As filed with the Securities and Exchange Commission on March 7, 1997.
File No. 811-7553
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT No. 1
UBS INVESTOR PORTFOLIOS TRUST
(Exact name of registrant as specified in charter)
P.O. Box 2494, Elizabethan Square
George Town, Grand Cayman, Cayman Islands B.W.I.
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code:
(809) 945-1824
Molly S. Mugler
Signature Financial Group, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
(Name and address of agent for service)
Copy to:
Burton Leibert, Esq.
Wilkie, Farr & Gallagher
153 East 53rd Street
New York, NY 10022
UBS016b
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EXPLANATORY NOTE
This registration statement on Form N-1A has been filed by UBS Investor
Portfolios Trust (the "Registrant") pursuant to Section 8(b) of the Investment
Company Act of 1940, as amended. However, beneficial interests in the Registrant
are not being registered under the Securities Act of 1933, as amended (the "1933
Act"), because such interests will be issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Registrant may only be made by
investment companies, insurance company separate accounts, common or commingled
trust funds or similar organizations or entities that are "accredited investors"
within the meaning of Regulation D under the 1933 Act. This Registration
Statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any beneficial interests in the Registrant.
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PART A
UBS INVESTOR PORTFOLIOS TRUST
UBS BOND PORTFOLIO
UBS U.S. EQUITY PORTFOLIO
UBS INTERNATIONAL EQUITY PORTFOLIO
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
UBS Investor Portfolios Trust (the "Portfolios Trust") is a
diversified, open-end management investment company which was organized as a
trust under the law of the State of New York on February 9, 1996. Beneficial
interests of the Portfolios Trust are divided into three series, UBS Bond
Portfolio, UBS U.S. Equity Portfolio and UBS International Equity Portfolio
(each, a "Portfolio"; collectively the "Portfolios"). Additional series may be
established in the future. Beneficial interests in each Portfolio are issued
solely in private placement transactions which do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act, as amended (the
"1933 Act"). Investments in a Portfolio may only be made by investment
companies, insurance company separate accounts, common or commingled trust funds
or similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Portfolios are described below,
together with the policies the Portfolios employ in their efforts to achieve
their respective objectives. Additional information about the investment
policies of the Portfolios appears in Item 13 of Part B. There can be no
assurance that the investment objective of any of the Portfolios will be
achieved.
UBS BOND PORTFOLIO
The investment objective of UBS Bond Portfolio (the "Bond Portfolio")
is to provide a high total return from a portfolio of debt securities issued by
foreign and domestic companies, consistent with moderate risk of capital and
maintenance of liquidity. Total return will consist of realized and unrealized
capital gains and losses plus net income. Although the net asset value of the
Bond Portfolio will fluctuate, the Bond Portfolio attempts to preserve the value
of its investments to the extent consistent with its investment objective.
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The New York Branch (the "Branch" or the "Adviser") of Union Bank of
Switzerland (the "Bank") actively manages the Bond Portfolio's duration (defined
below), the allocation of securities across market sectors and the selection of
specific securities within sectors. Based on fundamental economic and capital
markets research, the Adviser adjusts the duration of the Bond Portfolio in
light of market conditions and the Adviser's opinion regarding future interest
rates. For example, if interest rates are expected to fall, the duration may be
lengthened to take advantage of the anticipated increase in bond prices. The
Adviser also actively allocates the Bond Portfolio's assets among the broad
sectors of the fixed income market including, but not limited to, U.S.
Government and agency securities, corporate securities, private placements,
asset-backed securities and mortgage related securities. The Adviser intends to
identify and purchase specific securities that it believes are undervalued using
quantitative tools, analyses of credit risk, the expertise of a dedicated
trading desk, and the judgment of fixed income portfolio managers and analysts.
Under normal circumstances, the Adviser intends to keep at least 65% of the Bond
Portfolio's assets invested in bonds. Bonds are debt instruments such as
debentures, notes, mortgage securities, equipment trust certificates and other
collateralized securities, zero coupon securities, government obligations and
money market instruments.
Duration is a measure of a bond's price sensitivity, expressed in
years. It is a measure of interest rate risk of a bond calculated by taking into
consideration the number of years until the average dollar, in present value
terms, is received from principal and interest payments. For example, for a bond
with a duration of four years, every 1% change in yield will result in a 4%
change in price in the opposite direction. The Bond Portfolio's benchmark is the
Lehman Government Corporate Intermediate Bond Index, which currently has a
duration of approximately 3.25 years. The Bond Portfolio intends to have a
duration between 0.5 years shorter and 0.5 years longer than its benchmark. The
maturities of the Bond Portfolio's individual securities may vary widely from
its duration, however, and may be as long as 30 years.
The Bond Portfolio intends to manage its securities actively in pursuit
of its investment objective. Portfolio transactions are undertaken principally
to accomplish the Bond Portfolio's objective in relation to expected movements
in the general level of interest rates, but the Bond Portfolio may also engage
in short-term trading consistent with its objective. To the extent the Bond
Portfolio engages in short-term trading, it may incur increased transaction
costs. See Item 20 in Part B. The annual portfolio turnover rate for the Bond
Portfolio is expected to be under 100%. For the period from April 2, 1996
(commencement of operations) to December 31, 1996, the portfolio turnover rate
for the Bond Portfolio was 100%.
CORPORATE BONDS. The Bond Portfolio may invest in a broad range of
corporate bonds of domestic and foreign issuers. These include debt securities
of various types and maturities, e.g., debentures, notes, mortgage securities,
equipment trust certificates and other collateralized securities and zero coupon
securities. Collateralized securities are backed by a pool of assets such as
loans or receivables that generate cash flow to cover the payments due on the
securities. Collateralized securities are subject to certain risks,
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including a decline in the value of the collateral backing the security, failure
of the collateral to generate the anticipated cash flow or in certain cases more
rapid prepayment than anticipated because of events affecting the collateral,
such as accelerated prepayment of mortgages or other loans backing these
securities or destruction of equipment subject to equipment trust certificates.
In the event of any such prepayment, the Bond Portfolio will be required to
reinvest the proceeds of prepayments at interest rates prevailing at the time of
reinvestment, which may be lower than the interest rates on the prepaid
securities. In addition, the value of zero coupon securities, which do not pay
interest, is more volatile than that of interest bearing debt securities with
the same maturity. The Bond Portfolio does not intend to invest in common stock
but may invest to a limited degree in convertible debt or preferred stocks. The
Bond Portfolio does not expect to invest more than 25% of its total assets in
securities of foreign issuers. If the Bond Portfolio invests in non-U.S. dollar
denominated securities, it may hedge its foreign currency exposure. The Bond
Portfolio may purchase non- publicly offered debt securities.
GOVERNMENT OBLIGATIONS. The Bond Portfolio may invest in obligations
issued or guaranteed by the U.S. Government and backed by the full faith and
credit of the United States. These securities include Treasury securities,
obligations of the Government National Mortgage Association ("GNMA
Certificates"), the Farmers Home Administration and the Export Import Bank.
"GNMA Certificates" are mortgage-backed securities that evidence an undivided
interest in mortgage pools. These securities are subject to more rapid repayment
than their stated maturity would indicate because prepayments of principal on
mortgages in the pool are passed through to the holder of the securities. During
periods of declining interest rates, prepayments of mortgages in the pool can be
expected to increase. The pass-through of these prepayments would have the
effect of reducing the Bond Portfolio's positions in these securities and
requiring the Bond Portfolio to reinvest the prepayments at interest rates
prevailing at the time of reinvestment. The Bond Portfolio may also invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities where the Bond Portfolio must look principally to the issuing
or guaranteeing agency for ultimate repayment; some examples of agencies or
instrumentalities issuing these obligations are the Federal Farm Credit System,
the Federal Home Loan Banks and the Federal National Mortgage Association.
Although these governmental issuers are responsible for payments on their
obligations, they do not guarantee their market value. See Item 13 in Part B for
a more detailed discussion of the Bond Portfolio's investments in government
securities.
The Bond Portfolio may also invest in municipal obligations, which may
be general obligations of the issuer or payable only from specific revenue
sources. However, the Bond Portfolio will invest only in municipal obligations
that have been issued on a taxable basis or have an attractive yield excluding
tax considerations. In addition, the Bond Portfolio may invest in debt
securities of foreign governments and governmental entities.
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MONEY MARKET INSTRUMENTS. The Bond Portfolio may purchase money market
instruments to invest temporary cash balances or to maintain liquidity to meet
withdrawals. However, the Bond Portfolio may also invest, without limit, in
money market instruments as a temporary defensive measure taken during, or in
anticipation of, adverse market conditions. The money market investments
permitted for the Bond Portfolio include obligations of the U.S. Government and
its agencies and instrumentalities, other debt securities, commercial paper,
bank obligations and repurchase agreements. For more detailed information about
these money market investments, see Item 13 in Part B.
QUALITY INFORMATION. It is a current policy of the Bond Portfolio that
under normal circumstances at least sixty-five percent (65%) of its investment
in bonds will consist of securities that are rated at least A by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("Standard & Poor's") or that are unrated and in the Adviser's opinion are of
comparable quality. Up to thirty percent (30%) of the Bond Portfolio's bonds may
consist of debt securities rated Baa or better by Moody's or BBB or better by
Standard & Poor's or are unrated and in the Adviser's opinion are of comparable
quality. Up to five percent (5%) of the Bond Portfolio's bonds may be invested
in debt securities that are rated Ba or better by Moody's or BB or better by
Standard & Poor's or are unrated and in the Adviser's opinion are of comparable
quality. Securities rated Baa by Moody's or BBB by Standard & Poor's are
considered investment grade, but have some speculative characteristics.
Securities rated Ba by Moody's or BB by Standard & Poor's are below investment
grade and considered to be speculative with regard to payment of interest and
principal. These standards must be satisfied at the time an investment is made.
If the quality of the investment later declines, the Bond Portfolio may continue
to hold the investment.
The Bond Portfolio may also purchase obligations on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
engage in mortgage dollar roll transactions, loan its portfolio securities,
purchase certain privately placed securities and enter into certain hedging
transactions that may involve options on securities and securities indices,
futures contracts and options on futures contracts.
UBS U.S. EQUITY PORTFOLIO
The investment objective of UBS U.S. Equity Portfolio (the "U.S. Equity
Portfolio") is to provide long-term capital appreciation and the potential for a
high level of current income with lower investment risk and volatility than is
normally available from common stock funds. The average income yield of the U.S.
Equity Portfolio's common stocks is expected to be higher than that of the S&P
500 Index. It is also the objective of the U.S. Equity Portfolio that the U.S.
Equity Portfolio's investments have less price volatility than the S&P 500
Index.
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Under normal circumstances, the U.S. Equity Portfolio will invest at
least 80% of its assets in income-producing equity securities of domestic
issuers, including dividend-paying common stocks and securities which are
convertible into common stocks. The U.S. Equity Portfolio intends to invest in
securities that generate relatively high levels of dividend income and have the
potential for capital appreciation. These generally include common stocks of
established, high-quality U.S. corporations. In addition, the U.S. Equity
Portfolio will seek to diversify its investment over a carefully selected list
of securities in order to moderate the risks inherent in equity investments.
The U.S. Equity Portfolio will invest in an equity security following a
fundamental analysis of the issuing company. An important part of this analysis
will be the examination of the company's ability to maintain its dividend. The
Adviser believes that dividend income has proved to be an important component of
total return. For example, during the ten-year period ended September 1994,
reinvested dividend income accounted for approximately 26% of the total return
of the S&P 500 Index. Also, the Adviser believes that dividend income tends to
be a more stable source of total return than capital appreciation. While the
price of a company's common stock can be significantly affected by market
fluctuations and other short-term factors, its dividend level usually has
greater stability. For this reason, securities that pay a high level of dividend
income tend to be less volatile in price than comparable securities that pay a
lower level of dividend income.
Although the U.S. Equity Portfolio intends to invest primarily in
equity securities, it may invest up to 20% of its assets in certain cash
investments and certain short-term fixed income securities. See Item 13 in Part
B. Such securities may be used to invest uncommitted cash balances, to maintain
liquidity to meet shareholder redemptions or to take a temporarily defensive
position against potential stock market declines. These securities include:
obligations of the United States Government and its agencies or
instrumentalities; commercial paper, bank certificates of deposit and bankers'
acceptances; and repurchase agreements collateralized by these securities. The
U.S. Equity Portfolio may purchase non-publicly offered debt securities.
The U.S. Equity Portfolio may also utilize equity futures contracts and
options to a limited extent. Specifically, the U.S. Equity Portfolio may enter
into futures contracts and options provided that such positions are established
for hedging purposes only.
The U.S. Equity Portfolio intends to manage its securities actively in
pursuit of its investment objective. Although it generally seeks to invest for
the long-term, the U.S. Equity Portfolio retains the right to sell securities
irrespective of how long they have been held. It is anticipated that the annual
portfolio turnover of the U.S. Equity Portfolio will not exceed 100%. To the
extent the U.S. Equity Portfolio engages in short-term trading, it may incur
increased transaction costs. For the period from April 2, 1996 (commencment of
operations) to December 31, 1996, the portfolio turnover rate for the U.S.
Equity Portfolio was 19%.
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EQUITY INVESTMENTS. Under normal circumstances, the Adviser intends to
invest at least 80% of the U.S. Equity Portfolio's assets in the equity
securities of domestic issuers. These investments will consist of common stocks
and other securities with equity characteristics such as preferred stock,
warrants, rights and convertible securities. The U.S. Equity Portfolio's primary
equity investments are the common stocks of established domestic companies. The
common stock in which the U.S. Equity Portfolio may invest includes the common
stock of any class or series or any similar equity interest such as trust or
limited partnership interests. The U.S. Equity Portfolio invests in domestic
securities listed on domestic securities exchanges and securities traded in
domestic over-the-counter markets, and may invest in certain restricted or
unlisted securities.
UBS INTERNATIONAL EQUITY PORTFOLIO
The investment objective of UBS International Equity Portfolio (the
"International Equity Portfolio") is to provide a high total return from a
portfolio of equity securities of foreign corporations. Total return will
consist of realized and unrealized capital gains and losses plus net income. The
International Equity Portfolio seeks to achieve its investment objective by
investing in companies that UBS International Investment London Limited ("UBSII"
or the "Sub-Adviser"; together with the Adviser, the "Advisers") believes are
fundamentally sound and that are typically selling at below market valuations
and that will grow at above-market rates. The emphasis on value leads to
investments in companies with relatively low price/earnings and price/book value
ratios and high yields.
The Adviser is responsible for supervising the management of the
International Equity Portfolio's investments. Consistent with these duties, the
Adviser has entered into a Sub-Advisory Agreement with UBSII, whereby the
Sub-Adviser is primarily responsible for the day-to-day investment decisions for
the Portfolio. The Adviser is solely responsible for paying the Sub-Adviser for
these services. The Sub-Adviser is an affiliate of the Adviser.
The Advisers actively manage currency exposure, in conjunction with
country and stock allocations, in an attempt to protect the Portfolio's market
value. Through the use of forward foreign currency exchange contracts, futures
contracts and options on currencies, the Advisers will adjust the Portfolio's
foreign currency weightings to reduce its exposure to currencies deemed
unattractive as market conditions warrant, based on fundamental research,
technical factors and the judgment of the Advisers' experienced currency
managers.
The Portfolio intends to manage its securities actively in pursuit of
its investment objective. The Portfolio does not expect to trade in securities
for short-term profits; however, when circumstances warrant, securities may be
sold without regard to the length of time held. It is anticipated that the
annual portfolio turnover rate of the
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Portfolio will be less than 100%. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. For the period
from April 2, 1996 (commencement of operations) to December 31, 1996, the
portfolio turnover rate for the International Equity Portfolio was 42%.
EQUITY INVESTMENTS. Under normal circumstances, the Advisers intend to
keep at least 65% of the value of the Portfolio's total assets in equity
securities of foreign issuers, consisting of common stocks and other securities
with equity characteristics such as preferred stock, warrants, rights and
convertible securities. The Portfolio's primary equity investments are the
common stock of established companies based in developed countries outside the
United States. The Portfolio will invest in companies based in at least five
foreign countries. Initially, the Adviser expects to invest in issues located in
the United Kingdom, France, Japan, Germany and Switzerland. The common stock in
which the Portfolio may invest includes the common stock of any class or series
or any similar equity interest such as trust or limited partnership interests.
The Portfolio may also invest in securities of issuers located in developing
countries. The Portfolio will invest in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in certain restricted or unlisted
securities.
The Portfolio may also invest in money market instruments denominated
in U.S. dollars and other currencies, securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities, enter
into forward contracts on foreign currencies, purchase options on currencies and
enter into certain hedging transactions that may involve options on securities
and securities indices, futures contracts and options on futures contracts.
Investments in non-U.S. issuers involve certain risks and
considerations not typically associated with investments in U.S. issuers. These
risks include greater price volatility, reduced liquidity and the significantly
smaller market capitalization of most non-U.S. securities markets, more
substantial government involvement in the economy, higher rates of inflation,
greater social, economic and political uncertainty and the risk of
nationalization or expropriation of assets and risk of war.
ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES. The convertible securities in which the
Portfolios may invest include any debt securities or preferred stocks that may
be converted into common stock or that carry the right to purchase common stock.
Convertible securities entitle the holder to exchange the securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolios may
purchase securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase
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commitment. The value of these securities is subject to market fluctuation
during this period and no interest or income accrues to a Portfolio until
settlement. At the time of settlement, a when-issued security may be valued at
less than its purchase price. Between the trade and settlement dates, the
Portfolios will maintain a segregated account with the Custodian consisting of a
portfolio of high-grade, liquid debt securities with a value at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, a Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged. It is the current policy of each Portfolio not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Portfolio's total assets less liabilities (excluding the obligations created
by these commitments).
REPURCHASE AGREEMENTS. The Portfolios may engage in repurchase
agreement transactions with brokers, dealers or banks that meet the credit
guidelines established by the Trust's Board of Trustees (the "Trustees"). In a
repurchase agreement, a Portfolio buys a security from a seller that has agreed
to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. The term of these
agreements is usually from overnight to one week. A repurchase agreement may be
viewed as a fully collateralized loan of money by a Portfolio to the seller. A
Portfolio always receives securities as collateral with a market value at least
equal to the purchase price plus accrued interest and this value is maintained
during the term of the agreement. If the seller defaults and the collateral's
value declines, a Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, a Portfolio's realization upon the
disposition of collateral may be delayed or limited. Investments in repurchase
agreements maturing in more than seven days and certain other investments that
may be considered illiquid are limited.
REVERSE REPURCHASE AGREEMENTS. The Portfolios are permitted to enter
into reverse repurchase agreements. In a reverse repurchase agreement, a
Portfolio sells a security and agrees to repurchase it at a mutually agreed upon
date and price, reflecting the interest rate effective for the term of the
agreement. It may also be viewed as the borrowing of money by a Portfolio and,
therefore, is a form of leverage. Leverage may cause any gains or losses of a
Portfolio to be magnified. For more information, including limitations on the
use of reverse repurchase agreements, see Item 13 in the Part B and "Investment
Restrictions" below.
SECURITIES LENDING. Subject to applicable investment restrictions, each
Portfolio may lend its securities. The Portfolios may lend their securities if
such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay a Portfolio any income accruing
thereon. Loans will be subject to termination by a Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan
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is terminated. Any gain or loss in the market price of the borrowed securities
that occurs during the term of the loan inures to the Portfolio and its
respective investors. The Portfolios may pay reasonable finders' and custodial
fees in connection with a loan. In addition, the Portfolios will consider all
the facts and circumstances, including the creditworthiness of the borrowing
financial institution, and will not make any loans in excess of one year. The
Portfolios will not lend their securities to any officer, Trustee, Director,
employee or affiliate or Placement Agent of the Company, the Portfolio, or the
Adviser, Sub-Adviser, Administrator or Distributor, unless otherwise permitted
by applicable law.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. Each Portfolio may not acquire any illiquid securities if, as a
result thereof, more than 15% of the market value of the Portfolio's net assets
would be in illiquid investments or investments that are not readily marketable.
In addition, each Portfolio will not invest more than 10% of the market value of
its total assets in restricted securities that cannot be offered for public sale
in the United States without first being registered under the 1933 Act. Subject
to those non-fundamental policy limitations, each Portfolio may acquire
investments that are illiquid or have limited liquidity, such as private
placements or investments that are not registered under the 1933 Act, and cannot
be offered for public sale in the United States without first being registered.
An illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it is
valued by a Portfolio. Repurchase agreements maturing in more than seven days
are considered illiquid investments and, as such, are subject to the limitations
set forth in this paragraph. The price a Portfolio pays for illiquid securities
or receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly, the valuation of these
securities will reflect any limitations on their liquidity.
Each Portfolio may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Adviser and approved by the Trustees. The Trustees will
monitor the Adviser's implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. Each Portfolio is permitted to enter
into the futures and options transactions described below for hedging purposes.
These instruments are commonly known as derivatives.
The Bond Portfolio may purchase and sell exchange traded and
over-the-counter ("OTC") put and call options on fixed income securities or
indices of fixed income securities, enter into forward contracts, purchase and
sell futures contracts on indices of fixed income securities, purchase and sell
put and call options on futures contracts on indices of fixed income securities
and purchase and sell options on currencies. With respect to the Equity and
International Equity Portfolios, such Portfolios may purchase
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and sell exchange traded and OTC put and call options on equity securities or
indices of equity securities, enter into forward contracts, purchase and sell
futures contracts on indices of equity securities, purchase and sell put and
call options on futures contracts on indices of equity securities and purchase
and sell options on currencies. The Portfolios may use these techniques for
hedging or risk management purposes, or subject to certain limitations, for the
purpose of obtaining desired exposure to certain securities or markets.
Each Portfolio may use these techniques to manage its exposure to
changing interest rates, currency exchange rates (with respect to the Bond and
International Equity Portfolios only) and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge a Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
may tend to increase market exposure. For example, if the Portfolio wishes to
obtain exposure to a particular market or market sector but does not wish to
purchase the relevant securities, it could, as an alternative, purchase a
futures contract on an index of such securities or related securities. Such a
purchase would not constitute a hedging transaction and could be considered
speculative. However, the Portfolio will use future contracts or options in this
manner only for the purpose of obtaining the same level of exposure to a
particular market or market sector that it could have obtained by purchasing the
relevant securities and will not use futures contracts or options to leverage
its exposure beyond this level. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of a Portfolio's overall strategy in a manner deemed appropriate
to the Advisers and consistent with the Portfolio's objective and policies.
Because combined positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
A Portfolio's use of these transactions is a highly specialized
activity, which involves investment strategies and risks different from those
associated with ordinary portfolio securities transactions, and there can be no
guarantee that their use will increase the Portfolio's return. While a
Portfolio's use of these instruments may reduce certain risks associated with
owning its portfolio securities, these techniques themselves entail certain
other risks. If the Advisers apply a strategy at an inappropriate time or judge
market conditions or trends incorrectly, such strategies may lower a Portfolio's
return. Certain strategies limit a Portfolio's opportunity to realize gains as
well as limiting its exposure to losses. A Portfolio could experience losses if
the prices of its options and futures positions were poorly correlated with its
other investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, a Portfolio will incur costs, including
commissions and premiums, in connection with these transactions and these
transactions could significantly increase the Portfolio's turnover rate.
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Each Portfolio may purchase and sell put and call options on
securities, currencies, indices of securities and futures contracts, or purchase
and sell futures contracts only for hedging purposes.
The Commodity Exchange Act prohibits U.S. persons, such as the Bond and
International Equity Portfolios, from buying or selling certain foreign futures
contracts or options on such contracts. Accordingly, these Portfolios will not
engage in foreign futures or options transactions unless the contracts in
question may lawfully be purchased and sold by U.S. persons in accordance with
applicable Commodity Futures Trading Commission ("CFTC") regulations or CFTC
staff advisories, interpretations and no action letters. In addition, in order
to assure that the Portfolios will not be considered "commodity pools" for
purposes of CFTC rules, each Portfolio will enter into transactions in futures
contracts or options on futures contracts only if (1) such transactions
constitute BONA FIDE hedging transactions, as defined under CFTC rules, or (2)
no more than 5% of the Portfolio's net assets are committed as initial margin or
premiums to positions that do not constitute BONA FIDE hedging transactions.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a
Portfolio obtains the right (but not the obligation) to sell the instrument
underlying the option at a fixed strike price. In return for this right, a
Portfolio pays the current market price for the option (known as the option
premium). Options have various types of underlying instruments, including
specific securities, currencies, indices of securities, indices of securities
prices, and futures contracts. A Portfolio may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option. A
Portfolio may also close out a put option position by entering into an
offsetting transaction, if a liquid market exists. If the option is allowed to
expire, a Portfolio will lose the entire premium it paid. If a Portfolio
exercises a put option on a security, it will sell the instrument underlying the
option at the strike price. If a Portfolio exercises an option on an index,
settlement is in cash and does not involve the actual sale of securities.
American style options may be exercised on any day up to their expiration date.
European style options may be exercised only on their expiration date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the
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option with risk limited to the cost of the option and related transaction costs
if security prices fall. At the same time, the buyer can expect to suffer a loss
if security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When a Portfolio writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolio assumes the
obligation to pay the strike price for the instrument underlying the option if
the other party to the option chooses to exercise it. A Portfolio may seek to
terminate its position in a put option it writes before exercise by purchasing
an offsetting option in the market at its current price. If the market is not
liquid for a put option a Portfolio has written, however, the Portfolio must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to post margin as discussed
below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, however, the put writer
would expect to suffer a loss. This loss should be less than the loss from
purchasing and holding the underlying instrument directly, however, because the
premium received for writing the option should offset a portion of the decline.
Writing a call option obligates a Portfolio to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decrease. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of a U.S. exchange traded put or call option on a security,
an index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark-to-market payments
of variation margin if and as the position becomes unprofitable.
OPTIONS ON INDICES. A Portfolio is permitted to enter into options
transactions and may purchase and sell put and call options on any securities
index based on securities in which the Portfolio may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security. A
Portfolio, in purchasing or selling index options, is subject to the risk that
the value of its
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portfolio securities may not change as much as an index because the Portfolio's
investments generally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus a
Portfolio may not be able to close out an option position that it has previously
entered into. When a Portfolio purchases an OTC option, it will be relying on
its counterparty to perform its obligations, and the Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When a Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date and
price or to make or receive a cash payment based on the value of a securities
index. When a Portfolio sells a futures contract, it agrees to sell a specified
quantity of the underlying instrument at a specified future date and price or to
receive or make a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when a Portfolio
enters into the contract. Futures can be held until their delivery dates or the
positions can be (and normally are) closed out before then. There is no
assurance, however, that a liquid market will exist when a Portfolio wishes to
close out a particular position.
When a Portfolio purchases or sells a futures contract, the value of
the futures contract tends to increase and decrease in tandem with the value of
its underlying instrument. Purchasing futures contracts may tend to increase the
Portfolio's exposure to positive and negative price fluctuations in the
underlying instrument, as discussed above. When a Portfolio sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the value of the underlying instrument. Selling futures
contracts on securities similar to those held by a Portfolio, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that these
standardized instruments will not exactly match a Portfolio's current or
anticipated investments. A Portfolio may invest in futures contracts and options
thereon based on currencies or on securities with different issuers, maturities,
or other characteristics from the securities in which it typically invests,
which involves a risk that the options or futures position will not track the
performance of the Portfolio's other investments. A Portfolio may also enter
into transactions in futures contracts and options for non-hedging purposes, as
discussed above.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, when a Portfolio buys or sells a futures contract it
will be required to deposit "initial margin" with the Custodian in a segregated
account in the name of its futures broker,
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known as a futures commission merchant ("FCM"). Initial margin deposits are
typically equal to a small percentage of the contract's value. If the value of
either party's position declines, that party will be required to make additional
"variation margin" payments equal to the change in value on a daily basis. The
party that has a gain may be entitled to receive all or a portion of this
amount. A Portfolio may be obligated to make payments of variation margin at a
time when it is disadvantageous to do so. Furthermore, it may not always be
possible for a Portfolio to close out its futures positions. Until it closes out
a futures position, a Portfolio will be obligated to continue to pay variation
margin. Initial and variation margin payments do not constitute purchasing on
margin for purposes of a Portfolio's investment restrictions. In the event of
the bankruptcy of an FCM that holds margin on behalf of a Portfolio, the
Portfolio may be entitled to return of margin owed to it only in proportion to
the amount received by the FCM's other customers, potentially resulting in
losses to the Portfolio.
A Portfolio will segregate liquid, high-grade debt securities in
connection with its use of options and futures contracts to the extent required
by the SEC. Securities held in a segregated account cannot be sold while the
futures contract or option is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that the segregation of a
large percentage of a Portfolio's assets could impede portfolio management or
the Portfolio's ability to meet redemption requests or other current
obligations.
For further information about the Portfolio's use of futures and
options and a more detailed discussion of associated risks, see Item 13 in
Part B.
MONEY MARKET INSTRUMENTS: EQUITY AND INTERNATIONAL EQUITY PORTFOLIOS.
The Equity and International Portfolios are permitted to invest in money market
instruments although each intends to stay invested in equity securities to the
extent practical in light of its objectives and long-term investment
perspective. The Equity and International Portfolios may make money market
investments pending other investments or settlements, for liquidity or in
adverse market conditions. Such money market investments may include obligations
of the U.S. Government and its agencies and instrumentalities, other debt
securities, commercial paper, bank obligations and repurchase agreements. The
International Equity Portfolio may purchase non-publicly offered debt
securities. The Equity and International Portfolios may also invest in
short-term obligations of sovereign foreign governments, their agencies,
instrumentalities and political subdivisions. For more detailed information
about these money market investments, see Item 13 in Part B.
FOREIGN INVESTMENT INFORMATION: BOND AND INTERNATIONAL EQUITY
PORTFOLIOS. The Bond Portfolio may invest and the International Equity Portfolio
will invest primarily in foreign securities. Investments in securities of
foreign issuers and in obligations of foreign branches of domestic banks involve
somewhat different investment risks from those affecting securities of domestic
issuers. There may be limited publicly available
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information with respect to foreign issuers, and foreign issuers are not
generally subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to domestic companies. Dividends and
interest paid by foreign issuers may be subject to withholding and other foreign
taxes that may decrease the net return on such investments.
Investors should realize that the value of a Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect a
Portfolio's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, favorably or unfavorably, in areas such as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position; it may also be more
difficult to obtain and enforce a judgment against a foreign issuer. Any foreign
investments made by a Portfolio must be made in compliance with U.S. and foreign
currency restrictions and tax laws restricting the amounts and types of foreign
investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in countries
other than in the United States.
Although the International Equity Portfolio invests primarily in
securities of established issuers based in developed foreign countries, it may
also invest in securities of issuers in developing market countries. Investments
in securities of issuers in developing market countries may involve a high
degree of risk and many may be considered speculative. These investments carry
all of the risks of investing in securities of foreign issuers outlined in this
section to a heightened degree. These heightened risks include: (i) greater
risks of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability; (ii) the small current size of the markets for
securities of emerging market issuers and the currently low or non-existent
volume of trading, resulting in limited liquidity and in price volatility; (iii)
certain national policies that may restrict the International Equity Portfolio's
investment opportunities including restrictions on investing in issuers or
industries deemed sensitive to relevant national
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interests; and (iv) the absence of developed legal structures governing private
or foreign investment and private property.
A Portfolio may invest in securities of foreign issuers directly or in
the form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain institutions
issuing ADRs may not be sponsored by the issuer of the underlying foreign
securities. A non-sponsored depository may not provide the same shareholder
information that a sponsored depository is required to provide under its
contractual arrangements with the foreign issuer. EDRs are receipts issued by a
European financial institution evidencing a similar arrangement. Generally,
ADRs, in registered form, are designed for use in the U.S. securities markets,
and EDRs, in bearer form, are designed for use in European securities markets.
Because investments in foreign securities involve foreign currencies,
the value of assets as measured in U.S. dollars may be affected, favorably or
unfavorably, by changes in currency exchange rates and in exchange control
regulations, including currency blockage.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because a Portfolio will buy
and sell securities and will receive interest and dividends in currencies other
than the U.S. dollar, the Portfolio may, from time to time, enter into foreign
currency exchange transactions. A Portfolio may enter into these transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, use forward currency contracts to purchase or sell foreign
currencies, use currency futures contracts or purchase or sell options thereon
or purchase or sell currency options.
A forward foreign currency exchange contract is an obligation of a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Currency options give
the buyer the right, but not the obligation, to purchase or sell a fixed amount
of a specific currency at a fixed price at a future date. These contracts are
entered into in the interbank market directly between currency traders (usually
large commercial banks) and their customers. A forward foreign currency exchange
contract generally has no deposit requirement, and is traded at a net price
without commission. A Portfolio will not enter into these foreign currency
exchange transactions for speculative purposes. Foreign currency exchange
transactions do not eliminate fluctuations in the local currency prices of a
Portfolio's securities or in foreign exchange rates, or prevent loss if the
local currency prices of these securities should decline.
A currency futures contract is a contract involving an obligation to
deliver or acquire the specified amount of a currency at a specified price at a
specified future time.
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Futures contracts may be settled on a net cash payment basis rather than by the
sale and delivery of the underlying currency.
A Portfolio may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. A Portfolio may use these techniques to
hedge against a change in foreign currency exchange rates (with the U.S. dollar
or other foreign currencies) that would cause a decline in the value of existing
investments denominated or principally traded in a foreign currency.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, these transactions also
limit any potential gain that might be realized should the value of the hedged
currency increase. Additionally, the premiums paid by a Portfolio for currency
or futures options increase the Portfolio's transaction costs. Similarly, the
cost of a Portfolio's spot currency exchange transactions is generally the
difference between the bid and offer spot rate of the currency being purchased
or sold. Moreover, forward contracts that convert one foreign currency into
another foreign currency will cause the International Equity Portfolio to assume
the risk of fluctuations in the value of the currency purchased vis-a-vis the
hedged currency and the U.S. dollar. The precise matching of these transactions
and the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the date
such a transaction is entered into and the date it matures. The projection of
currency market movements is extremely difficult and the successful execution of
a hedging strategy is highly uncertain.
INVESTMENT RESTRICTIONS
The investment objective of each Portfolio, together with the
investment restrictions described below and in Part B, except as noted, are
deemed fundamental policies, i.e., they may be changed only by the "vote of a
majority of the outstanding voting securities" (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the Portfolio.
As a diversified investment company, 75% of each Portfolio's total
assets are subject to the following fundamental limitations: (a) the Portfolio
may not invest more than 5% of its total assets in the securities of any one
issuer, except U.S. Government securities; and (b) the Portfolio may not own
more than 10% of the outstanding voting securities of any one issuer.
Each Portfolio may not: (i) purchase the securities or other
obligations of issuers conducting their principal business activity in the same
industry if its investments in such industry would exceed 25% of the value of
the Portfolio's total assets, except this
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limitation shall not apply to investments in U.S. Government securities; (ii)
enter into reverse repurchase agreements or other permitted borrowings that
constitute senior securities under the 1940 Act, exceeding in the aggregate
one-third of the value of the Portfolio's assets or (iii) borrow money, except
from banks for extraordinary or emergency purposes, or mortgage, pledge or
hypothecate any assets except in connection with any such borrowings or
permitted reverse repurchase agreements in amounts up to one-third of the value
of the Portfolio's assets at the time of such borrowing or purchase securities
while borrowings and other senior securities exceed 5% of its total assets. For
a more detailed discussion of the above investment restrictions, as well as a
description of certain other investment restrictions, see Item 13 in Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIOS TRUST.
DIRECTORS AND TRUSTEES. Pursuant to the Declaration of Trust, the
Trustees establish the Portfolio's general policies, are responsible for the
overall management of the Portfolios Trust and review the actions of the
Adviser, Sub-Adviser, Administrator and other service providers. Additional
information about the Portfolios Trust's Board of Trustees and officers appears
in Item 14 of Part B. The officers of the Portfolios Trust are also employees of
Signature Broker-Dealer Services, Inc. or its affiliates.
ADVISERS AND FUND SERVICES AGENT. The Portfolios Trust has retained the
services of the Branch as investment adviser with respect to each Portfolio and
UBSII as investment sub-adviser with respect to International Equity Portfolio.
The Branch, which operates out of offices located at 299 Park Avenue, New York,
New York, is licensed by the Superintendent of Banks of the State of New York
under the banking laws of the State of New York and is subject to state and
federal banking laws and regulations applicable to a foreign bank that operates
a state licensed branch in the United States. UBSII, with principal offices at
Triton Court, 14 Finsbury Square, London, England, EC2A 1PD, is a corporation
organized under the laws of the United Kingdom.
The Bank has branches, agencies, representative offices and
subsidiaries in Switzerland and in more than 40 cities outside Switzerland,
including, in the United States, New York City, Chicago, Houston, Los Angeles
and San Francisco. In addition to the receipt of deposits and the making of
loans and advances, the Bank, through its offices and subsidiaries (including
UBSII) engages in a wide range of banking and financial activities typical of
the world's major international banks, including fiduciary, investment advisory
and custodial services and foreign exchange in the United States, Swiss, Asian
and Euro-capital markets. The Bank is one of the world's leading asset managers
and has been active in New York City since 1946.
At December 31, 1996, the Bank (including its consolidated
subsidiaries) had total assets of $326.7 billion and equity capital and reserves
of $17.1 billion.
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The Advisers provide investment advice and portfolio management to the
Portfolios Trust. Subject to the supervision of the Trustees, the Adviser makes
the Bond and U.S. Equity Portfolios' day-to-day investment decisions, arranges
for the execution of portfolio transactions and generally manages said
Portfolios' investments and operations. Subject to the supervision of the
Trustees and the Adviser, the Sub-Adviser makes the International Equity
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments and
operations. See Item 16 in Part B.
The Advisers use a sophisticated, disciplined, collaborative process
for managing all asset classes.
Nancy Tengler is primarily responsible for the day-to-day management
and implementation of the Adviser's process for the Bond Portfolio. Ms. Tengler
has been employed by the Branch since January 1996. Ms. Tengler is also the
Managing Director - Senior Portfolio Manager of UBS Asset Management (New York)
Inc.'s Value Equities Group. She has held this position since December 1994.
Previously, Ms. Tengler was the President and Senior Portfolio Manager for Spare
Tengler Kaplan & Bischel from August 1989 through June 1994. Ms. Tengler is
currently managing several portfolios and researching investment opportunities
in several industries, including the pharmaceutical and electric utilities
industries. Ms. Tengler co-authored a book entitled RELATIVE DIVIDEND
YIELD--COMMON STOCK INVESTING FOR INCOME AND APPRECIATION, and has twelve years
of investment experience. Ms. Tengler has previously managed the investments of
a mutual fund. Ms. Tengler received a B.A. degree from Point Loma College.
Louis N. Cohen is primarily responsible for the day-to-day management
and implementation of the Adviser's process for the U.S. Equity Portfolio. Mr.
Cohen has been a Vice President of the Adviser since January 1996. Mr. Cohen is
also a portfolio manager of UBS Asset Management (New York) Inc., a position he
has held since March 1991. Previously, Mr. Cohen was employed by Paine Webber,
Inc. as a credit officer from April 1990 through March 1991. Mr. Cohen is
currently managing several portfolios and is responsible for all credit research
relating to the issuers in which these portfolios invest. Mr. Cohen has not
previously managed the investments of an offshore mutual fund. Mr. Cohen
received both a B.A. and M.B.A. from New York University and has seventeen years
of investment experience.
Robin Apps is primarily responsible for the day-to-day management and
implementation of the Sub-Adviser's process for the International Equity
Portfolio. Mr. Apps has been a Senior Vice President of the Sub-Adviser since
1987, and is responsible for researching investment opportunities in the Far
East and Europe. Mr. Apps has not previously managed the investments of a mutual
fund. Mr. Apps received a bachelors degree from Birmingham University and has
fourteen years of investment experience. Mr. Apps is also qualified as an
actuary.
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Neither the Branch nor UBSII has previously advised an investment
company. This may be viewed as a risk of investing in the Portfolios.
In addition to the above-listed investment advisory services, the
Adviser also provides the Portfolios Trust with certain related administrative
services. Subject to the supervision of the Trustees, the Adviser is responsible
for: establishing performance standards for the third-party service providers of
the Portfolios Trust and overseeing and evaluating the performance of such
entities; providing and presenting quarterly management reports to the Trustees;
and supervising the preparation of reports for investors in the Portfolios.
Under Investment Advisory Agreements with the Portfolios Trust with
respect to each Portfolio, the Portfolios Trust pay the Adviser a fee,
calculated daily and payable monthly, at an annual rate equal to 0.45% of the
Bond Portfolio's average net assets, 0.60% of the U.S. Equity Portfolio's
average net assets, and 0.85% of the International Equity Portfolio's average
net assets. Pursuant to the Sub-Advisory Agreement between the Adviser and the
Sub-Adviser, the Adviser has agreed to pay the Sub-Adviser a fee, calculated
daily and payable monthly, at an annual rate equal to 0.75% of the International
Equity Portfolio's first $20 million of average net assets, 0.50% of the next
$30 million of average net assets, and 0.40% of the International Equity
Portfolio's average net assets in excess of $50 million. The Adviser is solely
responsible for paying the Sub-Adviser this fee.
ADMINISTRATOR. Under an Administrative Services Agreement with the
Portfolios Trust, Signature Financial Group (Cayman) Limited
("Signature-Cayman") serves as the Administrator of each Portfolio (in such
capacity, the "Administrator"). In this capacity, Signature-Cayman administers
all aspects of each Portfolio's day-to-day operations, subject to the
supervision of the Adviser and the Trustees, except as set forth under "Adviser
and Funds Services Agent", "Exclusive Placement Agent", and "Custodian and
Transfer Agent". The Administrator furnishes general office facilities and
ordinary clerical and related services for day-to-day operations including
recordkeeping responsibilities; (ii) takes responsibility for compliance with
all applicable federal and state securities and other regulatory requirements;
and (iii) performs administrative and managerial oversight of the activities of
the custodian, transfer agent and other agents or independent contractors of
each Portfolio.
Under the Administrative Services Agreement, the Portfolios Trust has
agreed to pay Signature-Cayman a fee, calculated daily and payable monthly, at
an annual rate of 0.05% of each Portfolio's average net assets.
EXCLUSIVE PLACEMENT AGENT. Under an Exclusive Placement Agent
Agreement, Signature-Cayman, P.O. Box 2494, Elizabethan Square, Grand Cayman,
Cayman Islands, B.W.I., serves as the exclusive placement agent of beneficial
interests in each Portfolio (in such capacity, the "Placement Agent"). The
Placement Agent is a wholly-owned
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direct subsidiary of Signature Financial Group, Inc. and is a registered
broker-dealer. The Placement Agent does not receive a fee pursuant to the terms
of the Exclusive Placement Agent Agreement.
CUSTODIAN AND TRANSFER AGENT. Investors Bank & Trust Company, whose
principal offices are located at 89 South Street, Boston, Massachusetts 02111,
serves as the custodian and transfer and dividend disbursement agent for each
Portfolio. See Item 16 in Part B. The Custodian also maintains offices at 1
First Canadian Place, Suite 2800, Toronto, Ontario M5X 1C8.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
Each Portfolio is a series of the Portfolios Trust, which is organized
as a series trust under the law of the State of New York. Under the Declaration
of Trust, the Trustees are authorized to issue beneficial interests in one or
more series or subtrusts (each a "Portfolio"). Currently, there are three active
series of the Portfolios Trust: UBS Bond Portfolio, UBS U.S. Equity Portfolio,
and UBS International Equity Portfolio. Investments in a Portfolio may not be
transferred, but an investor may withdraw all or any portion of its investment
at any time at net asset value. Investors in a Portfolio (e.g., investment
companies, insurance company separate accounts and common and commingled trust
funds) will each be liable for all obligations of that Portfolio (and of no
other series). However, the risk of an investor in a Portfolio incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Investments in a Portfolio have no preemptive or conversion
rights and are fully paid and nonassessable, except as set forth below.
Each investor is entitled to a vote in proportion to the amount of its
investment in a Portfolio. Investors in each Portfolio will vote as a separate
class, except as to voting of Trustees, as otherwise required by the 1940 Act,
or if determined by the Trustees to be a matter which affects all series. As to
any matter which does not affect a particular series, only investors in the one
or more affected Portfolios are entitled to vote. The Portfolios are not
required and have no current intention of holding special meetings of investors,
but the Portfolios will hold special meetings of investors when in the judgment
of the Trustees it is necessary or desirable to submit matters for an investor
vote. Changes in fundamental objectives and policies will be submitted to
investors for approval. Investors under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of investors) have the right to communicate with other
investors in connection with requesting a meeting of investors for the purpose
of removing one or more Trustees. Investors also have the right to remove one or
more Trustees without a meeting by a declaration in writing by a specified
number of investors. Upon liquidation of a Portfolio, investors would be
entitled to share pro rata in the net assets of that Portfolio (and no other
series) available for distribution to investors.
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Each Portfolio determines its net income and realized capital gains, if
any, on each Portfolio Business Day (as defined below) and allocates all such
income and gain pro rata among the investors in the Portfolio at the time of
such determination.
The "net income" of each Portfolio shall consist of (i) all income
accrued, less the amortization of any premium, on the assets of a Portfolio,
less (ii) all actual and accrued expenses of that Portfolio determined in
accordance with generally accepted accounting principles. Interest income
includes discount earned (including both original issue and market discount) on
discount paper accrued ratably to the date of maturity and any net realized
gains or losses on the assets of a Portfolio. All the net income of each
Portfolio is allocated pro rata among the investors in that Portfolio (and no
other series).
Under their anticipated method of operation, the Portfolios will not be
subject to any income tax. However, each investor in each Portfolio will be
taxable on its share (as determined in accordance with the governing instruments
of the Portfolios Trust) of that Portfolio's ordinary income and capital gain in
determining its income tax liability. The determination of such share will be
made in accordance with the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations promulgated thereunder.
It is intended that each Portfolio's assets, income and distributions
will be managed in such a way that an investor in each Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in that Portfolio.
For more information on tax matters, see Item 20 in Part B. Investor
inquiries regarding the Portfolios Trust may be directed to UBS Investor
Portfolios Trust, P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman,
B.W.I. (809-945-1824).
ITEM 7. PURCHASE OF SECURITIES.
Beneficial interests in each Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See Item 4 above.
An investment in a Portfolio may be made without sales load at the net
asset value next determined if an order is received "in good order" by the
Portfolios Trust. The net asset value of each Portfolio is determined each day
during which the New York Stock Exchange ("NYSE") is open for business
("Portfolio Business Day"). This determination is made once each day as of 4:00
p.m. New York time or at the close of regular trading on the NYSE, whichever is
earlier (the "Valuation Time"). For information on the valuation of the
Portfolio's securities, see Item 19 in Part B.
There is no minimum initial or subsequent investment in a Portfolio.
However, because each Portfolio intends to be as fully invested at all times as
is reasonably
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practicable in order to enhance the yield on its assets, investments must be
made in federal funds (i.e., monies credited to the account of a Portfolio's
custodian bank by a Federal Reserve Bank).
A Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interest. The securities delivered in kind are
valued by the method described in Item 19 of Part B as of the business day prior
to the day a Portfolio receives the securities. Securities may be accepted in
payment for beneficial interests only if they are, in the judgment of the
Trustees, appropriate investments for a Portfolio. In addition, securities
accepted in payment for beneficial interests must: (i) meet the investment
objective and policies of a Portfolio; (ii) be acquired by the Portfolio for
investment and not for resale; (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, over-the-counter market or by readily available market
quotations from a dealer in such securities. Each Portfolio reserves the right
to accept or reject at its own option any and all securities offered in payment
for beneficial interests.
The Portfolios Trust and Signature-Cayman reserve the right to cease
accepting investments in any Portfolio at any time or to reject any investment
order.
Each investor in each Portfolio may add to or reduce its investment in
that Portfolio on each Portfolio Business Day. As of the Valuation Time on each
such day, the value of each investor's beneficial interests in each Portfolio
will be determined by multiplying the net asset value of a Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or reductions
which are to be effected on that day will then be effected. The investor's
percentage of the aggregate beneficial interests in each Portfolio will then be
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in a Portfolio as of the Valuation Time
on such day plus or minus, as the case may be, the amount of net additions to or
reductions in the investor's investment in the Portfolio effected as of the
Valuation Time, and (ii) the denominator of which is the aggregate net asset
value of the Portfolio as of the Valuation Time on such day, plus or minus, as
the case may be, the amount of net additions to or reductions in the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in a Portfolio as of the Valuation Time on the following Portfolio
Business Day.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in each Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request in
proper form is furnished by the investor to the Portfolios Trust by the
designated cutoff time for each accredited
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investor. The proceeds of a reduction or withdrawal will be paid by the
Portfolios Trust in federal funds normally on the Portfolio Business Day the
withdrawal is effected, but in any event within seven days. Investments in the
Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds postponed
during any period in which the NYSE is closed (other than weekends or holidays)
or trading on the NYSE is restricted or, to the extent otherwise permitted by
the 1940 Act, if an emergency exists.
Each Portfolio reserves the right to pay redemptions in kind. Unless
requested by an investor, a Portfolio will not make redemptions in kind to an
investor, except in situations where that investor may make redemptions in kind.
See Item 19 in Part B.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
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PART B
ITEM 10. COVER PAGE.
Not Applicable.
ITEM 11. TABLE OF CONTENTS.
General Information and History..........................B-1
Investment Objectives and Policies ......................B-1
Management of the Portfolio Series......................B-17
Control Persons and Principal Holders of Securities.....B-18
Investment Advisory and Other Services..................B-19
Brokerage Allocation and Other Practices................B-23
Capital Stock and Other Securities......................B-26
Purchase, Redemption and Pricing of Securities..........B-28
Tax Status..............................................B-30
Underwriters............................................B-32
Calculations of Performance Data .......................B-32
Financial Statements....................................B-33
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
Part A contains additional information about the investment objectives
and policies and management techniques of the Portfolios. This Part B should
only be read in conjunction with Part A of the registration statement.
The approval of the investors in the Portfolios is not required to
change any of the investment policies or management techniques of the Portfolios
discussed herein or in Part A of this registration statement, unless otherwise
indicated.
INVESTMENT OBJECTIVES AND POLICIES
The Bond Portfolio attempts to achieve its investment objective by
investing primarily in the corporate and government debt obligations and related
securities described in Part A and this Part B.
Under normal circumstances, at least 80% of the U.S. Equity Portfolio's
assets will be invested in income-producing domestic equity securities,
including dividend-
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paying common stocks and securities that are convertible into common stocks. The
U.S. Equity Portfolio's primary investments are the common stocks of
established, high-quality U.S. corporations.
The International Equity Portfolio seeks to achieve its investment
objective by investing primarily in the equity securities of foreign
corporations, consisting of common stocks and other securities with equity
characteristics such as preferred stocks, warrants, rights and convertible
securities. Under normal circumstances, the International Equity Portfolio
expects to invest at least 65% of its total assets in such securities. It does
not intend to invest in U.S. securities (other than short-term instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of developed foreign countries render investments in
such countries inadvisable.
MONEY MARKET INSTRUMENTS
As discussed in Part A, each Portfolio may invest in money market
instruments to the extent consistent with its investment objective and policies.
A description of the various types of money market instruments that may be
purchased appears below. See "Quality and Diversification Requirements".
U.S. TREASURY SECURITIES. Each Portfolio may invest in direct
obligations of the U.S. Treasury, including Treasury Bills, Notes and Bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each Portfolio may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, each Portfolio must look principally
to the federal agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which each Portfolio may invest that are not backed by the full
faith and credit of the United States include, but are not limited to,
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation and the U.S. Postal Service, each of which has the right to borrow
from the U.S. Treasury to meet its obligations, and the obligations of the
Federal Farm Credit System and the Federal Home Loan Banks, both of whose
obligations may be satisfied only by the individual credits of each issuing
agency. Securities that are backed by the full faith and credit of the United
States include obligations of the Government National Mortgage Association, the
Farmers Home Administration and the Export-Import Bank.
BANK OBLIGATIONS. Each Portfolio, unless otherwise noted in Part A or
below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of
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(i) banks, savings and loan associations and savings banks that have more than
$2 billion in total assets (the "Asset Limitation") and are organized under the
laws of the United States or any state, (ii) foreign branches of these banks or
of foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign
banks of equivalent size (Yankees). The Asset Limitation is not applicable to
the International Equity Portfolio. See "Foreign Investments". No Portfolio will
invest in obligations for which the Adviser, defined below (or the Sub-Adviser,
defined below, in the case of the International Equity Portfolio), or any of its
affiliated persons, is the ultimate obligor or accepting bank. Each Portfolio
may also invest in obligations of international banking institutions designated
or supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter- American Development Bank or the World Bank).
COMMERCIAL PAPER. Each Portfolio may invest in commercial paper,
including Master Demand obligations. Master Demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master Demand obligations are governed by
agreements between the issuer and the Bank, the Branch, and UBSII in the case of
the International Equity Portfolio, acting as agent, for no additional fee, in
its capacity as investment (sub)adviser to the Portfolios and as fiduciary for
other clients for whom it exercises investment discretion. The monies loaned to
the borrower come from accounts managed by the (Sub-)Adviser, or its affiliates,
pursuant to arrangements with such accounts. Interest and principal payments are
credited to such accounts. The (Sub-)Adviser, acting as a fiduciary on behalf of
its clients, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without penalty
all or any part of the principal amount then outstanding on an obligation
together with interest to the date of payment. Because these obligations
typically provide that the interest rate is tied to the Federal Reserve
commercial paper composite rate, the rate on Master Demand obligations is
subject to change. Repayment of a Master Demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest and
principal of the obligation on demand, which is continuously monitored by the
(Sub-)Adviser. Because Master Demand obligations typically are not rated by
credit rating agencies, the Portfolios may invest in such unrated obligations
only if at the time of an investment the obligation is determined by the
(Sub-)Adviser to have a credit quality which satisfies a Portfolio's quality
restrictions. See "Quality and Diversification Requirements". Although there is
no secondary market for Master Demand obligations, such obligations are
considered to be liquid because they are payable upon demand. The Portfolios do
not have any specific percentage limitation on investments in Master Demand
obligations.
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trustees. In a repurchase agreement, a Portfolio buys a security
from a seller that has agreed to repurchase the same security at a mutually
agreed upon date and price. The resale price
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<PAGE>
normally is in excess of the purchase price, reflecting an agreed upon interest
rate. This interest rate is effective for the period of time the Portfolio is
invested in the agreement and is not related to the coupon rate on the
underlying security. A repurchase agreement may also be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will the Portfolio invest in repurchase agreements for more than
thirteen months. The securities that are subject to repurchase agreements,
however, may have maturity dates in excess of thirteen months from the effective
date of the repurchase agreement. The Portfolios will always receive securities
as collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Portfolios
in each agreement plus accrued interest, and the Portfolios will make payment
for such securities only upon physical delivery or upon evidence of book entry
transfer to the account of the Custodian. If the seller defaults, a Portfolio
might incur a loss if the value of the collateral securing the repurchase
agreement declines and might incur disposition costs in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of proceeds upon
disposition of the collateral by the Portfolio may be delayed or limited.
CORPORATE BONDS AND OTHER DEBT SECURITIES
Each Portfolio may invest in other debt securities with remaining
effective maturities of not more than thirteen months, including without
limitation corporate and foreign bonds, asset-backed securities and other
obligations described in Part A or this Part B.
As discussed in Part A, the Bond Portfolio may invest in bonds and
other debt securities of domestic and foreign issuers to the extent consistent
with its investment objectives and policies. A description of these investments
appears in Part A and below. See "Quality and Diversification Requirements". For
information on short-term investments in these securities, see "Money Market
Instruments".
ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by or payable from, a
stream of payments generated by particular assets such as mortgages, motor
vehicles or credit card receivables. Payments of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with the entities issuing
the securities. The asset-backed securities in which a Portfolio may invest are
subject to the Portfolio's overall credit requirements. However, asset-backed
securities, in general, are subject to certain risks. These risks include the
prepayment of the debtor's obligation and the creditor's limited interests in
applicable collateral. For example, credit card debt receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on
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<PAGE>
credit card debt thereby reducing the balance due. Additionally, if the letter
of credit is exhausted, holders of asset-backed securities may also experience
delays in payments or losses if the full amounts due on underlying sales
contracts are not realized. Because asset-backed securities are relatively new,
the market experience in these securities is limited and the market's ability to
sustain liquidity through all phases of the market cycle has not been tested.
EQUITY INVESTMENTS
As discussed in Part A, the U.S. Equity and International Equity
Portfolios invest primarily in equity securities consisting of common stocks and
other securities with equity characteristics. The securities in which these
Portfolios invest include those listed on domestic and foreign securities
exchanges or traded on over-the-counter markets as well as certain restricted or
unlisted securities. A discussion of the various types of equity investments
that may be purchased by these Portfolios appears in Part A and below. See
"Quality and Diversification Requirements".
EQUITY SECURITIES. The common stocks in which these Portfolios may
invest include the common stocks of any class or series of corporations or any
similar equity interests such as trust or partnership interests. The Portfolios'
equity investments include preferred stocks, warrants, rights and convertible
securities. These investments may or may not pay dividends and may or may not
carry voting rights. Common stock occupies the most junior position in a
company's capital structure.
The convertible securities in which the Portfolios may invest include
debt securities or preferred stocks that may be converted into common stock or
that carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of a convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, but are senior to the claims of preferred and common
stockholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors, but are
senior to the claims of common stockholders.
FOREIGN INVESTMENTS
The International Equity Portfolio makes substantial investments in
companies based in foreign countries. The Bond Portfolio may also invest in
certain foreign securities. The Bond Portfolio does not expect to invest more
than 25% of its total assets at the time of purchase in securities of foreign
issuers. Foreign investments may be made directly in the securities of foreign
issuers or in the form of American
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<PAGE>
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") or
European Depositary Receipts ("EDRs"). Generally, ADRs, GDRs and EDRs are
receipts issued by a bank or trust company that evidence ownership of underlying
securities issued by a foreign corporation and that are designed for use in the
domestic, in the case of ADRs, or European, in the case of EDRs, securities
markets.
Because investments in foreign securities may involve foreign
currencies, the value of the International Equity and Bond Portfolios' assets as
measured in U.S. dollars may be affected, favorably or unfavorably, by changes
in currency rates and in exchange control regulations, including currency
blockage. The Bond and International Equity Portfolios may enter into foreign
currency exchange transactions in connection with the settlement of foreign
securities transactions or to manage their currency exposure related to foreign
investments. The Portfolios will not enter into such transactions for
speculative purposes. For a description of the risks associated with investing
in foreign securities, see Item 4 in Part A.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest accrues to a Portfolio until
settlement takes place. At the time a Portfolio makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction, reflect the value of such securities each day in determining its
net asset value and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At the time of settlement, a when-issued
security may be valued at less than the purchase price. To facilitate such
acquisitions, each Portfolio will maintain with the Custodian a segregated
account with liquid assets, consisting of cash, U.S. Government securities or
other high-grade, liquid securities, in an amount at least equal to the value of
such commitments. On delivery dates for such transactions, each Portfolio will
meet its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If a Portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio obligation, incur a gain or loss
due to market fluctuation. It is the current policy of each Portfolio not to
enter into when-issued commitments exceeding in the aggregate 15% of the market
value of that Portfolio's total assets, less liabilities (excluding the
obligations created by when-issued commitments).
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by each Portfolio to the extent that such purchases are
consistent with that entity's investment objectives and restrictions and are
permitted under the 1940 Act.
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The 1940 Act requires that, as determined immediately after a purchase is made,
(i) not more than 5% of the value of the Portfolio's total assets will be
invested in the securities of any one investment company, (ii) not more than 10%
of the value of the Portfolio's total assets will be invested in securities of
investment companies as a group and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio,
provided, however, that a Portfolio may invest all of its investable assets in
an open-end investment company having the same investment objective as that
Portfolio. As a shareholder of another investment company, a Portfolio would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the expenses that such a Portfolio would bear in connection with
its own operations.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. For purposes of the 1940 Act, reverse repurchase agreements are
considered borrowings by the Portfolio and, therefore, a form of leverage. The
Portfolios will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, the Portfolios will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the repurchase agreement. The
Portfolios will not invest the proceeds of a reverse repurchase agreement for a
period that exceeds the term of the reverse repurchase agreement. The
limitations on each Portfolio's use of reverse repurchase agreements are
discussed under "Investment Restrictions" below. Each Portfolio will establish
and maintain with the Custodian a separate account with a portfolio of
securities in an amount at least equal to its obligations under its reverse
repurchase agreements.
MORTGAGE DOLLAR ROLL TRANSACTIONS. The Bond Portfolio may engage in
mortgage dollar roll transactions with respect to mortgage securities issued by
the Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. In a mortgage dollar
roll transaction, the Portfolio sells a mortgage backed security and
simultaneously agrees to repurchase a similar security on a specified future
date at an agreed upon price. During the roll period, the Portfolio will not be
entitled to receive any interest or principal paid on the securities sold. The
Portfolio is compensated for the lost interest on the securities sold by the
difference between the sales price and the lower price for the future repurchase
as well as by the interest earned on the reinvestment of the sales proceeds. The
Portfolio may also be compensated by receipt of a commitment fee. When the
Portfolio enters into a mortgage dollar roll transaction, liquid assets in an
amount sufficient to pay for the future repurchase are segregated with its
Custodian. Mortgage dollar roll transactions are considered reverse repurchase
agreements for purposes of the Portfolio's investment restrictions.
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SECURITIES LENDING. Each Portfolio may lend its securities if such
loans are secured continuously by cash or equivalent collateral or by a letter
of credit in favor of the Portfolio at least equal at all times to 100% of the
market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolios in the normal
settlement time, generally three business days after notice or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities that
occurs during the term of the loan inures to the Portfolio and its respective
investors. The Portfolios may pay reasonable finder's and custodial fees in
connection with a loan. In addition, the Portfolios will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and the Portfolios will not make any loans in excess of one year.
The Portfolios will not lend their securities to any officer, Trustee, Director,
employee, or affiliate or placement agent of the Company, the Trust, or to the
Adviser, Sub-Adviser, Administrator or Distributor or any affiliate thereof,
unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolios
may invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in Part A.
As to illiquid investments, a Portfolio is subject to a risk that it
might not be able to sell such securities at a price that the Portfolio deems
respective of their value. Where an illiquid security must be registered under
the 1933 Act, before it may be resold, the Portfolio may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time the Portfolio decides to sell and the time the Portfolio is
permitted to sell under an effective registration statement. If, during such a
period, adverse market conditions develop, the Portfolio might obtain a less
favorable price than that which prevailed when it decided to sell. When the
Portfolios value these securities, they will take into account the illiquid
nature of these instruments.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each Portfolio intends to meet the diversification requirements of the
1940 Act. To meet these requirements, 75% of the Portfolio's assets are subject
to the following fundamental limitations: (1) the Portfolio may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities and (2)
the Portfolio may not own more than 10% of the outstanding voting securities of
any one issuer. As for the 25% of a Portfolio's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer, subject to the limitation of any applicable state securities
laws. Investments not subject to the limitations described above could involve
an increased risk to a
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Portfolio should an issuer, or a state or its related entities, be unable to
make interest or principal payments or should the market value of such
securities decline. See "Investment Restrictions".
BOND PORTFOLIO. The Bond Portfolio invests principally in a diversified
portfolio of "high grade" and "investment grade" securities. Investment grade
debt is rated, on the date of investment, within the four highest ratings of
Moody's Investors Service, Inc. ("Moody's"), currently Aaa, Aa, A and Baa, or of
Standard & Poor's Ratings Group ("Standard & Poor's"), currently AAA, AA, A and
BBB. High grade debt is rated, on the date of the investment, within the two
highest categories of the above ratings. The Bond Portfolio may also invest up
to 5% of its total assets in securities which are "below investment grade". Such
securities must be rated, on the date of investment, Ba by Moody's or BB by
Standard & Poor's. The Portfolio may invest in debt securities that are not
rated or other debt securities to which these ratings are not applicable, if in
the opinion of the Adviser, such securities are of comparable quality to the
rated securities discussed above. In addition, at the time the Portfolio invests
in any commercial paper, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's or Standard & Poor's,
the issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Adviser's
opinion.
U.S. EQUITY AND INTERNATIONAL EQUITY PORTFOLIOS. The U.S. Equity and
International Equity Portfolios may invest in convertible debt securities for
which there are no specific quality requirements. In addition, at the time the
Portfolios invest in any commercial paper, bank obligation or repurchase
agreement, the issuer must have outstanding debt rated A or higher by Moody's or
Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Adviser's1 opinion. At the time the Portfolios invest
in any other short-term debt securities, they must be rated A or higher by
Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Adviser's opinion.
In determining whether a particular unrated security is a suitable
investment, the Adviser takes into consideration asset and debt service
coverage, the purpose of the financing, the history of the issuer, existence of
other rated securities of the issuer, and other relevant conditions, such as
comparability to other issuers.
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1 Unless otherwise noted, references to the Adviser in the context of the
International Equity Portfolio refer to the Adviser and/or the Sub-Adviser, as
appropriate.
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OPTIONS AND FUTURES TRANSACTIONS
EXCHANGE-TRADED AND OVER-THE-COUNTER OPTIONS. All options purchased or
sold by the Portfolios will be exchange traded or will be purchased or sold by
securities dealers ("over-the-counter" or "OTC options") that meet
creditworthiness standards approved by the Trustees. Exchange-traded options are
obligations of the Options Clearing Corporation. In OTC options, the Portfolio
relies on the dealer from which it purchased the option to perform if the option
is exercised. Thus, when a Portfolio purchases an OTC option, it relies on the
dealer from which it purchased the option to make or take delivery of the
underlying securities. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as loss of the expected benefit of
the transaction. To the extent that a Portfolio may trade in foreign options,
such options may be effected through local clearing organizations.
The staff of the SEC has taken the position that, in general, purchased
OTC options and the underlying securities used to cover written OTC options are
illiquid securities. However, a Portfolio may treat as liquid the underlying
securities used to cover written OTC options, provided it has arrangements with
certain qualified dealers who agree that the Portfolio may repurchase any option
it writes for a maximum price to be calculated by a predetermined formula. In
these cases, the OTC option itself would only be considered illiquid to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolios are
permitted to enter into futures and options transactions and may purchase or
sell futures contracts and purchase put and call options, including put and call
options on futures contracts. Futures contracts obligate the buyer to take and
the seller to deliver at a future date a specified quantity of a financial
instrument or an amount of cash based on the value of a securities index or
financial instrument. Currently, futures contracts are available on various
types of fixed-income securities, including but not limited to U.S. Treasury
bonds, notes and bills, Eurodollar certificates of deposit and on indices of
fixed income and equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
B-10
<PAGE>
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on futures contracts and
on any options on futures contracts sold by a Portfolio are paid by the
Portfolio into a segregated account, in the name of the Futures Commission
Merchant, as required by the 1940 Act and the SEC's interpretations thereunder.
To the extent a Portfolio may trade in futures and options therein involving
foreign securities, such transactions may be effected according to local
regulations and business custom.
COMBINED POSITIONS. The Portfolios may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Portfolios may, subject to regulations and
interpretations of the Commodity Futures Trading Commission, purchase a put
option and write a call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. Another possible combined position would involve
writing a call option at one strike price and buying a call option at a lower
price, in order to reduce the risk of the written call option in the event of a
substantial price increase. Because combined positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open and
close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not exactly match a
Portfolio's current or anticipated investments. A Portfolio may invest in
options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
B-11
<PAGE>
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. See "Exchange Traded and Over- the-Counter
Options" above for a discussion of the liquidity of options not traded on an
exchange.
POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Portfolio or the Adviser may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The
Portfolios intend to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which a Portfolio can commit
assets to initial margin deposits and option premiums. In addition, the
Portfolios will comply with guidelines established by the SEC with respect to
coverage of options and futures contracts by mutual funds, and if the guidelines
so require, will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold and will be considered illiquid securities while the futures contract or
option is outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that the segregation of a large percentage of a
Portfolio's assets could impede portfolio management or the Portfolio's ability
to meet redemption requests or other current obligations.
INVESTMENT RESTRICTIONS
The Portfolios have adopted the following fundamental and
non-fundamental investment restrictions (as defined and distinguished below); to
the extent that a fundamental policy and non-fundamental policy apply to a given
investment activity or strategy, the more restrictive policy shall govern.
FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions below
have been adopted by the Trustees with respect to each Portfolio. Except where
otherwise noted, these investment restrictions are fundamental policies which,
under the 1940 Act,
B-12
<PAGE>
may not be changed without the "vote of a majority of the outstanding voting
securities" of the Portfolio to which they relate. The "vote of a majority of
the outstanding voting securities" under the 1940 Act is the lesser of (a) 67%
or more of the voting shares present at a meeting of holders of beneficial
interests if the holders of more than 50% of the outstanding beneficial
interests are present or represented by proxy or (b) more than 50% of the
outstanding beneficial interests. The limitations described below apply at the
time the securities are purchased by the Portfolio.
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to one-third of the value of its total assets (including
the amount borrowed), less liabilities (not including the amounts borrowed), or
mortgage, pledge, or hypothecate any assets, except in connection with any
permitted borrowing or reverse repurchase agreements (see Investment
Restrictions No. 7). It will not purchase securities while borrowings (including
reverse repurchase agreements) exceed 5% of its net assets; provided, however,
that it may increase its interest in an open-end management investment company
with the same investment objective and restrictions while such borrowings are
outstanding and provided further that for purposes of this restriction,
short-term credits necessary for the clearance of transactions are not
considered borrowings. This borrowing provision facilitates the orderly sale of
portfolio securities, for example, in the event of abnormally heavy redemption
requests and is not for investment purposes. Collateral arrangements for premium
and margin payments in connection with its hedging activities are not deemed to
be a pledge of assets;
2. Purchase the securities of an issuer if, immediately after such purchase, it
owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that a Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions. This limitation shall not apply to investments of up to 25% of
its total assets;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of its total assets
would be invested in securities or other obligations of any one such issuer;
provided, however, that a Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions. This limitation shall not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or to
investments of up to 25% of its total assets;
4. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of its total assets; provided, however, that a Fund may invest all or part
of its investable assets in an open-end management investment company with the
same investment objective and restrictions. For purposes of industry
concentration, there is no percentage limitation with respect to investments in
U.S. Government securities;
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<PAGE>
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or by entering into repurchase
agreements or loans of portfolio securities;
6. Purchase or sell real estate, commodities or commodities contracts or options
thereon (except for its interest in hedging and certain other activities as
described under "Investment Objective(s) and Policies"), interests in oil, gas,
or mineral exploration or development programs (including limited partnerships).
In addition, neither the U.S. Equity Portfolio nor the International Equity
Portfolio may purchase or sell real estate mortgage loans. The Bond Portfolio,
however, may purchase debt obligations secured by interests in real estate or
issued by companies that invest in real estate or interests therein including
real estate investment trusts ("REITs"); and the International Equity Portfolio
and the U.S. Equity Portfolio may purchase the equity securities or commercial
paper issued by companies that invest in real estate or interests therein,
including REITs;
7. Issue any senior security, except as appropriate to evidence indebtedness
that it is permitted to incur pursuant to Investment Restriction No. 1 and
except that it may enter into reverse repurchase agreements, provided that the
aggregate of senior securities, including reverse repurchase agreements, shall
not exceed one-third of the market value of its total assets (including the
amounts borrowed), less liabilities (excluding obligations created by such
borrowings and reverse repurchase agreements). Hedging activities as described
in "Investment Objective(s) and Policies" shall not be considered senior
securities for purposes hereof; or
8. Act as an underwriter of securities.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Portfolios and may be
changed by the Trustees. These non-fundamental investment policies provide that
the Portfolios may not:
i. borrow money (including through reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Portfolio's total assets
(taken at cost), except that the Portfolio may borrow for temporary or emergency
purposes up to 1/3 of its assets;
ii. pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Portfolio's total assets (taken at market value), provided that collateral
arrangements with respect to options and futures, including deposits of initial
deposit and variation margin, and reverse repurchase agreements are not
considered a pledge of assets for purposes of this restriction;
iii. purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of purchases
and sales of securities may be obtained and except that deposits of initial
deposit and variation
B-14
<PAGE>
margin may be made in connection with the purchase, ownership, holding or sale
of futures;
iv. sell securities it does not own such that the dollar amount of such short
sales at any one time exceeds 25% of the net equity of the Portfolio, and the
value of securities of any one issuer in which the Portfolio is short exceeds
the lesser of 2.0% of the value of the Portfolio's net assets or 2.0% of the
securities of any class of any U.S. issuer, and provided that short sales may be
made only in those securities which are fully listed on a national securities
exchange or a foreign exchange (This provision does not include the sale of
securities the Portfolio contemporaneously owns or where the Portfolio has the
right to obtain securities equivalent in kind and amount to those sold, I.E.,
short sales against the box.) (The Portfolio has no current intention to engage
in short selling.);
v. invest for the purpose of exercising control or management;
vi. purchase securities issued by any investment company except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission, or except when
such purchase, though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that securities of any investment company
will not be purchased for the Portfolio if such purchase at the time thereof
would cause (a) more than 10% of the Portfolio's total assets (taken at the
greater of cost or market value) to be invested in the securities of such
issuers; (b) more than 5% of the Portfolio's total assets (taken at the greater
of cost or market value) to be invested in any one investment company; or (c)
more than 3% of the outstanding voting securities of any such issuer to be held
for the Portfolio; provided further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any securities of any open-end
investment company unless (1) the Portfolio's investment adviser waives the
investment advisory fee with respect to assets invested in other open-end
investment companies and (2) the Portfolio incurs no sales charge in connection
with that investment;
vii. invest more than 10% of the Portfolio's total assets (taken at the greater
of cost or market value) in securities (excluding Rule 144A securities) that are
restricted as to resale under the 1933 Act;
viii. invest more than 15% of the Portfolio's total assets (taken at the greater
of cost or market value) in (a) securities (excluding Rule 144A securities) that
are restricted as to resale under the 1933 Act, and (b) securities that are
issued by issuers which (including predecessors) have been in operation less
than three years (other than U.S. Government securities), provided, however,
that no more than 5% of the Portfolio's total assets are invested in securities
issued by issuers which (including predecessors) have been in operation less
than three years;
B-15
<PAGE>
ix. invest more than 15% of the Portfolio's net assets (taken at the greater of
cost or market value) in securities that are illiquid or not readily marketable
(excluding Rule 144A securities deemed by the Board of Directors of the
Portfolio to be liquid);
x. invest in securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Director of the Portfolio, or is
an officer or director of the Adviser, if after the purchase of the securities
of such issuer for the Portfolio one or more of such persons own beneficially
more than 1/2 of 1% of the shares or securities, or both, all taken at market
value, of such issuer, and such persons owning more than 1/2 of 1% of such
shares or securities together own beneficially more than 5% of such shares or
securities, or both, all taken at market value;
xi. invest in warrants (other than warrants acquired by the Portfolio as part of
a unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 5% of the value
of the Portfolio's net assets or if, as a result, more than 2% of the
Portfolio's net assets would be invested in warrants not listed on a recognized
United States or foreign stock exchange, to the extent permitted by applicable
state securities laws;
xii. write puts and calls on securities unless each of the following conditions
are met: (a) the security underlying the put or call is within the investment
policies of the Portfolio and the option is issued by the Options Clearing
Corporation, except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b) the aggregate value
of the obligations underlying the puts determined as of the date the options are
sold shall not exceed 5% of the Portfolio's net assets; (c) the securities
subject to the exercise of the call written by the Portfolio must be owned by
the Portfolio at the time the call is sold and must continue to be owned by the
Portfolio until the call has been exercised, has lapsed, or the Portfolio has
purchased a closing call, and such purchase has been confirmed, thereby
extinguishing the Portfolio's obligation to deliver securities pursuant to the
call it has sold; and (d) at the time a put is written, the Portfolio
establishes a segregated account with its custodian consisting of cash or
short-term U.S. Government securities equal in value to the amount the Portfolio
will be obligated to pay upon exercise of the put (this account must be
maintained until the put is exercised, has expired, or the Portfolio has
purchased a closing put, which is a put of the same series as the one previously
written); and
xiii. buy and sell puts and calls on securities, stock index futures or options
on stock index futures, or financial futures or options on financial futures
unless: (a) the options or futures are offered through the facilities of a
national securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all such options which are held at any time do not
exceed 20% of the Portfolio's total net assets; (c) the aggregate margin
deposits required on all such futures or options thereon held at any time do not
exceed 5% of the
B-16
<PAGE>
Portfolio's total assets; and (d) such activities are permitted by Regulation
4.5 under the Commodity Exchange Act.
ALL PORTFOLIOS. There will be no violation of any investment
restriction if that restriction is complied with at the time the relevant action
is taken notwithstanding a later change in market value of an investment, in net
or total assets, in the securities rating of the investment or any other later
change.
ITEM 14. MANAGEMENT OF THE PORTFOLIO SERIES.
The Portfolios Trust's Board of Trustees, which consists of three
Trustees, is responsible for the overall management of the Portfolios, including
the general supervision and review of their investment activities. The Board, in
turn, elects the officers of the Portfolios Trust. The addresses and principal
occupations of the Trustees and principal officers of the Portfolios Trust are
set forth below.
DR. HANS-PETER LOCHMEIER*, 299 Park Avenue, New York, New York 10171;
Age: 55; Trustee; UBS Private Investor Funds, Inc. (mutual fund), Trustee
(February 1996- Present); Union Bank of Switzerland (Investment Services
Department), Department Head.
TIMOTHY M. SPICER, CPA, 299 Park Avenue, New York, New York 10171; Age:
47; Trustee; UBS Private Investor Funds, Inc., Trustee (February 1996-Present);
Ensemble Information Systems (software and electronic information provider),
Co-Founder, Chairman of the Board and Chief Executive Officer (1990-Present);
Amanda Venture Investors (AVI) (a San Francisco based venture capital firm),
Managing Partner (1995- Present); CoreLink Resources (provides mutual fund
related services to small and medium sized banks), Director (1993-Present);
Smith & Hawkin (mail order supplier of gardening tools and clothing), Director
and Chief Financial Officer (1990-1992); Concord Holding Corporation (provides
distribution and administrative services to mutual funds), Director (1989-1995);
active in civic/charitable organizations in the San Francisco, California area,
including Big Brothers/Big Sisters and United Way.
PETER LAWSON-JOHNSTON, 299 Park Avenue, New York, New York 10171; Age:
70; Trustee; UBS Private Investor Funds, Inc., Trustee (February 1996-Present);
Zemex Corporation (mining), Chairman of the Board and Director (1990-Present);
McGraw- Hill, Inc. (publishing), Director (1990-Present); National Review, Inc.
(publishing), Director (1990-Present); Guggenheim Brothers (real estate-venture
capital partnership), Partner (1990-Present); Elgerbar Corporation (holding
company), President and Director (1990-Present); The Solomon R. Guggenheim
Foundation (operates the Solomon R. Guggenheim Museum in New York and the Peggy
Guggenheim Collection in Venice, Italy), Chairman and Trustee (1990-Present);
The Harry Frank Guggenheim Foundation (charitable organization), Chairman of the
Board and Trustee (1990-Present).
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<PAGE>
JAMES E. HOOLAHAN, 437 Madison Avenue, New York, New York 10022; Age:
50; Vice President; UBS Private Investor Funds, Inc., President (November
1996-Present); Signature Financial Group, Inc.** (provides distribution and
administrative services to mutual funds), Vice President (1990-Present).
JOHN R. ELDER, CPA, 6 St. James Avenue, Boston, Massachusetts 02116;
Age: 48; Treasurer; UBS Private Investor Funds, Inc., Treasurer (February
1996-Present); Signature Financial Group, Inc.**, Vice President (April
1995-Present); Phoenix Home Life Mutual Insurance Company (mutual funds
division), Treasurer (1983-1995).
MOLLY S. MUGLER, ESQ., 6 St. James Avenue, Boston, Massachusetts 02116;
Age: 45; Secretary; UBS Private Investor Funds, Inc., Secretary (November
1996-Present); Signature Financial Group, Inc.**, (1988-Present) Vice President
and Senior Legal Counsel.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or Estimated Total Compensation
Aggregate Retirement Benefits Annual from Company and
Compensation from Accrued as Part of Benefits Upon Fund Complex Paid
NAME OF PERSON, POSITION PORTFOLIOS TRUST FUND EXPENSES RETIREMENT TO DIRECTORS
------------------------ --------------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Dr. Lochmeier 0 0 0 0
Trustee
Mr. Spicer $12,000 0 0 $21,000
Trustee
Mr. Lawson-Johnston $12,000 0 0 $21,000
Trustee
</TABLE>
* "Interested person" within the meaning of the 1940 Act.
** Signature Broker-Dealer Services, Inc., the Company's principal
underwriter and administrator, is a wholly owned subsidiary of Signature
Financial Group, Inc.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of February 28, 1997, the UBS Bond Fund, a series of UBS Private
Investor Funds, Inc., a Maryland corporation (the "Company"), owned 16.64% and
UBS Bond Fund, Ltd. owned 83.36% of the outstanding beneficial interests in the
UBS Bond Portfolio. As of the same date, the UBS U.S. Equity Fund, also a series
of the Company, owned 39.94% and UBS U.S. Equity Fund, Ltd. owned 60.06% of the
outstanding beneficial interests in the UBS U.S. Equity Portfolio. As of the
same date, the UBS International Equity Fund, also a series of the Company,
owned 73.67% and UBS International Equity Fund, Ltd. owned 26.33% of the UBS
International Equity Portfolio. A holder who controls more than 25% of the
outstanding beneficial interests in the Portfolio may take actions without the
approval of any other holder of beneficial interest in the Portfolio.
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<PAGE>
Because the Company controls each Portfolio, it may take actions
without the approval of any other investor in such Portfolio. As of the same
date, the Trustees and officers of the Portfolios Trust owned beneficially and
in the aggregate less than 1% of the outstanding beneficial interests of each
Portfolio. None of the Trustees receive compensation from the Portfolios Trust
exceeding $60,000 per fiscal year. None of the officers receive any compensation
from the Portfolios Trust.
The Company has informed the Portfolios Trust that whenever one of its
series is requested to vote on matters pertaining to a Portfolio, the Company
will hold a meeting of shareholders of that series and will cast its vote as
instructed by those shareholders. It is anticipated that other investors in the
Portfolios Trust will follow the same or a similar practice.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISER AND FUND SERVICES AGENT
Pursuant to Investment Advisory Agreements between the Portfolios Trust
and Union Bank of Switzerland, New York Branch, the Branch serves as the
Portfolios' investment adviser. Pursuant to a Sub-Advisory Agreement between the
Branch and UBS International Investment London Limited, UBSII serves as the
sub-adviser to the International Equity Portfolio. The Branch, which operates
out of offices located at 299 Park Avenue, New York, New York, is licensed by
the Superintendent of Banks of the State of New York under the banking laws of
the State of New York and is subject to state and federal banking laws and
regulations applicable to a foreign bank that operates a state licensed branch
in the United States. UBSII is a wholly-owned subsidiary of the Bank. UBSII was
organized under the laws of the United Kingdom on June 19, 1986. (The Adviser
and the Sub-Adviser are collectively referred to as the "Advisers".) Subject to
the supervision of the Trustees, the Adviser, and in the case of the
International Equity Portfolio, UBSII, makes the Portfolios' day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages each Portfolio's investments and provides certain
administrative services.
The investment advisory services provided by the Advisers to the
Portfolios are not exclusive under the terms of the advisory agreements. The
Advisers are free to and do render similar investment advisory services to
others. The Advisers serve as investment advisers to personal investors and
offshore investment companies and act as fiduciaries for trusts, estates and
employee benefit plans. Certain of the assets of trusts and estates under
management are invested in common trust funds for which the Advisers serve as
trustees. The accounts managed
B-19
<PAGE>
or advised by the Advisers have varying investment objectives and the Advisers
invest assets of such accounts in investments substantially similar to, or the
same as, those which are expected to constitute the principal investments of the
Portfolios. Such accounts are supervised by officers and employees of the
Advisers (or their affiliates) who may also be acting in similar capacities for
the Portfolios. See Item 17 below.
The Bank has branches, agencies, representative offices and
subsidiaries in Switzerland and in more than 40 cities outside Switzerland,
including, in the United States, New York City, Chicago, Houston, Los Angeles
and San Francisco. In addition to the receipt of deposits and the making of
loans and advances, the Bank, through its offices and subsidiaries (including
UBSII) engages in a wide range of banking and financial activities typical of
the world's major international banks, including fiduciary, investment advisory
and custodial services and foreign exchange in the United States, Swiss, Asian
and Euro-capital markets. The Bank is one of the world's leading asset managers
and has been active in New York City since 1946. At December 31, 1996, the Bank
(including its consolidated subsidiaries) had total assets of $326.7 billion
and equity capital and reserves of $17.1 billion.
BOND FUND. The Adviser's fixed income analysts have extensive
experience in selecting bonds and monitoring their performance. These analysts
review the creditworthiness of individual issuers as well as the broad economic
trends likely to affect the bond markets.
U.S. EQUITY FUND. While many investment advisers evaluate companies
primarily on their earnings and their price/earnings ratio, the Adviser uses a
different investment approach. The Adviser believes that dividend yields, rather
than earnings, are the best indicators of future performance. Consequently, the
Adviser will select attractively priced stocks with high dividends. In addition,
the Adviser's analysts often meet with company managers, often contact a
company's suppliers, review the business operations and financial statements of
companies and try to "get behind" the numbers to gain a true sense of a
company's value.
INTERNATIONAL EQUITY FUND. The Sub-Adviser's analysts have extensive
experience in managing international portfolios. These analysts track the
performance of more than 1,600 companies around the world, and pay particular
attention to the energy, life sciences, technology and financial industries. The
Sub-Adviser is a registered investment adviser under the Investment Advisers Act
of 1940, as amended.
For the period from April 2, 1996 (commencement of operations) to
December 31, 1996, the Bond Portfolio, U.S. Equity Portfolio and International
Equity Portfolio accrued $0, $0 and $13,839, respectively, in investment
advisory fees.
Under the Portfolios Trust's Advisory Agreement, each Portfolio will
pay the Adviser a fee, calculated daily and payable monthly, at an annual rate
of that Portfolio's average net assets, as shown below.
PORTFOLIO ANNUALIZED FEE RATE
UBS BOND PORTFOLIO 0.45% OF AVERAGE DAILY NET ASSETS
UBS U.S. EQUITY PORTFOLIO 0.60% OF AVERAGE DAILY NET ASSETS
UBS INTERNATIONAL EQUITY PORTFOLIO 0.85% OF AVERAGE DAILY NET ASSETS
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<PAGE>
Pursuant to the Sub-Advisory Agreement, the Sub-Adviser, under the
supervision of the Trustees and the Adviser, makes the day-to-day investment
decisions for the International Equity Portfolio. Under the Sub-Advisory
Agreement, the Adviser has agreed to pay the Sub-Adviser a fee, calculated daily
and payable monthly, at an annual rate of 0.75% of the International Equity
Portfolio's first $20 million of average net assets, plus 0.50% of the next $30
million of average net assets, plus 0.40% of this Portfolio's average net assets
in excess of $50 million. The Adviser is solely responsible for paying the
Sub-Adviser this fee. For the period from April 2, 1996 to December 31, 1996,
the Adviser paid $154,659 to the Sub-Adviser on behalf of the International
Equity Portfolio.
The Investment Advisory Agreements and Sub-Advisory Agreement will each
continue in effect until February 1998, and thereafter will be subject to annual
approval by the Trustees or the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of each Portfolio provided that in
either case the continuance also is approved by a majority of the Trustees who
are not interested persons (as defined in the 1940 Act) of the Portfolios Trust
by vote cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory and Sub-Advisory Agreements will terminate
automatically if assigned and are terminable at any time without penalty by a
vote of a majority of the Trustees or by a vote of the holders of a majority (as
defined in the 1940 Act) of the Portfolio's outstanding shares on 60 days'
written notice to the Adviser or Sub-Adviser as applicable. Each Investment
Advisory Agreement and Sub-Advisory Agreement is also terminable by the Adviser
or Sub-Adviser, as applicable, on 60 days' written notice to the Portfolios
Trust.
In addition to the above noted investment advisory services, the
Adviser (but not the Sub-Adviser) also provides certain administrative services
to the Portfolios and subject to the supervision of the Trustees is responsible
for: establishing performance standards for the Portfolios' third-party service
providers and overseeing and evaluating the performance of such entities;
providing and presenting quarterly management reports to the Trustees; and
supervising the preparation of reports for Portfolio shareholders. These
administrative services are provided to the Portfolios by the Adviser pursuant
to the above discussed Investment Advisory Agreements.
The Glass-Steagall Act and other applicable laws generally prohibit
banks, such as Union Bank of Switzerland, from engaging in the business of
underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company continuously engaged in the
issuance of its shares. The interpretation does not prohibit a holding company
or a subsidiary thereof from acting as investment adviser or custodian to such
an investment company. The Advisers believe that they may perform the services
for the Portfolios contemplated by the Investment Advisory and Sub- Advisory
Agreements without violating the Glass-Steagall Act or other applicable banking
laws or regulations. State laws on this issue may differ from the interpretation
of relevant federal law, and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. However, it is possible
that future changes in either federal or state statutes and regulations
concerning the permissible activities of banks or trust companies, as well as
further
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judicial or administrative decisions and interpretations of present and future
statutes and regulations, might prevent these entities from continuing to
perform such services. If the Adviser or Sub-Adviser were prohibited from
providing these services to the Funds or the Portfolios, it is expected that the
Directors and Trustees, as applicable, would recommend to shareholders that they
approve new agreements with other qualified service providers.
ADMINISTRATOR
Under an Administrative Services Agreement with the Portfolios Trust,
Signature-Cayman serves as the Administrator of the Portfolios (in such
capacity, the "Administrator"). In this capacity, Signature-Cayman administers
all aspects of the day-to-day operations of the Portfolios Trust, subject to the
supervision of the Trustees, except as set forth under the sections captioned
"Investment Adviser and Fund Services Agent," "Custodian" and "Private Placement
Agent." The Administrator (i) furnishes general office facilities and ordinary
clerical and related services for day-to-day operations, including
record-keeping responsibilities; (ii) takes responsibility for complying with
all applicable federal and state securities and other regulatory requirements
including, without limitation, preparing, mailing and filing (but not paying
for) registration statements and all required reports to the Portfolios'
shareholders and the SEC; and (iii) performs such administrative and managerial
oversight of the activities of the Portfolios' custodian, transfer agent and
other agents or independent contractors as the Trustees may direct from time to
time.
Under the Portfolios Trust's Administrative Services Agreement, each
Portfolio has agreed to pay Signature-Cayman a fee, calculated daily and payable
monthly, at an annual rate of 0.05% of its average net assets. For the period
from April 2, 1996 (commencement of operations) to December 31, 1996, the Bond
Portfolio, U.S. Equity Portfolio and International Equity Portfolio accrued
$14,594, $7,036 and $11,712 in administrative services fees, respectively.
The Administrative Services Agreement may be renewed or amended by the
Trustees without shareholder vote. The Administrative Services Agreement is
terminable at any time without penalty by a vote of a majority of the Trustees
on not less than 60 days' written notice to the other party. The Administrator
may subcontract for the performance of its obligations under the Administrative
Services Agreement with the prior written consent of the Trustees. If the
Administrator subcontracts all or a portion of its duties to another party, the
Administrator shall be fully responsible for the acts and omissions of any such
subcontractor(s) as it would be for its own acts or omissions.
PLACEMENT AGENT
The placement agent for the Portfolios Trust is Signature-Cayman.
CUSTODIAN
Investors Bank & Trust Company ("IBT" or the "Custodian"), whose
principal offices are located at 89 South Street, Boston, Massachusetts 02111,
serves as the custodian and transfer and dividend disbursing agent for the
Portfolios. Pursuant to a Custodian Agreement with the
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Portfolios Trust, on behalf of each Portfolio, the Custodian is responsible for
maintaining the books and records of portfolio transactions and holding
portfolio securities and cash. As transfer agent and dividend disbursing agent,
the Custodian is responsible for maintaining account records detailing the
ownership of beneficial interests in each Portfolio, and for crediting income,
capital gains and other changes in share ownership to investors' accounts. The
Custodian will perform its duties as the Portfolios' transfer agent and dividend
disbursing agent from its offices located at 1 First Canadian Place, Suite 2800,
Toronto, Ontario M5X 1C8. Each Portfolio is responsible for its proportionate
share of the Portfolios Trust's transfer agency, custodial and dividend
disbursement fees.
INDEPENDENT ACCOUNTANTS
The Portfolios Trust's independent accounting firm is Price Waterhouse,
George Town, Grand Cayman, Cayman Islands, B.W.I. Price Waterhouse will conduct
an annual audit of the financial statements of each Portfolio, assist in the
review and filing of the federal and state income tax returns of the Portfolios
and consult with the Portfolios as to matters of accounting and federal and
state income taxation.
EXPENSES
Each Portfolio is responsible for the fees and expenses attributable to
it. Each investor in a Portfolio will bear its proportionate share of the
expenses of that Portfolio.
The Adviser paid the organizational expenses of the Portfolios Trust.
The costs of organizing the Portfolios Trust will be paid initially by the
Adviser and reimbursed by the Portfolios Trust at the time of the initial
offering of the shares of the Company. These costs in turn will be equitably
allocated to each Portfolio as provided for by the Trustees. Such organization
costs have been deferred and will be amortized ratably over a period of sixty
months from the commencement of operations of the Portfolios.
* * *
Statements contained in this registration statement regarding the
contents of any agreement or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such agreement
or other document filed as an exhibit to the registration statement of which
this document forms a part, each such statement being qualified in all respects
by such reference.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Advisers place orders for all purchases and sales of securities on
behalf of the Portfolios. The Advisers enter into repurchase agreements and
reverse repurchase agreements and effect loans of portfolio securities on behalf
of the Portfolios. See Item 13 above.
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Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price that includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. Occasionally,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
Portfolio transactions for the Bond Portfolio will be undertaken
principally to accomplish its objective in relation to expected movements in the
general level of interest rates. The Bond Portfolio may engage in short-term
trading consistent with its objectives.
In connection with portfolio transactions for the Bond Portfolio, the
Adviser intends to seek best price and execution on a competitive basis for both
purchases and sales of securities. Portfolio turnover may vary from year to
year, as well as within a year. The portfolio turnover rate for the Bond
Portfolio is expected to be under 100%. For the period from April 2, 1996 to
December 31, 1996, the portfolio turnover rate for the Bond Portfolio was 100%.
In connection with portfolio transactions for the U.S. Equity and
International Equity Portfolios, the overriding objective is to obtain the best
possible execution of purchase and sale orders. Portfolio turnover may vary from
year to year, as well as within a year. The portfolio turnover rate for the U.S.
Equity and International Equity Portfolios is expected to be under 100%. For the
period from April 2, 1996 to December 31, 1996, the portfolio turnover rate for
the U.S. Equity Portfolio and International Equity Portfolio was 19% and 42%,
respectively.
In selecting a broker, the Adviser or Sub-Adviser, as applicable,
considers a number of factors including: the price per unit of the security; the
broker's reliability for prompt, accurate confirmations and on-time delivery of
securities; the broker's financial condition; and the commissions charged. A
broker may be paid a brokerage commission greater than that another broker might
have charged for effecting the same transaction if, after considering the
foregoing factors, the Adviser or Sub-Adviser decides that the broker chosen
will provide the best possible execution and/or such a broker provides research
services to the Adviser or Sub-Adviser. The Advisers monitor the reasonableness
of the brokerage commissions paid in light of the execution received. The
Trustees regularly review the reasonableness of commissions and other
transaction costs incurred by the Portfolios in light of the facts and
circumstances deemed relevant, and, in that connection, will review reports and
published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisers have
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisers' clients and not solely or necessarily for the
benefit of the Portfolios. The Advisers believe that the value of research
services received is not determinable and does not significantly increase
expenses. The Portfolios do not reduce their fee to the Advisers by any amount
that might be attributable to the value of such services. For the period from
April 2, 1996 to December 31, 1996, the Trust paid brokerage commissions on
behalf of U.S. Equity Portfolio and International Equity Portfolio of $32,019
and $139,846, respectively.
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Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisers may allocate a portion of a Portfolio's
brokerage transactions to their affiliates. In order for their affiliates to
effect any portfolio transactions for the Portfolios, the commissions, fees or
other remuneration received by such affiliates must be reasonable and fair
compared to the commissions, fees, or other remuneration paid to other brokers
in connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
Furthermore, the Trustees, including a majority of the Trustees who are not
"interested persons", have adopted procedures that are reasonably designed to
ensure that any commissions, fees, or other remuneration paid to such affiliates
are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Portfolio's Adviser, Sub-Adviser, Distributor or any "affiliated
person" (as defined in the 1940 Act) or any affiliated person of such a person
when such entities are acting as principals, except to the extent permitted by
law. In addition, the Portfolios will not purchase securities during the
existence of any underwriting group relating thereto of which the Adviser,
Sub-Adviser or affiliate thereof is a member, except to the extent permitted by
law.
On those occasions when the Advisers deem the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisers to the extent permitted by applicable
laws and regulations may, but are not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such an event, the securities so purchased or
sold as well as any expenses incurred in the transaction will be allocated by
the Advisers in a manner that is equitable and consistent with their fiduciary
obligations to their clients. In some instances, this procedure might adversely
affect a Portfolio.
If a Portfolio writes an option and effects a closing purchase
transaction with respect to an option written by it, such transaction will
normally be executed by the same broker-dealer who executed the sale of the
option. The writing of options by a Portfolio will be subject to limitations
established by each of the exchanges governing the maximum number of options in
each class that may be written by a single investor or group of investors acting
in concert, regardless of whether the options are written on the same or
different exchanges or are held or written in one or more accounts or through
one or more brokers. The number of options that a Portfolio may write may be
affected by options written by the Advisers for other investment advisory
clients. An exchange may order the liquidation of positions found to be in
excess of these limits and it may impose certain other sanctions.
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ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Each Portfolio is a series of UBS Investor Portfolios Trust, which is
organized as a series trust under the law of the State of New York. Under the
Declaration of Trust, the Trustees are authorized to issue beneficial interests
in one or more series (each a "Series"). Currently, there are three active
Series: UBS Bond Portfolio, UBS U.S. Equity Portfolio and UBS International
Equity Portfolio. Investors in a Series will be held personally liable for the
obligations and liabilities of that Series (and of no other Series), subject,
however, to indemnification by the Portfolios Trust in the event that there is
imposed upon an investor a greater portion of the liabilities and obligations of
the Series than its proportionate beneficial interest in the Series. The
Declaration of Trust also provides that the Portfolios Trust shall maintain
appropriate insurance (for example, a fidelity bond and errors and omissions
insurance) for the protection of the Portfolios Trust, its investors, Trustees,
officers, employees and agents, and covering possible tort and other
liabilities. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and the Portfolios Trust itself was unable to meet its
obligations.
Investors in a Series are entitled to participate pro rata in
distributions of taxable income, loss, gain and credit of their respective
Series only. Upon liquidation or dissolution of a Series, investors are entitled
to share pro rata in that Series' (and no other Series) net assets available for
distribution to its investors. The Portfolios Trust reserves the right to create
and issue additional Series of beneficial interests, in which case the
beneficial interests in each new Series would participate equally in the
earnings, dividends and assets of that particular Series only (and no other
Series). Any property of the Portfolios Trust is allocated and belongs to a
specific Series to the exclusion of all other Series. All consideration received
by the Portfolios Trust for the issuance and sale of beneficial interests in a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings and proceeds thereof, and any funds
or payments derived from any reinvestment of such proceeds, is held by the
Trustees in a separate subtrust (a Series) for the benefit of investors in that
Series and irrevocably belongs to that series for all purposes. Neither a Series
nor investors in that Series possess any right to or interest in the assets
belonging to any other Series.
Investments in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series may not be transferred. Certificates representing an
investor's beneficial interest in a Series are issued only upon the written
request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in each Series. Investors in a Series do not have cumulative voting
rights, and investors holding more than 50% of the aggregate beneficial
interests in all outstanding Series may elect all of the Trustees if they choose
to do so and in such event other investors would not be able to elect any
Trustees. Investors in each Series will vote as a separate class except as to
voting of Trustees, as otherwise required by the 1940 Act, or if determined by
the Trustees to be a matter which affects all Series. As to any matter which
does not affect the interest of a particular Series, only
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investors in the one or more affected Series are entitled to vote. The
Portfolios Trust is not required and has no current intention of holding annual
meetings of investors, but the Portfolios Trust will hold special meetings of
investors when in the judgment of the Portfolios Trust's Trustees it is
necessary or desirable to submit matters for an investor vote. The Portfolios
Trust's Declaration of Trust may be amended without the vote of investors,
except that investors have the right to approve by affirmative majority vote any
amendment which would affect their voting rights, alter the procedures to amend
the Declaration of Trust of the Portfolios Trust, or as required by law or by
the Portfolios Trust's registration statement, or as submitted to them by the
Trustees. Any amendment submitted to investors which the Trustees determine
would affect the investors of any Series shall be authorized by vote of the
investors of such Series and no vote will be required of investors in a Series
not affected.
The Portfolios Trust or any Series may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved (a)
at a meeting of investors by investors representing the lesser of (i) 67% or
more of the beneficial interests in the affected Series present of represented
at such meeting, if investors in more than 50% of all such beneficial interests
are present or represented by proxy, or (ii) more than 50% of all such
beneficial interests, or (b) by an instrument in writing without a meeting,
consented to by investors representing not less than a majority of the
beneficial interests in the affected Series. The Portfolios Trust or any Series
may also be terminated (i) upon liquidation and distribution of its assets if
approved by the vote of two thirds of its investors (with the vote of each being
in proportion to the amount of its investment), (ii) by the Trustees by written
notice to its investors, or (iii) upon the bankruptcy or expulsion of an
investor in the affected Series, unless the investors in such Series, by
majority vote, agree to continue the Series. The Portfolios Trust will be
dissolved upon the dissolution of the last remaining Series.
The Portfolios Trust's Declaration of Trust provides that obligations
of the Portfolios Trust are not binding upon the Trustees individually but only
upon the property of the Portfolios Trust and that the Trustees will not be
liable for any action or failure to act, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The Portfolios Trust's Declaration of Trust further provides that it
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Portfolios Trust, unless, as to liability to the
Portfolios Trust or its investors, it is finally adjudicated that they engaged
in wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or unless with respect to any other matter it
is finally adjudicated that they did not act in good faith in the reasonable
belief that their actions were in the best interests of the Portfolios Trust. In
the case of settlement, such indemnification will not be provided unless it has
been determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or
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in a written opinion of independent counsel, that such officers or Trustees have
not engaged in wilful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in each Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See Item 4 in Part A of this
registration statement.
Each investor in each Portfolio may add to or reduce its investment in
that Portfolio on each Portfolio Business Day. As of the Valuation Time on each
such day, the value of each investor's beneficial interest in each Portfolio
will be determined by multiplying the net asset value of a Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or reductions
which are to be effected on that day will then be effected. The investor's
percentage of the aggregate beneficial interests in each Portfolio will then be
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in a Portfolio as of the Valuation Time
on such day plus or minus, as the case may be, the amount of net additions to or
reductions in the investor's investment in the Portfolio effected as of the
Valuation Time, and (ii) the denominator of which is the aggregate net asset
value of the Portfolio as of the Valuation Time on such day, plus or minus, as
the case may be, the amount of net additions to or reductions in the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in a Portfolio as of the Valuation Time on the following Portfolio
Business Day.
The following is a discussion of the procedures used by the Portfolios
in valuing their assets.
In the case of the Bond Portfolio, securities with a maturity of 60
days or more, including securities that are listed on an exchange or traded
over-the-counter, are valued by the Portfolio by using the average of at least
three bid quotes from dealers or, in all other cases, by taking into account
various factors affecting market value, including yields and prices of
comparable securities, indications as to values from dealers and general market
conditions. All portfolio securities with a remaining maturity of less than 60
days are valued by the amortized cost method, whereby such securities are valued
at acquisition cost as adjusted for amortization of premium or accretion of
discount to maturity. Because many of the municipal bond issues outstanding do
not have large principal obligations and because of the varying risk factors
applicable to each issuer, no readily available market quotations exist for most
municipal securities.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the NYSE and may also take
place on days on which the NYSE is closed. If events materially affecting the
value of securities occur between the time when the exchange on which they are
traded closes and the time when the Portfolio's net asset value is
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calculated, such securities will be valued at fair value in accordance with
procedures established by and under the general supervision of the Trustees.
In the case of the U.S. Equity and International Equity Portfolios,
securities listed on domestic exchanges, other than options on stock indices,
are valued using the last sales price on the most representative exchange at
4:00 p.m. New York time or, in the absence of recorded sales, at the average of
readily available closing bid and asked prices on such exchange or, in the
absence of such prices, at the readily available closing bid price on such
exchange. Securities listed on foreign exchanges are valued at the last quoted
sale price available before the time when net assets are valued or, in the
absence of such recorded sales, at the average of readily available closing bid
and asked prices on such exchange or, in the absence of such prices, at the
readily available closing bid price on such exchange. Unlisted securities are
valued at the average of the quoted bid and asked prices in the over-the-counter
market. The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative market
for such security. For purposes of calculating net asset value per share, all
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the prevailing market rates available at the time
of valuation.
Options on stock indices traded on national securities exchanges are
valued at the close of options trading on such exchanges, which is currently
4:10 p.m., New York time. Stock index futures and related options traded on
commodities exchanges are valued at their last sales price as of the close of
such commodities exchanges, which is currently 4:15 p.m., New York time.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision of the Trustees. Such procedures include the use of
independent pricing services, indications as to values from dealers and general
market conditions. Short-term investments that mature in 60 days or less are
valued at amortized cost method (as discussed above) if their original maturity
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original maturity when acquired by a Portfolio was more than
60 days, unless this is determined not to represent fair value by the Trustees.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the NYSE and may also take
place on days on which the NYSE is closed. If events materially affecting the
value of securities occur between the time when the exchange on which they are
traded closes and the time when a Portfolio's net asset value is calculated,
such securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
If market quotations for the securities of any Portfolio are not
readily available, such securities will be valued at "fair value" as determined
in good faith by the Trustees.
A determination of value used in calculating net asset value must be a
fair value determination made in good faith utilizing procedures approved by the
Portfolios Trust's Board of Trustees. While no single standard for determining
fair value exists, as a general rule, the
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current fair value of a security would appear to be the amount which a Portfolio
could expect to receive upon its current sale. Some, but not necessarily all, of
the general factors which may be considered in determining fair value include:
(i) the fundamental analytical data relating to the investment; (ii) the nature
and duration of restrictions on disposition of the securities; and (iii) an
evaluation of the forces which influence the market in which these securities
are purchased and sold. Without limiting or including all of the specific
factors which may be considered in determining fair value, some of the specific
factors include: type of security, financial statements of the issuer, cost at
date of purchase, size of holding, discount from market value, value of
unrestricted securities of the same class at the time of purchase, special
reports prepared by analysts, information as to any transactions or offers with
respect to the security, existence of merger proposals or tender offers
affecting the securities, price and extent of public trading in similar
securities of the issuer or comparable companies, and other relevant matters.
Each Portfolio reserves the right under certain circumstances, such as
accommodating requests for substantial withdrawals or liquidations, to pay
distributions in kind to investors (i.e., to distribute portfolio securities as
opposed to cash). If securities are distributed, an investor could incur
brokerage, tax or other transaction costs in converting the securities to cash.
In addition, distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Portfolios or the
investor's portfolio, as the case may be. A Portfolio will not make a
distribution in kind except in circumstances in which the owner of a beneficial
interest in that Portfolio is permitted to redeem in kind or unless requested by
such investor.
ITEM 20. TAX STATUS.
The Portfolios Trust is organized as a New York trust. The Portfolios
are not subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts. However, each investor in a Portfolio will be
taxable on its share (as determined in accordance with the governing instruments
of the Portfolios Trust) of the Portfolio's ordinary income and capital gains in
determining its income tax liability. The determination of such share will be
made in accordance with the Code and regulations promulgated thereunder.
Under interpretations of the Internal Revenue Service (1) each
Portfolio will be treated for federal income tax purposes as a partnership which
is not a publicly traded partnership, and (2) for purposes of determining
whether an investor in a Portfolio satisfies requirements of Subchapter M of the
Code, the investor will be deemed to own a proportionate share of the
Portfolio's assets and will be deemed to be entitled to the Portfolio's income
attributable to that share. The Portfolios Trust has advised its initial
investors that it intends to conduct its operations so as to enable investors to
satisfy the requirements of Subchapter M of the Code.
Each Portfolio, since it is taxed as a partnership, is not subject to
federal income taxation. Instead, an investor must take into account, in
computing its federal income tax liability, its share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether it has received any cash distributions from the Portfolio.
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Each Portfolio's taxable year-end will be December 31st. Although, as
described above, a Portfolio will not be subject to federal income tax, it will
file appropriate income tax returns.
Withdrawals by investors from a Portfolio generally will not result in
their recognizing any gain or loss for federal income tax purposes, except that
(1) gain will be recognized to the extent that any cash distributed exceeds the
basis of the investor's interest in the Portfolio prior to the distribution, (2)
income or gain will be realized if the withdrawal is in liquidation of the
investor's entire interest in the Portfolio and includes a disproportionate
share of any unrealized receivables held by the Portfolio, and (3) loss will be
recognized if the distribution is in liquidation of that entire interest and
consists solely of cash and/or unrealized receivables. The basis of an
investor's interest in a Portfolio generally equals the amount of cash and the
basis of any property that the investor invests in the Portfolio, increased by
the investor's share of income from the Portfolio and decreased by the amount of
any cash distributions and the basis of any property distributed from the
Portfolio.
Gains or losses on sales of securities by a Portfolio will be treated
as long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where, if applicable, the Portfolio
acquires a put or writes a call thereon. Other gains or losses on the sale of
securities will be short-term capital gains or losses. Gains and losses on the
sale, lapse or other termination of options on securities will be treated as
gains and losses from the sale of securities. If an option written by a
Portfolio lapses or is terminated through a closing transaction, such as a
repurchase by the Portfolio of the option from its holder, the Portfolio will
realize a short-term capital gain or loss, depending on whether the premium
income is greater or less than the amount paid by the Portfolio in the closing
transaction. If securities are purchased by a Portfolio pursuant to the exercise
of a put option written by it, the Portfolio will subtract the premium received
from its cost basis in the securities purchased.
Under the Code, gains or losses attributable to the disposition of
foreign currency or to foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio actually collects such income or pays such liabilities, are treated as
ordinary income or ordinary loss. Similarly, gains or losses on the disposition
of debt securities held by a Portfolio, if any, denominated in foreign currency,
to the extent attributable to fluctuations in exchange rates between the
acquisition and disposition dates, are also treated as ordinary income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, a Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited.
B-31
<PAGE>
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes--i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long a Portfolio has held such options or
futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
There are certain tax issues that will be relevant to only certain of
the investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to a Portfolio. It is intended
that such segregated asset accounts will be able to satisfy diversification
requirements applicable to them and that such contributions of assets will not
be taxable provided certain requirements are met. Such investors are advised to
consult their own tax advisors as to the tax consequences of an investment in a
Portfolio.
FOREIGN INVESTORS. Allocations of U.S. source dividend income to an
investor who, as to the United States, is a foreign trust, foreign corporation
or other foreign investor will be subject to United States withholding tax at
the rate of 30% (or lower treaty rate). Allocations of Portfolio interest or
short term or net long term capital gains to foreign investors will not be
subject to United States tax.
STATE AND LOCAL TAXES. A Portfolio may be subject to state or local
taxes in jurisdictions in which the Portfolio is deemed to be doing business. In
addition, the treatment of a Portfolio and its investors in those states which
have income tax laws might differ from treatment under the federal income tax
laws. Investors should consult their own tax advisors with respect to any state
or local taxes.
FOREIGN TAXES. A Portfolio may be subject to foreign withholding taxes
with respect to income received from sources within foreign countries.
OTHER TAXATION. The investment by an investor in the Portfolio does not
cause the investor to be liable for any income or franchise tax in the State of
New York. Investors are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in the Portfolio.
ITEM 21. UNDERWRITERS.
Not applicable.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Not applicable.
B-32
<PAGE>
ITEM 23. FINANCIAL STATEMENTS.
The financial statements for the Portfolios are hereby incorporated by
reference from the Registrant's Annual Reports and have been included in
reliance upon the report of Price Waterhouse LLP, independent certified public
accountants, as experts in accounting and auditing.
B-33
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
The financial statements called for by this Item are incorporated in
Part B hereof.
(b) EXHIBITS FILED HEREWITH:
1. Declaration of Trust of the Registrant.1
2. By-Laws of the Registrant.1
5(a). Investment Advisory Agreement between the Registrant on behalf of its
series, UBS Bond Portfolio, and Union Bank of Switzerland, New York Branch.1
5(b). Investment Advisory Agreement between the Registrant on behalf of its
series, UBS U.S. Equity Portfolio, and Union Bank of Switzerland, New York
Branch.1
5(c). Investment Advisory Agreement between the Registrant on behalf of its
series, UBS International Equity Portfolio, and Union Bank of Switzerland, New
York Branch.1
5(d). Investment Sub-Advisory Agreement between Union Bank of Switzerland, New
York Branch, and UBS International Investment London Limited.1
8(a). Custodian Agreement between the Registrant and Investors Bank and Trust.1
9. Custodian Agreement Supplement between the Registrant and Investors Bank and
Trust.1
17. Financial Data Schedules.2
- --------------
(1) Incorporated herein by reference from the initial N-1A filing as filed
with the U.S. Securities and Exchange Commission (the "SEC") on February
28, 1996.
(2) Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders
TITLE OF CLASSES AS OF FEBRUARY 28, 1997
- ----------------- ------------------------
UBS Bond Portfolio 81
UBS U.S. Equity Portfolio 105
UBS International Equity Portfolio 115
C-1
<PAGE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article V of the Registrant's Declaration of Trust,
filed as Exhibit 1 herewith.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The name, position with Union Bank of Switzerland, New York Branch,
principal occupation and type of business are set forth below for the directors
and certain senior executive officers of Union Bank of Switzerland, including
those who are engaged in any other business, profession, vocation, or employment
of a substantial nature.
Ned Lord -- Vice President, Union Bank of Switzerland, New York Branch;
Director, Computer Associates.
Peter E. Guernsey, Jr. -- Managing Director, Union Bank of Switzerland,
New York Branch; Member of Advisory Board, Sedgewick James Insurance Co.
The information required by this Item 28 with respect to each director and
senior executive officer of UBS International Investment London Limited
("UBSII") is incorporated by reference to Form ADV filed by UBSII with the
Securities and Exchange Commission pursuant to the Investment Advisers Act of
1940, as amended (File No. 801-30165).
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
UBS Investors Portfolios Trust, P. O. Box 2494, Elizabethan Square, George Town,
Grand Cayman, Cayman Islands, B.W.I.
Signature Financial Group (Cayman) Limited, P. O. Box 2494, Elizabethan Square,
George Town, Grand Cayman, Cayman Islands, B.W.I.
Investors Bank & Trust Company (custodian, transfer agent and dividend
disbursing agent), 89 South Street, Boston, MA 02111; 1 First Canadian Place,
Suite 2800, Toronto, Ontario M5X 1C8.
Union Bank of Switzerland, New York Branch (adviser), 299 Park Avenue, New York,
NY 10171.
C-2
<PAGE>
UBS International Investment London Limited (subadviser), Triton Court, 14
Finsbury Square, London, England EC2A 1PD.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) The Registrant undertakes to comply with Section 16(c) of the Investment
Company Act of 1940 (the "Act") as though such provisions of the Act were
applicable to the Registrant.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, UBS
Investor Portfolios Trust has duly caused this registration statement on Form
N-1A to be signed on its behalf by the undersigned, thereto duly authorized in
Paget, Bermuda on the 6th day of March, 1997.
UBS INVESTOR PORTFOLIOS TRUST
By /S/SUSAN JAKUBOSKI
--------------------------
Susan Jakuboski
Assistant Treasurer and Assistant Secretary of the Portfolios Trust
ubs016b
C-4
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
1. Financial Data Schedules.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Annual Report
dated December 31, 1996, for the UBS Bond Portfolio and is qualified in its
entirety by reference to such Annual Report
</LEGEND>
<CIK> 0001007523
<NAME> UBS INVESTOR PORTFOLIOS TRUST
<SERIES>
<NUMBER> 001
<NAME> UBS BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-02-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 50,494,461
<INVESTMENTS-AT-VALUE> 50,636,945
<RECEIVABLES> 905,546
<ASSETS-OTHER> 1,572,952
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,115,443
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114,591
<TOTAL-LIABILITIES> 114,591
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,000,852
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 53,000,852
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,848,040
<OTHER-INCOME> 0
<EXPENSES-NET> 144,958
<NET-INVESTMENT-INCOME> 1,703,082
<REALIZED-GAINS-CURRENT> 44,624
<APPREC-INCREASE-CURRENT> 227,405
<NET-CHANGE-FROM-OPS> 1,975,111
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 53,000,852
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 131,348
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 276,306
<AVERAGE-NET-ASSETS> 38,858,491
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Annual Report
dated December 31, 1996, for the UBS U. S. Equity Portfolio and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0001007523
<NAME> UBS INVESTOR PORTFOLIOS TRUST
<SERIES>
<NUMBER> 002
<NAME> UBS U. S. EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-02-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 23,144,284
<INVESTMENTS-AT-VALUE> 24,818,619
<RECEIVABLES> 81,913
<ASSETS-OTHER> 3,023,938
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,924,470
<PAYABLE-FOR-SECURITIES> 2,382,507
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 116,230
<TOTAL-LIABILITIES> 2,498,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,425,733
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 25,425,733
<DIVIDEND-INCOME> 524,846
<INTEREST-INCOME> 35,449
<OTHER-INCOME> 0
<EXPENSES-NET> 128,174
<NET-INVESTMENT-INCOME> 432,121
<REALIZED-GAINS-CURRENT> 1,679
<APPREC-INCREASE-CURRENT> 1,674,335
<NET-CHANGE-FROM-OPS> 2,108,135
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25,425,733
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 84,435
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 212,600
<AVERAGE-NET-ASSETS> 18,761,208
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Annual Report
dated December 31, 1996, for the UBS International Equity Portfolio and is
qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0001007523
<NAME> UBS INVESTOR PORTFOLIOS TRUST
<SERIES>
<NUMBER> 003
<NAME> UBS INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-02-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 34,401,218
<INVESTMENTS-AT-VALUE> 34,775,119
<RECEIVABLES> 99,399
<ASSETS-OTHER> 17,282,959
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,157,477
<PAYABLE-FOR-SECURITIES> 10,476,488
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 134,410
<TOTAL-LIABILITIES> 10,610,898
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,546,579
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 41,546,579
<DIVIDEND-INCOME> 500,868
<INTEREST-INCOME> 189,623
<OTHER-INCOME> 0
<EXPENSES-NET> 206,657
<NET-INVESTMENT-INCOME> 483,834
<REALIZED-GAINS-CURRENT> 372,215
<APPREC-INCREASE-CURRENT> 367,572
<NET-CHANGE-FROM-OPS> 1,223,621
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 41,546,579
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 199,112
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 391,930
<AVERAGE-NET-ASSETS> 31,229,437
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
