<PAGE>
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
X
AMENDMENT NO. _
INCOME TRUST
(Exact Name of Registrant as Specified in
Charter)
IDS Tower 10, Minneapolis, MN 55440-0010
(Address of Principal Executive Offices) (Zip
Code)
Registrant's Telephone Number, including Area Code:
612-671-2772
Eileen J. Newhouse
(Name and Address of Agent for Service)
<PAGE>
PAGE 2
PART A
Item 1-3. Responses to Items 1 through 3 have been omitted
pursuant to Paragraph 4 of Instruction F of the
General Instructions to Form N-1A.
Item 4. General Description of Registrant.
Income Trust (the Trust) is an open-end management investment
company organized as a Massachusetts business trust on May 26,
1995. The Trust consists of three series: U.S. Government Income
Portfolio, Quality Income Portfolio and Aggressive Income Portfolio
(individually, a Portfolio or collectively the Portfolios). The
Portfolios issue shares of beneficial interest with a par value of
$.01 per share without any sales charge. Beneficial interests in
the Portfolios 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 Portfolios may be made only by 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. Organizations or entities that become holders of beneficial
interest of the Trust are referred to herein as "unitholders".
Goals and types of Portfolio investments and their risks
U.S. Government Income Portfolio seeks to provide unitholders with
a high level of current income and safety of principal consistent
with investment in U.S. government and government agency
securities. U.S. Government Income Portfolio is a diversified
mutual fund that invests at least 65% of its total assets in
securities issued or guaranteed as to principal and interest by the
U.S. government and its agencies. Most investments are in pools of
mortgage loans. U.S. Government Income Portfolio also may invest
in non-governmental debt securities, derivative instruments and
money market instruments.
Quality Income Portfolio seeks to provide unitholders with current
income and preservation of capital by investing in investment-grade
bonds. Quality Income Portfolio is a diversified mutual fund that
invests at least 90% of its net assets in the four highest
investment grades of corporate debt securities, certain unrated
debt securities the portfolio manager believes have the same
investment qualities, government securities, derivative instruments
and money market securities. Other investments may include common
and preferred stocks and convertible securities. The investments
are both U.S. and foreign.
<PAGE>
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Aggressive Income Portfolio seeks to provide unitholders with high
current income as its primary goal and, as its secondary goal,
capital growth. Aggressive Income Portfolio is a diversified
mutual fund that invests primarily in long-term, high-yielding debt
securities below investment grade issued by U.S. and foreign
corporations. These securities are commonly known as "junk bonds".
They generally involve greater volatility of price and risk of
principal and income than higher rated securities. Aggressive
Income Portfolio also invests in government securities, investment-
grade bonds, convertible securities, common and preferred stocks,
derivative instruments and money market instruments.
Because investments involve risk, a Portfolio cannot guarantee
achieving its goals. Some of the Portfolios' investments may be
considered speculative and involve additional investment risks.
The foregoing investment goals are fundamental policies of each
Portfolio, which may not be changed unless authorized by a vote of
unitholders of the Portfolio.
Investment policies and risks
U.S. Government Income Portfolio - U.S. Government Income Portfolio
invests primarily in securities issued or guaranteed as to
principal and interest by the U.S. government, its agencies and
instrumentalities. Under normal market conditions, at least 65% of
the Portfolio's total assets will be invested in such securities.
Although U.S. Government Income Portfolio may invest in any U.S.
government securities, it is anticipated that most of the Portfolio
will consist of U.S. government securities representing part
ownership of pools of mortgage loans. The Portfolio's average
maturity/duration is anticipated to be approximately __ years.
<TABLE><CAPTION>
U.S. Government Income Portfolio
Bond ratings and holdings for the year ending May 31,
1995
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest the Advisor
<S> <C> <C> <C>
AAA Highest quality
AA High quality
A Upper medium grade
BBB Medium grade
BB Moderately speculative
B Speculative
CCC Highly speculative
CC Poor quality
C Lowest quality
D In default
Unrated Unrated securities
</TABLE>
Quality Income Portfolio - Quality Income Portfolio invests in the
four highest investment grades of marketable corporate debt
securities, certain unrated debt securities the portfolio manager
believes have the same investment qualities, government securities,
derivative instruments and money market instruments. Under normal
market conditions, at least 90% of Quality Income Portfolio's net
assets will be in these investments. The remaining 10% of Quality
Income Portfolio's net assets may be invested in common and
preferred stocks and convertible securities. The investments are<PAGE>
PAGE 4
both U.S. and foreign. The Portfolio may invest up to 25% of its
total assets in foreign investments. The Portfolio's average
maturity/duration is anticipated to be approximately __ years.
<TABLE><CAPTION>
Quality Income Portfolio
Bond ratings and holdings for the year ending May 31,
1995
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest the Advisor
<S> <C> <C> <C>
AAA Highest quality
AA High quality
A Upper medium grade
BBB Medium grade
BB Moderately speculative
B Speculative
CCC Highly speculative
CC Poor quality
C Lowest quality
D In default
Unrated Unrated securities
</TABLE>
Aggressive Income Portfolio - Aggressive Income Portfolio primarily
invests in debt securities below investment grade issued by U.S.
and foreign corporations. Most of these will be rated BBB, BB, or
B by Standard & Poor's Corporation (S&P) or the Moody's Investors
Services, Inc. (Moody's) equivalent. Other investments include
investment grade bonds, convertible securities, stocks, derivative
instruments and money market instruments. Aggressive Income
Portfolio may invest up to 10% of its total assets in common
stocks, preferred stocks that do not pay dividends and warrants to
purchase common stocks. The Portfolio may invest up to 25% of its
total assets in foreign investments. The Portfolio's average
maturity/duration is anticipated to be approximately __ years.
<TABLE><CAPTION>
Aggressive Income Portfolio
Bond ratings and holdings for the year ending May 31,
1995
Percent of
net assets
in unrated
S&P Rating Protection of securities
Percent of (or Moody's principal and assessed by
net assets equivalent) interest the Advisor
<S> <C> <C> <C>
AAA Highest quality
AA High quality
A Upper medium grade
BBB Medium grade
BB Moderately speculative
B Speculative
CCC Highly speculative
CC Poor quality
C Lowest quality
D In default
Unrated Unrated securities
</TABLE>
(See Description of corporate bond ratings for further
information.)
The various types of investments described above that the portfolio
managers use to achieve investment performance are explained in
more detail in the next section and in Part B of this Registration
Statement.<PAGE>
PAGE 5
Facts about investments and their risks
Debt securities: The price of bonds generally falls as interest
rates increase, and rises as interest rates decrease. The price of
an investment-grade bond also fluctuates if its credit rating is
upgraded or downgraded. The price of bonds below investment grade
may react more to the ability of a company to pay interest and
principal when due than to changes in interest rates. They have
greater price fluctuations, are more likely to experience a
default, and sometimes are referred to as "junk bonds". Reduced
market liquidity for these bonds may occasionally make it more
difficult to value them. In valuing bonds a Portfolio relies both
on independent rating agencies and the investment manager's credit
analysis. U.S. Government Income and Quality Income Portfolios do
not invest in securities below investment grade. Securities that
are subsequently downgraded in quality may continue to be held by
a
Portfolio and will be sold only if a Portfolio's manager believes
it is advantageous to do so.
Debt securities sold at a deep discount: Some bonds are sold at
deep discounts because they do not pay interest until maturity.
They include zero coupon bonds and PIK (pay-in-kind) bonds. To
comply with tax laws, a Portfolio has to recognize a computed
amount of interest income and pay dividends to unitholders even
though no cash has been received. In some instances, a Portfolio
has to sell securities to have sufficient cash to pay the
dividends.
Government securities: U.S. Treasury bonds, notes and bills, and
securities including mortgage pass through certificates of the
Government National Mortgage Association (GNMA), are guaranteed by
the United States. Other U.S. government securities are issued or
guaranteed by federal agencies or government-sponsored enterprises
but are not direct obligations of the United States. These include
securities supported by the right of the issuer to borrow from the
Treasury, such as obligations of Federal Home Loan Mortgage
Corporation (FHLMC) and Federal National Mortgage Association
(FNMA) bonds. Because the U.S. government is not obligated to
provide financial support to its instrumentalities, U.S. Government
Income Portfolio will invest only in securities issued by those
instrumentalities where the investment manager is satisfied the
credit risk is minimal.
Mortgage-backed securities: A mortgage pass through certificate
that represents an interest in a pool, or group, of mortgage loans
assembled by GNMA, FNMA, or FHLMC or non-governmental entities. In
pass-through certificates, both principal and interest payments,
including prepayments, are passed through to the holder of the
certificate. Prepayments on underlying mortgages result in a loss
of anticipated interest, and the actual yield (or total return) to
a Portfolio, which is influenced by both stated interest rates and
market conditions, may be different than the quoted yield on the
certificates. A Portfolio may also invest in non-governmental
mortgage-related securities and debt securities, such as bonds,
debentures and collateralized mortgage obligations secured by
mortgages on commercial real estate or residential rental
properties, provided such securities are rated A or better by
Moody's or S&P or, if not rated, are of equivalent investment<PAGE>
PAGE 6
quality as determined by the Portfolio's investment manager. Some
U.S. government securities may be purchased on a "when-issued"
basis, which means that it may take as long as 45 days after the
purchase before the securities are delivered to the Portfolio.
Each Portfolio may invest in stripped mortgage-backed securities.
Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs
entitle the holder to receive distributions consisting of all or a
portion of the interest on the underlying pool of mortgage loans or
mortgage-backed securities. POs entitle the holder to receive
distributions consisting of all or a portion of the principal of
the underlying pool of mortgage loans or mortgage-backed
securities. The cash flows and yields on IOs and POs are extremely
sensitive to the rate of principal payments (including prepayments)
on the underlying mortgage loans or mortgage-backed securities. A
rapid rate of principal payments may adversely affect the yield to
maturity of IOs. A slow rate of principal payments may adversely
affect the yield to maturity of POs. If prepayments of principal
are greater than anticipated, an investor may incur substantial
losses. If prepayments of principal are slower than anticipated,
the yield on a PO will be affected more severely than would be the
case with a traditional mortgage-backed security.
The Portfolios may purchase mortgage-backed security (MBS) put
spread options and write covered MBS call spread options. MBS
spread options are based upon the changes in the price spread
between a specified mortgage-backed security and a like-duration
Treasury security. MBS spread options are traded in the OTC market
and are of short duration, typically one to two months. A
Portfolio would buy or sell covered MBS call spread options in
situations where mortgage-backed securities are expected to under
perform like-duration Treasury securities.
Common stocks: Stock prices are subject to market fluctuations.
Stocks of larger, established companies that pay dividends may be
less volatile than the stock market as a whole. Stocks of smaller
companies may be subject to more abrupt or erratic price movements
than stocks of larger, established companies or the stock market as
a whole.
Preferred stocks: If a company earns a profit, it generally must
pay its preferred stockholders a dividend at a pre-established
rate.
Convertible securities: These securities generally are preferred
stocks or bonds that can be exchanged for other securities, usually
common stock, at prestated prices. When the trading price of the
common stock makes the exchange likely, the convertible securities
trade more like common stock.
Foreign investments: Securities of foreign companies and
governments may be traded in the United States, but often they are
traded only on foreign markets. Frequently, there is less
information about foreign companies and less government supervision
of foreign markets. Foreign investments are subject to political
and economic risks of the countries in which the investments are
made, including the possibility of seizure or nationalization of<PAGE>
PAGE 7
companies, imposition of withholding taxes on income, establishment
of exchange controls or adoption of other restrictions that might
affect an investment adversely. If an investment is made in a
foreign market, the local currency must be purchased. This is done
by using a forward contract in which the price of the foreign
currency in U.S. dollars is established on the date the trade is
made, but delivery of the currency is not made until the securities
are received. As long as a Portfolio holds foreign currencies or
securities valued in foreign currencies, the price of a share will
be affected by changes in the value of the currencies relative to
the U.S. dollar. Because of the limited trading volume in some
foreign markets, efforts to buy or sell a security may change the
price of the security, and it may be
difficult to complete the transaction.
Derivative instruments: A portfolio manager may use derivative
instruments in addition to securities to achieve investment
performance. Derivative instruments include futures, options and
forward contracts. Such instruments may be used to maintain cash
reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns.
Derivative instruments are characterized by requiring little or no
initial payment and a daily change in price based on or derived
from a security, a currency, a group of securities or currencies,
or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance
characteristics. A small change in the value of the underlying
security, currency or index will cause a sizable gain or loss in
the price of the derivative instrument. Derivative instruments
allow the portfolio manager to change the investment performance
characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other
parties, and inability to close such instruments. A Portfolio will
use derivative instruments only to achieve the same investment
performance characteristics it could achieve by directly holding
those securities and currencies permitted under the investment
policies. The Portfolios will designate cash or appropriate liquid
assets to cover portfolio obligations. No more than 5% of each
Portfolio's net assets can be used at any one time for good faith
deposits on futures and premiums for options on futures that do not
offset existing investment positions. See Descriptions of
derivative instruments for further information.
Securities and derivative instruments that are illiquid: A
security or derivative instrument is illiquid if it cannot be sold
quickly in the normal course of business. Some investments cannot
be resold to the U.S. public because of their terms or government
regulations. All securities and derivative instruments, however,
can be sold in private sales, and many may be sold to other
institutions and qualified buyers or on foreign markets. Each
portfolio manager will follow guidelines established by the board
of trustees of the Trust and consider relevant factors such as the
nature of the security and the number of likely buyers when
determining whether a security is illiquid. No more than 10% of a
Portfolio's net assets will be held in securities and derivative
instruments that are illiquid.
<PAGE>
PAGE 8
Money market instruments: Short-term debt securities rated in the
top two grades are used to meet daily cash needs and at various
times to hold assets until better investment opportunities arise.
Generally less than 25% of a Portfolio's total assets are in these
money market instruments. However, for temporary defensive
purposes these investments could exceed that amount for a limited
period of time.
The investment policies described above may be changed by the board
of trustees.
Lending portfolio securities: Each Portfolio may lend its
securities to earn income so long as borrowers provide collateral
equal to the market value of the loans. The risks are that
borrowers will not provide collateral when required or return
securities when due. Unless unitholders approve otherwise, loans
may not exceed 30% of a Portfolio's net assets.
Description of corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They
are not an opinion of the market value of the security. Such
ratings are opinions on whether the principal and interest will be
repaid when due. A security's rating may change which could affect
its price. Ratings by Moody's Investors Service, Inc. (Moody's)
are Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D. Ratings by Standard
& Poor's Corporation (S&P) are AAA, AA, A, BBB, BB, B, CCC, CC, C
and D.
Aaa/AAA - Judged to be of the best quality and carry the smallest
degree of investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for
interest and principal may not be quite as good as Aaa or AAA rated
securities.
A - Considered upper-medium grade. Protection for interest and
principal is deemed adequate but may be susceptible to future
impairment.
Baa/BBB - Considered medium-grade obligations. Protection for
interest and principal is adequate over the short-term; however,
these obligations may have certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of
interest and principal payments may be very moderate.
B - Lack characteristics of more desirable investments. There may
be small assurance over any long period of time of the payment of
interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or
there may be risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.
<PAGE>
PAGE 9
C - Are obligations with a higher degree of speculation. These
securities have major risk exposures to default.
D - Are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.
Non-rated securities will be considered for investment when they
possess a risk comparable to that of rated securities consistent
with the Portfolio's objectives and policies. When assessing the
risk involved in each non-rated security, the Portfolio will
consider the financial condition of the issuer or the protection
afforded by the terms of the security.
Definitions of zero-coupon and pay-in-kind securities
A zero-coupon security is a security that is sold at a deep
discount from its face value and makes no periodic interest
payments. The buyer of such a security receives a rate of return
by gradual appreciation of the security, which is redeemed at face
value on the maturity date.
A pay-in-kind security is a security in which the issuer has the
option to make interest payments in cash or in additional
securities. The securities issued as interest usually have the
same terms, including maturity date, as the pay-in-kind securities.
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments a
Portfolio may use. At various times a Portfolio may use some or
all of these instruments and is not limited to these instruments.
It may use other similar types of instruments if they are
consistent with the Portfolio's investment goal and policies. For
more information on these instruments, see Part B of this
Registration Statement.
Options and futures contracts. An option is an agreement to buy or
sell an instrument at a set price during a certain period of time.
A futures contract is an agreement to buy and sell an instrument
for a set price on a future date. A Portfolio may buy and sell
options and futures contracts to manage its exposure to changing
interest rates, security prices and currency exchange rates.
Options and futures may be used to hedge a Portfolio's investments
against price fluctuations or to increase market exposure.
Asset-backed and mortgage-backed securities. Asset-backed and
mortgage-backed securities include interests in pools of consumer
loans or mortgages, such as collateralized mortgage obligations and
stripped mortgage-backed securities. Interest and principal
payments depend on payment of the underlying loans or mortgages.
The value of these securities may also be affected by changes in
interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved. Stripped mortgage-backed
securities include interest only (IO) and principal only (PO)
securities. Cash flows and yields on IOs and POs are extremely
sensitive to the rate of principal payments on the underlying
mortgage loans or mortgage-backed securities.
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Indexed securities. The value of indexed securities is linked to
currencies, interest rates, commodities, indexes or other financial
indicators. Most indexed securities are short- to intermediate-
term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Inverse floaters. Inverse floaters are created using the interest
payment on securities. A portion of the interest received is paid
to holders of instruments based on current interest rates for
short-term securities. The remainder, minus a servicing fee, is
paid to holders of inverse floaters. Inverse floaters are
extremely sensitive to changes in interest rates.
Structured products. Structured products are over-the-counter
financial instruments created specifically to meet the needs of one
or a small number of investors. The instrument may consist of a
warrant, an option or a forward contract embedded in a note or any
of a wide variety of debt, equity and/or currency combinations.
Risks of structured products include the inability to close such
instruments, rapid changes in the market and defaults by other
parties.
Item 5. Management of the Fund.
The Advisor
The Trust has a board of trustees, which has the primary
responsibility for the overall management of the Portfolios and for
electing its officers who are responsible for administering day-to-
day operations.
American Express Financial Corporation, a provider of financial
services since 1894 (the Advisor), serves as the investment manager
for the Portfolios. The Advisor, located at IDS Tower 10,
Minneapolis, MN 55440-0010, is a wholly owned subsidiary of
American Express Company, a financial services company with
headquarters at American Express Tower, World Financial Center, New
York, NY 10285. The Portfolios may pay brokerage commissions to
broker-dealer affiliates of American Express.
The Trust, on behalf of each Portfolio, pays the Advisor for
managing the assets of each Portfolio. Under its Investment
Management Services Agreement, the Advisor determines which
securities will be purchased, held or sold by each Portfolio
(subject to the direction and control of the Trust's board of
trustees). The Advisor is paid a fee for these services based on
the average daily net assets of each Portfolio, as follows:<PAGE>
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<TABLE><CAPTION>
U.S. Government Income
Portfolio
Aggressive Income Portfolio Quality Income Portfolio
Assets Annual rate at Assets Annual rate
at
(billions) each asset level (billions) each asset
level
<S> <C> <C> <C>
First $1.0 0.590% First $1.0 0.520%
Next 1.0 0.565% Next 1.0 0.495
Next 1.0 0.540% Next 1.0 0.470
Next 3.0 0.515% Next 3.0 0.445
Next 3.0 0.490% Next 3.0 0.420
Next 9.0 0.465% Over 9.0 0.395
</TABLE>
Under the agreement, each Portfolio also pays taxes, brokerage
commissions and nonadvisory expenses.
Under a Transfer Agency Agreement, the Advisor provides transfer
agent services (handling unitholder accounts) and administrative
services.
Portfolio managers
U.S. Government Income Portfolio
Jim Snyder joined the Advisor in 1989 as an investment analyst and
currently serves as portfolio manager. He has managed the assets
of U.S. Government Income Portfolio since 1993 after having served
as associate portfolio manager from 1992 to 1993. He also serves
as portfolio manager of IDS Life Series Fund, Government Securities
Portfolio, another fund managed by the Advisor. Prior to joining
the Advisor, he was a Quantitative Investment Analyst at Harris
Trust.
Quality Income Portfolio
Ray Goodner joined the Advisor in 1977 and serves as vice president
and senior portfolio manager. He has managed the assets of Quality
Income Portfolio since 1985. He also serves as portfolio manager
for World Income Portfolio, another fund managed by the Advisor.
Aggressive Income Portfolio
Jack Utter joined the Advisor in 1962 and serves as senior
portfolio manager. He has managed the assets of Aggressive Income
Portfolio since 1985.
Item 5A. Response to Item 5A has been omitted pursuant to
Paragraph 4 of Instruction F of the General
Instructions
to Form N-1A.
Item 6. Capital Stock and Other Securities.
The Trust is an open-end, management investment company organized
as a Massachusetts business trust on May 26, 1995 and is registered
under the Investment Company Act of 1940, as amended (the 1940
Act). The Trust is authorized to issue an unlimited number of
units of beneficial interest. Currently, the Trust has three
series, the Portfolios. All units of the Trust have one vote, and,
when issued, are fully paid, non-assessable, and redeemable. <PAGE>
PAGE 12
Additional series may be added in the future by the board of
trustees, the assets and liabilities of which will be separate and
distinct from any other series.
Unitholder investments in the Trust may not be transferred pursuant
to the Agreement and Declaration of Unitholders, but a unitholder
may withdraw all or any portion of its investment at any time at
net asset value. Unitholders in the Trust will each be liable for
all obligations of the Trust. However, the risk of a unitholder in
the Trust incurring financial loss on account of such liability is
limited due to circumstances in which both inadequate insurance
existed and the Trust itself was unable to meet its obligations.
Under the anticipated method of operation of the Trust, the
Portfolios will be partnerships that are not subject to any federal
income tax. However each unitholder in a Portfolio will be taxable
on its share (as determined in accordance with the governing
instruments of the Trust) of the Portfolio's ordinary income and
capital gain pursuant to the rules governing the unitholders. The
determination of each Portfolio's share will be made in accordance
with the Internal Revenue Code of 1986, as amended (the Code),
regulations promulgated thereunder and the agreement between the
parties.
The Portfolios' taxable year-end will be May 31. It is intended
that the Portfolios' assets, income and distributions will be
managed in such a way that a unitholder in a Portfolio will be able
to satisfy the requirements of Subchapter M of the Code assuming
that the unitholder invested all of its assets in the Portfolio.
There are certain tax issues that will be relevant to only certain
of the unitholders, specifically, unitholders who contribute assets
rather than cash to a Portfolio. It is intended that contributions
of assets will not be taxable provided certain requirements are
met. Such unitholders are advised to consult their own tax
advisors as to the tax consequences of an investment in a
Portfolio.
The Portfolios will inform unitholders of the source of dividends
and distributions at the time they are paid and will promptly after
the close of each calendar year advise unitholders of the tax
status for federal income tax purposes of such dividends and
distributions.
Unitholder inquiries should be directed to: __________________.
Item 7. Purchase of Securities Being Offered.
The Portfolios' units have not been registered under the 1933 Act,
which means that their units may not be sold publicly. However,
the Portfolios may sell their units through private placements
pursuant to available exemptions from that Act.
Units of the Portfolios are sold only to other investment companies
and certain institutional investors. All units are sold at net
asset value without a sales charge. Units are purchased at the net
asset value next determined after a Portfolio receives the order in
proper form. All investments in a Portfolio are credited to the
unitholder's account in the form of full and fractional units of<PAGE>
PAGE 13
the Portfolio (rounded to the nearest 1/1000 of a unit). The
Portfolios do not issue stock certificates.
Units of the Portfolios may be purchased (minimum investment of
$5,000,000 initially with no minimum on subsequent investments) at
their current net asset value, without a sales charge.
Net asset value (NAV) is the total value of a Portfolio's
investments and other assets, less any liabilities, divided by the
number of units outstanding. The NAV is the price at which
Portfolio units are purchased and the price received when units are
redeemed. It usually changes from day to day, and is calculated at
the close of business, normally 3 p.m. Central time, each business
day (any day the New York Stock Exchange is open). NAV generally
declines as interest rates increase and rises as interest rates
decline.
American Express Financial Advisors Inc. (the Placement Agent), a
wholly owned subsidiary of the Advisor, serves as the Placement
Agent for the Trust. The Placement Agent is located at IDS Tower
10, Minneapolis, MN 55440-0010.
Item 8. Redemption or Repurchase.
As stated above in response to Item 7, the Portfolios' units have
not been registered under the 1933 Act, which means that their
units are restricted securities which may not be sold unless
registered or pursuant to an available exemption from that Act.
Redemptions are processed on any date on which the Portfolio is
open for business and are effected at the Portfolio's net asset
value next determined after the Portfolio receives a redemption
request in good form.
Payment for redeemed units will be made promptly, but in no event
later than seven days after receipt of the redemption request in
good form. However, the right of redemption may be suspended or
the date of payment postponed in accordance with the rules under
the 1940 Act. Each Portfolio reserves the right upon 30-days'
written notice to redeem, at net asset value, the units of any
unitholder whose account (except for IRAs) has a value of less than
$1,000,000 other than as a result of a decline in the net asset
value per unit. Redemptions are taxable events, and the amount
received upon redemption may be more or less than the amount paid
for the units depending upon the fluctuations in the market value
of the assets owned by the Portfolio.
Item 9. Pending Legal Proceedings.
Not Applicable.<PAGE>
PAGE 14
PART B
Item 10: Cover Page
Not applicable.
Item 11: Table of Contents
Not applicable.
Item 12: General Information and History
Not applicable.
Item 13: Investment Objectives and Policies
U.S. Government Income Portfolio, Quality Income Portfolio, and
Aggressive Income Portfolio (individually, a Portfolio, or
collectively the Portfolios) are underlying series portfolios of
Income Trust (the Trust). Each Portfolio has its own objectives
and investment policies. Please refer to Item 4 of Part A for the
objectives of each Portfolio.
The following fundamental investment restrictions (except as noted)
have been adopted by the Portfolios and cannot be changed without
approval of a majority of the outstanding voting securities of a
Portfolio, as defined in the Investment Company Act of 1940.
Whenever a Portfolio is requested to vote on a change in the Trust
investment restrictions of the corresponding Portfolios, the will
hold a meeting of Portfolio unitholders and will cast the
Portfolios' vote as instructed by the unitholders.
Restrictions applicable to all Portfolios
These are investment policies in addition to those presented in the
prospectus. The policies below are fundamental policies of a
Portfolio and may be changed only with unitholder approval. Unless
holders of a majority of the outstanding units agree to make the
change, each Portfolio will not:
'Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. Government, its agencies or
instrumentalities, and except that up to 25% of a Portfolio's total
assets may be invested without regard to this limitation.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
a
Portfolio from investing in securities or other instruments backed
by real estate or securities of companies engaged in the real
estate business. For purposes of this policy, real estate includes
real estate limited partnerships.
'Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent a Portfolio from buying or selling options and futures<PAGE>
PAGE 15
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
'Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Portfolios have not borrowed in the past
and have no present intention to borrow.
'Make cash loans, if the total commitment amount exceeds 5% of the
fund's total assets.
'Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of trustees (the
board) is to make these loans, either long- or short-term, to
broker-dealers. In making such loans the Portfolio gets the market
price in cash, U.S. government securities, letters of credit or
such other collateral as may be permitted by regulatory agencies
and approved by the board. If the market price of the loaned
securities goes up, the Portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. During the existence of the loan, the Portfolio receives cash
payments equivalent to all interest or other distributions paid on
the loaned securities. A loan will not be made unless the
investment manager believes the opportunity for additional income
outweighs the risks.
'Issue senior securities, except that this restriction shall not be
deemed to prohibit the Portfolio from borrowing money from banks,
lending its securities, or entering into repurchase agreements or
options or futures contracts.
'Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of the Portfolio's total assets, based
on current market value at the time of purchase, can be invested in
any one industry.
'Act as an underwriter (sell securities for others). However,
under the securities laws, a Portfolio may be deemed to be an
underwriter when it purchases restricted securities directly from
the issuer and later resells them.
'Invest more than 5% of its total assets in securities of
companies, including any predecessors, that have a record of less
than three years continuous operations.
'Invest more than 10% of its total assets in securities of
investment companies.
'Buy on margin or sell short, except they may enter into interest
rate future contracts.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral leases.<PAGE>
PAGE 16
Fundamental Policies Applicable to U.S. Government Income Portfolio
and Quality Income Portfolio:
Each Portfolio will not:
'Make a loan of any part of its assets to the Advisor, to the
trustees and officers of the Advisor or to its own trustees and
officers.
'Purchase securities of an issuer if the trustees and officers of
the Portfolio and of the Advisor hold more than a certain
percentage of the issuer's outstanding securities. The holdings of
all trustees and officers of the Portfolio and of the Advisor who
own more than 0.5% of an issuer's securities are added together and
if in total they own more than 5%, the Portfolio will not purchase
securities of that issuer.
Fundamental Policies Applicable to U.S. Government Income
Portfolio:
U.S. Government Income Portfolio will not:
'Buy any property or security (other than securities issued by the
fund) from any trustees or officer of the Advisor or the Portfolio,
nor will the Portfolio sell any property or security to them.
Restrictions applicable to all Portfolios:
The following policies are non-fundamental and may be changed
without unitholder approval. Unless changed by the board, each
will not:
'Invest more than 5% of its net assets in warrants. Under one
state's law, no more than 2% of a Portfolio's net assets may be
invested in warrants not listed on the New York or American Stock
Exchange.
'Pledge or mortgage its assets beyond 15% of total assets. If a
Portfolio were ever to do so, valuation of the pledged or mortgaged
assets would be based on market values. For purposes of this
restriction, collateral arrangements for margin deposits on a
futures contract are not deemed to be a pledge of assets.
'Invest more than 10% of a Portfolio's net assets in securities and
derivative instruments that are illiquid. For purposes of this
policy illiquid securities include some privately placed
securities, public securities and Rule 144A securities that for one
reason or another may no longer have a readily available market,
repurchase agreements with maturities greater than seven days,
loans and loan participations (for Quality Income Portfolio and
Aggressive Income Portfolio only) non-negotiable fixed-time
deposits and over-the-counter options. For purposes of complying
with Ohio law, the Portfolio will not invest more than 15% of its
total assets in a combination of illiquid securities, 144A
securities and securities of companies, including any predecessor,
that has a record of less than three years continuous operations.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,<PAGE>
PAGE 17
the investment advisor to the Portfolios, under guidelines
established by the board, will consider any relevant factors
including the frequency of trades, the number of dealers willing to
purchase or sell the security and the nature of marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment advisor to the
Portfolios, under guidelines established by the board, will
evaluate relevant factors such as the issuer and the size and
nature of its commercial paper programs, the willingness and
ability of the issuer or dealer to repurchase the paper, and the
nature of the clearance and settlement procedures for the paper.
Each Portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments a
Portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to any limitations on foreign
investments described in the prospectus. A Portfolio also may
purchase short-term commercial paper rated P-2 or better by Moody's
or A-2 or better by S&P (in the case of Quality Income Portfolio
and Aggressive Income Portfolio, short-term corporate notes and
obligations rated in the top two classifications by Moody's or S&P)
or the equivalent and may use repurchase agreements with broker-
dealers registered under the Securities Exchange Act of 1934 and
with commercial banks. A risk of a repurchase agreement is that if
the seller seeks the protection of the bankruptcy laws, the
Portfolio's ability to liquidate the security involved could be
impaired.
Non-Fundamental Policies Applicable to U.S. Government Income
Portfolio:
U.S. Government Income Portfolio will not:
'Invest in a company if the Portfolio's investments would result in
the total holdings of all Portfolios in the Trust Group of
Portfolios being in excess of 15% of that company's issued units.
Non-Fundamental Policies Applicable to Aggressive Income Portfolio:
Aggressive Income Portfolio will not:
'Purchase securities of an issuer if the trustees and officers of
the Portfolio and of the Advisor hold more than a certain
percentage of the issuer's outstanding securities. The holdings of
all trustees and officers of the Portfolio and of the Advisor who
own more than 0.5% of an issuer's securities are added together and
if in total they own more than 5%, the Portfolio will not purchase
securities of that issuer.
<PAGE>
PAGE 18
Notwithstanding any of the Portfolios' other investment policies,
a
Portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the Portfolio for the
purpose of having those assets managed as part of a combined pool.
For a description of commercial paper ratings and additional
information on investment policies, mortgage-backed securities,
foreign currnecy transactions, and options and interest rate
futures contracts, see descriptions below.
DESCRIPTION OF COMMERCIAL PAPER RATINGS AND ADDITIONAL INFORMATION
ON INVESTMENT POLICIES
Commercial paper rated Prime-1 (P-1) by Moody's or A-1 by S&P
indicates that the degree of safety regarding timely repayment is
either overwhelming or very strong.
Commercial paper rated P-2 or A-2 indicates that capacity for
timely payment on issues with this designation is strong.
When-Issued Securities
A portfolio may purchase some securities in advance of when they
are issued. Price and rate of interest are set on the date the
commitments are given but no payment is made or interest earned
until the date the securities are issued, usually within two
months, but other terms may be negotiated. The commitment requires
a portfolio to buy the security when it is issued so the commitment
is valued daily the same way as owning a security would be valued.
A portfolio designates cash or liquid high-grade debt securities to
at least equal the amount of its commitment. A portfolio may sell
the commitment just like it can sell a security. Frequently, a
portfolio has the opportunity to sell the commitment back to the
institution.
Inverse Floaters
A portfolio may invest in securities called "inverse floaters".
Inverse floaters are created by underwriters using the interest
payments on securities. A portion of the interest received is paid
to holders of instruments based on current interest rates for
short-term securities. What is left over, less a servicing fee, is
paid to holders of the inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and
an increase in the price for the inverse floaters. As interest
rates go up, the holders of the inverse floaters receive less
income and a decrease in the price for the inverse floaters.
MORTGAGE-BACKED SECURITIES
A mortgage pass through certificate is one that represents an
interest in a pool, or group, of mortgage loans assembled by the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Federal National Mortgage Association
(FNMA) or non-governmental entities. In pass-through certificates,
both principal and interest payments, including prepayments, are
passed through to the holder of the certificate. Prepayments on
underlying mortgages result in a loss of anticipated interest, and<PAGE>
PAGE 19
the actual yield (or total return) to the portfolio, which is
influenced by both stated interest rates and market conditions, may
be different than the quoted yield on certificates. Some U.S.
government securities may be purchased on a "when-issued" basis,
which means that it may take as long as 45 days after the purchase
before the securities are delivered to the fund.
Stripped Mortgage-Backed Securities. A portfolio may invest in
stripped mortgage-backed securities. Generally, there are two
classes of stripped mortgage-backed securities: Interest Only (IO)
and Principal Only (PO). IOs entitle the holder to receive
distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities.
POs entitle the holder to receive distributions consisting of all
or a portion of the principal of the underlying pool of mortgage
loans or mortgage-backed securities. The cash flows and yields on
IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments
may adversely affect the yield to maturity of IOs. A slow rate of
principal payments may adversely affect the yield to maturity of
POs. If prepayments of principal are greater than anticipated, an
investor may incur substantial losses. If prepayments of principal
are slower than anticipated, the yield on a PO will be affected
more severely than would be the case with a traditional mortgage-
backed security.
Mortgage-Backed Security Spread Options. A portfolio may purchase
mortgage-backed security (MBS) put spread options and write covered
MBS call spread options. MBS spread options are based upon the
changes in the price spread between a specified mortgage-backed
security and a like-duration Treasury security. MBS spread options
are traded in the OTC market and are of short duration, typically
one to two months. The fund would buy or sell covered MBS call
spread options in situations where mortgage-backed securities are
expected to under perform like-duration Treasury securities.
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign countries usually involve currencies
of foreign countries, and since a portfolio may hold cash and cash-
equivalent investments in foreign currencies, the value of a
portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, a portfolio may incur costs in
connection with conversions between various currencies.
Spot Rates and Forward Contracts. A portfolio conducts its foreign
currency exchange transactions either at the spot (cash) rate
prevailing in the foreign currency exchange market or by entering
into forward currency exchange contracts (forward contracts) as a
hedge against fluctuations in future foreign exchange rates. A
forward contract involves an obligation to buy or sell a specific
currency at a future date, which may be any fixed number of days
from the contract date, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks)<PAGE>
PAGE 20
and their customers. A forward contract generally has no deposit
requirements. No commissions are charged at any stage for trades.
A portfolio may enter into forward contracts to settle a security
transaction or handle dividend and interest collection. When a
portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency or has been notified of
a dividend or interest payment, it may desire to lock in the price
of the security or the amount of the payment in dollars. By
entering into a forward contract, a Portfolio will be able to
protect itself against a possible loss resulting from an adverse
change in the relationship between different currencies from the
date the security is purchased or sold to the date on which payment
is made or received or when the dividend or interest is actually
received.
A portfolio also may enter into forward contracts when management
of a portfolio believes the currency of a particular foreign
country may suffer a substantial decline against another currency.
It may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of
some or all of a portfolio's securities denominated in such foreign
currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since
the future value of such securities in foreign currencies more than
likely will change between the date the forward contract is entered
into and the date it matures. The projection of short-term
currency market movements is extremely difficult and successful
execution of a short-term hedging strategy is highly uncertain. A
portfolio will not enter into such forward contracts or maintain a
net exposure to such contracts when consummating the contracts
would obligate a portfolio to deliver an amount of foreign currency
in excess of the value of a portfolio's securities or other assets
denominated in that currency.
A portfolio will designate cash or securities in an amount equal to
the value of a portfolio's total assets committed to consummating
forward contracts entered into under the second circumstance set
forth above. If the value of the securities declines, additional
cash or securities will be designated on a daily basis so that the
value of the cash or securities will equal the amount of a
portfolio's commitments on such contracts.
At maturity of a forward contract, a portfolio may either sell the
portfolio security and make delivery of the foreign currency or
retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract
with the same currency trader obligating it to buy, on the same
maturity date, the same amount of foreign currency.
If a portfolio retains the portfolio security and engages in an
offsetting transaction, a portfolio will incur a gain or a loss (as
described below) to the extent there has been movement in forward
contract prices. If a portfolio engages in an offsetting
transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline
between the date a portfolio enters into a forward contract for
selling foreign currency and the date it enters into an offsetting
contract for purchasing the foreign currency, a portfolio will<PAGE>
PAGE 21
realize a gain to the extent that the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to
buy. Should forward prices increase, a portfolio will suffer a
loss to the extent the price of the currency it has agreed to buy
exceeds the price of the currency it has agreed to sell.
It is impossible to forecast what the market value of portfolio
securities will be at the expiration of a contract. Accordingly,
it may be necessary for a portfolio to buy additional foreign
currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of
foreign currency a portfolio is obligated to deliver and a decision
is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received on the sale of the
portfolio security if its market value exceeds the amount of
foreign currency a portfolio is obligated to deliver.
A portfolio's dealing in forward contracts will be limited to the
transactions described above. This method of protecting the value
of a portfolio's securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange that
can be achieved at some point in time. Although such forward
contracts tend to minimize the risk of loss due to a decline in
value of hedged currency, they tend to limit any potential gain
that might result should the value of such currency increase.
Although a portfolio values its assets each business day in terms
of U.S. dollars, it does not intend to convert its foreign
currencies into U.S. dollars on a daily basis. It will do so from
time to time, and unitholders should be aware of currency
conversion costs. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the
difference (spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a portfolio at one rate, while offering a
lesser rate of exchange should a portfolio desire to resell that
currency to the dealer.
Options on Foreign Currencies. A portfolio may buy put and write
covered call options on foreign currencies for hedging purposes.
For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar
value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, a portfolio may
buy put options on the foreign currency. If the value of the
currency does decline, a portfolio will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in
whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.
As in the case of other types of options, however, the benefit to
a
portfolio derived from purchases of foreign currency options will
be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in
the direction or to the extent anticipated, a portfolio could<PAGE>
PAGE 22
sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of
advantageous changes in such rates.
A portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, when a portfolio
anticipates a decline in the dollar value of foreign-denominated
securities due to adverse fluctuations in exchange rates, it could,
instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will
most likely not be exercised and the diminution in value of
portfolio securities will be fully or partially offset by the
amount of the premium received.
As in the case of other types of options, however, the writing of
a
foreign currency option will constitute only a partial hedge up to
the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and
a portfolio would be required to buy or sell the underlying
currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, a
portfolio also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable
movements on exchange rates.
All options written on foreign currencies will be covered. An
option written on foreign currencies is covered if a portfolio
holds currency sufficient to cover the option or has an absolute
and immediate right to acquire that currency without additional
cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An
option writer could lose amounts substantially in excess of its
initial investments, due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies are traded through financial
institutions acting as market-makers, although foreign currency
options also are traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there
are no daily price fluctuation limits, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. Although the purchaser of an option cannot lose more than
the amount of the premium plus related transaction costs, this
entire amount could be lost.
Foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby
reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter
market, potentially permitting a portfolio to liquidate open
positions at a profit prior to exercise or expiration, or to limit
losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of availability of a liquid<PAGE>
PAGE 23
secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature
of the foreign currency market, possible intervention by
governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has
established banking relationships in certain foreign countries for
the purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. A portfolio may
enter into currency futures contracts to sell currencies. It also
may buy put and write covered call options on currency futures.
Currency futures contracts are similar to currency forward
contracts, except that they are traded on exchanges (and have
margin requirements) and are standardized as to contract size and
delivery date. Most currency futures call for payment of delivery
in U.S. dollars. A portfolio may use currency futures for the same
purposes as currency forward contracts, subject to CFTC
limitations, including the limitation on the percentage of assets
that may be used, described in the prospectus. All futures
contracts are aggregated for purposes of the percentage
limitations.
Currency futures and options on futures values can be expected to
correlate with exchange rates, but will not reflect other factors
that may affect the values of a portfolio's investments. A
currency hedge, for example, should protect a Yen-denominated bond
against a decline in the Yen, but will not protect the portfolio
against price decline if the issuer's creditworthiness
deteriorates. Because the value of a portfolio's investments
denominated in foreign currency will change in response to many
factors other than exchange rates, it may not be possible to match
the amount of a forward contract to the value of a portfolio's
investments denominated in that currency over time.
A portfolio will not use leverage in its options and futures
strategies. A portfolio will hold securities or other options or
futures positions whose values are expected to offset its
obligations. A portfolio will not enter into an option or futures
position that exposes a portfolio to an obligation to another party
unless it owns either (i) an offsetting position in securities or
(ii) cash, receivables and short-term debt securities with a value
sufficient to cover its potential obligations.
OPTIONS AND INTEREST RATE FUTURES CONTRACTS
A portfolio may buy or write options traded on any U.S. exchange or
in the over-the-counter market. A portfolio may enter into
interest rate futures contracts traded on any U.S. exchange. A
portfolio also may buy or write put and call options on these<PAGE>
PAGE 24
futures. Options in the over-the-counter market will be purchased
only when the investment manager believes a liquid secondary market
exists for the options and only from dealers and institutions the
investment manager believes present a minimal credit risk. Some
options are exercisable only on a specific date. In that case, or
if a liquid secondary market does not exist, a portfolio could be
required to buy or sell securities at disadvantageous prices,
thereby incurring losses. A portfolio will not purchase options or
write covered put options if the value of the underlying assets
exceeds 10% of the value of its net assets. There is no limit on
the use of derivatives.
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash (in the case of a put) that would be required upon
exercise.
The price paid by the buyer for an option is called a premium. In
addition the buyer generally pays a broker a commission. The
writer receives a premium, less a commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit a
portfolio and its shareholders by improving a portfolio's liquidity
and by helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. They also may be used for investment. Options
are used as a trading technique to take advantage of any disparity
between the price of the underlying security in the securities
market and its price on the options market. It is anticipated the
trading technique will be utilized only to effect a transaction
when the price of the security plus the option price will be as
good or better than the price at which the security could be bought
or sold directly. When the option is purchased, a portfolio pays
a
premium and a commission. It then pays a second commission on the
purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained
on the purchase of the underlying security will be the combination
of the exercise price, the premium and both commissions. When<PAGE>
PAGE 25
using options as a trading technique, commissions on the option
will be set as if only the underlying securities were traded.
Put and call options also may be held by a portfolio for investment
purposes. Options permit a portfolio to experience the change in
the value of a security with a relatively small initial cash
investment. The risk a portfolio assumes when it buys an option is
the loss of the premium. To be beneficial to a portfolio, the
price of the underlying security must change within the time set by
the option contract. Furthermore, the change must be sufficient to
cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the
exercise of the option and subsequent sale (in the case of a call)
or purchase (in the case of a put) of the underlying security.
Even then the price change in the underlying security does not
ensure a profit since prices in the option market may not reflect
such a change.
Writing covered options. A portfolio will write covered options
when it feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with a
portfolio's goal.
'All options written by a portfolio will be covered. For covered
call options if a decision is made to sell the security, a
portfolio will attempt to terminate the option contract through a
closing purchase transaction.
'A portfolio will write options only as permitted under federal or
state laws or regulations, such as those that limit the amount of
total assets subject to the options. While no limit has been set
by the fund, it will conform to the requirements of those states.
For example, California limits the writing of options to 50% of the
assets of a portfolio. Some regulations also affect the Custodian.
When a covered call option is written, the Custodian segregates the
underlying securities and issues a receipt. There are certain
rules regarding banks issuing such receipts that may restrict the
amount of covered call options written. Furthermore, a portfolio
is limited to pledging not more than 15% of the cost of its total
assets.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since a portfolio
is taxed as a regulated investment company under the Internal
Revenue Code, any gains on options and other securities held less
than three months must be limited to less than 30% of its annual
gross income.
If a covered call option is exercised, the security is sold by the
portfolio. A portfolio will recognize a capital gain or loss based
upon the difference between the proceeds and the security's basis.
Options on many securities are listed on options exchanges. If a
portfolio writes listed options, it will follow the rules of the
options exchange. Options are valued at the close of the New York
Stock Exchange. An option listed on a national exchange, CBOE or
NASDAQ will be valued at the last quoted sales price or, if such a<PAGE>
PAGE 26
price is not readily available, at the mean of the last bid and
asked prices.
Options on Government National Mortgage Association (GNMA)
certificates and certain other securities are not actively traded
on any exchange, but may be entered into directly with a dealer.
When a portfolio writes such an option, the Custodian will
segregate assets as appropriate to cover the option. However,
since the remaining principal balance of GNMA certificates declines
each month as a result of mortgage payments, a portfolio may find
that the GNMA certificates it holds as "cover" no longer have a
sufficient remaining principal balance for this purpose. A GNMA
certificate held by a portfolio also may cease to represent cover
for the option if the GNMA coupon rate at which new pools are
originated under the FHA/VA loan ceiling in effect at any given
time is reduced. If either event should occur, a portfolio will
either enter into a closing purchase transaction or replace
certificates with certificates that represent cover. When a
portfolio closes its position or replaces certificates, it may
realize an unanticipated loss and incur transaction costs.
FUTURES CONTRACTS. A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future
date. They have been established by boards of trade which have
been designated contracts markets by the Commodity Futures Trading
Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and
the boards of trade, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures
contracts based on such debt securities as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgage-backed
securities, three-month U.S. Treasury bills and bank certificates
of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such
deliveries and acceptances are very seldom made. Generally, the
futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction for a futures contract sale
is effected by a portfolio entering into a futures contract
purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the
sale exceeds the price in the offsetting purchase, a portfolio
immediately is paid the difference and realizes a gain. If the
offsetting purchase price exceeds the sale price, the fund pays the
difference and realizes a loss. Similarly, closing out a futures
contract purchase is effected by a portfolio entering into a
futures contract sale. If the offsetting sale price exceeds the
purchase price, a portfolio realizes a gain, and if the offsetting
sale price is less than the purchase price, a portfolio realizes a
loss. At the time a futures contract is made, a good-faith deposit
called initial margin is set up within a segregated account at a
portfolio's custodian bank. The initial margin deposit is
approximately 1.5% of a contract's face value. Daily thereafter,
the futures contract is valued and the payment of variation margin
is required so that each day a portfolio would pay out cash in an
amount equal to any decline in the contract's value or receive cash
equal to any increase. At the time a futures contract is closed
out, a nominal commission is paid, which is generally lower than
the commission on a comparable transaction in the cash markets.<PAGE>
PAGE 27
The purpose of a futures contract, in the case of a portfolio
holding long-term debt securities, is to gain the benefit of
changes in interest rates without actually buying or selling long-
term debt securities. For example, if a portfolio owned long-term
bonds and interest rates were expected to increase, it might enter
into futures contracts to sell securities which would have much the
same effect as selling some of the long-term bonds it owned.
Futures contracts are based on types of debt securities referred to
above, which have historically reacted to an increase or decline in
interest rates in a fashion similar to the debt securities the fund
owns. If interest rates did increase, the value of the debt
securities in a portfolio would decline, but the value of a
portfolio's futures contracts would increase at approximately the
same rate, thereby keeping the net asset value of a portfolio from
declining as much as it otherwise would have. If, on the other
hand, a portfolio held cash reserves and interest rates were
expected to decline, a portfolio might enter into interest rate
futures contracts for the purchase of securities. If short-term
rates were higher than long-term rates, the ability to continue
holding these cash reserves would have a very beneficial impact on
a portfolio's earnings. Even if short-term rates were not higher,
a portfolio would still benefit from the income earned by holding
these short-term investments. At the same time, by entering into
futures contracts for the purchase of securities, a portfolio could
take advantage of the anticipated rise in the value of long-term
bonds without actually buying them until the market had stabilized.
At that time, the futures contracts could be liquidated and a
portfolio's cash reserves could then be used to buy long-term bonds
on the cash market. A portfolio could accomplish similar results
by selling bonds with long maturities and investing in bonds with
short maturities when interest rates are expected to increase or by
buying bonds with long maturities and selling bonds with short
maturities when interest rates are expected to decline. But by
using futures contracts as an investment tool, given the greater
liquidity in the futures market than in the cash market, it might
be possible to accomplish the same result more easily and more
quickly. Successful use of futures contracts depends on the
investment manager's ability to predict the future direction of
interest rates. If the investment manager's prediction is
incorrect, a portfolio would have been better off had it not
entered into futures contracts.
OPTIONS ON FUTURES CONTRACTS. Options give the holder a right to
buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and
sell a security on a set date, an option on a futures contract
merely entitles its holder to decide on or before a future date
(within nine months of the date of issue) whether to enter into
such a contract. If the holder decides not to enter into the
contract, all that is lost is the amount (premium) paid for the
option. Furthermore, because the value of the option is fixed at
the point of sale, there are no daily payments of cash to reflect
the change in the value of the underlying contract. However, since
an option gives the buyer the right to enter into a contract at a
set price for a fixed period of time, its value does change daily
and that change is reflected in the net asset value of the fund.
<PAGE>
PAGE 28
RISKS. There are risks in engaging in each of the management tools
described above. The risk the fund assumes when it buys an option
is the loss of the premium paid for the option. Purchasing options
also limits the use of monies that might otherwise be available for
long-term investments.
The risk involved in writing options on futures contracts or on
securities held in a portfolio, is that there could be an increase
in the market value of such contracts or securities. If that
occurred, the option would be exercised and the asset sold at a
lower price than the cash market price. To some extent, the risk
of not realizing a gain could be reduced by entering into a closing
transaction. A portfolio could enter into a closing transaction by
purchasing an option with the same terms as the one it had
previously sold. The cost to close the option and terminate a
portfolio's obligation, however, might be more or less than the
premium received when it originally wrote the option. Furthermore,
a portfolio might not be able to close the option because of
insufficient activity in the options market.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities
subject to futures contracts may not correlate perfectly with the
behavior of the cash prices of a portfolio's securities. The
correlation may be distorted because the futures market is
dominated by short-term traders seeking to profit from the
difference between a contract or security price and their cost of
borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
Another risk is that a portfolio's investment manager could be
incorrect in anticipating as to the direction or extent of various
interest rate movements or the time span within which the
movementstake place. For example, if a portfolio sold futures
contracts for the sale of securities in anticipation of an increase
in interest rates, and interest rates declined instead, a portfolio
would lose money on the sale.
TAX TREATMENT. As permitted under federal income tax laws, a
portfolio intends to identify futures contracts as mixed straddles
and not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in a portfolio being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and indexes will depend on whether
such option is a section 1256 contract. If such option is a 1256
contract, the Portfolio will either mark these options to market or
will identify them as part of a mixed straddle and not treat them
as having been sold at the end of the year at market value.
Certain provisions of the Internal Revenue Code may also limit a
portfolio's ability to engage in futures contracts and related
options transactions. For example, at the close of each quarter of
a portfolio's taxable year, at least 50% of the value of its assets
must consist of cash, government securities and other securities,
subject to certain diversification requirements. Less than 30% of<PAGE>
PAGE 29
its gross income must be derived from sales of securities held less
than three months.
The IRS has ruled publicly that an exchange-traded call option is
a
security for purposes of the 50%-of-assets test and that its issuer
is the issuer of the underlying security, not the writer of the
option, for purposes of the diversification requirements. In order
to avoid realizing a gain within the three-month period, a
portfolio may be required to defer closing out a contract beyond
the time when it might otherwise be advantageous to do so. A
portfolio also may be restricted in purchasing put options for the
purpose of hedging underlying securities because of applying the
short sale holding period rules with respect to such underlying
securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (a portfolio's agent in
acquiring the futures position). During the period the futures
contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a
daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
The Portfolio turnover rates for the following Portfolios were:
199_ 199_
U.S. Government Income Portfolio % %
Quality Income Portfolio
Aggressive Income Portfolio
Turnover rates are based on the turnover rates of the corresponding
IDS Funds (IDS Extra Income Fund, IDS Federal Income Fund and IDS
Selective Fund) for periods prior to ____.
Item 14: Management of the Fund
TRUSTEES AND OFFICERS
The following is a list of the Trust's trustees who also are
trustees of all other funds in the Trust Group of Portfolios. All
shares have cumulative voting rights when voting on the election of
trustees.
The board also has appointed officers who are responsible for day-
to-day business decisions based on policies it has established.
<TABLE><CAPTION>
The following is an estimate of compensation expected to be paid to
the Trust's [trustees] for the fiscal
year ending _______________, 1996:
Pension or
Retirement
Aggregate Benefits Accrued
Estimated Annual Total Compensation
Compensation as Part of
Benefits Open from the Trust Group
Board Members from the Trust Portfolio Expenses
Retirement of Portfolios ?
<S> <C> <C> <C>
/TABLE
<PAGE>
PAGE 30
On _________________, the Trust's trustees and officers as a group
owned less than 1% of the outstanding units. During the fiscal
year ended ________________, no trustee or officer earned more than
$60,000 from this portfolio. All trustees and officers as a group
earned $____________, including $___________ of retirement plan
expense, from this portfolio.
Item 15: Control Persons and Principal Holder of Securities
Not applicable.
Item 16: Investment Advisory and Other Services
AGREEMENTS
Custodian
The Trust's securities and cash are held by American Express Trust
Company, 1200 Northstar Center West, 625 Marquette Ave.,
Minneapolis, MN 55402-2307, through a custodian agreement. The
custodian is permitted to deposit some or all of its securities in
central depository systems as allowed by Federal Law.
Investment Management Services Agreement
The Trust, on behalf of each Portfolio, has an Investment
Management Services Agreement with the Advisor. For its services,
the Advisor is paid a fee from the assets of each portfolio, based
upon the following schedule:
<TABLE><CAPTION>
U.S.
Government Income Portfolio
Aggressive Income Portfolio Quality
Income Portfolio
Assets Annual rate at Assets
Annual rate at
(billions) each asset level (billions)
each asset level
<S> <C> <C>
<C>
First $1.0 0.590% First $1.0
0.520%
Next $1.0 0.565 Next 1.0
0.495
Next $1.0 0.540 Next 1.0
0.470
Next $3.0 0.515 Next 3.0
0.445
Next $3.0 0.490 Next 3.0
0.420
Over $9.0 0.465 Over 9.0
0.395
</TABLE>
The fee is calculated for each calendar day on the basis of net
assets as the close of business two days prior to the day for which
the calculation is made. The management fee is paid monthly.
Under the current Agreement, the Portfolios also pay taxes,
brokerage commissions and nonadvisory expenses, that include
custodian fees; audit and certain legal fees; fidelity bond
premiums; registration fees for units; portfolio office expenses;
consultants' fees; compensation of trustees, officers and
employees; corporate filing fees; organizational expenses; expenses
incurred in connection with lending portfolio securities; and
expenses properly payable by the Portfolios, approved by the board
of trustees.
<PAGE>
PAGE 31
Transfer Agency Agreement
The Trust, on behalf of each Portfolio, has a Transfer Agency
Agreement with ________. This agreement governs ___________
responsibility for administering and/or performing transfer agent
functions, for acting as service agent in connection with dividend
and distribution functions, and for performing unitholder account
administration agent functions in connection with the issuance,
exchange and redemption or repurchase of the Portfolios' units
under the agreement, ________ will earn a fee from the Portfolios
determined by multiplying the number of unitholder accounts at the
end of the day by a rate of ____ per year and dividing by the
number of days in that year. The fees paid to the Advisor may be
changed from time to time upon agreemeent of the parties without
holder approval.
Placement Agency Agreement
The Trust has a Placement Agency Agreement with the Placement
Agent. This agreement governs the Placement Agent's responsibility
to represent the interests of the Trust.
Item 17: Brokerage Allocations and Other Practices
PORTFOLIO TRANSACTIONS
Subject to policies set by the board, the Advisor is authorized to
determine, consistent with each Portfolio's investment goal and
policies, which securities will be purchased, held or sold. In
determining where the buy and sell orders are to be placed, the
Advisor has been directed to use its best efforts to obtain the
best available price and most favorable execution except where
otherwise authorized by the board.
The Advisor has a strict Code of Ethics that prohibits its
affiliated personnel from engaging in personal investment
activities that compete with or attempt to take advantage of
planned portfolio transactions for any fund in the Trust Group of
Portfolios. The Advisor carefully monitors compliance with its
Code of Ethics.
Normally, the Portfolio's securities are traded on a principal
rather than an agency basis. In other words, the Advisor will
trade directly with the issuer or with a dealer who buys or sells
for its own account, rather than acting on behalf of another
client. The Advisor does not pay the dealer commissions. Instead,
the dealer's profit, if any, is the difference, or spread, between
the dealer's purchase and sale price for the security.
On occasion, it may be desirable to compensate a broker for
research services or for brokerage services by paying a commission
that might not otherwise be charged or a commission in excess of
the amount another broker might charge. The board has adopted a
policy authorizing the Advisor to do so to the extent authorized by
law, if the Advisor determines, in good faith, that such commission
is reasonable in relation to the value of the brokerage or research
services provided by a broker or dealer, viewed either in the light
of that transaction or the Advisor's overall responsibilities to
the Portfolios advised by the Advisor.<PAGE>
PAGE 32
Research provided by brokers supplements the Advisor's own research
activities. Such services include economic data on, and analysis
of, U.S. and foreign economies; information on specific industries;
information about specific companies, including earnings estimates;
purchase recommendations for stocks and bonds; portfolio strategy
services; political, economic, business and industry trend
assessments; historical statistical information; market data
services providing information on specific issues and prices; and
technical analysis of various aspects of the securities markets,
including technical charts. Research services may take the form of
written reports, computer software or personal contact by telephone
or at seminars or other meetings. The Advisor has obtained, and in
the future may obtain, computer hardware from brokers, including
but not limited to personal computers that will be used exclusively
for investment decision-making purposes, which include the
research, portfolio management and trading functions and other
services to the extent permitted under an interpretation by the
Securities and Exchange Commission.
When paying a commission that might not otherwise be charged or a
commission in excess of the amount another broker might charge, the
Advisor must follow procedures authorized by the board. To date,
three procedures have been authorized. One procedure permits the
Advisor to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research
services it has provided. The second procedure permits the
Advisor, in order to obtain research, to direct an order on an
agency basis to buy or sell a security traded in the over-the-
counter market to a firm that does not make a market in that
security. The commission paid generally includes compensation for
research services. The third procedure permits the Advisor, in
order to obtain research and brokerage services, to cause the
Portfolio to pay a commission in excess of the amount another
broker might have charged. The Advisor has advised the Trust it is
necessary to do business with a number of brokerage firms on a
continuing basis to obtain such services as the handling of large
orders, the willingness of a broker to risk its own money by taking
a position in a security, and the specialized handling of a
particular group of securities that only certain brokers may be
able to offer. As a result of this arrangement, some Portfolio
transactions may not be effected at the lowest commission, but the
Advisor believes it may obtain better overall execution. The
Advisor has assured the Trust that under all three procedures the
amount of commission paid will be reasonable and competitive in
relation to the value of the brokerage services performed or
research provided.
All other transactions shall be placed on the basis of obtaining
the best available price and the most favorable execution. In so
doing, if, in the professional opinion of the person responsible
for selecting the broker or dealer, several firms can execute the
transaction on the same basis, consideration will be given by such
person to those firms offering research services. Such services
may be used by the Advisor in providing advice to all the
Portfolios in the Trust Group of Portfolios and other accounts
advised by the Advisor, even though it is not possible to relate
the benefits to any particular Portfolio or account.
<PAGE>
PAGE 33
Each investment decision made for a Portfolio is made independently
from any decision made for the other Portfolios or accounts advised
by the Advisor or any of its subsidiaries. When a Portfolio buys
or sells the same security as another Portfolio or account, the
Advisor carries out the purchase or sale in a way the Trust agrees
in advance is fair. Although sharing in large transactions may
adversely affect the price or volume purchased or sold by the
Portfolio, the Portfolio hopes to gain an overall advantage in
execution. The Advisor has assured the Trust it will continue to
seek ways to reduce brokerage costs.
On a periodic basis, the Advisor makes a comprehensive review of
the broker-dealers and the overall reasonableness of their
commissions. The review evaluates execution, operational
efficiency and research services.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH THE ADVISOR
Affiliates of American Express Company ("American Express") (of
which the Advisor is a wholly owned subsidiary) may engage in
brokerage and other securities transactions on behalf of the
Portfolios according to procedures adopted by the Trust's board and
to the extent consistent with applicable provisions of the federal
securities laws. The Advisor will use an American Express
affiliate only if (i) the Advisor determines that the Portfolio
will receive prices and executions at least as favorable as those
offered by qualified independent brokers performing similar
brokerage and other services for the Portfolio and (ii) the
affiliate charges a Portfolio commission rates consistent with
those the affiliate charges comparable unaffiliated customers in
similar transactions and if such use is consistent with terms of
the Investment Management Services Agreement.
The Advisor may direct brokerage to compensate an affiliate. The
Advisor will receive research on South Africa from New Africa
Advisors, a wholly-owned subsidiary of Sloan Financial Group. The
Advisor owns 100% of IDS Capital Holdings Inc. which in turn owns
40% of Sloan Financial Group. New Africa Advisors will send
research to the Advisor and in turn the Advisor will direct trades
to a particular broker. The broker will have an agreement to pay
New Africa Advisors. All transactions will be on a best execution
basis. Compensation received will be reasonable for the services
rendered.
Item 18: Capital Stock and Other Securities
The information in response to this item is provided in addition to
information provided in Item 6 of Part A.
The Declaration of Trust dated May 26, 1995, a copy of which is on
file in the office of the Secretary of the Commonwealth of
Massachusetts, authorizes the issuance of units of beneficial
interest in the Trust without par value. Each unit of a Portfolio
has one vote and shares equally in dividends and distributions when
and if declared by the board and in each Portfolio's net assets
upon liquidation. All units, when issued, are fully paid and non-
assessable. There are no preemptive, conversion or exchange
rights. Portfolio units have cumulative voting rights and, as<PAGE>
PAGE 34
such, holders of at least 50% of remaining unitholders would not be
able to elect any trustees.
The board may classify or reclassify any unissued units of the
Trust into units of any series by setting or changing in any one or
more respect, from time to time, prior to the issuance of such
units, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, or qualifications, of
such units. Any such classification or reclassification will
comply with the provisions of the 1940 Act.
The overall management of the business of each Portfolio is vested
with the trustees. The trustees approve all significant agreements
between the Portfolios and persons or companies furnishing services
to the Portfolios. The day-to-day operations of the Portfolios are
delegated to the officers of the Trust subject to the investment
objective and policies of each Portfolio, the general supervision
of the trustees and the applicable laws of The Commonwealth of
Massachusetts.
Generally, there will not be annual meetings of unitholders.
Unitholders may remove trustees from office by votes cast at a
meeting of unitholders or by written consent.
Under Massachusetts law, unitholders could, under certain
circumstances, be held liable for the obligations of the Trust.
However, the Declaration of Trust disclaims unitholder liability
for acts or obligations of the Trust and requires that notice of
such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the trustee or trustees.
The Declaration of Trust provides for indemnification out of the
Trust held liable on account of being or having been a unitholder.
Thus, the risk of a unitholder incurring financial loss on account
of unitholder liability is limited to circumstances in which the
Trust would be unable to meet its obligations wherein the
complaining party was held out to be bound by the disclaimer.
The Declaration of Trust further provides that the trustees will
not be liable for errors of judgment or mistakes of fact or law.
However, nothing in the Declaration of Trust protects a trustee
against any liability to which the trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involving the
conduct of his office. The Declaration of Trust provides for
indemnification by the Trust of the trustees and officers of the
Trust except with respect to any matter as to which any such person
did not act in good faith in the reasonable belief that his action
was in or not opposed to the best interests of the Trust. Such
person may not be indemnified against any liability to the Trust or
the Trust unitholders to which he would otherwise be subjected by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office. The Declaration of Trust also authorizes the purchase of
liability insurance on behalf of trustees and officers.
<PAGE>
PAGE 35
Item 19: Purchase, Redemption and Pricing of Securities Being
Offered
The information provided in response to this item is in addition to
the information provided in response to Items 7 and 8 in Part A.
REDEEMING UNITS
Unitholders have a right to redeem units at any time. For an
explanation of redemption procedures, please see Item 8 in Part A.
During an emergency, the board of trustees can suspend the
computation of net asset value, stop accepting payments for
purchase of units or suspend the duty of the Portfolios to redeem
units for more than seven days. Such emergency situations would
occur if:
'The New York Stock Exchange closes for reasons other than the
usual weekend and holiday closings or trading on the Exchange is
restricted, or
'Disposal of the Portfolio's securities is not reasonably
practicable or it is not reasonably practicable for a Portfolio to
determine the fair value of its net assets, or
'The SEC, under the provisions of the Investment Company Act of
1940, as amended, declares a period of emergency to exist.
'The board of directors determines to suspend the computation of
net asset value for the corresponding Fund, stop accepting payments
for purchase of the Fund's shares or suspend the duty of the Fund
to redeem shares for more than seven days.
Should a Portfolio stop selling units, the trustees may make a
deduction from the value of the assets held by the Portfolio to
cover the cost of future liquidations of the assets so as to
distribute fairly these costs among all unitholders.
REDEMPTIONS BY THE PORTFOLIO
The Portfolio reserves the right to redeem, involuntarily, the
units of any unitholder whose account has a value of less than a
minimum amount but only where the value of such account has been
reduced by its prior voluntary redemption of units. Until further
notice, it is the present policy of the Portfolio not to exercise
this right with respect to any unitholder whose account has a value
of $1,000,000 or more. In any event, before the Portfolio redeems
such units and sends the proceeds to the unitholder, it will notify
the unitholder that the value of the units in its account is less
than the minimum amount and allow it 30 days to make an additional
investment in an amount which will increase the value of its
accounts to at least $1,000,000 before the redemption is processed.
REDEMPTIONS IN KIND
The Trust has elected to be governed by Rule 18-f-1 under the
Investment Company Act, which obligates each Portfolio to redeem
units in cash, with respect to any one unitholder during any 90-day
period, up to the lesser of $250,000 or 1% of the net assets of the<PAGE>
PAGE 36
Portfolio at the beginning of such period. Although redemptions in
excess of this limitation would normally be paid in cash, each
Portfolio reserves the right to make payments in whole or in part
in secirities or other assets of the Portfolio in case of an
emergency, or if the payment of such redemption in cash would be
detrimental to the existing unitholders of the Trust as determined
by the board of trustees. In such cicrumstances, the securities
distributed would be valued as set forth in Item 8 of Part A.
Should the fund do so, a unitholder may incor brokerage fees or
other transaction costs in converting the securities to cash.
Despite its right to redeem units through a redemption-in-kind,
each Portfolio does not expect to exercise this option unless the
Portfolio has an unusually low level of cash to meet redemptions
and/or is experiencing unusually strong demands for cash.
VALUING PORTFOLIO UNITS
The value of an individual unit is determined by using the net
asset value before unitholder transactions for the day and dividing
that figure by the number of units outstanding at the end of the
previous day.
In determining net assets before unitholder transactions, the
securities held by each Portfolio are valued as follows as of the
close of business of the New York Stock Exchange:
'Securities, except bonds other than convertibles, traded on a
securities exchange for which a last-quoted sales price is readily
available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
'Securities traded on a securities exchange for which a last-quoted
sales price is not readily available are valued at the mean of the
closing bid and asked prices, looking first to the bid and asked
prices on the exchange where the security is primarily traded and,
if none exist, to the over-the-counter market.
'Securities included in the NASDAQ National Market System are
valued at the last-quoted sales price in this market.
'Securities included in the NASDAQ National Market System for which
a last-quoted sales price is not readily available, and other
securities traded over-the-counter but not included in the NASDAQ
National Market System are valued at the mean of the closing bid
and asked prices.
'Futures and options traded on major exchanges are valued at the
last-quoted sales price on their primary exchange.
'Foreign securities traded outside the United States are generally
valued as of the time their trading is complete, which is usually
different from the close of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S.
dollars at the current rate of exchange. Occasionally, events
affecting the value of such securities may occur between such times
and the close of the New York Stock Exchange that will not be
reflected in the computation of the portfolio's net asset value.
If events materially affecting the value of such securities occur<PAGE>
PAGE 37
during such period, these securities will be valued at their fair
value according to procedures decided upon in good faith by the
board.
'Short-term securities maturing more than 60 days from the
valuation date are valued at the readily available market price or
approximate market value based on current interest rates. Short-
term securities maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at
amortized cost using the market value on the 61st day before
maturity. Short-term securities maturing in 60 days or less at
acquisition date are valued at amortized cost. Amortized cost is
an approximation of market value determined by systematically
increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium,
so that the carrying value is equal to maturity value on the
maturity date.
'Securities without a readily available market price, bonds other
than convertibles and other assets are valued at fair value as
determined in good faith by the board. The board is responsible
for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service
independent from the Trust. If a valuation of a bond is not
available from a pricing service, the bond will be valued by a
dealer knowledgeable about the bond if such a dealer is available.
The New York Stock Exchange, the Advisor and each of the Portfolios
will be closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Item 20: Tax Status
The information in response to this item is provided in Item 6 of
Part A.
Item 21: Underwriters
The information in response to this item is provided in Item 7 of
Part A and Item 16 of Part B.
Item 22: Calculation of Performance Data
Not Applicable.
Item 23: Financial Statements
Not Applicable.
<PAGE>
PAGE 38
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS:
In Part A: None.
In Part B: None.
In Part C: None.
(b) EXHIBITS:
1. Agreement and Declaration of Trust of Income Trust is filed
electronically herewith as Exhibit (b)1.
2. By-laws of Income Trust to be filed by amendment.
3. Not Applicable.
4. Not Applicable.
5. Form of Investment Management Services Agreement is filed
electronically herewith as Exhibit (b)5.
6. Placement Agency Agreement to be filed by amendment.
7. Not Applicable.
8. Form of Custody Agreement is filed electronically herewith as
Exhibit (b)8.
9. Form of Transfer Agency Agreement to be filed by amendment.
10. Not Applicable.
11. Not Applicable.
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Not Applicable.
16. Not Applicable.
17. Not Applicable.
<PAGE>
PAGE 39
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
The following information is given as of May 26, 1995.
(1) (2)
Title of Class Number of Record Holders
0
Item 27. Indemnification.
Reference is hereby made to Article 8 of Registrant's Declaration
of Trust filed herewith as Exhibit 24(b)(1).
Item 28. Business and Other Connections of Investment Advisors.
Certain of the officers and trustees of the Registrant's
investment advisor also serve as officers and/or trustees for other
investment companies in the Express Direct Group of Funds and with
the Advisor and its subsidiaries. For additional information,
please see Part A and Part B.
Item 29. Principal Underwriters.
The Placement Agent for the Portfolio receives no additional
compensation for serving in this capacity.
Item 30. Locations of Accounts and Records.
The accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 will be kept by
the Registrant or its Shareholder Servicing Agent.
Item 31. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
Item 32. Undertakings.
None.
<PAGE>
PAGE 40
SIGNATURE
Pursuant to the requirement of the Investment Company Act of 1940,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Minneapolis and the State of Minnesota, on the 16th
day of June, 1995.
INCOME TRUST
U.S. Government Portfolio
Quality Income Portfolio
Aggressive Income Portfolio
By /s/ William H. Dudley
William H. Dudley
President
Pursuant to the requirements of the Investment Company Act of 1940,
this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title
Date
By /s/ William H. Dudley Trustee, Treasurer
June 16, 1995
William H. Dudley
By /s/ David R. Hubers Trustee
June 16, 1995
David R. Hubers
(b)1. Agreement and Declaration of Trust of Income Trust.
(b)5. Form of Investment Management Services Agreement.
(b)8. Form of Custody Agreement.
<PAGE>
PAGE 1
INCOME TRUST
DECLARATION OF TRUST
This DECLARATION OF TRUST made at Boston, Massachusetts, this
24th day of May, 1995 by the Trustees hereunder and by the
Unitholders of Units to be issued hereunder as hereinafter
provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business
of an investment company; and
WHEREAS, the Trustees have agreed to manage, in accordance
with the provisions hereinafter set forth, all property coming into
their hands as trustees of a business trust formed under the laws
of The Commonwealth of Massachusetts;
NOW, THEREFORE, the Trustees hereby declare that they will
hold all cash, securities and other assets, which they may from
time to time acquire in any manner as Trustees hereunder. IN TRUST,
to manage and dispose of the same upon the following terms and
conditions for the benefit of the Unitholders from time to time of
Units in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "Income Trust," and
the Trustees shall conduct the business of the Trust under that
name or any other name as they may from time to time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) "Trust" refers to the trust established by this
Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named
herein or elected in accordance with Article IV;
(c) "Units" means the equal proportionate transferable units
of ownership into which the beneficial interest in the Trust shall
be divided from time to time or, if more than one series or class
of Units is authorized by the Trustees, the equal proportionate
units into which each series or class of Units shall be divided
from time to time;
(d) "Unitholder" means a record owner of Units;
(e) "1940 Act" refers to the Investment Company Act of 1940
and the Rules and Regulations thereunder, all as amended from time
to time;<PAGE>
PAGE 2
(f) "Affiliated Person", "Assignment", "Commission",
"Interested Person", and "Principal Underwriter" shall have the
meanings given them in the 1940 Act;
(g) "Majority Unitholder Vote" shall have the same meaning as
"vote of a majority of the outstanding voting securities" as
defined in the third sentence of Section 2(a)(42) of the 1940 Act.
(h) "Declaration of Trust" shall mean this Declaration of
Trust as amended or restated from time to time;
(i) "Bylaws" shall mean the Bylaws of the Trust as amended
from time to time;
(j) "Series" or "series of Units" refers to the one or more
separate investment portfolios of the Trust into which the assets
and liabilities of the Trust may be divided and the Units of the
Trust representing the beneficial interest of Unitholders in such
respective portfolios;
(k) "Class" or "class of Units" refers to the division of
Units representing any series into two or more classes as provided
in Article III, Section 1 hereof; and
(l) "Bankruptcy" shall mean, with respect to any Unitholder,
any of the following:
(i) filing a voluntary petition in bankruptcy or for
reorganization or for the adoption of an arrangement under the
Bankruptcy Code (as now or in the future amended) or an admission
seeking the relief therein provided;
(ii) making a general assignment for the benefit of
creditors;
(iii) consenting to the appointment of a receiver for
all
or a substantial part of such Unitholder's property;
(iv) in the case of the filing of an involuntary
petition
in bankruptcy, an entry of an order for relief;
(v) the entry of a court order appointing a receiver
or
trustee for all or a substantial part of such Unitholder's property
without its consent; or
(vi) the assumption of custody or sequestration by a
court of competent jurisdiction of all or substantially all of such
Unitholder's property.
ARTICLE II
Purpose of Trust
The purpose of the Trust shall be to engage in the business of
being an investment company, and. as such, to manage investments
primarily in securities. debt instruments, commodities, commodity
contracts and options thereon and other instruments and rights of
a
financial character.
<PAGE>
PAGE 3
ARTICLE III
Units
Division of Beneficial Unit
Section 1. The Units of the Trust shall be issued in one or
more series as the Trustees may, without Unitholder approval.
authorize. Each series shall be preferred over all other series in
respect of the assets allocated to that series within the meaning
of the 1940 Act and shall represent a separate investment portfolio
of the Trust. The beneficial interest in each series shall at all
times be divided into Units each of which shall, except as provided
in the following sentence, represent an equal proportionate
interest in the series with each other Unit of the same series,
none having priority or preference over another. The Trustees may,
without Unitholder approval, divide the Units of any series into
two or more classes, Units of each such class having such
preferences and special or relative rights and privileges
(including conversion rights, if any) as the Trustees may determine
and as shall be set forth in the Bylaws. The number of Units
authorized shall be unlimited. The Trustees may from time to time
divide or combine the Units of any series or class into a greater
or lesser number without thereby changing the proportionate
beneficial interest in the series or class.
Ownership of Units
Section 2. The ownership of Units shall be recorded on the
books of the Trust or a transfer or similar agent. No certificates
certifying the ownership of Units shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees
may make such rules, not inconsistent with this Declaration of
Trust or the Bylaws, as they consider appropriate for the issuance
of Unit certificates, the transfer of Units and similar matters.
The record books of the Trust as kept by the Trust or any transfer
or similar agent, as the case may be, shall be conclusive as to who
are the Unitholders of each series and class and as to the number
of Units of each series and class held from time to time by each
Unitholder.
Investment in the Trust
Section 3. No person may become a Unitholder of the Trust
unless approved in advance by the Trustees. Thereafter, the
Trustees shall accept investments in the Trust from persons so
approved on such terms and for such consideration, which may
consist of cash or tangible or intangible property or a combination
thereof, as they or the Bylaws from time to time authorize.
All consideration received by the Trust from the issue or sale
of Units of each series, together with all income, earnings,
profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation thereof, and any monies or
payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall irrevocably belong to the series of
Units with respect to which the same were received by the Trust for
all purposes, subject only to the rights of creditors, and shall be
so handled upon the books of account of the Trust and are herein
referred to as "assets of" such series.<PAGE>
PAGE 4
No Preemptive Rights
Section 4. Unitholders shall have no preemptive or other right
to subscribe to any additional Units or other securities issued by
the Trust.
Status of Units and Limitation of Personal Liability
Section 5. Units shall be deemed to be personal property and
shall have only the rights provided in this Declaration of Trust or
the Bylaws. Every Unitholder by virtue of having become a
Unitholder shall be held to have expressly assented and agreed to
the terms of this Declaration of Trust and the Bylaws. No
Unitholder as such shall have any power to act as agent or
otherwise bind the Trust except as specifically authorized by the
Trustees. Ownership of Units shall not entitle the Unitholder to
any title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or for an
accounting. No Unitholder shall, solely by reason of owning Units
or exercising the rights of a Unitholder, be treated as a partner
for purposes of any law imposing liability on parties for the
obligations of a partnership's enterprise or for the actions of any
partner of a partnership. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust, shall have any power
to bind personally any Unitholder, nor except as specifically
provided herein to call upon any Unitholder for the payment of any
sum of money or assessment whatsoever other than such as the
Unitholder may at any time personally agree to pay.
ARTICLE IV
The Trustees
Election
Section 1. A Trustee may be elected either by the Trustees or
by the Unitholders. The number of Trustees shall be fixed from time
to time by the Trustees and, at or after the commencement of the
business of the Trust, shall be not less than three. Each Trustee
elected by the Trustees or the Unitholders shall serve until he or
she retires, resigns, is removed or dies or until the next meeting
of Unitholders called for the purpose of electing Trustees and
until the election and qualification of his or her successor. At
any meeting called for the purpose, a Trustee may be removed by
vote of the Unitholders holding two-thirds of the outstanding
Units. The initial Trustees, each of whom shall serve until the
first meeting of Unitholders at which Trustees are elected and
until his or her successor is elected and qualified, or until he or
she sooner dies, resigns or is removed, shall be John M. Loder and
such other persons as the Trustee or Trustees then in office shall,
prior to any sale of Units, appoint.
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall
not operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust.
<PAGE>
PAGE 5
Powers
Section 3. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees,
and they shall have all powers necessary or convenient to carry out
that responsibility. Without limiting the foregoing, the Trustees
may adopt Bylaws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and may
amend and repeal them to the extent that such Bylaws do not reserve
that right to the Unitholders; they may fill vacancies in or add to
their number, and may elect and remove such officers and appoint
and terminate such agents as they consider appropriate; they may
appoint, and terminate, any one or more committees consisting of
one or more Trustees or such other persons as they may designate,
including an executive committee which may, when the Trustees are
not in session, exercise some or all of the power and authority of
the Trustees as the Trustees may determine; they may employ one or
more custodians of the assets of the Trust and may authorize such
custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of
securities, retain one or more transfer agents or one or more
unitholder servicing agents, or both, provide for the distribution
of Units by the Trust, through one or more principal underwriters
or otherwise, set record dates for the determination of Unitholders
with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust,
to any committee and to any agent or employee of the Trust or to
any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power
and authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate,
write options on and lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property;
and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or
otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable
form, or in the name of the Trustees or of the Trust or in the name
of a custodian, subcustodian or other depositary or a nominee or
nominees or otherwise;
(f) Subject to the provisions of Article III, Section 3, to
allocate assets, liabilities, income and expenses of the Trust to
a
particular series of Units or to apportion the same among two or
more series, provided that any liabilities or expenses incurred by
or arising in connection with a particular series of Units shall be
payable solely out of the assets of that series; and to the extent<PAGE>
PAGE 6
necessary or appropriate to give effect to the preferences and
special or relative rights and privileges of any classes of Units,
to allocate assets, liabilities, income and expenses of a series to
a particular class of Units of that series or to apportion the same
among two or more classes of Units of that series;
(g) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer, any security of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or sale of
property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security held in the Trust;
(h) To join other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security
to, any such committee. depositary or trustee, and to delegate to
them such power and authority with relation to any security
(whether or not so deposited or transferred) as the Trustees shall
deem proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depositary or trustee
as the Trustees shall deem proper;
(i) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy,
including but not limited to claims for taxes;
(j) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(k) To borrow funds;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and
to mortgage and pledge the Trust property or any part thereof to
secure any of or all such obligations;
(m) To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust and payment of
distributions and principal on its portfolio investments, and
insurance policies insuring the Unitholders, Trustees, officers,
employees, agents, investment advisers or managers, principal
underwriters or independent contractors of the Trust individually
against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or
position, or by reason of any action alleged to have been taken or
omitted by any such person as Unitholder, Trustee, officer,
employee, agent, investment adviser or manager, principal
underwriter or independent contractor, including any action taken
or omitted that may be determined to constitute negligence, whether
or not the Trust would have the power to indemnify such person
against such liability; and
(n) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out
pension. profit-sharing, share bonus, share purchase, savings,<PAGE>
PAGE 7
thrift and other retirement, incentive and benefit plans, trusts
and provisions, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and
agents of the Trust.
The Trustees shall not in any way be bound or limited by any
present or future law or custom in regard to investments by
trustees. Except as otherwise provided herein or from time to time
in the Bylaws, any action to be taken by the Trustees may be taken
by a majority of the Trustees present at a meeting of the Trustees
(a quorum being present), within or without Massachusetts,
including any meeting held by means of a conference telephone or
other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time
and participation by such means shall constitute presence in person
at a meeting, or by written consents of a majority of the Trustees
then in office.
Payment of Expenses by Trust
Section 4. The Trustees are authorized to pay or to cause to
be paid, out of the assets of the Trust, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers,
employees, investment adviser or manager, principal underwriter,
auditor, counsel, custodian, transfer agent, unitholder servicing
agent, and such other agents or independent contractors and such
other expenses and charges as the Trustees may deem necessary or
proper to incur, provided, however, that all expenses, fees,
charges, taxes and liabilities incurred by or arising in connection
with a particular series of Units shall be payable solely out of
the assets of that series. Expenses relating to only a particular
class of Units will be charged to such class of Units.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of each series of Units
and of the Trust shall at all times be considered as vested in the
Trustees.
Advisory, Management and Distribution
Section 6. Subject to a favorable Majority Unitholder Vote,
the Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive investment advisory and/or investment
management services with any corporation, trust, association or
other organization (the "Manager"), every such contract to comply
with such requirements and restrictions as may be set forth in the
Bylaws; and any such contract may contain such other terms
interpretive of or in addition to said requirements and
restrictions as the Trustees may determine, including, without
limitation, authority to determine from time to time what
investments shall be purchased, held, sold or exchanged and what
portion, if any, of the assets of the Trust shall be held
uninvested and to make changes in the Trust's investments. The
Trustees may also, at any time and from time to time, contract with<PAGE>
PAGE 8
the Manager or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor
or principal underwriter for the Trust, administrator of the non-
investment affairs of the Trust, custodian for any or all of the
assets of the Trust, transfer or Unitholder servicing agent for the
Unitholders, or agent for other affairs of the Trust, every such
contract to comply with such requirements and restrictions as may
be set forth in the Bylaws; and any such contract may contain such
other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.
The fact that:
(i) any Unitholder, Trustee or officer of the Trust is a
Unitholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or
agent of or for any corporation, trust, association or other
organization, or of or for any parent or affiliate of any
organization, with which an advisory or management contract,
or principal underwriter's or distributor's contract, or
administrator's contract, or custodian's contract, or
transfer, Unitholder servicing or other agency contract may
have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Unitholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization
with which an investment advisory or investment management
contract or principal underwriter's or distributor's
contract,
or administrator's contract, or custodian's contract or
transfer, Unitholder servicing or other agency contract may
have been or may hereafter be made also has an investment
advisory or investment management contract, or
administrator's
contract, or custodian's contract or transfer, Unitholder
servicing or other agency contract with one or more other
corporations, trusts, associations, or other organizations,
or
has other business or interests
shall not affect the validity of any such contract or disqualify
any Unitholder, Trustee or officer of the Trust from voting upon or
executing the same or create any liability or accountability to the
Trust or its Unitholders.
ARTICLE V
Unitholders' Voting Powers and Meetings
Voting Powers
Section 1. Subject to the voting powers of one or more
classes
of Units as set forth elsewhere in this Declaration of Trust or in
the Bylaws, the Unitholders shall have power to vote only (i) for
the election of Trustees as provided in Article IV, Section 1, (ii)
for the removal of Trustees as provided in Article IV, Section 1,
(iii) with respect to any Manager as provided in Article IV,
Section 6, (iv) with respect to any termination or continuation of
this Trust to the extent and as provided in Article IX, Section 4,
(v) with respect to any amendment of this Declaration of Trust to
the extent and as provided in Article IX, Section 7, (vi) to the<PAGE>
PAGE 9
same extent as the shareholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or
claim should or should not be brought or maintained derivatively or
as a class action on behalf of the Trust or the Unitholders, and
(vii) with respect to such additional matters relating to the Trust
as may be required by this Declaration of Trust, the Bylaws or any
registration of the Trust with the Securities and Exchange
Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole or
fractional Unit shall be entitled to one vote for each dollar of
net asset value thereof as to any matter on which it is entitled to
vote and to a proportionate fractional vote for each fraction of a
dollar of net asset value thereof. On any matter submitted to a
vote of Unitholders, all Units of the Trust then entitled to vote
shall, except as otherwise provided in the Bylaws, be voted in the
aggregate as a single class without regard to series or classes of
Units, except (1) when required by the 1940 Act or when the
Trustees shall have determined that the matter affects one or more
series or classes of Units materially differently, Units shall be
voted by individual series or class; and (2) when the Trustees have
determined that the matter affects only the interests of one or
more series or classes, then only Unitholders of such series or
classes shall be entitled to vote thereon. Unitholders shall be
entitled to vote cumulatively in the election of Trustees. Units
may be voted in person or by proxy. A proxy with respect to Units
held in the name of two or more persons shall be valid if executed
by or on behalf of any one of them unless at or prior to exercise
of the proxy the Trust receives a specific written notice to the
contrary from any one of them. Any proxy purporting to be executed
by or on behalf of a Unitholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Until Units of any series
or class are issued, the Trustees may exercise all rights of
Unitholders and may take any action required by law, this
Declaration of Trust or the Bylaws to be taken by Unitholders as to
such series or class.
Voting Power and Meetings
Section 2. Meetings of Unitholders of any or all series or classes
may be called by the Trustees from time to time for the purpose of
taking action upon any matter requiring the vote or authority of
the Unitholders of such series or classes as herein provided or
upon any other matter deemed by the Trustees to be necessary or
desirable. Written notice of any meeting of Unitholders shall be
given or caused to be given by the Trustees by mailing such notice
at least seven days before such meeting, postage prepaid, stating
the time, place and purpose of the meeting, to each Unitholder
entitled to vote at such meeting at the Unitholder' s address as it
appears on the records of the Trust. If the Trustees shall fail to
call or give notice of any meeting of Unitholders for a period of
30 days after written application by Unitholders holding Units
representing at least 10% of the aggregate net asset value of the
then outstanding Units of all series and classes entitled to vote
at such meeting requesting a meeting to be called for a purpose
requiring action by the Unitholders as provided herein or in the
Bylaws, then Unitholders holding Units representing at least 10% of
the aggregate net asset value of the then outstanding Units of all
series and classes entitled to vote at such meeting may call and<PAGE>
PAGE 10
give notice of such meeting, and thereupon the meeting shall be
held in the manner provided for herein in case of call thereof by
the Trustees. Notice of a meeting need not be given to any
Unitholder if a written waiver of notice. executed by him or her
before or after the meeting, is filed with the records of the
meeting, or to any Unitholder who attends the meeting without
protesting prior thereto or at its commencement the lack of notice
to him or her.
Quorum and Required Vote
Section 3. Units entitled to cast thirty percent of the total
number of votes entitled to be cast on a particular matter shall be
a quorum for the transaction of business on that matter at a
Unitholders' meeting, except that where any provision of law or of
this Declaration of Trust or the Bylaws requires that Unitholders
of any series or class shall vote as an individual series or class,
then Units entitled to cast thirty percent of the total number of
votes entitled to be cast by Unitholders of that series or class as
such entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that series or class. Any lesser
number shall be sufficient for adjournments. Any adjourned session
or sessions may be held, within a reasonable time after the date
set for the original meeting, without the necessity of further
notice. Except when a larger vote is required by any provision of
law or of this Declaration of Trust or the Bylaws, a majority of
the votes cast shall decide any questions and a plurality shall
elect a Trustee, provided that where any provision of law or of
this Declaration of Trust or the Bylaws requires that the
Unitholders of any series or class shall vote as an individual
series or class then a majority of votes of that series or class
cast on the matter (or a plurality with respect to the election of
a Trustee) shall decide that matter insofar as that series or class
is concerned.
Action by Written Consent
Section 4. Any action taken by Unitholders may be taken
without a meeting if Unitholders entitled to cast a majority of the
total number of votes entitled to be cast on the matter (or such
larger proportion thereof as shall be required by any express
provision of this Declaration of Trust or the Bylaws) consent to
the action in writing and such written consents are filed with the
records of the meetings of Unitholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of
Unitholders.
Additional Provisions
Section 5. The Bylaws may include further provisions, not
inconsistent with this Declaration of Trust, regarding Unitholders'
voting powers, the conduct of meetings and related matters.
ARTICLE VI
Allocations, Distributions, Redemptions and Repurchases
Allocations
Section 1. The Trustees shall allocate each item of income,
gain, loss, deduction and credit of the Trust, or if the Trust has<PAGE>
PAGE 11
more than one series, of each series, among the Unitholders of the
Trust or the particular series, as the case may be, in accordance
with the following procedures.
a. Ordinary income (other than income realized from the sale
or exchange, or deemed sale or exchange, of property), tax-exempt
income, deductions (other than deductions for expenses specially
allocated to different classes of Units) and credits shall be
allocated each business day among the Unitholders in proportion to
their relative percentage record ownership of the outstanding Units
of the Trust or series, as the case may be, measured as of the
close of business on such day (before taking into account any
purchases or redemptions of Units on such day). Expenses relating
to only certain classes of Units may be allocated to the
Unitholders of such classes of Units.
b. For purposes of allocating gains and losses, an Unrealized
Gain/Loss Account shall be maintained with respect to each
Unitholder. The initial balance of a Unitholder's Unrealized
Gain/Loss Account shall be zero and shall thereafter be increased
or decreased on each business day (an "adjustment date") by the
following amount:
(i) the positive or negative difference between (a)
the
fair market value of any property contributed to the Trust or
series. as the case may be, on the adjustment date and (b)
the
adjusted tax basis of such property in the hands of the Trust
or series immediately after such contribution; plus
(ii) the product of (a) the Unitholder's percentage
record ownership of the outstanding Units of the Trust or
series as measured as of the close of business on the
immediately preceding adjustment date, after taking into
account any purchases or redemptions of Units on such
preceding date, and (b) the positive or negative difference
between (x) the net asset value of the Trust or series at the
close of business on the adjustment date, before taking into
account purchases and redemptions of Unit on such date, and
(y) the sum of the net asset value of the Trust or series at
the close of business on the prior adjustment date, after
taking into account purchases and redemptions of Units on
such
prior date and the ordinary income and tax-exempt income
allocated the Unitholders under paragraph (a) above on the
adjustment date; plus
(iii) losses allocated to such Unitholder's Unrealized
Gain/Loss Account on the prior adjustment date; minus
(iv) gains allocated to such Unitholder's Unrealized
Gain/Loss Account on the prior adjustment date; and minus
(v) the positive or negative difference between (a)
the
fair market value of any property distributed (whether or not
in redemption of any Unit) to such Unitholder on the
adjustment date and (b) the adjusted tax basis of such
property in the hands of the Trust or series immediately
before such distribution.
<PAGE>
PAGE 12
In the event that a Unitholder withdraws from the Trust or series
and after such withdrawal there remains a positive or negative
balance in such Unitholder's Unrealized Gain/Loss Account, as
adjusted to take account of the allocation of gain and loss for
such day, such positive or negative amount will be added to the
Unrealized Gain/Loss Account of the remaining Unitholders in
proportion to their relative percentage ownership of the
outstanding Units of the Trust or series, measured at the close of
business on such day after taking into account any purchases or
redemptions of Units on such day.
c. Gains and losses shall be allocated on each business day,
to the extent practical, in accordance with the Unitholders'
Unrealized Gain/Loss Accounts, as determined after the adjustments
to such account for the date of such allocation:
(i) Gains, which include all taxable income realized
from
the sale or exchange or deemed sale or exchange of property,
shall be allocated to each Unitholder with a positive
Unrealized Gain/Loss Account, to the extent of such account
and in the ratio that such account bears to the positive
Unrealized Gain/Loss Accounts of all Unitholders, and
thereafter to all Unitholders in proportion to their interest
in the Trust or series, as the case may be.
(ii) Losses shall be allocated to each Unitholder with
a
negative Unrealized Gain/Loss Account to the extent of such
account and in the ratio that such account bears to the
negative Unrealized Gain/Loss Accounts of all Unitholders,
and
thereafter to all Unitholders in proportion to their interest
in the Trust or series, as the case may be.
d. It is intended that the allocations of taxable income and
loss set forth in this section be recognized as having "substantial
economic effect" for federal income tax purposes within the meaning
of that term in Section 704(b) of the Internal Revenue Code and
applicable Treasury Regulations. In furtherance of the foregoing,
the Trustees, in consultation with the Trust's tax adviser, is
authorized to interpret and apply the tax allocation provisions
hereof as providing for a "qualified income offset", "minimum gain
chargeback" and such other allocation principles as may be required
under Section 704 of the Internal Revenue Code and applicable
regulations; provided, however, that no such interpretation or
application shall affect the relative percentage record ownership
of any Unitholder or the amount a Unitholder is entitled to receive
upon any redemption of Units or upon the liquidation of the Trust
or series.
Distributions
Section 2. The Trustees may each year, or more frequently if
they so determine, distribute to the Unitholders out of the assets
of the Trust or, if the Trust has more than one series, out of the
assets of the particular series, such amounts as the Trustees may
determine. Any such distribution shall be made to the Unitholders
pro rata in proportion to the number of Units of the Trust or of
the relevant series, as the case may be, held by each of them,
except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any<PAGE>
PAGE 13
classes of Units, and any distribution to the Unitholders of a
particular class of Units shall be made to such Unitholders pro
rata in proportion to the number of Units of such class held by
each of them. Such distributions shall be made in cash, Units or
other property, or a combination thereof, as determined by the
Trustees. Any such distribution paid in Units will be paid at the
net asset value thereof as determined in accordance with the
Bylaws.
Redemptions and Repurchases
Section 3. The Trust shall purchase such Units as are offered
by any Unitholder for redemption, in accordance with such
procedures for redemption as the Trustees may from time to time
authorize; and the Trust will pay therefor the net asset value
thereof, as next determined in accordance with the Bylaws, less any
redemption charge fixed by the Trustees. Payment for said Units
shall be made by the Trust to the Unitholder within seven days
after the date on which such redemption request is made. The
obligation set forth in this Section 3 is subject to the provision
that, during any period when the New York Stock Exchange is closed
for other than customary weekends or holidays, or, if permitted by
rules of the Securities and Exchange Commission, during periods
when trading on such Exchange is restricted or during any emergency
which makes it impractical for the Trust to dispose of its
investments or to determine fairly the value of its net assets, or
during any other period permitted by order of the Securities and
Exchange Commission for the protection of investors, such
obligation may be suspended or postponed by the Trustees. The Trust
may also purchase or repurchase Units at a price not exceeding the
net asset value of such Units in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.
Redemption at the Option of the Trust
Section 4. The Trust shall have the right at its option and
at
any time to redeem Units of any Unitholder at the net asset value
thereof as determined in accordance with the Bylaws: (i) if at such
time such Unitholder owns fewer Units than, or Units having an
aggregate net asset value of less than, an amount determined from
time to time by the Trustees; or (ii) to the extent that such
Unitholder owns Units of a particular series of Units representing
a percentage equal to or in excess of such percentage of the
outstanding Units of that series as the Trustees may from time to
time establish, or of such aggregate net asset value as the
Trustees may from time to time establish; or (iii) to the extent
that such Unitholder owns Units of the Trust representing a
percentage equal to or in excess of such percentage of the
aggregate number of outstanding Units of the Trust as the Trustees
may from time to time establish, or of such aggregate net asset
value as the Trustees may from time to time establish.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to
reasonable compensation from the Trust; they may fix the amount of<PAGE>
PAGE 14
their compensation. Nothing herein shall in any way prevent the
employment of any Trustee for advisory, management, legal,
accounting, investment banking or other services and payment for
the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent,
employee, investment manager, investment adviser, administrator,
custodian, transfer or Unitholder servicing agent or principal
underwriter of the Trust, nor shall any Trustee be responsible for
the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which
he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust or the Trustees or any of them in
connection with the Trust shall be conclusively deemed to have been
executed or done only in or with respect to their or his or her
capacity as Trustees or Trustee, and such Trustees or Trustee shall
not be personally liable thereon.
ARTICLE VIII
Indemnification
Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which
the Trust has any interest as a shareholder, creditor or otherwise)
(each such person being hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil
or criminal, before any court or administrative or legislative
body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or
may have been threatened, while in office or thereafter, by reason
of being or having been such a Covered Person except with respect
to any matter as to which such Covered Person shall have been
finally adjudicated in any such action, suit or other proceeding
(a) not to have acted in good faith in the reasonable belief that
such Covered Person's action was in the best interest of the Trust
or (b) to be liable to the Trust or its Unitholders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered
Person's office. Expenses, including counsel fees so incurred by
any such Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties), shall be
paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of<PAGE>
PAGE 15
an undertaking by or on behalf of such Covered Person to repay
amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this
Article, provided, however, that either (a) such Covered Person
shall have provided appropriate security for such undertaking, (b)
the Trust shall be insured against losses arising from any such
advance payments or (c) either a majority of the disinterested
Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that there is reason to
believe that such Covered Person would be found entitled to
indemnification under this Article.
Compromise Payment
Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise)
without an adjudication by a court, or by any other body before
which the proceeding was brought, that such Covered Person either
(a) did not act in good faith in the reasonable belief that his or
her action was in the best interests of the Trust or (b) is liable
to the Trust or its Unitholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, indemnification shall
be provided if (a) approved as in the best interests of the Trust,
after notice that it involves such indemnification, by at least a
majority of the disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees then in
office act on the matter) upon a determination, based upon a review
of readily available facts (as opposed to a full trial type
inquiry) that such Covered Person acted in good faith in the
reasonable belief that his or her action was in the best interests
of the Trust and is not liable to the Trust or its Unitholders by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or
her office, or (b) there has been obtained an opinion in writing of
independent legal counsel, based upon a review of readily available
facts (as opposed to a full trial type inquiry) to the effect that
such Covered Person appears to have acted in good faith in the
reasonable belief that his or her action was in the best interests
of the Trust and that such indemnification would not protect such
Covered Person against any liability to the Trust to which he or
she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Any approval pursuant
to this Section shall not prevent the recovery from any Covered
Person of any amount paid to such Covered Person in accordance with
this Section as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interests of the Trust or
to have been liable to the Trust or its Unitholders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered
Person's office.
<PAGE>
PAGE 16
Indemnification Not Exclusive
Section 3. The right of indemnification hereby provided shall
not be exclusive of or affect any other rights to which such
Covered Person may be entitled. As used in this Article VIII, the
term "Covered Person" shall include such person's heirs, executors
and administrators and a "disinterested Trustee" is a Trustee who
is not an "interested person" of the Trust as defined in Section
2(a)(19) of the 1940 Act (or who has been exempted from being an "
interested person" by any rule, regulation or order of the
Securities and Exchange Commission) and against whom none of such
actions, suits or other proceedings or another action, suit or
other proceeding on the same or similar grounds is then or has been
pending. Nothing contained in this Article shall affect any rights
to indemnification to which personnel of the Trust, other than
Trustees or officers, and other persons may be entitled by contract
or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
Unitholders
Section 4. In case any Unitholder or former Unitholder shall
be held to be personally liable solely by reason of his or her
being or having been a Unitholder or having exercised any rights of
a Unitholder provided for in this Declaration of Trust and not
because of his or her other acts or omissions or for some other
reason the Unitholder or former Unitholder (or his or her heirs,
executors, administrators or other legal representative or, in the
case of a corporation or other entity, its corporate or other
general successor) shall be entitled to be held harmless from and
indemnified against all loss and expense arising from such
liability, but, if the Trust has more than one series, only out of
the assets of the particular series of which he or she is or was a
Unitholder.
ARTICLE IX
Miscellaneous
Trustees, Unitholders, etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with
or having any claim against the Trust or a particular series of
Units shall look only to the assets of the Trust or the assets of
that particular series of Units for payment under such credit,
contract or claim, and neither the Unitholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past,
present or future, shall be personally liable therefor. Nothing in
this Declaration of Trust shall protect any Trustee against any
liability to which such Trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the
office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officer or
officers shall give notice that this Declaration of Trust is on
file with the Secretary of State of The Commonwealth of
Massachusetts and shall recite that the same was executed or made
by or on behalf of the Trust or by them as Trustee or Trustees or<PAGE>
PAGE 17
as officer or officers and not individually and that the
obligations of such instrument are not binding upon any of them or
the Unitholders individually but are binding only upon the assets
and property of the Trust, and may contain such further recital as
he or she or they may deem appropriate, but the omission thereof
shall not operate to bind any Trustee or Trustees or officer or
officers or Unitholder or Unitholders individually.
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
Section 2. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested. A
Trustee shall be liable for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing
else. The Trustees may take advice of counsel or other experts
with respect to the meaning and operation of this Declaration of
Trust, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor
any surety if a bond is required.
Liability of Third Persons Dealing with Trustee
Section 3. No person dealing with the Trustees shall be bound
to make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.
Duration and Termination of Trust
Section 4. The Trust and each series shall continue without
limitation of time, except that: (i) the Trust may be terminated by
vote of Unitholders holding Units entitled to cast at least two-
thirds of the total number of votes entitled to be cast by all
Unitholders of the Trust, (ii) any series may be terminated by vote
of Unitholders holding Units entitled to cast at least two-thirds
of the total number of votes entitled to be cast by all Unitholders
of that series, as such, (iii) the Trust or any series may be
terminated by the Trustees by written notice to the Unitholders and
(iv) the Trust shall be terminated by the Bankruptcy or death of a
Unitholder of the Trust (if there is only one series), or any
series shall be terminated by the Bankruptcy or death of any
Unitholder of that series (if there is more than one series), in
either case effective 90 days after such death or Bankruptcy,
unless the Trustees and Unitholders, by vote of Unitholders holding
Units entitled to be cast at least two-thirds of the total number
of votes entitled to be cast by all Unitholders of the Trust or the
relevant series, as the case may be, approve the continuance of the
Trust or such series, as the case may be. The Units of a Unitholder
whose Bankruptcy or death requires the Trustees and Unitholders to
vote to continue the Trust or the series. as the case may be, shall
be deemed not to be outstanding for the purposes of such vote.
Upon termination of the Trust or of any one or more series of
Units, after paying or otherwise providing for all charges, taxes,
expenses and liabilities, whether due or accrued or anticipated, of
the Trust or of the particular series as may be determined by the
Trustees, the Trust shall, in accordance with such procedures as<PAGE>
PAGE 19
the Trustees consider appropriate, reduce the remaining assets to
distributable form in cash or Units or other property, or any
combination thereof, and distribute the proceeds to the Unitholders
of the Trust or of the relevant series, as the case may be, ratably
according to the number of Units of the Trust or of the relevant
series, as the case may be, held by the several Unitholders thereof
on the date of termination, except to the extent otherwise required
or permitted by the preferences and special or relative rights and
privileges of any classes of Units, provided that any distribution
to the Unitholders of a particular class of Units shall be made to
such Unitholders pro rata in proportion to the number of Units of
such class held by each of them.
Filing and Copies, References, Headings
Section 5. The original or a copy of this instrument and of
each amendment hereto shall be kept at the office of the Trust
where it may be inspected by any Unitholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust
with the Secretary of State of The Commonwealth of Massachusetts
and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of
the Trust as to whether or not any such amendments have been made
and as to any matters in connection with the Trust hereunder, and,
with the same effect as if it were the original, may rely on a copy
certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any
such amendment, references to this instrument and all expressions
like "herein", "hereof" and "hereunder" shall be deemed to refer to
this instrument as amended or affected by any such amendments.
Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This instrument
may be executed in any number of counterparts each of which shall
be deemed an original.
Applicable Law
Section 6. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of
said Commonwealth.
Amendments
Section 7. This Declaration of Trust may be amended at any
time by an instrument in writing signed by a majority of the then
Trustees when authorized to do so by vote of Unitholders holding
Units entitled to cast a majority of the votes entitled to be cast
by all Unitholders of the Trust, except that an amendment which in
the determination of the Trustees shall affect the Unitholders of
one or more series or classes of Units but not the Unitholders of
all outstanding series and classes shall be authorized by vote of
the Unitholders holding Units entitled to cast a majority of the
votes entitled to be cast by all Unitholders of each series and
class affected and no vote of Unitholders of a series or class not
affected shall be required. Amendments having the purpose of
changing the name of the Trust or of supplying any omission, curing<PAGE>
PAGE 20
any ambiguity or curing, correcting or supplementing any defective
or inconsistent provision contained herein shall not require
authorization by Unitholder vote.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
and seal for himself and his assigns, as of the day and year first
above written.
/s/ John M. Loder
John M. Loder
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston,
Then personally appeared the above named trustees and
acknowledged the foregoing instrument to be their free act and
deed, before me,
/s/ Constance K. Swift
Notary Public
My Commission Expires: Sept. 21, 2001
<PAGE>
PAGE 1 INVESTMENT MANAGEMENT SERVICES AGREEMENT
AGREEMENT made the ____ day of _____, 1995, by and between
Income Trust (the "Trust"), a Massachusetts business trust, on
behalf of its underlying series portfolios, U.S. Government Income
Portfolio, Quality Income Portfolio, Aggressive Income Portfolio
(individually, a Portfolio and collectively the "Portfolio"), and
American Express Financial Corporation (the "Advisor"), a Delaware
corporation.
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Trust hereby retains the Advisor, and the Advisor
hereby agrees, for the period of this Agreement and under the terms
and conditions hereinafter set forth, to furnish the Portfolios
continuously with suggested investment planning; to determine,
consistent with the Portfolios' investment objectives and policies,
which securities in the Advisor's discretion shall be purchased,
held or sold and to execute or cause the execution of purchase or
sell orders; to prepare and make available to the Portfolios all
necessary research and statistical data in connection therewith; to
furnish all services of whatever nature required in connection with
the management of the Portfolios as provided under this Agreement;
and to pay such expenses as may be provided for in Part Three;
subject always to the direction and control of the Board of
Trustees (the "Board"), the Executive Committee and the authorized
officers of the Trust. The Advisor agrees to maintain an adequate
organization of competent persons to provide the services and to
perform the functions herein mentioned. The Advisor agrees to meet
with any persons at such times as the Board deems appropriate for
the purpose of reviewing the Advisor's performance under this
Agreement.
(2) The Advisor agrees that the investment planning and
investment decisions will be in accordance with general investment
policies of the Portfolios as disclosed to the Advisor from time to
time by the Portfolios and as set forth in their prospectuses and
registration statements filed with the United States Securities and
Exchange Commission (the "SEC").
(3) The Advisor agrees that it will maintain all required
records, memoranda, instructions or authorizations relating to the
acquisition or disposition of securities for the Portfolios.
(4) The Trust agrees that it will furnish to the Advisor
any
information that the latter may reasonably request with respect to
the services performed or to be performed by the Advisor under this
Agreement.
(5) The Advisor is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio
securities for the Portfolios and is directed to use its best
efforts to obtain the best available price and most favorable
execution, except as prescribed herein. Subject to prior
authorization by the Board of appropriate policies and procedures,
and subject to termination at any time by the Board, the Advisor
may also be authorized to effect individual securities transactions
at commission rates in excess of the minimum commission rates<PAGE>
PAGE 2
available, to the extent authorized by law, if the Advisor
determines in good faith that such amount of commission was
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 Advisor's overall
responsibilities with respect to the Portfolios and other funds for
which it acts as investment advisor.
(6) It is understood and agreed that in furnishing the
Portfolios with the services as herein provided, neither the
Advisor nor any officer, director or agent thereof shall be held
liable to the Trust, a Portfolio or its creditors or unitholders
for errors of judgment or for anything except willful misfeasance,
bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of
this Agreement. It is further understood and agreed that the
Advisor may rely upon information furnished to it reasonably
believed to be accurate and reliable.
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Trust agrees to pay to the Advisor, and the
Advisor
covenants and agrees to accept from each Portfolio in full payment
for the services furnished, a fee for each calendar day of each
year equal to the total of 1/365th (1/366th in each leap year) of
the amount computed as shown below. The computation shall be made
for each day on the basis of net assets as of the close of business
of the full business day two (2) business days prior to the day for
which the computation is being made. In the case of the suspension
of the computation of net asset value, the asset charge for each
day during such suspension shall be computed as of the close of
business on the last full business day on which the net assets were
computed. Net assets as of the close of a full business day shall
include all transactions in shares of the Portfolio recorded on the
books of the Portfolio for that day.
The asset charge shall be based on the net assets of each
Fund
as set forth in the following table.
Asset Charge
Assets Annual Rate at Assets
Annual Rate at
(Billions) Each Asset Level (Billions) Each
Asset Level
U.S. Government Portfolio Aggressive Income
Portfolio
Quality Income Portfolio
First $1 0.520% First $1
0.590%
Next $1 0.495 Next $1
0.565
Next $1 0.470 Next $1
0.540
Next $3 0.445 Next $3
0.515
Next $3 0.420 Next $3
0.490
Over $9 0.395 Over $9
0.465
<PAGE>
PAGE 3
(2) The fee shall be paid on a monthly basis and, in the event
of the termination of this Agreement, the fee accrued shall be
prorated on the basis of the number of days that this Agreement is
in effect during the month with respect to which such payment is
made.
(3) The fee provided for hereunder shall be paid in cash by
the
Portfolios to the Advisor within five business days after the last
day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Trust agrees to pay:
(a) Fees payable to the Advisor for its services under the
terms of this Agreement.
(b) Taxes.
(c) Brokerage commissions and charges in connection with the
purchase and sale of assets.
(d) Custodian fees and charges.
(e) Fees and charges of its independent certified public
accountants for services the Trust or Portfolios request.
(f) Premium on the bond required by Rule 17g-1 under the
Investment Company Act of 1940.
(g) Fees and expenses of attorneys (i) it employs in matters
not involving the assertion of a claim by a third party against the
Trust, its trustees and officers, (ii) it employs in conjunction
with a claim asserted by the Board against the Advisor except that
the Advisor shall reimburse the Trust for such fees and expenses if
it is ultimately determined by a court of competent jurisdiction,
or the Advisor agrees, that it is liable in whole or in part to the
Trust, and (iii) it employs to assert a claim against a third
party.
(h) Fees paid for the qualification and registration for
public
sale of the securities of the Portfolios under the laws of the
United States and of the several states in which such securities
shall be offered for sale.
(i) Fees of consultants employed by the Trust or Portfolios.
(j) Trustees, officers and employees expenses which shall
include fees, salaries, memberships, dues, travel, seminars,
pension, profit sharing, and all other benefits paid to or provided
for trustees, officers and employees, trustees and officers
liability insurance, errors and omissions liability insurance,
worker's compensation insurance and other expenses applicable to
the trustees, officers and employees, except the Trust will not pay
any fees or expenses of any person who is an officer or employee of
the Advisor or its affiliates.
<PAGE>
PAGE 4
(k) Filing fees and charges incurred by the Trust in
connection
with filing any amendment to its agreement or declaration of Trust,
or incurred in filing any other document with the State of
Massachusetts or its political subdivisions.
(l) Organizational expenses of the Trust.
(m) Expenses incurred in connection with lending portfolio
securities of the Portfolios.
(n) Expenses properly payable by the Trust or Portfolios,
approved by the Board.
(2) The Advisor agrees to pay all expenses associated with the
services it provides under the terms of this Agreement.
Part Four: MISCELLANEOUS
(1) The Advisor shall be deemed to be an independent
contractor
and, except as expressly provided or authorized in this Agreement,
shall have no authority to act for or represent the Trust or
Portfolios.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Trust and each Portfolio recognize that the Advisor
now
renders and may continue to render investment advice and other
services to other investment companies and persons which may or may
not have investment policies and investments similar to those of
the Portfolios and that the Advisor manages its own investments
and/or those of its subsidiaries. The Advisor shall be free to
render such investment advice and other services and the Trust and
each Portfolio hereby consent thereto.
(4) Neither this Agreement nor any transaction made pursuant
hereto shall be invalidated or in any way affected by the fact that
trustees, officers, agents and/or unitholders of the Trust are or
may be interested in the Advisor or any successor or assignee
thereof, as directors, officers, stockholders or otherwise; that
directors, officers, stockholders or agents of the Advisor are or
may be interested in the Trust or Portfolios as trustees, officers,
unitholders, or otherwise; or that the Advisor or any successor or
assignee, is or may be interested in the Portfolios as unitholder
or otherwise, provided, however, that neither the Advisor nor any
officer, trustee or employee thereof or of the Trust, shall sell to
or buy from the Portfolios any property or security other than
units issued by the Portfolios, except in accordance with
applicable regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing,
addressed, and delivered, or mailed postpaid, to the party to this
Agreement entitled to receive such, at such party's principal place
of business in Minneapolis, Minnesota, or to such other address as
either party may designate in writing mailed to the other.
<PAGE>
PAGE 5
(6) The Advisor agrees that no officer, director or employee
of
the Advisor will deal for or on behalf of the Trust or Portfolios
with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that
this shall not prohibit:
(a) Officers, directors or employees of the Advisor from
having
a financial interest in the Portfolios or in the Advisor.
(b) The purchase of securities for the Portfolios, or the sale
of securities owned by the Portfolios, through a security broker or
dealer, one or more of whose partners, officers, directors or
employees is an officer, director or employee of the Advisor
provided such transactions are handled in the capacity of broker
only and provided commissions charged do not exceed customary
brokerage charges for such services.
(c) Transactions with the Portfolios by a broker-dealer
affiliate of the Advisor as may be allowed by rule or order of the
SEC, and if made pursuant to procedures adopted by the Board.
(7) The Advisor agrees that, except as herein otherwise
expressly provided or as may be permitted consistent with the use
of a broker-dealer affiliate of the Advisor under applicable
provisions of the federal securities laws, neither it nor any of
its officers, directors or employees shall at any time during the
period of this Agreement, make, accept or receive, directly or
indirectly, any fees, profits or emoluments of any character in
connection with the purchase or sale of securities (except shares
issued by the Portfolios) or other assets by or for the Trust or
Portfolios.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect for each Portfolio
until ______, ____, or until a new agreement is approved by a vote
of the majority of the outstanding units of each Portfolio and by
vote of the Trust's Board, including the vote required by (b) of
this paragraph, and if no new agreement is so approved, this
Agreement shall continue from year to year thereafter unless and
until terminated by either party as hereinafter provided, except
that such continuance shall be specifically approved at least
annually (a) by the Board or by a vote of the majority of the
outstanding units of the relevant Portfolios and (b) by the vote of
a majority of the trustees who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. As used in this
paragraph, the term "interested person" shall have the same meaning
as set forth in the Investment Company Act of 1940, as amended (the
"1940 Act").
(2) This Agreement may be terminated by either the Trust on
behalf of a Portfolio or the Advisor at any time by giving the
other party 60 days' written notice of such intention to terminate,
provided that any termination shall be made without the payment of
any penalty, and provided further that termination may be effected
either by the Board or by a vote of the majority of the outstanding
<PAGE>
PAGE 6
voting units of the Portfolio. The vote of the majority of the
outstanding voting units of a Portfolio for the purpose of this
Part Five shall be the vote at a unitholders' regular meeting, or
a
special meeting duly called for the purpose, of 67% or more of the
Portfolio's shares present at such meeting if the holders of more
than 50% of the outstanding voting units are present or represented
by proxy, or more than 50% of the outstanding voting units of the
Portfolio, whichever is less.
(3) This Agreement shall terminate in the event of its
assignment, the term "assignment" for this purpose having the same
meaning as set forth in the 1940 Act.
<PAGE>
PAGE 7
IN WITNESS THEREOF, the parties hereto have executed the
foregoing Agreement as of the day and year first above written.
INCOME TRUST
U.S. Government Income Portfolio
Quality Income Portfolio
Aggressive Income Portfolio
By
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By
Vice President
<PAGE>
PAGE 1
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT dated ________, 1995, between Income
Trust, a Massachusetts business trust, (the "Trust"), on behalf of
its underlying portfolios, and American Express Trust Company, a
corporation organized under the laws of the State of Minnesota with
its principal place of business at Minneapolis, Minnesota (the
"Custodian").
WHEREAS, the Trust desires that its securities and cash be
hereafter held and administered by Custodian pursuant to the terms
of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein
made, the Trust and the Custodian agree as follows:
Section 1. Definitions
The word "securities" as used herein shall be construed to include,
without being limited to, units, stocks, treasury stocks, including
any stocks of this Trust, notes, bonds, debentures, evidences of
indebtedness, options to buy or sell stocks or stock indexes,
certificates of interest or participation in any profit-sharing
agreements, collateral trust certificates, preorganization
certificates or subscriptions, transferable units, investment
contracts, voting trust certificates, certificates of deposit for
a
security, fractional or undivided interests in oil, gas or other
mineral rights, or any certificates of interest or participation
in, temporary or interim certificates for, receipts for, guarantees
of, or warrants or rights to subscribe to or purchase any of the
foregoing, acceptances and other obligations and any evidence of
any right or interest in or to any cash, property or assets and any
interest or instrument commonly known as a security. In addition,
for the purpose of this Custodian Agreement, the word "securities"
also shall include other instruments in which the Trust may invest
including currency forward contracts and commodities such as
interest rate or index futures contracts, margin deposits on such
contracts or options on such contracts.
The words "custodian order" shall mean a request or direction,
including a computer printout, directed to the Custodian and signed
in the name of the Trust by any two individuals designated in the
current certified list referred to in Section 2.
The word "facsimile" shall mean an exact copy or likeness which is
electronically transmitted for instant reproduction.
Section 2. Names, Titles and Signatures of Authorized Persons
The Trust will certify to the Custodian the names and signatures of
its present officers and other designated persons authorized on
behalf of the Trust to direct the Custodian by custodian order as
herein before defined. The Trust agrees that whenever any change
occurs in this list it will file with the Custodian a copy of a<PAGE>
PAGE 2
resolution certified by the Secretary or an Assistant Secretary of
the Trust as having been duly adopted by the Board of Trustees (the
"Board") or the Executive Committee of the Board designating those
persons currently authorized on behalf of the Trust to direct the
Custodian by custodian order, as herein before defined, and upon
such filing (to be accompanied by the filing of specimen signatures
of the designated persons) the persons so designated in said
resolution shall constitute the current certified list. The
Custodian is authorized to rely and act upon the names and
signatures of the individuals as they appear in the most recent
certified list from the Trust which has been delivered to the
Custodian as herein above provided.
Section 3. Use of Subcustodians
The Custodian may make arrangements, where appropriate, with other
banks having not less than two million dollars aggregate capital,
surplus and undivided profits for the custody of securities. Any
such bank selected by the Custodian to act as subcustodian shall be
deemed to be the agent of the Custodian.
The Custodian also may enter into arrangements for the custody of
securities entrusted to its care through foreign branches of United
States banks; through foreign banks, banking institutions or trust
companies; through foreign subsidiaries of United States banks or
bank holding companies, or through foreign securities depositories
or clearing agencies (hereinafter also called, collectively, the
"Foreign Subcustodian" or indirectly through an agent, established
under the first paragraph of this section, if and to the extent
permitted by Section 17(f) of the Investment Company Act of 1940
and the rules promulgated by the Securities and Exchange Commission
thereunder, any order issued by the Securities and Exchange
Commission, or any "no-action" letter received from the staff of
the Securities and Exchange Commission. To the extent the existing
provisions of the Custodian Agreement are consistent with the
requirements of such Section, rules, order or no-action letter,
they shall apply to all such foreign custodianships. To the extent
such provisions are inconsistent with or additional requirements
are established by such Section, rules, order or no-action letter,
the requirements of such Section, rules, order or no-action letter
will prevail and the parties will adhere to such requirements;
provided, however, in the absence of notification from the Trust of
any changes or additions to such requirements, the Custodian shall
have no duty or responsibility to inquire as to any such changes or
additions.
Section 4. Receipt and Disbursement of Money
(1) The Custodian shall open and maintain a separate account or
accounts in the name of the Trust or cause its agent to open and
maintain such account or accounts subject only to checks, drafts or
directives by the Custodian pursuant to the terms of this
Agreement. The Custodian or its agent shall hold in such account
or accounts, subject to the provisions hereof, all cash received by<PAGE>
PAGE 3
it from or for the account of the Trust. The Custodian or its
agent shall make payments of cash to or for the account of the
Trust from such cash only:
(a) for the purchase of securities for the portfolio of the
Trust
upon the receipt of such securities by the Custodian or its
agent unless otherwise instructed on behalf of the Trust;
(b) for the purchase or redemption of units of capital stock of
the Trust;
(c) for the payment of interest, dividends, taxes, management
fees, or operating expenses (including, without limitation
thereto, fees for legal, accounting and auditing services);
(d) for payment of distribution fees, commissions, or redemption
fees, if any;
(e) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Trust
held by or to be delivered to the Custodian;
(f) for payments in connection with the return of securities
loaned by the Trust upon receipt of such securities or the
reduction of collateral upon receipt of proper notice;
(g) for payments for other proper corporate purposes;
(h) or upon the termination of this Agreement.
Before making any such payment for the purposes permitted under the
terms of items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1)
of this section, the Custodian shall receive and may rely upon a
custodian order directing such payment and stating that the payment
is for such a purpose permitted under these items (a), (b), (c),
(d), (e), (f) or (g) and that in respect to item (g), a copy of a
resolution of the Board or of the Executive Committee of the Board
signed by an officer of the Trust and certified by its Secretary or
an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose to be a proper corporate purpose, and
naming the person or persons to whom such payment is made.
Notwithstanding the above, for the purposes permitted under items
(a) or (f) of paragraph (1) of this section, the Custodian may rely
upon a facsimile order.
(2) The Custodian is hereby appointed the attorney-in-fact of the
Trust to endorse and collect all checks, drafts or other orders for
the payment of money received by the Custodian for the account of
the Trust and drawn on or to the order of the Trust and to deposit
same to the account of the Trust pursuant to this Agreement.
<PAGE>
PAGE 7
Section 5. Receipt of Securities
Except as permitted by the second paragraph of this section, the
Custodian or its agent shall hold in a separate account or
accounts, and physically segregated at all times from those of any
other persons, firms or corporations, pursuant to the provisions
hereof, all securities received by it for the account of the Trust.
The Custodian shall record and maintain a record of all certificate
numbers. Securities so received shall be held in the name of the
Trust, in the name of an exclusive nominee duly appointed by the
Custodian or in bearer form, as appropriate.
Subject to such rules, regulations or guidelines as the Securities
and Exchange Commission may adopt, the Custodian may deposit all or
any part of the securities owned by the Trust in a securities
depository which includes any system for the central handling of
securities established by a national securities exchange or a
national securities association registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Commission, pursuant
to which system all securities of any particular class or series of
any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical
delivery of such securities.
All securities are to be held or disposed of by the Custodian for,
and subject at all times to the instructions of, the Trust pursuant
to the terms of this Agreement. The Custodian shall have no power
or authority to assign, hypothecate, pledge or otherwise dispose of
any such securities, except pursuant to the directive of the Trust
and only for the account of the Trust as set forth in Section 6 of
this Agreement.
Section 6. Transfer Exchange, Delivery, etc. of Securities
The Custodian shall have sole power to release or deliver any
securities of the Trust held by it pursuant to this Agreement. The
Custodian agrees to transfer, exchange or deliver securities held
by it or its agent hereunder only:
(a) for sales of such securities for the account of the Trust,
upon receipt of payment therefor;
(b) when such securities are called, redeemed, retired or
otherwise become payable;
(c) for examination upon the sale of any such securities in
accordance with "street delivery" custom which would include
delivery against interim receipts or other proper delivery
receipts;
(d) in exchange for or upon conversion into other securities
alone or other securities and cash whether pursuant to any
plan of
(e) merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;<PAGE>
PAGE 8
(f) for the purpose of exchanging interim receipts or temporary
certificates for permanent certificates;
(g) upon conversion of such securities pursuant to their terms
into other securities;
(h) upon exercise of subscription, purchase or other similar
rights represented by such securities; for loans of such
securities by the Trust receipt of collateral; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a),
(b), (c), (d), (e), (f), (g) and (h), securities or cash received
in exchange therefore shall be delivered to the Custodian, its
agent, or to a securities depository. Before making any such
transfer, exchange or delivery, the Custodian shall receive a
custodian order or a facsimile from the Trust requesting such
transfer, exchange or delivery and stating that it is for a purpose
permitted under Section 6 (whenever a facsimile is utilized, the
Trust will also deliver an original signed custodian order) and, in
respect to item (i), a copy of a resolution of the Board or of the
Executive Committee of the Board signed by an officer of the Trust
and certified by its Secretary or an Assistant Secretary,
specifying the securities, setting forth the purpose for which such
payment, transfer, exchange or delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the
person or persons to whom such transfer, exchange or delivery of
such securities shall be made.
Section 7. Custodian's Acts Without Instructions
Unless and until the Custodian receives a contrary custodian order
from the Trust, the Custodian shall or shall cause its agent to:
(a) present for payment all coupons and other income items held
by the Custodian or its agent for the account of the Trust
which call for payment upon presentation and hold all cash
received by it upon such payment for the account of the
Trust;
(b) present for payment all securities held by it or its agent
which mature or when called, redeemed, retired or otherwise
become payable;
(c) ascertain all stock dividends, rights and similar securities
to be issued with respect to any securities held by the
Custodian or its agent hereunder, and to collect and hold
for
the account of the Trust all such securities; and
(d) ascertain all interest and cash dividends to be paid to
security holders with respect to any securities held by the
Custodian or its agent, and to collect and hold such
interest
and cash dividends for the account of the Trust.
<PAGE>
PAGE 9
Section 8. Voting and Other Action
Neither the Custodian nor any nominee of the Custodian shall vote
any of the securities held hereunder by or for the account of the
Trust. The Custodian shall promptly deliver to the Trust all
notices, proxies and proxy soliciting materials with relation to
such securities, such proxies to be executed by the registered
holder of such securities (if registered otherwise than in the name
of the Trust), but without indicating the manner in which such
proxies are to be voted.
Custodian shall transmit promptly to the Trust all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith) received by the Custodian from issuers of the securities
being held for the Trust. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Trust all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer.
Section 9. Transfer Taxes
The Trust shall pay or reimburse the Custodian for any transfer
taxes payable upon transfers of securities made hereunder,
including transfers resulting from the termination of this
Agreement. The Custodian shall execute such certificates in
connection with securities delivered to it under this Agreement as
may be required, under any applicable law or regulation, to exempt
from taxation any transfers and/or deliveries of any such
securities which may be entitled to such exemption.
Section 10. Custodian's Reports
The Custodian shall furnish the Trust as of the close of business
each day a statement showing all transactions and entries for the
account of the Trust. The books and records of the Custodian
pertaining to its actions as Custodian under this Agreement and
securities held hereunder by the Custodian shall be open to
inspection and audit by officers of the Trust, internal auditors
employed by the Trust's investment advisor, and independent
auditors employed by the Trust. The Custodian shall furnish the
Trust in such form as may reasonably be requested by the Trust a
report, including a list of the securities held by it in custody
for the account of the Trust, identification of any subcustodian,
and identification of such securities held by such subcustodian, as
of the close of business of the last business day of each month,
which shall be certified by a duly authorized officer of the
Custodian. It is further understood that additional reports may
from time to time be requested by the Trust. Should any report
ever be filed with any governmental authority pertaining to lost or
stolen securities, the Custodian will concurrently provide the
Trust with a copy of that report.
<PAGE>
PAGE 10
The Custodian also shall furnish such reports on its systems of
internal accounting control as the Trust may reasonably request
from time to time.
Section 11. Concerning Custodian
For its services hereunder the Custodian shall be paid such
compensation at such times as may from time to time be agreed on in
writing by the parties hereto in a Custodian Fee Agreement.
The Custodian shall not be liable for any action taken in good
faith upon any custodian order or facsimile herein described or
certified copy of any resolution of the Board or of the Executive
Committee of the Board, and may rely on the genuineness of any such
document which it may in good faith believe to have been validly
executed.
The Trust agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against
it or its nominee in connection with the performance of this
Agreement, except such as may arise from the Custodian's or its
nominee's own negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any account of the
Trust for such items. In the event of any advance of cash for any
purpose made by Custodian resulting from orders or instructions of
the Trust, or in the event that Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Trust shall be
security therefor.
The Custodian shall maintain a standard of care equivalent to that
which would be required of a bailee for hire and shall not be
liable for any loss or damage to the Trust resulting from
participation in a securities depository unless such loss or damage
arises by reason of any negligence, misfeasance, or willful
misconduct of officers or employees of the Custodian, or from its
failure to enforce effectively such rights as it may have against
any securities depository or from use of an agent, unless such loss
or damage arises by reason of any negligence, misfeasance, or
willful misconduct of officers or employees of the Custodian, or
from its failure to enforce effectively such rights as it may have
against any agent.
Section 12. Termination and Amendment of Agreement
The Trust and the Custodian mutually may agree from time to time in
writing to amend, to add to, or to delete from any provision of
this Agreement.
<PAGE>
PAGE 11
The Custodian may terminate this Agreement by giving the Trust
ninety days' written notice of such termination by registered mail
addressed to the Trust at its principal place of business.
The Trust may terminate this Agreement at any time by written
notice thereof delivered, together with a copy of the resolution of
the Board authorizing such termination and certified by the
Secretary of the Trust, by registered mail to the Custodian.
Upon such termination of this Agreement, assets of the Trust held
by the Custodian shall be delivered by the Custodian to a successor
custodian, if one has been appointed by the Trust, upon receipt by
the Custodian of a copy of the resolution of the Board certified by
the Secretary, showing appointment of the successor custodian, and
provided that such successor custodian is a bank or trust company,
organized under the laws of the United States or of any State of
the United States, having not less than two million dollars
aggregate capital, surplus and undivided profits. Upon the
termination of this Agreement as a part of the transfer of assets,
either to a successor custodian or otherwise, the Custodian will
deliver securities held by it hereunder, when so authorized and
directed by resolution of the Board, to a duly appointed agent of
the successor custodian or to the appropriate transfer agents for
transfer of registration and delivery as directed. Delivery of
assets on termination of this Agreement shall be effected in a
reasonable, expeditious and orderly manner; and in order to
accomplish an orderly transition from the Custodian to the
successor custodian, the Custodian shall continue to act as such
under this Agreement as to assets in its possession or control.
Termination as to each security shall become effective upon
delivery to the successor custodian, its agent, or to a transfer
agent for a specific security for the account of the successor
custodian, and such delivery shall constitute effective delivery by
the Custodian to the successor under this Agreement.
In addition to the means of termination herein before authorized,
this Agreement may be terminated at any time by the vote of a
majority of the outstanding units of the Trust and after written
notice of such action to the Custodian.
Section 13. General
Nothing expressed or mentioned in or to be implied from any
provision of this Agreement is intended to, or shall be construed
to give any person or corporation other than the parties hereto,
any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any covenant, condition or provision herein
contained, this Agreement and all of the covenants, conditions and
provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective
successors and assigns.
<PAGE>
PAGE 12
This Agreement shall be governed by the laws of the State of
Minnesota.
This Agreement supersedes all prior agreements between the parties.
INCOME TRUST
U.S. Government Income Portfolio
Quality Income Portfolio
Aggressive Income Portfolio
By:
Vice President
AMERICAN EXPRESS TRUST COMPANY
By:
Vice President
