE. At the initial
organization meeting and thereafter at each annual meeting of the
Trustees, the Trustees shall elect the Chairman, if any, the President,
the Secretary, the Treasurer and such other officers as the Trustees shall
deem necessary or appropriate in order to carry out the business of the
Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill any vacancy in office or add any
additional officer at any time.
Section 2.3. REMOVAL OF OFFICERS. Any officer may be
removed at any time, with or without cause, by action of a majority of the
Trustees. This provision shall not prevent the making of a contract of
employment for a definite term with any officer and shall have no effect
upon any cause of action which any officer may have as a result of removal
in breach of a contract of employment. Any officer may resign at any time
by notice in writing signed by such officer and delivered or mailed to the
Chairman, if any, the President or the Secretary, and such resignation
shall take effect immediately, or at a later date according to the terms
of such notice in writing.
2
<PAGE>
Section 2.4. BONDS AND SURETY. Any officer may be
required by the Trustees to be bonded for the faithful performance of his
duties in such amount and with such sureties as the Trustees may
determine.
Section 2.5. CHAIRMAN, PRESIDENT AND VICE PRESIDENTS.
The Chairman, if any, shall, if present, preside at all meetings of the
Holders and of the Trustees and shall exercise and perform such other
powers and duties as may be from time to time assigned to him by the
Trustees. Subject to such supervisory powers, if any, as may be given by
the Trustees to the Chairman, if any, the President shall be the chief
executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of President of a
corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Holders and, in the absence of the
Chairman, the President shall preside at all meetings of the Trustees.
The President shall be, ex officio, a member of all standing committees of
Trustees. Subject to the direction of the Trustees, the President shall
have the power, in the name and on behalf of the Trust, to execute any and
all loan documents, contracts, agreements, deeds, mortgages and other
instruments in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees, the President
shall have full authority and power to attend, to act and to vote, on
behalf of the Trust, at any meeting of any business organization in which
the Trust holds an interest, or to confer such powers upon any other
person, by executing any proxies duly authorizing such person. The
President shall have such further authorities and duties as the Trustees
shall from time to time determine. In the absence or disability of the
President, the Vice Presidents in order of their rank or the Vice
President designated by the Trustees, shall perform all of the duties of
the President, and when so acting shall have all the powers of and be
subject to all of the restrictions upon the President. Subject to the
direction of the President, each Vice President shall have the power in
the name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing,
and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees or by the President.
Section 2.6. SECRETARY. The Secretary shall keep the
minutes of all meetings of, and record all votes of, Holders, Trustees and
the Executive Committee, if any. The results of all actions taken at a
meeting of the Trustees, or by written consent of the Trustees, shall be
recorded by the Secretary. The Secretary shall be custodian of the seal
of the Trust, if any, and (and any other person so authorized by the
Trustees) shall affix the seal or, if permitted, a facsimile thereof, to
any instrument executed by the Trust which would be sealed by a New York
corporation executing the same or a similar instrument and shall attest
the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of the Trust. The Secretary shall
also perform any other duties commonly incident to such office in a New
-3-
<PAGE>
York corporation, and shall have such other authorities and duties as the
Trustees shall from time to time determine.
Section 2.7. TREASURER. Except as otherwise directed by
the Trustees, the Treasurer shall have the general supervision of the
monies, funds, securities, notes receivable and other valuable papers and
documents of the Trust, and shall have and exercise under the supervision
of the Trustees and of the President all powers and duties normally
incident to his office. The Treasurer may endorse for deposit or
collection all notes, checks and other instruments payable to the Trust or
to its order and shall deposit all funds of the Trust as may be ordered by
the Trustees or the President. The Treasurer shall keep accurate account
of the books of the Trust's transactions which shall be the property of
the Trust, and which together with all other property of the Trust in his
possession, shall be subject at all times to the inspection and control of
the Trustees. Unless the Trustees shall otherwise determine, the
Treasurer shall be the principal accounting officer of the Trust and shall
also be the principal financial officer of the Trust. The Treasurer shall
have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein
contained, the Trustees may authorize the Investment Adviser or the
Administrator to maintain bank accounts and deposit and disburse funds on
behalf of the Trust.
Section 2.8. OTHER OFFICERS AND DUTIES. The Trustees
may elect such other officers and assistant officers as they shall from
time to time determine to be necessary or desirable in order to conduct
the business of the Trust. Assistant officers shall act generally in the
absence of the officer whom they assist and shall assist that officer in
the duties of his office. Each officer, employee and agent of the Trust
shall have such other duties and authorities as may be conferred upon him
by the Trustees or delegated to him by the President.
ARTICLE III
Miscellaneous
--------------
Section 3.1. DEPOSITORIES. The funds of the Trust shall
be deposited in such depositories as the Trustees shall designate and
shall be drawn out on checks, drafts or other orders signed by such
officer, officers, agent or agents (including the Investment Adviser or
the Administrator) as the Trustees may from time to time authorize.
Section 3.2. SIGNATURES. All contracts and other
instruments shall be executed on behalf of the Trust by such officer,
officers, agent or agents as provided in these By-Laws or as the Trustees
may from time to time by resolution provide.
Section 3.3. SEAL. The seal of the Trust, if any, may
be affixed to any document, and the seal and its attestation may be
-4-
<PAGE>
lithographed, engraved or otherwise printed on any document with the same
force and effect as if it had been imprinted and attested manually in the
same manner and with the same effect as if done by a New York corporation.
Section 3.4. INDEMNIFICATION. Insofar as the
conditional advancing of indemnification monies under Section 5.4 of the
Declaration for actions based upon the 1940 Act may be concerned, such
payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with
the preparation of a settlement; (ii) advances may be made only upon
receipt of a written promise by, or on behalf of, the recipient to repay
the amount of the advance which exceeds the amount to which it is
ultimately determined that he is entitled to receive from the Trust by
reason of indemnification; and (iii) (a) such promise must be secured by a
surety bond, other suitable insurance or an equivalent form of security
which assures that any repayment may be obtained by the Trust without
delay or litigation, which bond, insurance or other form of security must
be provided by the recipient of the advance, or (b) a majority of a quorum
of the Trust's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of
readily available facts, that the recipient of the advance ultimately will
be found entitled to indemnification.
Section 3.5. DISTRIBUTION DISBURSING AGENTS AND THE
LIKE. The Trustees shall have the power to employ and compensate such
distribution disbursing agents, warrant agents and agents for the
reinvestment of distributions as they shall deem necessary or desirable.
Any of such agents shall have such power and authority as is delegated to
any of them by the Trustees.
ARTICLE IV
Regulations; Amendment of By-Laws
---------------------------------
Section 4.1. REGULATIONS. The Trustees may make such
additional rules and regulations, not inconsistent with these By-Laws, as
they may deem expedient concerning the sale and purchase of Interests of
the Trust.
Section 4.2. AMENDMENT AND REPEAL OF BY-LAWS. In
accordance with Section 2.7 of the Declaration, the Trustees shall have
the power to alter, amend or repeal the By-Laws or adopt new By-Laws at
any time. Action by the Trustees with respect to the By-Laws shall be
taken by an affirmative vote of a majority of the Trustees. The Trustees
shall in no event adopt By-Laws which are in conflict with the
Declaration.
The Declaration refers to the Trustees as Trustees, but
not as individuals or personally; and no Trustee, officer, employee or
-5-
<PAGE>
agent of the Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the
Trust.
-6-
<PAGE>
FORM OF
HIGH YIELD MUNICIPALS PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this __________ day of_____________________, 1995,
between High Yield Municipals Portfolio, a New York trust (the "Trust"),
and Boston Management and Research, a Massachusetts business trust (the
"Adviser").
1. DUTIES OF THE ADVISER. The Trust hereby employs the
Adviser to act as investment adviser for and to manage the investment and
reinvestment of the assets of the Trust and to administer its affairs,
subject to the supervision of the Trustees of the Trust, for the period
and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment, and undertakes to
afford to the Trust the advice and assistance of the Adviser's
organization in the choice of investments and in the purchase and sale of
securities for the Trust and to furnish for the use of the Trust office
space and all necessary office facilities, equipment and personnel for
servicing the investments of the Trust and for administering its affairs
and to pay the salaries and fees of all officers and Trustees of the Trust
who are members of the Adviser's organization and all personnel of the
Adviser performing services relating to research and investment
activities. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as otherwise expressly provided
or authorized, have no authority to act for or represent the Trust in any
way or otherwise be deemed an agent of the Trust.
The Adviser shall provide the Trust with such investment
management and supervision as the Trust may from time to time consider
necessary for the proper supervision of the Trust. As investment adviser
to the Trust, the Adviser shall furnish continuously an investment program
and shall determine from time to time what securities and other
investments shall be acquired, disposed of or exchanged and what portion
of the Trust's assets shall be held uninvested, subject always to the
applicable restrictions of the Declaration of Trust, By-Laws and
registration statement of the Trust under the Investment Company Act of
1940, all as from time to time amended. Should the Trustees of the Trust
at any time, however, make any specific determination as to investment
policy for the Trust 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
Trust, all actions which it deems necessary or desirable to implement the
investment policies of the Trust.
The Adviser shall place all orders for the purchase or sale of
portfolio securities for the account of the Trust either directly with the
issuer or with brokers or dealers selected by the Adviser, and to that end
the Adviser is authorized as the agent of the Trust to give instructions
<PAGE>
to the custodian of the Trust as to deliveries of securities and payments
of cash for the account of the Trust. In connection with the selection of
such brokers or dealers and the placing of such orders, the Adviser shall
use its best efforts to seek to execute security transactions at prices
which are advantageous to the Trust and (when a disclosed commission is
being charged) at reasonably competitive commission rates. In selecting
brokers or dealers qualified to execute a particular transaction, brokers
or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Adviser and the Adviser is expressly
authorized to pay any broker or dealer who provides such brokerage and
research services a commission for executing a security transaction which
is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or the
overall responsibilities which the Adviser and its affiliates have with
respect to accounts over which they exercise investment discretion.
Subject to the requirement set forth in the second sentence of this
paragraph, the Adviser is authorized to consider, as a factor in the
selection of any broker or dealer with whom purchase or sale orders may be
placed, the fact that such broker or dealer has sold or is selling shares
of any one or more investment companies sponsored by the Adviser or its
affiliates or shares of any other investment company investing in the
Trust.
2. COMPENSATION OF THE ADVISER. For the services, payments
and facilities to be furnished hereunder by the Adviser, the Adviser shall
be entitled to receive from the Trust, on a daily basis, compensation in
an amount equal to the aggregate of:
(a) a daily asset-based fee computed by applying the annual
asset rate applicable to that portion of the total daily
net assets of the Trust in each Category as indicated
below:
Category Daily Net Assets Annual Asset Rate
-------- ---------------- -----------------
1 up to $500 million 0.400%
2 $500 million but less than $1 billion 0.375%
3 $1 billion but less than $1.5 billion 0.350%
4 $1.5 billion but less than $2 billion 0.325%
5 $2 billion but less than $3 billion 0.300%
6 $3 billion and over 0.275%, plus
(b) a daily income-based fee computed by applying the daily
income rate applicable to that portion of the total daily
gross income of the Trust (which portion shall bear the
same relationship to the total daily gross income on such
day as that portion of the total daily net assets of the
-2- A:\HYMP.IAA
<PAGE>
Trust in the same Category bears to the total daily net
assets on such day) in each category as indicated below:
Category Daily Net Assets Annual Asset Rate
-------- ---------------- -----------------
1 up to $500 million 4.00%
2 $500 million but less than $1 billion 3.75%
3 $1 billion but less than $1.5 billion 3.50%
4 $1.5 billion but less than $2 billion 3.25%
5 $2 billion but less than $3 billion 3.00%
6 $3 billion and over 2.75%
Such daily compensation shall be paid monthly in arrears on the last
business day of each month. The Trust's daily net assets and gross income
shall be computed in accordance with the Declaration of Trust of the Trust
and any applicable votes and determinations of the Trustees of the Trust.
In case of initiation or termination of the Agreement during any
month with respect to the Trust, the fee for that month shall be based on
the number of calendar days during which it is in effect.
The Adviser may, from time to time, waive all or a part of the
above compensation.
3. ALLOCATION OF CHARGES AND EXPENSES. It is understood
that the Trust will pay all expenses other than those expressly stated to
be payable by the Adviser hereunder, which expenses payable by the Trust
shall include, without implied limitation, (i) expenses of maintaining the
Trust and continuing its existence, (ii) registration of the Trust under
the Investment Company Act of 1940, (iii) commissions, fees and other
expenses connected with the acquisition, holding and disposition of
securities and other investments, (iv) auditing, accounting and legal
expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale, and redemption of Interests in the Trust, (viii) expenses
of registering and qualifying the Trust and Interests in the Trust under
federal and state securities laws and of preparing and printing
registration statements or other offering statements or memoranda for such
purposes and for distributing the same to Holders and investors, and fees
and expenses of registering and maintaining registrations of the Trust and
of the Trust's placement agent as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to Holders and of
meetings of Holders and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and disbursements
of custodians and subcustodians for all services to the Trust (including
without limitation safekeeping of funds, securities and other investments,
keeping of books, accounts and records, and determination of net asset
values, book capital account balances and tax capital account balances),
(xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, Holder servicing agents and registrars for all services
-3- A:\HYMP.IAA
<PAGE>
to the Trust, (xv) expenses for servicing the account of Holders, (xvi)
any direct charges to Holders approved by the Trustees of the Trust,
(xvii) compensation and expenses of Trustees of the Trust who are not
members of the Adviser's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with
litigation, proceedings and claims and the obligation of the Trust to
indemnify its Trustees, officers and Holders with respect thereto.
4. OTHER INTERESTS. It is understood that Trustees and
officers of the Trust and Holders of Interests in the Trust are or may be
or become interested in the Adviser as trustees, shareholders or otherwise
and that trustees, officers and shareholders of the Adviser are or may be
or become similarly interested in the Trust, and that the Adviser may be
or become interested in the Trust as Holder or otherwise. It is also
understood that trustees, officers, employees and shareholders of the
Adviser may be or become interested (as directors, trustees, officers,
employees, shareholders or otherwise) in other companies or entities
(including, without limitation, other investment companies) which the
Adviser may organize, sponsor or acquire, or with which it may merge or
consolidate, and which may include the words "Eaton Vance" or "Boston
Management and Research" or any combination thereof as part of their name,
and that the Adviser or its subsidiaries or affiliates may enter into
advisory or management agreements or other contracts or relationships with
such other companies or entities.
5. LIMITATION OF LIABILITY OF THE ADVISER. The services of
the Adviser to the Trust are not to be deemed to be exclusive, the Adviser
being free to render services to others and engage in other business
activities. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject to liability to the
Trust or to any Holder of Interests in the Trust for any act or omission
in the course of, or connected with, rendering services hereunder or for
any losses which may be sustained in the acquisition, holding or
disposition of any security or other investment.
6. SUB-INVESTMENT ADVISERS. The Adviser may employ one or
more sub-investment advisers from time to time to perform such of the acts
and services of the Adviser, including the selection of brokers or dealers
to execute the Trust's portfolio security transactions, and upon such
terms and conditions as may be agreed upon between the Adviser and such
investment adviser and approved by the Trustees of the Trust.
7. DURATION AND TERMINATION OF THIS AGREEMENT. This
Agreement shall become effective upon the date of its execution, and,
unless terminated as herein provided, shall remain in full force and
effect through and including February 28, 1996 and shall continue in full
force and effect indefinitely thereafter, but only so long as such
continuance after February 28, 1996 is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Trust and (ii) by the
vote of a majority of those Trustees of the Trust who are not interested
-4- A:\HYMP.IAA
<PAGE>
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement without the payment
of any penalty, by action of Trustees of the Trust or the trustees of the
Adviser, as the case may be, and the Trust may, at any time upon such
written notice to the Adviser, terminate this Agreement by vote of a
majority of the outstanding voting securities of the Trust. This
Agreement shall terminate automatically in the event of its assignment.
8. AMENDMENTS OF THE AGREEMENT. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved (i) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by vote of a majority of
the outstanding voting securities of the Trust.
9. LIMITATION OF LIABILITY. The Adviser expressly
acknowledges the provision in the Declaration of Trust of the Trust
(Section 5.2 and 5.6) limiting the personal liability of the Trustees and
officers of the Trust, and the Adviser hereby agrees that it shall have
recourse to the Trust for payment of claims or obligations as between the
Trust and the Adviser arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
10. CERTAIN DEFINITIONS. The terms "assignment" and
"interested persons" when used herein shall have the respective meanings
specified in the Investment Company Act of 1940 as now in effect or as
hereafter amended subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or
order. The term "vote of a majority of the outstanding voting securities"
shall mean the vote, at a meeting of Holders, of the lesser of (a) 67 per
centum or more of the Interests in the Trust present or represented by
proxy at the meeting if the Holders of more than 50 per centum of the
outstanding Interests in the Trust are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Interests
in the Trust. The terms "Holders" and "Interests" when used herein shall
have the respective meanings specified in the Declaration of Trust of the
Trust.
-5- A:\HYMP.IAA
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first above written.
HIGH YIELD MUNICIPALS PORTFOLIO
By:
President
BOSTON MANAGEMENT AND RESEARCH
By:
Vice President, and not individually
-6- A:\HYMP.IAA
<PAGE>
FORM OF
PLACEMENT AGENT AGREEMENT
, 1995
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, Massachusetts 02110
Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, High Yield Municipals Portfolio
(the "Trust"), an open-end non-diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), organized as a New York trust, has agreed that Eaton Vance
Distributors, Inc. ("EVD") shall be the placement agent (the "Placement
Agent") of Interests in the Trust ("Trust Interests").
1. Services as Placement Agent.
1.1 EVD will act as Placement Agent of the Trust Interests
covered by the Trust's registration statement then in effect under the
1940 Act. In acting as Placement Agent under this Placement Agent
Agreement, neither EVD nor its employees or any agents thereof shall make
any offer or sale of Trust Interests in a manner which would require the
Trust Interests to be registered under the Securities Act of 1933, as
amended (the "1933 Act").
1.2 All activities by EVD and its agents and employees as
Placement Agent of Trust Interests shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and
regulations adopted pursuant to the 1940 Act by the Securities and
Exchange Commission (the "Commission").
1.3 Nothing herein shall be construed to require the Trust to
accept any offer to purchase any Trust Interests, all of which shall be
subject to approval by the Board of Trustees.
1.4 The Portfolio shall furnish from time to time for use in
connection with the sale of Trust Interests such information with respect
to the Trust and Trust Interests as EVD may reasonably request. The Trust
shall also furnish EVD upon request with: (a) unaudited semiannual
statements of the Trust's books and accounts prepared by the Trust, and
(b) from time to time such additional information regarding the Trust's
financial or regulatory condition as EVD may reasonably request.
1.5 The Trust represents to EVD that all registration statements
filed by the Trust with the Commission under the 1940 Act with respect to
Trust Interests have been prepared in conformity with the requirements of
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such statute and the rules and regulations of the Commission thereunder.
As used in this Agreement the term "registration statement" shall mean any
registration statement filed with the Commission as modified by any
amendments thereto that at any time shall have been filed with the
Commission by or on behalf of the Trust. The Trust represents and
warrants to EVD that any registration statement will contain all
statements required to be stated therein in conformity with both such
statute and the rules and regulations of the Commission; that all
statements of fact contained in any registration statement will be true
and correct in all material respects at the time of filing of such
registration statement or amendment thereto; and that no registration
statement will include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of Trust Interests.
The Trust may but shall not be obligated to propose from time to time such
amendment to any registration statement as in the light of future
developments may, in the opinion of the Trust's counsel, be necessary or
advisable. If the Trust shall not propose such amendment and/or
supplement within fifteen days after receipt by the Trust of a written
request from EVD to do so, EVD may, at its option, terminate this
Agreement. The Trust shall not file any amendment to any registration
statement without giving EVD reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any
way limit the Trust's right to file at any time such amendment to any
registration statement as the Trust may deem advisable, such right being
in all respects absolute and unconditional.
1.6 The Trust agrees to indemnify, defend and hold EVD, its
several officers and directors, and any person who controls EVD within the
meaning of Section 15 of the 1933 Act or Section 20 of the Securities and
Exchange Act of 1934 (the "1934 Act") (for purposes of this paragraph 1.6,
collectively, "Covered Persons") free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which any Covered Person
may incur under the 1933 Act, the 1934 Act, common law or otherwise,
arising out of or based on any untrue statement of a material fact
contained in any registration statement, private placement memorandum or
other offering material ("Offering Material") or arising out of or based
on any omission to state a material fact required to be stated in any
Offering Material or necessary to make the statements in any Offering
Material not misleading; provided, however, that the Trust's agreement to
indemnify Covered Persons shall not be deemed to cover any claims,
demands, liabilities or expenses arising out of any financial and other
statements as are furnished in writing to the Trust by EVD in its capacity
as Placement Agent for use in the answers to any items of any registration
statement or in any statements made in any Offering Material, or arising
out of or based on any omission or alleged omission to state a material
fact in connection with the giving of such information required to be
stated in such answers or necessary to make the answers not misleading;
and further provided that the Trust's agreement to indemnify EVD and the
Trust's representations and warranties hereinbefore set forth in this
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<PAGE>
paragraph 1.6 shall not be deemed to cover any liability to the Trust or
its investors to which a Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of a Covered Person's reckless
disregard of its obligations and duties under this Agreement. The Trust
should be notified of any action brought against a Covered Person, such
notification to be given by a writing addressed to the Trust, 24 Federal
Street Boston, Massachusetts 02110, with a copy to the Adviser of the
Trust, Boston Management and Research, at the same address, promptly after
the summons or other first legal process shall have been duly and
completely served upon such Covered Person. The failure to so notify the
Trust of any such action shall not relieve the Trust from any liability
except to the extent the Trust shall have been prejudiced by such failure,
or from any liability that the Trust may have to the Covered Person
against whom such action is brought by reason of any such untrue statement
or omission, otherwise than on account of the Trust's indemnity agreement
contained in this paragraph. The Trust will be entitled to assume the
defense of any suit brought to enforce any such claim, demand or
liability, but in such case such defense shall be conducted by counsel of
good standing chosen by the Trust and approved by EVD, which approval
shall not be unreasonably withheld. In the event the Trust elects to
assume the defense of any such suit and retain counsel of good standing
approved by EVD, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
in case the Trust does not elect to assume the defense of any such suit or
in case EVD reasonably does not approve of counsel chosen by the Trust,
the Trust will reimburse the Covered Person named as defendant in such
suit, for the fees and expenses of any counsel retained by EVD or it. The
Trust's indemnification agreement contained in this paragraph and the
Trust's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of Covered Persons, and shall survive the delivery of
any Trust Interests. This agreement of indemnity will inure exclusively
to Covered Persons and their successors. The Trust agrees to notify EVD
promptly of the commencement of any litigation or proceedings against the
Trust or any of its officers or Trustees in connection with the issue and
sale of any Trust Interests.
1.7 EVD agrees to indemnify, defend and hold the Trust, its
several officers and trustees, and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act (for purposes of this paragraph 1.7, collectively, "Covered Persons")
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or
defending such claims, demands, liabilities and any counsel fees incurred
in connection therewith) that Covered Persons may incur under the 1933
Act, the 1934 Act or common law or otherwise, but only to the extent that
such liability or expense incurred by a Covered Person resulting from such
claims or demands shall arise out of or be based on any untrue statement
of a material fact contained in information furnished in writing by EVD in
its capacity as Placement Agent to the Trust for use in the answers to any
of the items of any registration statement or in any statements in any
3
<PAGE>
other Offering Material or shall arise out of or be based on any omission
to state a material fact in connection with such information furnished in
writing by EVD to the Trust required to be stated in such answers or
necessary to make such information not misleading. EVD shall be notified
of any action brought against a Covered Person, such notification to be
given by a writing addressed to EVD at 24 Federal Street, Boston,
Massachusetts 02110, promptly after the summons or other first legal
process shall have been duly and completely served upon such Covered
Person. EVD shall have the right of first control of the defense of the
action with counsel of its own choosing satisfactory to the Trust if such
action is based solely on such alleged misstatement or omission on EVD's
part, and in any other event each Covered Person shall have the right to
participate in the defense or preparation of the defense of any such
action. The failure to so notify EVD of any such action shall not relieve
EVD from any liability except to the extent the Trust shall have been
prejudiced by such failure, or from any liability that EVD may have to
Covered Persons by reason of any such untrue or alleged untrue statement,
or omission or alleged omission, otherwise than on account of EVD's
indemnity agreement contained in this paragraph.
1.8 No Trust Interests shall be offered by either EVD or the
Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of Trust Interests hereunder shall be accepted by the
Trust if and so long as the effectiveness of the registration statement or
any necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act or the 1940 Act; provided, however, that
nothing contained in this paragraph shall in any way restrict or have an
application to or bearing on the Trust's obligation to redeem Trust
Interests from any investor in accordance with the provisions of the
Trust's registration statement or Declaration of Trust, as amended from
time to time.
1.9 The Trust agrees to advise EVD as soon as reasonably
practical by a notice in writing delivered to EVD or its counsel:
(a) of any request by the Commission for amendments to the
registration statement then in effect or for additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement then in
effect or the initiation by service of process on the Trust of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement then in
effect or that requires the making of a change in such registration
statement in order to make the statements therein not misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement that may from time to time be
filed with the Commission.
4
<PAGE>
For purposes of this paragraph 1.9, informal requests by or acts
of the Staff of the Commission shall not be deemed actions of or requests
by the Commission.
1.10 EVD agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trust all records and
other information not otherwise publicly available relative to the Trust
and its prior, present or potential investors and not to use such records
and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where EVD may be exposed to
civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or
when so requested by the Trust.
2. Duration and Termination of this Agreement.
This Agreement shall become effective upon the date of its
execution, and, unless terminated as herein provided, shall remain in full
force and effect through and including February 28, 1997 and shall
continue in full force and effect indefinitely thereafter, but only so
long as such continuance after February 28, 1997 is specifically approved
at least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Trust and (ii) by
the vote of a majority of those Trustees of the Trust who are not
interested persons of EVD or the Trust cast in person at a meeting called
for the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this agreement without the payment
of any penalty, by action of Trustees of the Trust or the Directors of
EVD, as the case may be, and the Trust may, at any time upon such written
notice to EVD, terminate this Agreement by vote of a majority of the
outstanding voting securities of the Trust. This Agreement shall
terminate automatically in the event of its assignment.
3. Representations and Warranties.
EVD and the Trust each hereby represents and warrants to the
other that it has all requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement and that, with respect to
it, this Agreement is legal, valid and binding, and enforceable in
accordance with its terms.
4. Limitation of Liability.
EVD expressly acknowledges the provision in the Declaration of
Trust of the Trust (Sections 5.2 and 5.6) limiting the personal liability
of the Trustees and officers of the Trust, and EVD hereby agrees that it
shall have recourse to the Trust for payment of claims or obligations as
5
<PAGE>
between the Trust and EVD arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
5. Certain Definitions.
The terms "assignment" and "interested persons" when used herein
shall have the respective meanings specified in the Investment Company Act
of 1940 as now in effect or as hereafter amended subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission by
any rule, regulation or order. The term "vote of a majority of the
outstanding voting securities" shall mean the vote, at a meeting of
Holders, of the lesser of (a) 67 per centum or more of the Interests in
the Trust present or represented by proxy at the meeting if the Holders of
more than 50 per centum of the outstanding Interests in the Trust are
present or represented by proxy at the meeting, or (b) more than 50 per
centum of the outstanding Interests in the Trust. The terms "Holders" and
"Interests" when used herein shall have the respective meanings specified
in the Declaration of Trust of the Trust.
6. Concerning Applicable Provisions of Law, etc.
This Agreement shall be subject to all applicable provisions of
law, including the applicable provisions of the 1940 Act and to the extent
that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
The laws of the Commonwealth of Massachusetts shall, except to
the extent that any applicable provisions of federal law shall be
controlling, govern the construction, validity and effect of this
Agreement, without reference to principles of conflicts of law.
If the contract set forth herein is acceptable to you, please so
indicate by executing the enclosed copy of this Agreement and returning
the same to the undersigned, whereupon this Agreement shall constitute a
binding contract between the parties hereto effective at the closing of
business on the date hereof.
Yours very truly,
HIGH YIELD MUNICIPALS PORTFOLIO
By: ____________________________________
President
Accepted:
EATON VANCE DISTRIBUTORS, INC.
By: _______________________________________
President
6
<PAGE>
FORM OF
HIGH YIELD MUNICIPALS PORTFOLIO
, 1995
High Yield Municipals Portfolio hereby adopts and agrees to become a party
to the attached Master Custodian Agreement between the Eaton Vance Hub
Portfolios and Investors Bank & Trust Company.
HIGH YIELD MUNICIPALS PORTFOLIO
BY: --------------------------------
President
Accepted and agreed to:
INVESTORS BANK & TRUST COMPANY
BY: --------------------------------
Title:
<PAGE>
MASTER CUSTODIAN AGREEMENT
between
EATON VANCE HUB PORTFOLIOS
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1-3
2. Employment of Custodian and Property to be Held by It . . . . 3
3. Duties of the Custodian with Respect to
Property of the Trust . . . . . . . . . . . . . . . . . . . . 3
A. Safekeeping and Holding of Property . . . . . . . . . . 3-4
B. Delivery of Securities . . . . . . . . . . . . . . . . . 4-6
C. Registration of Securities . . . . . . . . . . . . . . . . 6
D. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 7
E. Payments for Interests, or Increases in Interests,
in the Trust . . . . . . . . . . . . . . . . . . . . . . . 7
F. Investment and Availability of Federal Funds . . . . . . . 7
G. Collections . . . . . . . . . . . . . . . . . . . . . . 7-8
H. Payment of Trust Monies . . . . . . . . . . . . . . . . 8-9
I. Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . . 9-10
J. Payments for Repurchases or Redemptions
of Interests of the Trust . . . . . . . . . . . . . . . . 10
K. Appointment of Agents by the Custodian . . . . . . . . . . 10
L. Deposit of Trust Portfolio Securities in Securities
Systems . . . . . . . . . . . . . . . . . . . . . . . 10-12
M. Deposit of Trust Commercial Paper in an Approved
Book-Entry System for Commercial Paper . . . . . . . . 12-14
N. Segregated Account . . . . . . . . . . . . . . . . . . 14-15
O. Ownership Certificates for Tax Purposes . . . . . . . . . 15
P. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 15
Q. Communications Relating to Trust Portfolio . . . . . . . 15
Securities
R. Exercise of Rights; Tender Offers . . . . . . . . . . 15-16
i
<PAGE>
S. Depository Receipts . . . . . . . . . . . . . . . . . . . 16
T. Interest Bearing Call or Time Deposits . . . . . . . . . . 16
U. Options, Futures Contracts and Foreign
Currency Transactions . . . . . . . . . . . . . . . . 17-18
V. Actions Permitted Without Express Authority . . . . . . . 18
4. Duties of Bank with Respect to Books of Account and
Calculations of Net Asset Value . . . . . . . . . . . . . 18-19
5. Records and Miscellaneous Duties . . . . . . . . . . . . . 19-20
6. Opinion of Trust's Independent Public Accountants . . . . . . 20
7. Compensation and Expenses of Bank . . . . . . . . . . . . . . 20
8. Responsibility of Bank . . . . . . . . . . . . . . . . . . 20-21
9. Persons Having Access to Assets of the Trust . . . . . . . . . 21
10. Effective Period, Termination and Amendment;
Successor Custodian . . . . . . . . . . . . . . . . . . . 21-22
11. Interpretive and Additional Provisions . . . . . . . . . . . . 22
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 22-23
13. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . 23
14. Adoption of the Agreement by the Trust . . . . . . . . . . . . 23
ii
<PAGE>
MASTER CUSTODIAN AGREEMENT
This Agreement is made between each investment company advised by
Boston Management and Research which has adopted this Agreement in the
manner provided herein and Investors Bank & Trust Company (hereinafter
called "Bank", "Custodian" and "Agent"), a trust company established under
the laws of Massachusetts with a principal place of business in Boston,
Massachusetts.
Whereas, each such investment company is registered under the
Investment Company Act of 1940 and has appointed the Bank to act as
Custodian of its property and to perform certain duties as its Agent, as
more fully hereinafter set forth; and
Whereas, the Bank is willing and able to act as each such
investment company's Custodian and Agent, subject to and in accordance
with the provisions hereof;
Now, therefore, in consideration of the premises and of the
mutual covenants and agreements herein contained, each such investment
company and the Bank agree as follows:
1. Definitions
------------
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Trust" shall mean the investment company which has adopted
this Agreement.
(b) "Board" shall mean the board of trustees of the Trust.
(c) "The Depository Trust Company", a clearing agency registered
with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934 which acts as a
securities depository and which has been specifically
approved as a securities depository for the Trust by the
Board.
(d) "Participants Trust Company", a clearing agency registered
with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934 which acts as a
securities depository and which has been specifically
approved as a securities depository for the Trust by the
Board.
(e) "Approved Clearing Agency" shall mean any other domestic
clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act
of 1934 which acts as a securities depository BUT ONLY if the
1
<PAGE>
Custodian has received a certified copy of a resolution of
the Board approving such clearing agency as a securities
depository for the Trust.
(f) "Federal Book-Entry System" shall mean the book-entry system
referred to in Rule 17f-4(b) under the Investment Company Act
of 1940 for United States and federal agency securities
(i.e., as provided in Subpart O of Treasury Circular No. 300,
31 CFR 306, Subpart B of 31 CFR Part 350, and the book-entry
regulations of federal agencies substantially in the form of
Subpart O).
(g) "Approved Foreign Securities Depository" shall mean a foreign
securities depository or clearing agency referred to in Rule
17f-4 under the Investment Company Act of 1940 for foreign
securities BUT ONLY if the Custodian has received a certified
copy of a resolution of the Board approving such depository
or clearing agency as a foreign securities depository for the
Trust.
(h) "Approved Book-Entry System for Commercial Paper" shall mean
a system maintained by the Custodian or by a subcustodian
employed pursuant to Section 2 hereof for the holding of
commercial paper in book-entry form BUT ONLY if the Custodian
has received a certified copy of a resolution of the Board
approving the participation by the Trust in such system.
(i) The Custodian shall be deemed to have received "proper
instructions" in respect of any of the matters referred to in
this Agreement upon receipt of written or facsimile
instructions signed by such one or more person or persons as
the Board shall have from time to time authorized to give the
particular class of instructions in question. Different
persons may be authorized to give instructions for different
purposes. A certified copy of a resolution of the Board may
be received and accepted by the Custodian as conclusive
evidence of the authority of any such person to act and may
be considered as in full force and effect until receipt of
written notice to the contrary. Such instructions may be
general or specific in terms and, where appropriate, may be
standing instructions. Unless the resolution delegating
authority to any person or persons to give a particular class
of instructions specifically requires that the approval of
any person, persons or committee shall first have been
obtained before the Custodian may act on instructions of that
class, the Custodian shall be under no obligation to question
the right of the person or persons giving such instructions
in so doing. Oral instructions will be considered proper
instructions if the Custodian reasonably believes them to
have been given by a person authorized to give such
instructions with respect to the transaction involved. The
Trust shall cause all oral instructions to be confirmed in
2
<PAGE>
writing. The Trust authorizes the Custodian to tape record
any and all telephonic or other oral instructions given to
the Custodian. Upon receipt of a certificate signed by two
officers of the Trust as to the authorization by the
President and the Treasurer of the Trust accompanied by a
detailed description of the communication procedures approved
by the President and the Treasurer of the Trust, "proper
instructions" may also include communications effected
directly between electromechanical or electronic devices
provided that the President and Treasurer of the Trust and
the Custodian are satisfied that such procedures afford
adequate safeguards for the Trust's assets. In performing
its duties generally, and more particularly in connection
with the purchase, sale and exchange of securities made by or
for the Trust, the Custodian may take cognizance of the
provisions of the governing documents and registration
statement of the Trust as the same may from time to time be
in effect (and resolutions or proceedings of the holders of
interests in the Trust or the Board), but, nevertheless,
except as otherwise expressly provided herein, the Custodian
may assume unless and until notified in writing to the
contrary that so-called proper instructions received by it
are not in conflict with or in any way contrary to any
provisions of such governing documents and registration
statement, or resolutions or proceedings of the holders of
interests in the Trust or the Board.
(j) The term "Vote" when used with respect to the Board or the
Holders of Interests in the Trust shall include a vote,
resolution, consent, proceeding and other action taken by the
Board or Holders in accordance with the Declaration of Trust
or By-Laws of the Trust.
2. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Trust hereby appoints and employs the Bank as its Custodian
and Agent in accordance with and subject to the provisions hereof, and the
Bank hereby accepts such appointment and employment. The Trust agrees to
deliver to the Custodian all securities, participation interests, cash and
other assets owned by it, and all payments of income, payments of
principal and capital distributions and adjustments received by it with
respect to all securities and participation interests owned by the Trust
from time to time, and the cash consideration received by it from time to
time in exchange for an interest in the Trust or for an increase in such
an interest. The Custodian shall not be responsible for any property of
the Trust held by the Trust and not delivered by the Trust to the
Custodian. The Trust will also deliver to the Bank from time to time
copies of its currently effective declaration of trust, by-laws,
registration statement and placement agent agreement with its placement
agent, together with such resolutions, and other proceedings of the Trust
3
<PAGE>
as may be necessary for or convenient to the Bank in the performance of
its duties hereunder.
The Custodian may from time to time employ one or more
subcustodians to perform such acts and services upon such terms and
conditions as shall be approved from time to time by the Board. Any such
subcustodian so employed by the Custodian shall be deemed to be the agent
of the Custodian, and the Custodian shall remain primarily responsible for
the securities, participation interests, moneys and other property of the
Trust held by such subcustodian. Any foreign subcustodian shall be a bank
or trust company which is an eligible foreign custodian within the meaning
of Rule 17f-5 under the Investment Company Act of 1940, and the foreign
custody arrangements shall be approved by the Board and shall be in
accordance with and subject to the provisions of said Rule. For the
purposes of this Agreement, any property of the Trust held by any such
subcustodian (domestic or foreign) shall be deemed to be held by the
Custodian under the terms of this Agreement.
3. Duties of the Custodian with Respect to Property of the Trust
--------------------------------------------------------------
A. SAFEKEEPING AND HOLDING OF PROPERTY The Custodian shall keep
safely all property of the Trust and on behalf of the Trust
shall from time to time receive delivery of Trust property
for safekeeping. The Custodian shall hold, earmark and
segregate on its books and records for the account of the
Trust all property of the Trust, including all securities,
participation interests and other assets of the Trust (1)
physically held by the Custodian, (2) held by any
subcustodian referred to in Section 2 hereof or by any agent
referred to in Paragraph K hereof, (3) held by or maintained
in The Depository Trust Company or in Participants Trust
Company or in an Approved Clearing Agency or in the Federal
Book-Entry System or in an Approved Foreign Securities
Depository, each of which from time to time is referred to
herein as a "Securities System", and (4) held by the
Custodian or by any subcustodian referred to in Section 2
hereof and maintained in any Approved Book-Entry System for
Commercial Paper.
B. DELIVERY OF SECURITIES The Custodian shall release and
deliver securities or participation interests owned by the
Trust held (or deemed to be held) by the Custodian or
maintained in a Securities System account or in an Approved
Book-Entry System for Commercial Paper account only upon
receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, and only
in the following cases:
1) Upon sale of such securities or participation interests
for the account of the Trust, BUT ONLY against receipt of
payment therefor; if delivery is made in Boston or New
4
<PAGE>
York City, payment therefor shall be made in accordance
with generally accepted clearing house procedures or by
use of Federal Reserve Wire System procedures; if
delivery is made elsewhere payment therefor shall be in
accordance with the then current "street delivery" custom
or in accordance with such procedures agreed to in
writing from time to time by the parties hereto; if the
sale is effected through a Securities System, delivery
and payment therefor shall be made in accordance with the
provisions of Paragraph L hereof; if the sale of
commercial paper is to be effected through an Approved
Book-Entry System for Commercial Paper, delivery and
payment therefor shall be made in accordance with the
provisions of Paragraph M hereof; if the securities are
to be sold outside the United States, delivery may be
made in accordance with procedures agreed to in writing
from time to time by the parties hereto; for the purposes
of this subparagraph, the term "sale" shall include the
disposition of a portfolio security (i) upon the exercise
of an option written by the Trust and (ii) upon the
failure by the Trust to make a successful bid with
respect to a portfolio security, the continued holding of
which is contingent upon the making of such a bid;
2) Upon the receipt of payment in connection with any
repurchase agreement or reverse repurchase agreement
relating to such securities and entered into by the
Trust;
3) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Trust;
4) To the issuer thereof or its agent when such securities
or participation interests are called, redeemed, retired
or otherwise become payable; PROVIDED that, in any such
case, the cash or other consideration is to be delivered
to the Custodian or any subcustodian employed pursuant to
Section 2 hereof;
5) To the issuer thereof, or its agent, for transfer into
the name of the Trust or into the name of any nominee of
the Custodian or into the name or nominee name of any
agent appointed pursuant to Paragraph K hereof or into
the name or nominee name of any subcustodian employed
pursuant to Section 2 hereof; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of
units; PROVIDED that, in any such case, the new
securities or participation interests are to be delivered
to the Custodian or any subcustodian employed pursuant to
Section 2 hereof;
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6) To the broker selling the same for examination in
accordance with the "street delivery" custom; PROVIDED
that the Custodian shall adopt such procedures as the
Trust from time to time shall approve to ensure their
prompt return to the Custodian by the broker in the event
the broker elects not to accept them;
7) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion of
such securities, or pursuant to any deposit agreement;
PROVIDED that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof;
8) In the case of warrants, rights or similar securities,
the surrender thereof in connection with the exercise of
such warrants, rights or similar securities, or the
surrender of interim receipts or temporary securities for
definitive securities; PROVIDED that, in any such case,
the new securities and cash, if any, are to be delivered
to the Custodian or any subcustodian employed pursuant to
Section 2 hereof;
9) For delivery in connection with any loans of securities
made by the Trust (such loans to be made pursuant to the
terms of the Trust's current registration statement), BUT
ONLY against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Trust,
which may be in the form of cash or obligations issued by
the United States government, its agencies or
instrumentalities; except that in connection with any
securities loans for which collateral is to be credited
to the Custodian's account in the book-entry system
authorized by the U.S. Department of Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities loaned by the Trust prior to the
receipt of such collateral;
10) For delivery as security in connection with any
borrowings by the Trust requiring a pledge or
hypothecation of assets by the Trust (if then permitted
under circumstances described in the current registration
statement of the Trust), provided, that the securities
shall be released only upon payment to the Custodian of
the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made, further securities may be released for that
purpose; upon receipt of proper instructions, the
Custodian may pay any such loan upon redelivery to it of
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the securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the loan;
11) When required for delivery in connection with any
redemption or repurchase of an interest in the Trust in
accordance with the provisions of Paragraph J hereof;
12) For delivery in accordance with the provisions of any
agreement between the Custodian (or a subcustodian
employed pursuant to Section 2 hereof) and a
broker-dealer registered under the Securities Exchange
Act of 1934 and, if necessary, the Trust, relating to
compliance with the rules of The Options Clearing
Corporation or of any registered national securities
exchange, or of any similar organization or
organizations, regarding deposit or escrow or other
arrangements in connection with options transactions by
the Trust;
13) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian (or a
subcustodian employed pursuant to Section 2 hereof), and
a futures commissions merchant, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or of any contract market or commodities
exchange or similar organization, regarding futures
margin account deposits or payments in connection with
futures transactions by the Trust;
14) For any other proper corporate purpose, BUT ONLY upon
receipt of, in addition to proper instructions, a
certified copy of a resolution of the Board specifying
the securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such
purpose to be proper corporate purpose, and naming the
person or persons to whom delivery of such securities
shall be made.
C. REGISTRATION OF SECURITIES Securities held by the
Custodian (other than bearer securities) for the account
of the Trust shall be registered in the name of the Trust
or in the name of any nominee of the Trust or of any
nominee of the Custodian, or in the name or nominee name
of any agent appointed pursuant to Paragraph K hereof, or
in the name or nominee name of any subcustodian employed
pursuant to Section 2 hereof, or in the name or nominee
name of The Depository Trust Company or Participants
Trust Company or Approved Clearing Agency or Federal
Book-Entry System or Approved Book-Entry System for
Commercial Paper; provided, that securities are held in
an account of the Custodian or of such agent or of such
subcustodian containing only assets of the Trust or only
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assets held by the Custodian or such agent or such
subcustodian as a custodian or subcustodian or in a
fiduciary capacity for customers. All certificates for
securities accepted by the Custodian or any such agent or
subcustodian on behalf of the Trust shall be in "street"
or other good delivery form or shall be returned to the
selling broker or dealer who shall be advised of the
reason thereof.
D. BANK ACCOUNTS The Custodian shall open and maintain a
separate bank account or accounts in the name of the Trust,
subject only to draft or order by the Custodian acting in
pursuant to the terms of this Agreement, and shall hold in
such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of the
Trust other than cash maintained by the Trust in a bank
account established and used in accordance with Rule 17f-3
under the Investment Company Act of 1940. Funds held by
the Custodian for the Trust may be deposited by it to its
credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as the
Custodian may in its discretion deem necessary or
desirable; PROVIDED, however, that every such bank or trust
company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or
trust company and the funds to be deposited with each such
bank or trust company shall be approved in writing by two
officers of the Trust. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be
subject to withdrawal only by the Custodian in that
capacity.
E. PAYMENTS FOR INTERESTS, OR INCREASES IN INTERESTS, IN THE
TRUST The Custodian shall make appropriate arrangements
with the Transfer Agent of the Trust to enable the
Custodian to make certain it promptly receives the cash or
other consideration due to the Trust for payment of
interests in the Trust, or increases in such interests, in
accordance with the governing documents and registration
statement of the Trust. The Custodian will provide prompt
notification to the Trust of any receipt by it of such
payments.
F. INVESTMENT AND AVAILABILITY OF FEDERAL FUNDS Upon
agreement between the Trust and the Custodian, the
Custodian shall, upon the receipt of proper instructions,
which may be continuing instructions when deemed
appropriate by the parties, invest in such securities and
instruments as may be set forth in such instructions on the
same day as received all federal funds received after a
time agreed upon between the Custodian and the Trust.
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G. COLLECTIONS The Custodian shall promptly collect all
income and other payments with respect to registered
securities held hereunder to which the Trust shall be
entitled either by law or pursuant to custom in the
securities business, and shall promptly collect all income
and other payments with respect to bearer securities if, on
the date of payment by the issuer, such securities are held
by the Custodian or agent thereof and shall credit such
income, as collected, to the Trust's custodian account.
The Custodian shall do all things necessary and proper in
connection with such prompt collections and, without
limiting the generality of the foregoing, the Custodian
shall
1) Present for payment all coupons and other income items
requiring presentations;
2) Present for payment all securities which may mature or
be called, redeemed, retired or otherwise become
payable;
3) Endorse and deposit for collection, in the name of the
Trust, checks, drafts or other negotiable instruments;
4) Credit income from securities maintained in a
Securities System or in an Approved Book-Entry System
for Commercial Paper at the time funds become
available to the Custodian; in the case of securities
maintained in The Depository Trust Company funds shall
be deemed available to the Trust not later than the
opening of business on the first business day after
receipt of such funds by the Custodian.
The Custodian shall notify the Trust as soon as reasonably
practicable whenever income due on any security is not
promptly collected. In any case in which the Custodian
does not receive any due and unpaid income after it has
made demand for the same, it shall immediately so notify
the Trust in writing, enclosing copies of any demand
letter, any written response thereto, and memoranda of all
oral responses thereto and to telephonic demands, and
await instructions from the Trust; the Custodian shall in
no case have any liability for any nonpayment of such
income provided the Custodian meets the standard of care
set forth in Section 8 hereof. The Custodian shall not be
obligated to take legal action for collection unless and
until reasonably indemnified to its satisfaction.
The Custodian shall also receive and collect all stock
dividends, rights and other items of like nature, and deal
with the same pursuant to proper instructions relative
thereto.
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H. PAYMENT OF TRUST MONIES Upon receipt of proper
instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay
out monies of the Trust in the following cases only:
1) Upon the purchase of securities, participation
interests, options, futures contracts, forward
contracts and options on futures contracts purchased
for the account of the Trust but only (a) against the
receipt of
(i) such securities registered as provided in
Paragraph C hereof or in proper form for transfer
or
(ii) detailed instructions signed by an officer
of the Trust regarding the participation
interests to be purchased or
(iii)written confirmation of the purchase by the
Trust of the options, futures contracts, forward
contracts or options on futures contracts by the
Custodian (or by a subcustodian employed pursuant
to Section 2 hereof or by a clearing corporation
of a national securities exchange of which the
Custodian is a member or by any bank, banking
institution or trust company doing business in
the United States or abroad which is qualified
under the Investment Company Act of 1940 to act
as a custodian and which has been designated by
the Custodian as its agent for this purpose or by
the agent specifically designated in such
instructions as representing the purchasers of a
new issue of privately placed securities); (b) in
the case of a purchase effected through a
Securities System, upon receipt of the securities
by the Securities System in accordance with the
conditions set forth in Paragraph L hereof; (c)
in the case of a purchase of commercial paper
effected through an Approved Book-Entry System
for Commercial Paper, upon receipt of the paper
by the Custodian or subcustodian in accordance
with the conditions set forth in Paragraph M
hereof; (d) in the case of repurchase agreements
entered into between the Trust and another bank
or a broker-dealer, against receipt by the
Custodian of the securities underlying the
repurchase agreement either in certificate form
or through an entry crediting the Custodian's
segregated, non-proprietary account at the
Federal Reserve Bank of Boston with such
securities along with written evidence of the
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agreement by the bank or broker-dealer to
repurchase such securities from the Trust; or (e)
with respect to securities purchased outside of
the United States, in accordance with written
procedures agreed to from time to time in writing
by the parties hereto;
2) When required in connection with the conversion,
exchange or surrender of securities owned by the
Trust as set forth in Paragraph B hereof;
3) When required for the reduction or redemption of
an interest in the Trust in accordance with the
provisions of Paragraph J hereof;
4) For the payment of any expense or liability
incurred by the Trust, including but not limited
to the following payments for the account of the
Trust: advisory fees, interest, taxes,
management compensation and expenses, accounting,
transfer agent and legal fees, and other
operating expenses of the Trust whether or not
such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For distributions or payment to Holders of
Interest in the Trust; and
6) For any other proper corporate purpose, BUT ONLY
upon receipt of, in addition to proper
instructions, a certified copy of a resolution of
the Board, specifying the amount of such payment,
setting forth the purpose for which such payment
is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person
or persons to whom such payment is to be made.
I. LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES
PURCHASED In any and every case where payment for purchase
of securities for the account of the Trust is made by the
Custodian in advance of receipt of the securities purchased
in the absence of specific written instructions signed by two
officers of the Trust to so pay in advance, the Custodian
shall be absolutely liable to the Trust for such securities
to the same extent as if the securities had been received by
the Custodian; EXCEPT that in the case of a repurchase
agreement entered into by the Trust with a bank which is a
member of the Federal Reserve System, the Custodian may
transfer trusts to the account of such bank prior to the
receipt of (i) the securities in certificate form subject to
such repurchase agreement or (ii) written evidence that the
securities subject to such repurchase agreement have been
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transferred by book-entry into a segregated non-proprietary
account of the Custodian maintained with the Federal Reserve
Bank of Boston or (iii) the safekeeping receipt, PROVIDED
that such securities have in fact been so TRANSFERRED by
book-entry and the written repurchase agreement is received
by the Custodian in due course; AND EXCEPT that if the
securities are to be purchased outside the United States,
payment may be made in accordance with procedures agreed to
in writing from time to time by the parties hereto.
J. PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF INTERESTS IN THE
TRUST From such funds as may be available for the purpose,
but subject to any applicable resolutions of the Board and
the current procedures of the Trust, the Custodian shall,
upon receipt of written instructions from the Trust or from
the Trust's Transfer Agent, make funds and/or portfolio
securities available for payment to Holders of Interest in
the Trust who have caused the amount of their interests to be
reduced, or for their interest to be redeemed.
K. APPOINTMENT OF AGENTS BY THE CUSTODIAN The Custodian may at
any time or times in its discretion appoint (and may at any
time remove) any other bank or trust company (PROVIDED such
bank or trust company is itself qualified under the
Investment Company Act of 1940 to act as a custodian or is
itself an eligible foreign custodian within the meaning of
Rule 17f-5 under said Act) as the agent of the Custodian to
carry out such of the duties and functions of the Custodian
described in this Section 3 as the Custodian may from time to
time direct; PROVIDED, however, that the appointment of any
such agent shall not relieve the Custodian of any of its
responsibilities or liabilities hereunder, and as between the
Trust and the Custodian the Custodian shall be fully
responsible for the acts and omissions of any such agent.
For the purposes of this Agreement, any property of the Trust
held by any such agent shall be deemed to be held by the
Custodian hereunder.
L. DEPOSIT OF TRUST PORTFOLIO SECURITIES IN SECURITIES SYSTEMS
The Custodian may deposit and/or maintain securities owned by
the Trust
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in an Approved Foreign Securities Depository
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in each case only in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission
rules and regulations, and at all times subject to the
following provisions:
(a) The Custodian may (either directly or through one or
more subcustodians employed pursuant to Section 2 keep
securities of the Trust in a Securities System provided
that such securities are maintained in a non-proprietary
account ("Account") of the Custodian or such subcustodian
in the Securities System which shall not include any
assets of the Custodian or such subcustodian or any other
person other than assets held by the Custodian or such
subcustodian as a fiduciary, custodian, or otherwise for
its customers.
(b) The records of the Custodian with respect to
securities of the Trust which are maintained in a
Securities System shall identify by book-entry those
securities belonging to the Trust, and the Custodian
shall be fully and completely responsible for maintaining
a recordkeeping system capable of accurately and
currently stating the Trust's holdings maintained in each
such Securities System.
(c) The Custodian shall pay for securities purchased in
book-entry form for the account of the Trust only upon
(i) receipt of notice or advice from the Securities
System that such securities have been transferred to the
Account, and (ii) the making of any entry on the records
of the Custodian to reflect such payment and transfer for
the account of the Trust. The Custodian shall transfer
securities sold for the account of the Trust only upon
(i) receipt of notice or advice from the Securities
System that payment for such securities has been
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
transfer and payment for the account of the Trust. Copies
of all notices or advices from the Securities System of
transfers of securities for the account of the Trust
shall identify the Trust, be maintained for the Trust by
the Custodian and be promptly provided to the Trust at
its request. The Custodian shall promptly send to the
Trust confirmation of each transfer to or from the
account of the Trust in the form of a written advice or
notice of each such transaction, and shall furnish to the
Trust copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the
account of the Trust on the next business day.
(d) The Custodian shall promptly send to the Trust any
report or other communication received or obtained by the
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Custodian relating to the Securities System's accounting
system, system of internal accounting controls or
procedures for safeguarding securities deposited in the
Securities System; the Custodian shall promptly send to
the Trust any report or other communication relating to
the Custodian's internal accounting controls and
procedures for safeguarding securities deposited in any
Securities System; and the Custodian shall ensure that
any agent appointed pursuant to Paragraph K hereof or any
subcustodian employed pursuant to Section 2 hereof shall
promptly send to the Trust and to the Custodian any
report or other communication relating to such agent's or
subcustodian's internal accounting controls and
procedures for safeguarding securities deposited in any
Securities System. The Custodian's books and records
relating to the Trust's participation in each Securities
System will at all times during regular business hours be
open to the inspection of the Trust's authorized
officers, employees or agents.
(e) The Custodian shall not act under this Paragraph L
in the absence of receipt of a certificate of an officer
of the Trust that the Board has approved the use of a
particular Securities System; the Custodian shall also
obtain appropriate assurance from the officers of the
Trust that the Board has annually reviewed the continued
use by the Trust of each Securities System, and the Trust
shall promptly notify the Custodian if the use of a
Securities System is to be discontinued; at the request
of the Trust, the Custodian will terminate the use of any
such Securities System as promptly as practicable.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Trust resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or subcustodians or of any of its or their
employees or from any failure of the Custodian or any
such agent or subcustodian to enforce effectively such
rights as it may have against the Securities System or
any other person; at the election of the Trust, it shall
be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the
Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if
and to the extent that the Trust has not been made whole
for any such loss or damage.
M. DEPOSIT OF TRUST COMMERCIAL PAPER IN AN APPROVED BOOK-ENTRY
SYSTEM FOR COMMERCIAL PAPER Upon receipt of proper
instructions with respect to each issue of direct issue
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commercial paper purchased by the Trust, the Custodian may
deposit and/or maintain direct issue commercial paper owned
by the Trust in any Approved Book-Entry System for Commercial
Paper, in each case only in accordance with applicable
Securities and Exchange Commission rules, regulations, and
no-action correspondence, and at all times subject to the
following provisions:
(a) The Custodian may (either directly or through one or
more subcustodians employed pursuant to Section 2) keep
commercial paper of the Trust in an Approved Book-Entry
System for Commercial Paper, provided that such paper is
issued in book entry form by the Custodian or
subcustodian on behalf of an issuer with which the
Custodian or subcustodian has entered into a book-entry
agreement and provided further that such paper is
maintained in a non-proprietary account ("Account") of
the Custodian or such subcustodian in an Approved
Book-Entry System for Commercial Paper which shall not
include any assets of the Custodian or such subcustodian
or any other person other than assets held by the
Custodian or such subcustodian as a fiduciary, custodian,
or otherwise for its customers.
(b) The records of the Custodian with respect to
commercial paper of the Trust which is maintained in an
Approved Book-Entry System for Commercial Paper shall
identify by book-entry each specific issue of commercial
paper purchased by the Trust which is included in the
Securities System and shall at all times during regular
business hours be open for inspection by authorized
officers, employees or agents of the Trust. The
Custodian shall be fully and completely responsible for
maintaining a recordkeeping system capable of accurately
and currently stating the Trust's holdings of commercial
paper maintained in each such System.
(c) The Custodian shall pay for commercial paper
purchased in book-entry form for the account of the Trust
only upon contemporaneous (i) receipt of notice or advice
from the issuer that such paper has been issued, sold and
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
purchase, payment and transfer for the account of the
Trust. The Custodian shall transfer such commercial
paper which is sold or cancel such commercial paper which
is redeemed for the account of the Trust only upon
contemporaneous (i) receipt of notice or advice that
payment for such paper has been transferred to the
Account, and (ii) the making of an entry on the records
of the Custodian to reflect such transfer or redemption
and payment for the account of the Trust. Copies of all
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notices, advices and confirmations of transfers of
commercial paper for the account of the Trust shall
identify the Trust, be maintained for the Trust by the
Custodian and be promptly provided to the Trust at its
request. The Custodian shall promptly send to the Trust
confirmation of each transfer to or from the account of
the Trust in the form of a written advice or notice of
each such transaction, and shall furnish to the Trust
copies of daily transaction sheets reflecting each day's
transactions in the System for the account of the Trust
on the next business day.
(d) The Custodian shall promptly send to the Trust any
report or other communication received or obtained by the
Custodian relating to each System's accounting system,
system of internal accounting controls or procedures for
safeguarding commercial paper deposited in the System;
the Custodian shall promptly send to the Trust any report
or other communication relating to the Custodian's
internal accounting controls and procedures for
safeguarding commercial paper deposited in any Approved
Book-Entry System for Commercial Paper; and the Custodian
shall ensure that any agent appointed pursuant to
Paragraph K hereof or any subcustodian employed pursuant
to Section 2 hereof shall promptly send to the Trust and
to the Custodian any report or other communication
relating to such agent's or subcustodian's internal
accounting controls and procedures for safeguarding
securities deposited in any Approved Book-Entry System
for Commercial Paper.
(e) The Custodian shall not act under this Paragraph M
in the absence of receipt of a certificate of an officer
of the Trust that the Board has approved the use of a
particular Approved Book-Entry System for Commercial
Paper; the Custodian shall also obtain appropriate
assurance from the officers of the Trust that the Board
has annually reviewed the continued use by the Trust of
each Approved Book-Entry System for Commercial Paper, and
the Trust shall promptly notify the Custodian if the use
of an Approved Book-Entry System for Commercial Paper is
to be discontinued; at the request of the Trust, the
Custodian will terminate the use of any such System as
promptly as practicable.
(f) The Custodian (or subcustodian, if the Approved
Book-Entry System for Commercial Paper is maintained by
the subcustodian) shall issue physical commercial paper
or promissory notes whenever requested to do so by the
Trust or in the event of an electronic system failure
which impedes issuance, transfer or custody of direct
issue commercial paper by book-entry.
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(g) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Trust resulting from
use of any Approved Book-Entry System for Commercial
Paper by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or
subcustodians or of any of its or their employees or from
any failure of the Custodian or any such agent or
subcustodian to enforce effectively such rights as it may
have against the System, the issuer of the commercial
paper or any other person; at the election of the Trust,
it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the
System, the issuer of the commercial paper or any other
person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Trust has not been made whole for any such loss or
damage.
N. SEGREGATED ACCOUNT The Custodian shall upon receipt of
proper instructions establish and maintain a segregated
account or accounts for and on behalf of the Trust, into
which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by
the Custodian pursuant to Paragraph L hereof, (i) in
accordance with the provisions of any agreement among the
Trust, the Custodian and any registered broker-dealer (or any
futures commission merchant), relating to compliance with the
rules of the Options Clearing Corporation and of any
registered national securities exchange (or of the Commodity
Futures Trading Commission or of any contract market or
commodities exchange), or of any similar organization or
organizations, regarding escrow or deposit or other
arrangements in connection with transactions by the Trust,
(ii) for purposes of segregating cash or U.S. Government
securities in connection with options purchased, sold or
written by the Trust or futures contracts or options thereon
purchased or sold by the Trust, (iii) for the purposes of
compliance by the Trust with the procedures required by
Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
purposes, BUT ONLY, in the case of clause (iv), upon receipt
of, in addition to proper instructions, a certificate signed
by two officers of the Trust, setting forth the purpose such
segregated account and declaring such purpose to be a proper
purpose.
O. OWNERSHIP CERTIFICATES FOR TAX PURPOSES The Custodian shall
execute ownership and other certificates and affidavits for
all federal and state tax purposes in connection with receipt
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<PAGE>
of income or other payments with respect to securities of the
Trust held by it and in connection with transfers of
securities.
P. PROXIES The Custodian shall, with respect to the securities
held by it hereunder, cause to be promptly delivered to the
Trust all forms of proxies and all notices of meetings and
any other notices or announcements or other written
information affecting or relating to the securities, and upon
receipt of proper instructions shall execute and deliver or
cause its nominee to execute and deliver such proxies or
other authorizations as may be required. Neither the
Custodian nor its nominee shall vote upon any of the
securities or execute any proxy to vote thereon or give any
consent or take any other action with respect thereto (except
as otherwise herein provided) unless ordered to do so by
proper instructions.
Q. COMMUNICATIONS RELATING TO TRUST PORTFOLIO SECURITIES The
Custodian shall deliver promptly to the Trust all written
information (including, without limitation, pendency of call
and maturities of securities and participation interests and
expirations of rights in connection therewith and notices of
exercise of call and put options written by the Trust and the
maturity of futures contracts purchased or sold by the Trust)
received by the Custodian from issuers and other persons
relating to the securities and participation interests being
held for the Trust. With respect to tender or exchange
offers, the Custodian shall deliver promptly to the Trust all
written information received by the Custodian from issuers
and other persons relating to the securities and
participation interests whose tender or exchange is sought
and from the party (or his agents) making the tender or
exchange offer.
R. EXERCISE OF RIGHTS; TENDER OFFERS In the case of tender
offers, similar offers to purchase or exercise rights
(including, without limitation, pendency of calls and
maturities of securities and participation interests and
expirations of rights in connection therewith and notices of
exercise of call and put options and the maturity of futures
contracts) affecting or relating to securities and
participation interests held by the Custodian under this
Agreement, the Custodian shall have responsibility for
promptly notifying the Trust of all such offers in accordance
with the standard of reasonable care set forth in Section 8
hereof. For all such offers for which the Custodian is
responsible as provided in this Paragraph R, the Trust shall
have responsibility for providing the Custodian with all
necessary instructions in timely fashion. Upon receipt of
proper instructions, the Custodian shall timely deliver to
the issuer or trustee thereof, or to the agent of either,
18
<PAGE>
warrants, puts, calls, rights or similar securities for the
purpose of being exercised or sold upon proper receipt
therefor and upon receipt of assurances satisfactory to the
Custodian that the new securities and cash, if any, acquired
by such action are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof. Upon
receipt of proper instructions, the Custodian shall timely
deposit securities upon invitations for tenders of securities
upon proper receipt therefor and upon receipt of assurances
satisfactory to the Custodian that the consideration to be
paid or delivered or the tendered securities are to be
returned to the Custodian or subcustodian employed pursuant
to Section 2 hereof. Notwithstanding any provision of this
Agreement to the contrary, the Custodian shall take all
necessary action, unless otherwise directed to the contrary
by proper instructions, to comply with the terms of all
mandatory or compulsory exchanges, calls, tenders,
redemptions, or similar rights of security ownership, and
shall thereafter promptly notify the Trust in writing of such
action.
S. DEPOSITORY RECEIPTS The Custodian shall, upon receipt of
proper instructions, surrender or cause to be surrendered
foreign securities to the depository used by an issuer of
American Depository Receipts or International Depository
Receipts (hereinafter collectively referred to as "ADRs") for
such securities, against a written receipt therefor
adequately describing such securities and written evidence
satisfactory to the Custodian that the depository has
acknowledged receipt of instructions to issue with respect to
such securities in the name of a nominee of the Custodian or
in the name or nominee name of any subcustodian employed
pursuant to Section 2 hereof, for delivery to the Custodian
or such subcustodian at such place as the Custodian or such
subcustodian may from time to time designate. The Custodian
shall, upon receipt of proper instructions, surrender ADRs to
the issuer thereof against a written receipt therefor
adequately describing the ADRs surrendered and written
evidence satisfactory to the Custodian that the issuer of the
ADRs has acknowledged receipt of instructions to cause its
depository to deliver the securities underlying such ADRs to
the Custodian or to a subcustodian employed pursuant to
Section 2 hereof.
T. INTEREST BEARING CALL OR TIME DEPOSITS The Custodian shall,
upon receipt of proper instructions, place interest bearing
fixed term and call deposits with the banking department of
such banking institution (other than the Custodian) and in
such amounts as the Trust may designate. Deposits may be
denominated in U.S. Dollars or other currencies. The
Custodian shall include in its records with respect to the
assets of the Trust appropriate notation as to the amount and
19
<PAGE>
currency of each such deposit, the accepting banking
institution and other appropriate details and shall retain
such forms of advice or receipt evidencing the deposit, if
any, as may be forwarded to the Custodian by the banking
institution. Such deposits shall be deemed portfolio
securities of the Trust for the purposes of this Agreement,
and the Custodian shall be responsible for the collection of
income from such accounts and the transmission of cash to and
from such accounts.
U. Options, Futures Contracts and Foreign Currency Transactions
------------------------------------------------------------
1. OPTIONS. The Custodian shall, upon receipt of
proper instructions and in accordance with the provisions
of any agreement between the Custodian, any registered
broker-dealer and, if necessary, the Trust, relating to
compliance with the rules of the Options Clearing
Corporation or of any registered national securities
exchange or similar organization or organizations,
receive and retain confirmations or other documents, if
any, evidencing the purchase or writing of an option on a
security or securities index or other financial
instrument or index by the Trust; deposit and maintain in
a segregated account for the Trust, either physically or
by book-entry in a Securities System, securities subject
to a covered call option written by the Trust; and
release and/or transfer such securities or other assets
only in accordance with a notice or other communication
evidencing the expiration, termination or exercise of
such covered option furnished by the Options Clearing
Corporation, the securities or options exchange on which
such covered option is traded or such other organization
as may be responsible for handling such options
transactions. The Custodian and the broker-dealer shall
be responsible for the sufficiency of assets held in the
Trust's segregated account in compliance with applicable
margin maintenance requirements.
2. FUTURES CONTRACTS The Custodian shall, upon
receipt of proper instructions, receive and retain
confirmations and other documents, if any, evidencing the
purchase or sale of a futures contract or an option on a
futures contract by the Trust; deposit and maintain in a
segregated account, for the benefit of any futures
commission merchant, assets designated by the Trust as
initial, maintenance or variation "margin" deposits
(including mark-to-market payments) intended to secure
the Trust's performance of its obligations under any
futures contracts purchased or sold or any options on
futures contracts written by Trust, in accordance with
the provisions of any agreement or agreements among the
20
<PAGE>
Trust, the Custodian and such futures commission
merchant, designed to comply with the rules of the
Commodity Futures Trading Commission and/or of any
contract market or commodities exchange or similar
organization regarding such margin deposits or payments;
and release and/or transfer assets in such margin
accounts only in accordance with any such agreements or
rules. The Custodian and the futures commission merchant
shall be responsible for the sufficiency of assets held
in the segregated account in compliance with the
applicable margin maintenance and mark-to-market payment
requirements.
3. FOREIGN EXCHANGE TRANSACTIONS The Custodian
shall, pursuant to proper instructions, enter into or
cause a subcustodian to enter into foreign exchange
contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf and for
the account of the Trust. Such transactions may be
undertaken by the Custodian or subcustodian with such
banking or financial institutions or other currency
brokers, as set forth in proper instructions. Foreign
exchange contracts and options shall be deemed to be
portfolio securities of the Trust; and accordingly, the
responsibility of the Custodian therefor shall be the
same as and no greater than the Custodian's
responsibility in respect of other portfolio securities
of the Trust. The Custodian shall be responsible for the
transmittal to and receipt of cash from the currency
broker or banking or financial institution with which the
contract or option is made, the maintenance of proper
records with respect to the transaction and the
maintenance of any segregated account required in
connection with the transaction. The Custodian shall
have no duty with respect to the selection of the
currency brokers or banking or financial institutions
with which the Trust deals or for their failure to comply
with the terms of any contract or option. Without
limiting the foregoing, it is agreed that upon receipt of
proper instructions and insofar as funds are made
available to the Custodian for the purpose, the Custodian
may (if determined necessary by the Custodian to
consummate a particular transaction on behalf and for the
account of the Trust) make free outgoing payments of cash
in the form of U.S. dollars or foreign currency before
receiving confirmation of a foreign exchange contract or
confirmation that the countervalue currency completing
the foreign exchange contract has been delivered or
received. The Custodian shall not be responsible for any
costs and interest charges which may be incurred by the
Trust or the Custodian as a result of the failure or
delay of third parties to deliver foreign exchange;
21
<PAGE>
provided that the Custodian shall nevertheless be held to
the standard of care set forth in, and shall be liable to
the Trust in accordance with, the provisions of Section
8.
V. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY The Custodian
may in its discretion, without express authority from the
Trust:
1) make payments to itself or others for minor
expenses of handling securities or other similar
items relating to its duties under this
Agreement, PROVIDED, that all such payments shall
be accounted for by the Custodian to the
Treasurer of the Trust;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the Trust,
checks, drafts and other negotiable instruments;
and
4) in general, attend to all nondiscretionary
details in connection with the sale, exchange,
substitution, purchase, transfer and other
dealings with the securities and property of the
Trust except as otherwise directed by the Trust.
4. Duties of Bank with Respect to Books of Account and Calculations
of Net Asset Value
----------------------------------------------------------------
The Bank shall as Agent (or as Custodian, as the case may be)
keep such books of account (including records showing the adjusted tax
costs of the Trust's portfolio securities) and render as at the close of
business on each day a detailed statement of the amounts received or paid
out and of securities received or delivered for the account of the Trust
during said day and such other statements, including a daily trial balance
and inventory of the Trust's portfolio securities; and shall furnish such
other financial information and data as from time to time requested by the
Treasurer or any executive officer of the Trust; and shall compute and
determine, as of the close of business of the New York Stock Exchange, or
at such other time or times as the Board may determine, the net asset
value of the Trust and the net asset value of each interest in the Trust,
such computations and determinations to be made in accordance with the
governing documents of the Trust and the votes and instructions of the
Board and of the investment adviser at the time in force and applicable,
and promptly notify the Trust and its investment adviser and such other
persons as the Trust may request of the result of such computation and
determination. In computing the net asset value the Custodian may rely
upon security quotations received by telephone or otherwise from sources
22
<PAGE>
or pricing services designated by the Trust by proper instructions, and
may further rely upon information furnished to it by any authorized
officer of the Trust relative (a) to liabilities of the Trust not
appearing on its books of account, (b) to the existence, status and proper
treatment of any reserve or reserves, (c) to any procedures or policies
established by the Board regarding the valuation of portfolio securities
or other assets, and (d) to the value to be assigned to any bond, note,
debenture, Treasury bill, repurchase agreement, subscription right,
security, participation interests or other asset or property for which
market quotations are not readily available. The Custodian shall also
compute and determine at such time or times as the Trust may designate the
portion of each item which has significance for a holder of an interest in
the Trust in computing and determining its federal income tax liability
including, but not limited to, each item of income, expense and realized
and unrealized gain or loss of the Trust which is attributable for Federal
income tax purposes to each such holder.
5. Records and Miscellaneous Duties
--------------------------------
The Bank shall create, maintain and preserve all records relating
to its activities and obligations under this Agreement in such manner as
will meet the obligations of the Trust under the Investment Company Act of
1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, applicable federal and state tax laws and any other law
or administrative rules or procedures which may be applicable to the
Trust. All books of account and records maintained by the Bank in
connection with the performance of its duties under this Agreement shall
be the property of the Trust, shall at all times during the regular
business hours of the Bank be open for inspection by authorized officers,
employees or agents of the Trust, and in the event of termination of this
Agreement shall be delivered to the Trust or to such other person or
persons as shall be designated by the Trust. Disposition of any account
or record after any required period of preservation shall be only in
accordance with specific instructions received from the Trust. The Bank
shall assist generally in the preparation of reports to holder of interest
in the Trust, to the Securities and Exchange Commission, including Form
N-SAR, and to others, audits of accounts, and other ministerial matters of
like nature; and, upon request, shall furnish the Trust's auditors with an
attested inventory of securities held with appropriate information as to
securities in transit or in the process of purchase or sale and with such
other information as said auditors may from time to time request. The
Custodian shall also maintain records of all receipts, deliveries and
locations of such securities, together with a current inventory thereof,
and shall conduct periodic verifications (including sampling counts at the
Custodian) of certificates representing bonds and other securities for
which it is responsible under this Agreement in such manner as the
Custodian shall determine from time to time to be advisable in order to
verify the accuracy of such inventory. The Bank shall not disclose or use
any books or records it has prepared or maintained by reason of this
Agreement in any manner except as expressly authorized herein or directed
23
<PAGE>
by the Trust, and the Bank shall keep confidential any information
obtained by reason of this Agreement.
6. Opinion of Trust's Independent Public Accountants
-------------------------------------------------
The Custodian shall take all reasonable action, as the Trust may
from time to time request, to enable the Trust to obtain from year to year
favorable opinions from the Trust's independent public accountants with
respect to its activities hereunder in connection with the preparation of
the Trust's registration statement and Form N-SAR or other periodic
reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
7. Compensation and Expenses of Bank
---------------------------------
The Bank shall be entitled to reasonable compensation for its
services as Custodian and Agent, as agreed upon from time to time between
the Trust and the Bank. The Bank shall be entitled to receive from the
Trust on demand reimbursement for its cash disbursements, expenses and
charges, including counsel fees, in connection with its duties as
Custodian and Agent hereunder, but excluding salaries and usual overhead
expenses.
8. Responsibility of Bank
----------------------
So long as and to the extent that it is in the exercise of
reasonable care, the Bank as Custodian and Agent shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper
party or parties.
The Bank as Custodian and Agent shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Trust) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
The Bank as Custodian and Agent shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement but shall
be liable only for its own negligent or bad faith acts or failures to act.
Notwithstanding the foregoing, nothing contained in this paragraph is
intended to nor shall it be construed to modify the standards of care and
responsibility set forth in Section 2 hereof with respect to subcustodians
and in subparagraph f of Paragraph L of Section 3 hereof with respect to
Securities Systems and in subparagraph g of Paragraph M of Section 3
hereof with respect to an Approved Book-Entry System for Commercial Paper.
The Custodian shall be liable for the acts or omissions of a
foreign banking institution to the same extent as set forth with respect
to subcustodians generally in Section 2 hereof, provided that, regardless
24
<PAGE>
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank,
the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from, or caused by, the direction of or
authorization by the Trust to maintain custody of any securities or cash
of the Trust in a foreign country including, but not limited to, losses
resulting from nationalization, expropriation, currency restrictions, acts
of war, civil war or terrorism, insurrection, revolution, military or
usurped powers, nuclear fission, fusion or radiation, earthquake, storm or
other disturbance of nature or acts of God.
If the Trust requires the Bank in any capacity to take any action
with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Bank, result in the Bank or its
nominee assigned to the Trust being liable for the payment of money or
incurring liability of some other form, the Trust, as a prerequisite to
requiring the Custodian to take such action, shall provide indemnity to
the Custodian in an amount and form satisfactory to it.
9. Persons Having Access to Assets of the Trust
--------------------------------------------
(i) No trustee, officer, employee, or agent of the Trust shall
have physical access to the assets of the Trust held by the Custodian or
be authorized or permitted to withdraw any investments of the Trust, nor
shall the Custodian deliver any assets of the Trust to any such person.
No officer or director, employee or agent of the Custodian who holds any
similar position with the Trust or the investment adviser or the
administrator of the Trust shall have access to the assets of the Trust.
(ii) Access to assets of the Trust held hereunder shall only be
available to duly authorized officers, employees, representatives or
agents of the Custodian or other persons or entities for whose actions the
Custodian shall be responsible to the extent permitted hereunder, or to
the Trust's independent public accountants in connection with their
auditing duties performed on behalf of the Trust.
(iii) Nothing in this Section 9 shall prohibit any officer,
employee or agent of the Trust or of the investment adviser of the Trust
from giving instructions to the Custodian or executing a certificate so
long as it does not result in delivery of or access to assets of the Trust
prohibited by paragraph (i) of this Section 9.
10. Effective Period, Termination and Amendment; Successor Custodian
----------------------------------------------------------------
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties
hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such termination
to take effect not sooner than sixty (60) days after the date of such
25
<PAGE>
delivery or mailing; PROVIDED, that the Trust may at any time by action of
its Board, (i) substitute another bank or trust company for the Custodian
by giving notice as described above to the Custodian, or
(ii) immediately terminate this Agreement in the event of the appointment
of a conservator or receiver for the Custodian by the Federal Deposit
Insurance Corporation or by the Banking Commissioner of The Commonwealth
of Massachusetts or upon the happening of a like event at the direction of
an appropriate regulatory agency or court of competent jurisdiction. Upon
termination of the Agreement, the Trust shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and
disbursements.
Unless the holders of a majority of the outstanding "voting
securities" of the Trust (as defined in the Investment Company Act of
1940) vote to have the securities, funds and other properties held
hereunder delivered and paid over to some other bank or trust company,
specified in the vote, having not less than $2,000,000 of aggregate
capital, surplus and undivided profits, as shown by its last published
report, and meeting such other qualifications for custodians set forth in
the Investment Company Act of 1940, the Board shall, forthwith, upon
giving or receiving notice of termination of this Agreement, appoint as
successor custodian, a bank or trust company having such qualifications.
The Bank, as Custodian, Agent or otherwise, shall, upon termination of the
Agreement, deliver to such successor custodian, all securities then held
hereunder and all funds or other properties of the Trust deposited with or
held by the Bank hereunder and all books of account and records kept by
the Bank pursuant to this Agreement, and all documents held by the Bank
relative thereto. In the event that no such vote has been adopted by the
Holders of Interest in the Trust and that no written order designating a
successor custodian shall have been delivered to the Bank on or before the
date when such termination shall become effective, then the Bank shall not
deliver the securities, funds and other properties of the Trust to the
Trust but shall have the right to deliver to a bank or trust company doing
business in Boston, Massachusetts of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than $2,000,000, all funds, securities and
properties of the Trust held by or deposited with the Bank, and all books
of account and records kept by the Bank pursuant to this Agreement, and
all documents held by the Bank relative thereto. Thereafter such bank or
trust company shall be the successor of the Custodian under this
Agreement.
11. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Agreement, the Custodian
and the Trust may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this Agreement. Any
such interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, PROVIDED that no such
26
<PAGE>
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the governing instruments
of the Trust. No interpretive or additional provisions made as provided
in the preceding sentence shall be deemed to be an amendment of this
Agreement.
12. Notices
-------
Notices and other writings delivered or mailed postage prepaid to
the Trust addressed to 24 Federal Street, Boston, Massachusetts 02110, or
to such other address as the Trust may have designated to the Bank, in
writing with a copy to Eaton Vance Management at 24 Federal Street,
Boston, Massachusetts 02110, or to Investors Bank & Trust Company, 24
Federal Street, Boston, Massachusetts 02110 with a copy to Eaton Vance
Management at 24 Federal Street, Boston, Massachusetts 02110, shall be
deemed to have been properly delivered or given hereunder to the
respective addressees.
13. Massachusetts Law to Apply
--------------------------
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
The Custodian expressly acknowledges the provision in the
Declaration of Trust of the Trust (Section 5.2 and 5.6) limiting the
personal liability of the Trustees and officers of the Trust, and the
Custodian hereby agrees that it shall have recourse to the Trust for
payment of claims or obligations as between the Trust and the Custodian
arising out of this Agreement, and the Custodian shall not seek
satisfaction from any Trustee or officer of the Trust.
14. Adoption of the Agreement by the Trust
--------------------------------------
The Trust represents that its Board has approved this Agreement
and has duly authorized the Trust to adopt this Agreement, such adoption
to be evidenced by a letter agreement between the Trust and the Bank
reflecting such adoption, which letter agreement shall be dated and signed
by a duly authorized officer of the Trust and duly authorized officer of
the Bank. This Agreement shall be deemed to be duly executed and
delivered by each of the parties in its name and behalf by its duly
authorized officer as of the date of such letter agreement, and this
Agreement shall be deemed to supersede and terminate, as of the date of
such letter agreement, all prior agreements between the Trust and the Bank
relating to the custody of the Trust's assets.
* * * * *
27
<PAGE>
HIGH YIELD MUNICIPALS PORTFOLIO
----------------------------------
PROCEDURES FOR ALLOCATIONS
AND DISTRIBUTIONS
May 1, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--Introduction . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II--Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III--Capital Accounts
Section 3.1 Capital Accounts of Holders . . . . . . . . 4
Section 3.2 Book Capital Accounts . . . . . . . . . . . 4
Section 3.3 Tax Capital Accounts . . . . . . . . . . . . 4
Section 3.4 Compliance with Treasury Regulations . . . . 5
ARTICLE IV--Distributions of Cash and Assets
Section 4.1 Distributions of Distributable Cash . . . . 5
Section 4.2 Division Among Holders . . . . . . . . . . . 5
Section 4.3 Distributions Upon Liquidation of a Holder's
Interest in the Trust . . . . . . . . . . . 5
Section 4.4 Amounts Withheld . . . . . . . . . . . . . . 5
ARTICLE V--Allocations
Section 5.1 Allocation of Items to Book Capital Accounts 6
Section 5.2 Allocation of Taxable Income and Tax Loss to Tax
Capital Accounts . . . . . . . . . . . . . . 7
Section 5.3 Special Allocations to Book and Tax Capital
Accounts . . . . . . . . . . . . . . . . . . 7
Section 5.4 Other Adjustments to Book and Tax Capital
Accounts . . . . . . . . . . . . . . . . . . 8
Section 5.5 Timing of Tax Allocations to Book and Tax
Capital Accounts . . . . . . . . . . . . . . 8
Section 5.6 Redemptions During the Fiscal Year . . . . . 8
ARTICLE VI--Withdrawals
Section 6.1 Partial Withdrawals . . . . . . . . . . . . 8
Section 6.2 Redemptions . . . . . . . . . . . . . . . . 8
Section 6.3 Distribution in Kind . . . . . . . . . . . . 8
ARTICLE VII--Liquidation
Section 7.1 Liquidation Procedure . . . . . . . . . . . 9
Section 7.2 Alternative Liquidation Procedure . . . . . 9
Section 7.3 Cash Distributions Upon Liquidation . . . . 9
Section 7.4 Treatment of Negative Book Capital
Account Balance . . . . . . . . . . . . . . 9
i
<PAGE>
PROCEDURES FOR
ALLOCATIONS AND DISTRIBUTIONS
OF
HIGH YIELD MUNICIPALS PORTFOLIO
(the "Trust")
----------------------------------
ARTICLE I
Introduction
------------
The Trust is treated as a partnership for federal income tax
purposes. These procedures have been adopted by the Trustees of the Trust
and will be furnished to the Trust's accountants for the purpose of
allocating Trust gains, income or loss and distributing Trust assets. The
Trust will maintain its books and records, for both book and tax purposes,
using the accrual method of accounting.
ARTICLE II
Definitions
-----------
Except as otherwise provided herein, a term referred to herein
shall have the same meaning as that ascribed to it in the Declaration.
References in this document to "HEREOF", "HEREIN" and "HEREUNDER" shall be
deemed to refer to this document in its entirety rather than the article
or section in which any such word appears.
"BOOK CAPITAL ACCOUNT" shall mean, for any Holder at any time in
any Fiscal Year, the Book Capital Account balance of the Holder on the
first day of the Fiscal Year, as adjusted each day pursuant to the
provisions of Section 3.2 hereof.
"CAPITAL CONTRIBUTION" shall mean, with respect to any Holder,
the amount of money and the Fair Market Value of any assets actually
contributed from time to time to the Trust with respect to the Interest
held by such Holder.
"CODE" shall mean the U.S. Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
Internal Revenue Code of 1954, as amended (or any corresponding provision
or provisions of succeeding law).
"DECLARATION" shall mean the Trust's Declaration of Trust, dated
May 1, 1995, as amended from time to time.
"DESIGNATED EXPENSES" shall mean extraordinary Trust expenses
attributable to a particular Holder that are to be borne by such Holder.
1
<PAGE>
"DISTRIBUTABLE CASH" for any Fiscal Year shall mean the gross
cash proceeds from Trust activities, less the portion thereof used to pay
or establish Reserves, plus such portion of the Reserves as the Trustees,
in their sole discretion, no longer deem necessary to be held as Reserves.
Distributable Cash shall not be reduced by depreciation, amortization,
cost recovery deductions, or similar allowances.
"FAIR MARKET VALUE" of a security, instrument or other asset on
any particular day shall mean the fair value thereof as determined in good
faith by or on behalf of the Trustees in the manner set forth in the
Registration Statement.
"FISCAL YEAR" shall mean an annual period determined by the
Trustees which ends on such day as is permitted by the Code.
"HOLDERS" shall mean as of any particular time all holders of
record of Interests in the Trust.
"INTEREST(s)" shall mean the interest of a Holder in the Trust,
including all rights, powers and privileges accorded to Holders by the
Declaration, which interest may be expressed as a percentage, determined
by calculating, at such times and on such bases as the Trustees shall from
time to time determine, the ratio of each Holder's Book Capital Account
balance to the total of all Holders' Book Capital Account balances.
"INVESTMENTS" shall mean all securities, instruments or other
assets of the Trust of any nature whatsoever, including, but not limited
to, all equity and debt securities, futures contracts, and all property of
the Trust obtained by virtue of holding such assets.
"MATCHED INCOME OR LOSS" shall mean Taxable Income, Tax-Exempt
Income or Tax Loss of the Trust comprising interest, original issue
discount and dividends and all other types of income or loss to the extent
the Taxable Income, Tax-Exempt Income, Tax Loss or Loss items not included
in Tax Loss arising from such items are recognized for tax purposes at the
same time that Profit or Loss are accrued for book purposes by the Trust.
"NET UNREALIZED GAIN" shall mean the excess, if any, of the
aggregate Fair Market Value of all Investments over the aggregate adjusted
bases, for federal income tax purposes, of all Investments.
"NET UNREALIZED LOSS" shall mean the excess, if any, of the
aggregate adjusted bases, for federal income tax purposes, of all
Investments over the aggregate Fair Market Value of all Investments.
"PROFIT" AND "LOSS" shall mean, for each Fiscal Year or other
period, an amount equal to the Taxable Income or Tax Loss for such Fiscal
Year or period with the following adjustments:
(i) Any Tax-Exempt Income shall be added to such
Taxable Income or subtracted from such Tax Loss; and
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(ii) Any expenditures of the Trust for such year
or period described in Section 705(a)(2)(B) of the Code
or treated as expenditures under Section 705(a)(2)(B) of
the Code pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profit or Loss or specially
allocated shall be subtracted from such Taxable Income or
added to such Tax Loss.
"REDEMPTION" shall mean the complete withdrawal of an Interest of
a Holder the result of which is to reduce the Book Capital Account balance
of that Holder to zero.
"REGISTRATION STATEMENT" shall mean the Registration Statement of
the Trust on Form N-1A as filed with the U.S. Securities and Exchange
Commission under the 1940 Act, as the same may be amended from time to
time.
"RESERVES" shall mean, with respect to any Fiscal Year, funds set
aside or amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient by the Trustees for working
capital and to pay taxes, insurance, debt service, renewals, or other
costs or expenses, incident to the ownership of the Investments or to its
operations.
"TAX CAPITAL ACCOUNT" shall mean, for any Holder at any time in
any Fiscal Year, the Tax Capital Account balance of the Holder on the
first day of the Fiscal Year, as adjusted each day pursuant to the
provisions of Section 3.3 hereof.
"TAX-EXEMPT INCOME" shall mean income of the Trust for such
Fiscal Year or period that is exempt from federal income tax and not
otherwise taken into account in computing Profit or Loss.
"TAX LOT" shall mean securities or other property which are both
purchased or acquired, and sold or otherwise disposed of, as a unit.
"TAXABLE INCOME" or "TAX LOSS" shall mean the taxable income or
tax loss of the Trust, determined in accordance with Section 703(a) of the
Code, for each Fiscal Year as determined for federal income tax purposes,
together with each of the Trust's items of income, gain, loss or deduction
which is separately stated or otherwise not included in computing taxable
income and tax loss.
"TREASURY REGULATIONS" shall mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time
to time (including corresponding provisions of succeeding regulations).
"TRUST" shall mean High Yield Municipals Portfolio, a trust fund
formed under the laws of the State of New York by the Declaration.
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"TRUSTEES" shall mean each signatory to the Declaration, so long
as such signatory shall continue in office in accordance with the terms
thereof, and all other individuals who at the time in question have been
duly elected or appointed and have qualified as Trustees in accordance
with the provisions thereof and are then in office.
The "1940 ACT" shall mean the U.S. Investment Company Act of
1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE III
Capital Accounts
----------------
3.1. CAPITAL ACCOUNTS OF HOLDERS. A separate Book Capital
Account and a separate Tax Capital Account shall be maintained for each
Holder pursuant to Section 3.2 and Section 3.3. hereof, respectively. In
the event the Trustees shall determine that it is prudent to modify the
manner in which the Book Capital Accounts or Tax Capital Accounts, or any
debits or credits thereto, are computed in order to comply with the
Treasury Regulations, the Trustees may make such modification, provided
that it is not likely to have a material effect on the amounts
distributable to any Holder pursuant to Article VII hereof upon the
dissolution of the Trust.
3.2. BOOK CAPITAL ACCOUNTS. The Book Capital Account balance
of each Holder shall be adjusted each day by the following amounts:
(a) increased by any increase in Net Unrealized Gains or decrease
in Net Unrealized Losses allocated to such Holder pursuant to
Section 5.1(a) hereof;
(b) decreased by any decrease in Net Unrealized Gains or increase
in Net Unrealized Losses allocated to such Holder pursuant to
Section 5.1(b) hereof;
(c) increased or decreased, as the case may be, by the amount of
Profit or Loss, respectively, allocated to such Holder pursuant to
Section 5.1(c) hereof;
(d) increased by any Capital Contribution made by such Holder;
and,
(e) decreased by any distribution, including any distribution to
effect a withdrawal or Redemption, made to such Holder by the Trust.
Any adjustment pursuant to Section 3.2 (a), (b) or (c) above
shall be prorated for increases in each Holder's Book Capital Account
balance resulting from Capital Contributions, or distributions or
withdrawals from the Trust or Redemptions by the Trust occurring, during
such Fiscal Year as of the day after the Capital Contribution,
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distribution, withdrawal or Redemption is accepted, made or effected by
the Trust.
3.3. TAX CAPITAL ACCOUNTS. The Tax Capital Account balance of
each Holder shall be adjusted at the following times by the following
amounts:
(a) increased daily by the adjusted tax bases of any Capital
Contribution made by such Holder to the Trust;
(b) increased daily by the amount of Taxable Income and Tax-
Exempt Income allocated to such Holder pursuant to Section 5.2 hereof at
such times as the allocations are made under Section 5.2 hereof;
(c) decreased daily by the amount of cash distributed to the
Holder pursuant to any of these procedures including any distribution made
to effect a withdrawal or Redemption; and
(d) decreased by the amount of Tax Loss allocated to such Holder
pursuant to Section 5.2 hereof at such times as the allocations are made
under Section 5.2 hereof.
3.4. COMPLIANCE WITH TREASURY REGULATIONS. The foregoing
provisions and other provisions contained herein relating to the
maintenance of Book Capital Accounts and Tax Capital Accounts are intended
to comply with Treasury Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Treasury
Regulations.
The Trustees shall make any appropriate modifications in the
event unanticipated events might otherwise cause these procedures not to
comply with Treasury Regulations Section 1.704-1(b), including the
requirements described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(b)(1) and Treasury Regulations Section 1.704-1(b)(2)(iv).
Such modifications are hereby incorporated into these procedures by this
reference as though fully set forth herein.
ARTICLE IV
Distributions of Cash and Assets
--------------------------------
4.1. DISTRIBUTIONS OF DISTRIBUTABLE CASH. Except as otherwise
provided in Article VII hereof, Distributable Cash for each Fiscal Year
may be distributed to the Holders at such times, if any, and in such
amounts as shall be determined in the sole discretion of the Trustees. In
exercising such discretion, the Trustees shall distribute such
Distributable Cash so that Holders that are regulated investment companies
can comply with the distribution requirements set forth in Code
Section 852 and avoid the excise tax imposed by Code Section 4982.
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4.2. DIVISION AMONG HOLDERS. All distributions to the Holders
with respect to any Fiscal Year pursuant to Section 4.1 hereof shall be
made to the Holders in proportion to the Taxable Income, Tax-Exempt Income
or Tax Loss allocated to the Holders with respect to such Fiscal Year
pursuant to the terms of these procedures.
4.3. DISTRIBUTIONS UPON LIQUIDATION OF A HOLDER'S INTEREST IN
THE TRUST. Upon liquidation of a Holder's interest in the Trust, the
proceeds will be distributed to the Holder as provided in Section 5.6,
Article VI, and Article VII hereof. If such Holder has a negative book
capital account balance, the provisions of Section 7.4 will apply.
4.4. AMOUNTS WITHHELD. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any
payment or distribution to the Trust or the Holders shall be treated as
amounts distributed to such Holders pursuant to this Article IV for all
purposes under these procedures. The Trustees may allocate any such
amount among the Holders in any manner that is in accordance with
applicable law.
ARTICLE V
Allocations
------------
5.1. Allocation of Items to Book Capital Accounts.
---------------------------------------------
(a) INCREASE IN NET UNREALIZED GAINS OR DECREASE IN NET
UNREALIZED LOSSES. Any decrease in Net Unrealized Loss due to realization
of items shall be allocated to the Holder receiving the allocation of
Loss, in the same amount, under Section 5.1(c) hereof. Subject to Section
5.1(d) hereof, any increase in Net Unrealized Gains or decrease in Net
Unrealized Loss on any day during the Fiscal Year shall be allocated to
the Holders' Book Capital Accounts at the end of such day, in proportion
to the Holders' respective Book Capital Account balances at the
commencement of such day.
(b) DECREASE IN NET UNREALIZED GAINS OR INCREASE IN NET
UNREALIZED LOSSES. Any decrease in Net Unrealized Gains due to
realization of items shall be allocated to the Holder receiving the
allocation of Profit, in the same amount, under Section 5.1(c) hereof.
Subject to Section 5.1(d) hereof, any decrease in Net Unrealized Gains or
increase in Net Unrealized Loss on any day during the Fiscal Year shall be
allocated to the Holders' Book Capital Accounts at the end of such day, in
proportion to the Holders' respective Book Capital Account balances at the
commencement of such day.
(c) PROFIT AND LOSS. Subject to Section 5.1(d) hereof, Profit
and Loss occurring on any day during the Fiscal Year shall be allocated to
the Holders' Book Capital Accounts at the end of such day in proportion to
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the Holders' respective Book Capital Account balances at the commencement
of such day.
(d) Other Book Capital Account Adjustments.
---------------------------------------
(i) Any allocation pursuant to Section 5.1(a), (b)
or (c) above shall be prorated for increases in each
Holder's Book Capital Account resulting from Capital
Contributions, or distributions or withdrawals from the
Trust or Redemptions by the Trust occurring, during such
Fiscal Year as of the day after the Capital Contribution,
distribution, withdrawal or Redemption is accepted, made
or effected by the Trust.
(ii) For purposes of determining the Profit, Loss,
and Net Unrealized Gain or Net Unrealized Loss or any
other item allocable to any Fiscal Year, Profit, Loss,
and Net Unrealized Gain or Net Unrealized Loss and any
such other item shall be determined by or on behalf of
the Trustees using any reasonable method under Code
Section 706 and the Treasury Regulations thereunder.
5.2. Allocation of Taxable Income and Tax Loss to Tax Capital
Accounts.
------------------------------------------------------------------------
(a) TAXABLE INCOME AND TAX LOSS. Subject to Section 5.2(b) and
Section 5.3 hereof, which shall take precedence over this Section 5.2(a),
Taxable Income or Tax Loss for any Fiscal Year shall be allocated at least
annually to the Holders' Tax Capital Accounts as follows:
(i) First, Taxable Income and Tax Loss, whether
constituting ordinary income (or loss) or capital gain
(or loss), derived from the sale or other disposition of
a Tax Lot of securities or other property shall be
allocated as of the date such income, gain or loss is
recognized for federal income tax purposes solely in
proportion to the amount of unrealized appreciation (in
the case of such income or capital gain, but not in the
case of any such loss) or depreciation (in the case of
any such loss, but not in the case of any such income or
capital gain) from that Tax Lot which was allocated to
the Holders' Book Capital Accounts each day that such
securities or other property was held by the Trust
pursuant to Section 5.1(a) and (b) hereof; and
(ii) Second, any remaining amounts at the end of
the Fiscal Year, to the Holders in proportion to their
respective daily average Book Capital Account balances
determined for the Fiscal Year of the allocation.
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(b) MATCHED INCOME OR LOSS. Notwithstanding the provisions of
Section 5.2(a) hereof, Taxable Income, Tax-Exempt Income or Tax Loss
accruing on any day during the Fiscal Year constituting Matched Income or
Loss, shall be allocated daily to the Holders' Tax Capital Accounts solely
in proportion to and to the extent of corresponding allocations of Profit
or Loss to the Holders' Book Capital Accounts pursuant to the first
sentence of Section 5.1(c) hereof.
5.3. Special Allocations to Book and Tax Capital Accounts.
-----------------------------------------------------
(a) The Designated Expenses computed for each Holder shall be
allocated separately (not included in the allocations of Matched Income or
Loss, Loss or Tax Loss) to the Book Capital Account and Tax Capital
Account of each Holder.
(b) If the Trust incurs any nonrecourse indebtedness, then
allocations of items attributable to nonrecourse indebtedness shall be
made to the Tax Capital Account of each Holder in accordance with the
requirements of Treasury Regulations Section 1.704-1(b)(4)(iv)(d).
(c) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, Taxable Income and Tax Loss with respect to any
property contributed to the capital of the Trust shall be allocated to the
Tax Capital Account of each Holder so as to take into account any
variation between the adjusted tax basis of such property to the Trust for
federal income tax purposes and such property's Fair Market Value at the
time of contribution to the Trust.
5.4. Other Adjustments to Book and Tax Capital Accounts.
----------------------------------------------------
(a) Any election or other decision relating to such allocations
shall be made by the Trustees in any manner that reasonably reflects the
purpose and intention of these procedures.
(b) Each Holder will report its share of Trust income and loss
for federal income tax purposes in accordance with the allocations
effected pursuant to Section 5.2 hereof.
5.5. TIMING OF TAX ALLOCATIONS TO BOOK AND TAX CAPITAL
ACCOUNTS. Allocation of Taxable Income, Tax-Exempt Income and Tax Loss
pursuant to Section 5.2 hereof for any Fiscal Year, unless specified above
to the contrary, shall be made only after corresponding adjustments have
been made to the Book Capital Accounts of the Holders for the Fiscal Year
as provided pursuant to Section 5.1 hereof.
5.6. REDEMPTIONS DURING THE FISCAL YEAR. If a Redemption
occurs prior to the end of a Fiscal Year, the Trust will treat the Fiscal
Year as ended for the purposes of computing the redeeming Holder's
distributive share of Trust items and allocations of all items to such
Holder will be made as though each Holder were receiving its allocable
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share of Trust items at such time. All items so allocated to the
redeeming Holder will be subtracted from the items to be allocated among
the other non-redeeming Holders at the actual end of the Fiscal Year. All
items allocated among the redeeming and non-redeeming Holders will be made
subject to the rules of Code Sections 702, 704, 706 and 708 and the
Treasury Regulations promulgated thereunder.
ARTICLE VI
Withdrawals
------------
6.1. PARTIAL WITHDRAWALS. At any time any Holder shall be
entitled to request a withdrawal of such portion of the Interest held by
such Holder as such Holder shall request.
6.2. REDEMPTIONS. At any time a Holder shall be entitled to
request a Redemption of all of its Interest. A Holder's Interest may be
redeemed at any time during the Fiscal Year as provided in Section 6.3
hereof by a cash distribution or, at the option of a Holder, by a
distribution of a proportionate amount except for fractional shares of
each Trust asset at the option of the Trust. However, the Holder may be
redeemed by a distribution of a proportionate amount of the Trust's assets
only at the end of a Fiscal Year. However, if the Holder has contributed
any property to the Trust other than cash, if such property remains in the
Trust at the time the Holder requests withdrawal, then such property will
be sold by the Trust prior to the time at which the Holder withdraws from
the Trust.
6.3. DISTRIBUTION IN KIND. If a withdrawing Holder receives a
distribution in kind of its proportionate part of Trust property, then
unrealized income, gain, loss or deduction attributable to such property
shall be allocated among the Holders as if there had been a disposition of
the property on the date of distribution in compliance with the
requirements of Treasury Regulations Section 1.704-1(b)(2)(iv)(e).
ARTICLE VII
Liquidation
------------
7.1. LIQUIDATION PROCEDURE. Subject to Section 7.4 hereof,
upon dissolution of the Trust, the Trustees shall liquidate the assets of
the Trust, apply and distribute the proceeds thereof as follows:
(a) first to the payment of all debts and obligations of the
Trust to third parties, including without limitation the retirement of
outstanding debt, including any debt owed to Holders or their affiliates,
and the expenses of liquidation, and to the setting up of any Reserves for
contingencies which may be necessary; and
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(b) then in accordance with the Holders' positive Book Capital
Account balances after adjusting Book Capital Accounts for allocations
provided in Article V hereof and in accordance with the requirements
described in Treasury Regulations Section 1.704-1(b)(2) (ii)(b)(2).
7.2. ALTERNATIVE LIQUIDATION PROCEDURE. Notwithstanding the
foregoing, if the Trustees shall determine that an immediate sale of part
or all of the Trust assets would cause undue loss to the Holders, the
Trustees, in order to avoid such loss, may, after having given
notification to all the Holders, to the extent not then prohibited by the
law of any jurisdiction in which the Trust is then formed or qualified and
applicable in the circumstances, either defer liquidation of and withhold
from distribution for a reasonable time any assets of the Trust except
those necessary to satisfy the Trust's debts and obligations or distribute
the Trust's assets to the Holders in liquidation.
7.3. CASH DISTRIBUTIONS UPON LIQUIDATION. Except as provided
in Section 7.2 hereof, amounts distributed in liquidation of the Trust
shall be paid solely in cash.
7.4. TREATMENT OF NEGATIVE BOOK CAPITAL ACCOUNT BALANCE. If a
Holder has a negative balance in its Book Capital Account following the
liquidation of its Interest, as determined after taking into account all
capital account adjustments for the Fiscal Year during which the
liquidation occurs, then such Holder shall restore the amount of such
negative balance to the Trust by the later of the end of the Fiscal Year
or 90 days after the date of such liquidation so as to comply with the
requirements of Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(3).
Such amount shall, upon liquidation, be paid to creditors of the Trust or
distributed to other Holders in accordance with their positive Book
Capital Account balances.
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May 1, 1995
High Yield Municipals Portfolio
24 Federal Street
Boston, MA 02110
Ladies and Gentlemen:
With respect to our purchase from you, at the purchase price of
$100,000, of an interest (an "Initial Interest") in High Yield Municipals
Portfolio (the "Portfolio"), we hereby advise you that we are purchasing
such Initial Interest for investment purposes without any present
intention of redeeming or reselling.
The amount paid by the Portfolio on any withdrawal by us of any
portion of such Initial Interest will be reduced by a portion of any
unamortized organization expenses, determined by the proportion of the
amount of such Initial Interest withdrawn to the aggregate Initial
Interests of all holders of similar Initial Interests then outstanding
after taking into account any prior withdrawals of any such Initial
Interest.
Very truly yours,
BOSTON MANAGEMENT AND RESEARCH
By: /s/ William M. Steul
--------------------------
Vice President
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