File No. 811-[ ]
As filed with the Securities and Exchange Commission on January 20, 2000.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 / X /
---
Amendment No. __ /___/
(Check appropriate box or boxes)
SWISS STOCK PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
21 Milk Street, Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 423-0800
Philip W. Coolidge, 21 Milk Street, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:
Marianne K. Smythe, Wilmer, Cutler & Pickering, 2445 M. Street, N.W.
Washington, D.C. 20037-1420
JB002
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PART A
Responses to Items 1 through 3, 5 and 9 have been omitted pursuant to
Item 2(b) of Instruction B of the General Instructions to Form N-1A.
Item 4.Investment Objectives, Principal Investment Strategies, and Related Risks
The Swiss Stock Portfolio (the Portfolio) seeks long-term growth of
capital.
Bank Julius Baer & Co., Ltd. (the Adviser) acts the investor adviser to
each investor that invests all of its assets through the Portfolio (Portfolio's
Assets). Each investor has entered into a substantially identical investment
advisory agreement with the Adviser.
The Adviser invests the Portfolio's assets primarily in a non-diversified
portfolio of common stock, convertible securities and preferred stock.
Ordinarily, the Adviser will invest at least two thirds of the Portfolio's
assets in common or preferred stock -- together with warrants, options, or other
instruments that give the holder the right to acquire such stock -- issued by
companies that have their registered office or a major part of their business in
Switzerland. For this portion of the portfolio, the Adviser seeks to invest the
Portfolio's assets among industrial categories (not individual companies) in
roughly the same proportion as the Swiss Performance Index, although the Adviser
may under- or over-weight the Portfolio's investment by up to __ % of Portfolio
assets in any particular category.
The Adviser will invest at least 90% of the Portfolio's assets in
"recognized securities." "Recognized securities" are (a) quoted and transferable
on a stock exchange or other regulated public market in a "recognized country,"
or (b) new issues that have undertaken to apply for listing on a stock exchange
or other regulated market and that such listing is granted within one year of
issue. Recognized securities include warrants. "Recognized country" is a country
in the Organization of Economic Cooperation and Development, North or South
America, Europe, Asia, Africa, Australia and the Pacific Basin.
The Adviser may invest up to one-third of the Portfolio's assets in
either securities of companies with their registered office or major portion of
their business located in the Principality of Liechtenstein, or in
fixed-interest or variable interest debt instruments, convertible bonds or bonds
with warrants attached, from issuers from recognized countries.
The Adviser also may invest up to 15% of the Portfolio's assets in
equity and interest rate warrants and options. Equity warrants give the right to
buy newly issued or outstanding securities of a company at a fixed price.
Interest rate warrants give the right to buy or sell a specific bond issue or
interest rate index at a set price.
The Adviser uses both a top-down and bottom-up approach. A top-down
analysis focuses on macroeconomic factors, such as inflation, interest and tax
rates, currency and political climate. A bottom-up analysis focuses on
company-specific variables (such as competitive industry dynamics, market
leadership, proprietary products and services, and management expertise) and
financial characteristics (such as returns on sales and equity, debt/equity
ratios and earnings and cash flow growth). Although the Adviser will generally
invest the Portfolio's assets in large and well-established companies, it may
also invest in smaller emerging growth companies.
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The Adviser plans to invest the Portfolio's assets principally in
securities denominated in Swiss Francs. The Adviser also may invest the
Portfolio's assets in securities denominated in other currencies, including the
Euro. The Adviser may enter into currency hedging transactions in an attempt to
protect the Portfolio's assets from a change in the value of such currencies in
relation to Swiss Francs. The Adviser also may at times use futures, options and
forwards contracts for hedging purposes, including to protect the Portfolio's
assets from changes in market conditions or to gain exposure to equity or
currency positions pending the actual purchase or sale of such positions.
The Adviser may temporarily depart from the Portfolio's normal investment
policies -- for instance, by investing substantially in cash reserves, money
market instruments or short-term securities -- in response to extraordinary
market, economic, political or other conditions. In doing so, the Adviser may
fail to achieve the Portfolio's investment goal.
PRINCIPAL RISKS
Market Risk. Investing in common stocks is subject to stock market risk. Stock
prices in general may decline over short or even extended periods, regardless of
the success or failure of a particular company's operations. Stock markets tend
to run in cycles, with periods when stock prices generally go up and periods
when they generally go down. Common stock prices tend to go up and down more
than those of bonds.
Credit Risk. Debt securities are subject to credit risk. Credit risk is the
possibility that an issuer will fail to make timely payments of interest or
principal. Securities rated in the lowest category of Investment Grade
securities have some risky characteristics and changes in economic conditions
are more likely to cause issuers of these securities to be unable to make
payments.
Income Risk. Income risk is the chance that falling interest rates will cause
the income from debt securities to decline. Income risk is generally higher for
short-term bonds.
Diversification Risk. The Portfolio is classified as "non-diversified", for
purposes of the Investment Company Act of 1940 (1940 Act), which means that
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the only limits with respect to the portion of its assets which may be invested
in the securities of a single issuer are certain requirements of federal income
tax law. The possible assumption of large positions in the securities of a small
number of issuers may cause performance to fluctuate to a greater extent than
that of a diversified investment company as a result of changes in the financial
condition or in the market's assessment of the issuers.
Non-U.S. Investing. Investing in securities of non-U.S. issuers, which
securities are generally denominated in foreign currencies, and utilizing
contracts to hedge changes in the values of foreign currencies involve both
opportunities and risks not typically associated with investing in U.S.
securities. The principal risks may include: fluctuations in exchange rates of
foreign currencies; possible imposition of exchange control regulation or
currency restrictions that would prevent cash from being brought back to the
United States; less public information about the issuers of securities; less, or
different kinds of, governmental supervision of stock exchanges, securities
brokers and issuers of securities; different accounting, auditing and financial
reporting standards; different settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; and imposition of foreign taxes.
Single Country Risk. The Adviser focuses its investments on the
securities of one country, Switzerland, thereby increasing its
vulnerability to economic, political or regulatory developments within
that one country.
Foreign Currency Risk. The Adviser does not intend to engage in
transactions to protect against the currency risks of investing in Swiss
Francs and other non-U.S. currencies, when compared to U.S. Dollars. For
this reason, the Portfolio may be exposed to increased risk of changes in
currency valuations.
Interest Rate Risk. Investing in debt securities is subject to the risk that the
market value of the debt securities will decline because of rising interest
rates. The prices of debt securities are generally linked to the prevailing
market interest rates. In general, when interest rates rise, the prices of debt
securities fall, and when interest rates fall, the prices of debt securities
rise. The price volatility of a debt security also depends on its maturity.
Generally, the longer the maturity of a debt security the greater its
sensitivity to changes in interest rates. To compensate investors for this
higher risk, debt securities with longer maturities generally offer higher
yields than debt securities with shorter maturities.
Additional Risks.
o The use of warrants, futures, options and forward contracts may expose the
Portfolio's assets to additional investment risks and transaction costs. These
are described more fully under the heading Investment Strategies and Risks and
in Part B.
o An investment through the Portfolio is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Item 6. Management, Organization and Capital Structure.
Investment Adviser
Bank Julius Baer & Co. Ltd., 330 Madison Avenue, New York, NY 10017 is
responsible for the day-to-day management of the Portfolio's assets.
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The Adviser is the New York branch of a Swiss bank that has over 50
years of experience in international and global portfolio management. As of
December 31, 1999, the Adviser with its affiliates had approximately $70 billion
in assets under management.
Each investor pays the Adviser a fee for its services. The fee payable
by each investor for the fiscal year ending December 31, 2000 is shown in the
table below.
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Investors Fee (as a % of average daily net assets)
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Swiss Stock Fund, a series [ ]%
of Julius Baer Multistock
Funds
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Julius Baer Multistock [ ]%
Swiss Stock Fund, a
series of Julius Baer
Multistock SICAV
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Portfolio Management
Mr. Lorenz Reinhard and Mr. Urs Heiniman are responsible for the
day-to-day portfolio management. Mr. Reinhard serves as a portfolio manager and
financial analyst for Bank Julius Baer. He joined Bank Julius Baer in 1995.
Prior to joining Bank Julius Baer, Mr. Reinhard was Primary Financial Analyst
for Zurich Cantonal Bank. Mr. Urs Heiniman serves as first vice president and
portfolio manager of Bank Julius Baer. He joined Bank Julius Baer in July of
1999. Prior to joining Bank Julius Baer, Mr. Heiniman was a student at Swiss
Banking School.
Item 7. Investor Information.
The net asset value of the Portfolio's assets is determined once daily
at 4:00 P.M., New York time on each day the banks in Luxembourg are open for
business (Portfolio Business Day).
The Adviser values the Portfolio's assets on the basis of their market
value or other fair value. If quotations are not readily available, the assets
are valued at fair value in accordance with procedures agreed upon by each
investor.
Investments through the Portfolio may only be made through private
placements by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors." 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 Securities Act of 1933.
An investment through the Portfolio may be made without a sales load.
All investments are made at net asset value next determined after an order is
received in "good order."
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There is no minimum initial or subsequent investment through the
Portfolio. However, because the Adviser intends to fully invest the Portfolio's
assets at all times as is reasonably practicable in order to enhance the yield
on the assets, investments must be made in immediately available funds.
Investments through the Portfolio may cease to be accepted or be rejected at any
time.
An investor may reduce all or any portion of its investment at the net
asset value next determined after a request in "good order" is furnished by the
investor. The proceeds of a reduction will be paid in federal funds normally on
the next Portfolio Business Day after the reduction is effected, but in any
event within seven days. Investments may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on the New York Stock Exchange is restricted
or, if an emergency exists.
Under certain circumstances, such as accommodating requests for
complete withdrawals, distributions in kind may be made to investors (i.e., to
distribute securities as opposed to cash). If securities are distributed, an
investor could incur brokerage, tax or other charges in converting the
securities to cash. In addition, a distribution in kind may result in a less
diversified portfolio of investments being held through the Portfolio or it
could adversely affect the liquidity of the investments being held through the
Portfolio.
Investments through the Portfolio are neither insured nor guaranteed by
the U.S. Government. Investments through the Portfolio are not deposits or
obligations of, or guaranteed by, Bank Julius Baer & Co., Ltd., and the
interests are not insured by the Federal Deposit Insurance Corporation or any
other federal, state or other governmental agency. An investment through the
Portfolio is subject to investment risk, including possible loss of principal
amount invested.
Item 8. Distribution Arrangements.
Not applicable.
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PART B
Item 10. Cover Page.
Not applicable.
Table of Contents.
Page
Portfolio History . . . . . . . . . . . . B-1
Description of Portfolio and Its
Investments and Risks . . . . . . . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . B-7
Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . . . . . . . B-18
Investment Advisory and Other Services . . . . . . . . B-19
Brokerage Allocation and Other Practices . . . . . . . B-10
Capital Stock and Other Securities . . . . . . . . . . B-13
Purchase, Redemption and Pricing of
Securities . . . . . . . . . . . . . . . . . . . . . . B-14
Tax Status . . . . . . . . . . . . . . . . . . . . . . B-14
Underwriters . . . . . . . . . . . . . . . . . . . . . B-16
Calculations of Performance Data . . . . . . . . . . . B-16
Financial Statements . . . . . . . . . . . . . . . . . B-16
Item 11. Portfolio History.
The Portfolio is a fiduciary arrangement under the law of the State of
New York. The Portfolio was established on January 20, 2000 and is separately
registered with the SEC as an open-end management investment company within the
meaning of the 1940 Act.
Item 12. Description of Portfolio, Investments and Risks.
The investment objective of the Swiss Stock Portfolio (the Portfolio)
is to provide investors with long-term growth of capital.
Bank Julius Baer & Co., Ltd. (the Adviser) acts the investor adviser to
each investor that invests all of its assets through the Portfolio (Portfolio's
assets). Each investor has entered into a substantially identical investment
advisory agreement with the Adviser.
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The following discussion supplements the information regarding the
investment objective of the Portfolio and the policies to be employed to achieve
this objective as set forth above and in Part A.
The Portfolio is a non-diversified open-end management investment
company within the meaning of the Investment 1940 Act.
Under ordinary conditions, the Adviser will invest at least two-thirds
of the Portfolio's assets in Swiss equity securities, which include common
stock, preferred stock and warrants. The Adviser may invest up to 15% of the
Portfolio's assets in warrants, options or other instruments that give the right
to purchase or sell Swiss equities or other types of equities, equity indexes,
and interest rate indexes.
The Adviser will invest at least 90% of the Portfolio's assets in
"recognized securities." Recognized securities are (a) quoted and transferable
on a stock exchange or other regulated public market in a "recognized country,"
or (b) new issues that have undertaken to apply for listing on a stock exchange
or other regulated market and that such listing is granted within one year of
issue. Recognized securities include warrants.
Recognized country is a country in the Organization of Economic
Cooperation and Development, North or South America, Europe, Asia, Africa,
Australia and the Pacific Basin. The Adviser may invest up to one-third of the
Portfolio's assets in the Principality of Liechtenstein or in fixed-interest or
variable-rate debt instruments, convertible bonds or bonds with warrants
attached, from issuers from recognized countries.
The Adviser will invest substantially all of the Portfolio's assets in
transferable equity securities when it believes that the relevant market
environment favors profitable investing in those securities. Equity investments
are selected in industries and companies that the Adviser believes are
experiencing favorable demand for their products and services, and which operate
in a favorable regulatory and competitive climate. The Adviser's analysis and
selection process focuses on growth potential; investment income is not a
consideration. In addition, factors such as expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships and prospects for economic growth among countries, regions or
geographic areas may warrant consideration in selecting foreign equity
securities. Generally, the Adviser intends to invest in marketable securities
that are not restricted as to public sale. Most of the purchases and sales of
securities will be effected in the primary trading market for the securities.
The primary trading market for a given security generally is located in the
country in which the issuer has its principal office. While no assurances can be
given as to the specific issuers of the equity securities in which the Adviser
will invest, the Adviser intends to seek out the securities of large
well-established issuers. However, the Adviser will invest in the equity
securities of smaller emerging growth companies when it believes that such
investments represent a beneficial investment opportunity.
Although the Adviser normally invests primarily in equity securities,
it may increase the cash or non-equity position when it is unable to locate
investment opportunities with desirable risk/reward characteristics. The Adviser
may invest in preferred stocks that are not convertible into common stock,
government securities, corporate bonds and debentures, high-grade commercial
paper, certificates of deposit or other debt securities when it perceives an
opportunity for capital growth from such securities or so that a return on idle
cash may be received.
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EQUITY INVESTMENTS
When-Issued Securities and Delayed Delivery Transactions
Securities may be purchased on a when-issued basis and purchased or
sold on a delayed-delivery basis. In these transactions, payment for and
delivery of the securities occurs beyond the regular settlement dates, normally
within 30-45 days after the transaction. When-issued or delayed-delivery
transactions will not be entered into for the purpose of leverage, although, to
the extent an investor is fully invested through the Portfolio, these
transactions will have the same effect on the value of its investment as
leverage. The right to acquire a when-issued security may be sold prior to its
acquisition or its right to deliver or receive securities in a delayed-delivery
transaction may be disposed of if the Adviser deems it advantageous to do so.
The payment obligation and the interest rate that will be received in
when-issued and delayed-delivery transactions are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. Income will not be accrued with respect to a debt security purchased on
a when-issued or delayed-delivery basis prior to its stated delivery date but
income will continue to accrue on a delayed-delivery security that has been
sold. When-issued securities may include securities purchased on a "when, as and
if issued" basis under which the issuance of the security depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. To facilitate acquisitions, a segregated
account with the Custodian is maintained with liquid assets in an amount at
least equal to such commitments. Such a segregated account consists of liquid,
high grade debt securities marked to the market daily, with additional liquid
assets added when necessary to insure that at all times the value of such
account is equal to the commitments. On delivery dates for such transactions,
such obligations are met from maturities or sales of the securities held in the
segregated account and/or from cash flow.
Rule 144A Securities
The Adviser may purchase securities that are not registered under the
Securities Act of 1933 (1933 Act), but that can be sold to "qualified
institutional buyers" in accordance with the requirements stated in Rule 144A
under the 1933 Act (Rule 144A Securities). A Rule 144A Security may be
considered illiquid and therefore subject to the 10% limitation on the purchase
of illiquid securities, unless it is determined on an ongoing basis that an
adequate trading market exists for the security. Guidelines may be adopted and
the daily function of determining and monitoring liquidity of Rule 144A
Securities may be delegated to the Adviser, although each investor will retain
ultimate responsibility for any determination regarding liquidity. All factors
will be considered in determining the liquidity of Rule 144A Securities and all
investments in Rule 144A Securities will be carefully monitored.
International Warrants
The Adviser may invest up to 15% of the Portfolio's assets in warrants
on transferable securities of international issuers. Warrant holdings will
consist of equity warrants, index warrants, covered warrants, interest rate
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warrants and long term options of, or relating to, international issuers.
Warrants are securities that give the holder the right, but not the obligation,
to subscribe to, in the case of a call, or sell, in the case of a put, equity
issues (consisting of common and preferred stock, convertible preferred stock
and warrants that themselves are only convertible into common, preferred or
convertible preferred stock) of the issuing company or a related company at a
fixed price either on a certain date or during a set period. The equity issue
underlying an equity warrant is outstanding at the time the equity warrant is
issued or is issued together with the warrant. At the time an equity warrant
convertible into a warrant is acquired or sold, the terms and conditions under
which the warrant received upon conversion can be exercised will have been
determined; the warrant received upon conversion will only be convertible into a
common, preferred or convertible preferred stock.
Equity warrants are generally issued in conjunction with an issue of
bonds or shares, although they also may be issued as part of a rights issue or
scrip issue. When issued with bonds or shares, they usually trade separately
from the bonds or shares after issuance. Bonds may be bought with warrants
attached. Most warrants trade in the same currency as the underlying stock
("domestic warrants"), but also may be traded in different currency
("euro-warrants"). Equity warrants are traded on a number of exchanges,
including but not limited to France, Germany, Japan, Netherlands, Switzerland
and the United Kingdom, and in over-the-counter markets. Since there is a
readily available market for these securities, the Adviser believes that
international warrants should be considered a liquid investment.
Index warrants are rights created by an issuer, typically a financial
institution, entitling the holder to purchase, in the case of a call, or sell,
in the case of a put, an equity index at a certain level over a fixed period of
time. Index warrant transactions settle in cash.
Covered warrants are rights created by an issuer, typically a financial
institution, normally entitling the holder to purchase from the issuer of the
covered warrant outstanding securities of another company (or in some cases a
basket of securities), which issuance may or may not have been authorized by the
issuer or issuers of the securities underlying the covered warrants. In most
cases, the holder of the covered warrant is entitled on its exercise to delivery
of the underlying security, but in some cases the entitlement of the holder is
to be paid in cash the difference between the value of the underlying security
on the date of exercise and the strike price. The securities in respect of which
covered warrants are issued are usually common stock, although they may entitle
the holder to acquire warrants to acquire common stock. Covered warrants may be
fully covered or partially covered. In the case of a fully covered warrant, the
issuer of the warrant will beneficially own all of the underlying securities or
will itself own warrants (which are typically issued by the issuer of the
underlying securities in a separate transaction) to acquire the securities. The
underlying securities or warrants are, in some cases, held by another member of
the issuer's group or by a custodian or other fiduciary for the holders of the
covered warrants.
Interest rate warrants are rights that are created by an issuer,
typically a financial institution, entitling the holder to purchase, in the case
of a call, or sell, in the case of a put, a specific bond issue or an interest
rate index (Bond Index) at a certain level over a fixed time period. Interest
rate warrants can typically be exercised in the underlying instrument or settle
in cash.
Long term options operate much like covered warrants. Like covered
warrants, long term options are options created by an issuer, typically a
financial institution, entitling the holder to purchase from the issuer, in the
case of a call, or sell, in the case of a put, outstanding securities of another
issuer. Long term options have an initial period of one year or more, but
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generally have terms between three and five years. At present, long term options
are traded only in the Netherlands, where a distinct market does not exist.
Unlike U.S. options, long term European options do not settle through a clearing
corporation that guarantees the performance of the counterparty. Instead, they
are traded on an exchange and subject to the exchange's trading regulations.
Only covered warrants, index warrants, interest rate warrants and long
term options issued by entities deemed to be creditworthy will be acquired. The
Adviser will monitor the creditworthiness of such issuers on an on-going basis.
Investment in these instruments involves the risk that the issuer of the
instrument may default on its obligation to deliver the underlying security or
warrants to acquire the underlying security (or cash in lieu thereof). To reduce
this risk, the holdings of covered warrants, index warrants, interest rate
warrants and long term options will be limited to those issued by entities that
either have a class of outstanding debt securities that is rated investment
grade or higher by a recognized rating service or otherwise are considered to
have the capacity to meet their obligations.
Options on Securities
Call options may be purchased and put options may be sold that are
quoted or traded on an official stock exchange or other regulated market as long
as premiums do not exceed 15% of the Portfolio's net asset value. Purchases of
call options and sales of put options are permitted only with respect to the
kind of underlying securities whose purchase is permitted through the Portfolio.
The equivalent of the bought call options and the sold put options
calculated at the strike price must be continually covered by liquid assets
until the corresponding positions are closed out.
The contract value of the call options purchased and the put options
sold in respect of a particular company together with the market value of the
securities of the same company already held through the Portfolio may not
permanently exceed 10% of the Portfolio's assets. Thereby the contract value
corresponds in the case of:
a) call options, to the exercise price plus the market value of the
options times number of units;
b) put options, to the exercise price less the market value of the option
times number of units
The contract value of the transactions effected according to the above
mentioned requirements which do not serve hedging purposes may not permanently
exceed 49% of the Portfolio's assets.
If a call option purchased is not sold or exercised when it has
remaining value, or if the market price of the underlying security remains equal
to or below the exercise price during the life of the option, the option will
expire worthless and the premium paid for the option will be lost.
For further information please refer to "Hedging Techniques".
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Depository Receipts
The Adviser may invest in securities issued in multi-national currency
units, such as the Euro, American Depository Receipts ("ADRs"), Global
Depository Receipts ("GDRs") or European Depository Receipts ("EDRs")
(collectively, "Depository Receipts"). ADRs are receipts, typically issued by a
U.S. bank or trust company, which evidence ownership of underlying securities
issued by a non-U.S. corporation. GDRs may be traded in any public or private
securities market and may represent securities held by institutions located
anywhere in the world. EDRs are receipts issued in Europe which evidence a
similar ownership 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. The Adviser may invest in Depository
Receipts through "sponsored" or "unsponsored" facilities if issues of such
Depository Receipts are available and are consistent with the investment
objective. A sponsored facility is established jointly by the issuer of the
underlying security and a depository, whereas a depository may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored Depository Receipts generally bear all the
costs of such facilities and the depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
In order to seek to protect against a decline in value of the Portfolio's assets
due to fluctuating currency rates, the Adviser may engage in certain hedging
strategies, as described under "Hedging Techniques" below.
Securities of Other Investment Companies
The Adviser may invest in securities of another investment company
which are recognized as undertakings for collective investments in transferable
securities under the Directive 85/611 of the European Union in amounts which (a)
do not exceed 3% of the total outstanding voting stock of such company, (b) do
not exceed 5% of the value of the Portfolio's assets and (c) when added to all
other investment company securities held through the Portfolio, the open-ended
investment company holdings do not exceed 5% of the value of the Portfolio's
assets and the closed-end investment companies do not exceed 10% of the value of
the Portfolio's assets. Investors should note that investment in the securities
of other investment companies would involve the payment of duplicative fees.
FIXED-INCOME INVESTMENTS
The Adviser may invest up to one-third of the Portfolio's assets in
transferable fixed-income investments from recognized countries. When the
Adviser invests in such debt securities, investment income may increase and may
constitute a large portion of the return from the Portfolio's assets but, under
these certain circumstances, the Adviser would not expect the Portfolio's assets
to participate in market advances or declines to the extent that it would if the
Portfolio's assets remained fully invested in equity securities.
The performance of the debt component of the securities being held
through the Portfolio depends primarily on interest rate changes, average
weighted maturity and the quality of the securities held. The debt component
will tend to decrease in value when interest rates rise and increase when
interest rates fall. Generally, shorter term securities are less sensitive to
interest rate changes, but longer term securities offer higher yields. The value
of and yield from the Portfolio's assets will also depend, in part, on the
quality of those investments. While U.S. Government securities are generally of
high quality, government securities that are not backed by the full faith and
credit of the United States and other debt securities may be affected by changes
in the creditworthiness of the issuer of the security. The extent that such
changes are reflected in the value of the Portfolio's assets will depend on the
extent of these investments.
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Unrated Debt Securities
The Adviser may invest in unrated debt instruments of non-U.S. and U.S.
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Sovereign debt of non-U.S.
governments is generally rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, the Adviser may treat such securities as unrated debt. See the
Appendix for a description of bond rating categories.
Convertible Securities
Transferable convertible securities in which the Adviser may invest,
comprised of both convertible debt and convertible preferred stock, may be
converted at either a stated price or at a stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds, and, in addition, fluctuates in relation
to the underlying common stock. The common stock received upon the conversion of
a convertible security or the exercise of a warrant may be retained.
Money Market Investments
Although it is intended that the Portfolio's assets stay invested in
the equity and fixed income securities described herein and in Part A to the
extent practical in light of the Portfolio's investment objective and long-term
investment perspective, the Portfolio's assets may be invested in bank deposits
and money market instruments maturing in less than 12 months to meet anticipated
expenses or for day-to-day operating purposes and when, in the Adviser's
opinion, it is advisable to adopt a temporary defensive position because of
unusual and adverse conditions affecting the equity market. In addition, when
large cash inflows are experienced through additional investments or the sale of
portfolio securities, and desirable securities that are consistent with the
investment objective are unavailable in sufficient quantities, assets may be
held in short-term investments for a limited time pending availability of such
securities. To the extent short-term trading is engaged in, short-term capital
gains or losses may be realized and increased transaction costs may be incurred.
U.S. Government Securities
The Adviser may invest the Portfolio's assets in debt obligations of
varying maturities issued or guaranteed by the United States government, its
agencies or instrumentalities. Direct obligations of the U.S. Treasury include a
variety of securities that differ in their interest rates, maturities and dates
of issuance. U.S. Government securities also include securities issued or
guaranteed by the Federal Housing Administration, Farmers Home Loan
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
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Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board and Student Loan Marketing Association. The Adviser also
may invest in instruments that are supported by the right of the issuer to
borrow from the United States Treasury and instruments that are supported by the
credit of the instrumentality. Because the United States government is not
obligated by law to provide support to an instrumentality it sponsors, the
Adviser will invest in obligations issued by such an instrumentality only if it
determines that the credit risk with respect to the instrumentality does not
make the securities unsuitable for investment.
Non-U.S. Government Securities
Non-U.S. government securities generally consist of fixed income
securities supported by national, state or provincial governments or similar
political subdivisions. Non-U.S. government securities also include debt
obligations of supranational entities, such as international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Non-U.S. government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
non-U.S. government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Repurchase Agreements
Repurchase agreements may be entered into with high quality
counterparties, member banks of the Federal Reserve System and certain non-bank
dealers. Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date.
Under the terms of a typical repurchase agreement, an underlying
security would be acquired for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase, and the buyer to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the holding period. This arrangement results in a fixed rate of
return that is not subject to market fluctuations during the holding period. The
value of the underlying securities will at all times be at least equal to the
total amount of the purchase obligation, including interest. The buyer bears a
risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations or becomes bankrupt and the buyer is delayed or
prevented from exercising the right to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the buyer seeks to assert this right. In
order to evaluate the risks, the Adviser monitors the creditworthiness of those
bank and non-bank dealers with which repurchase agreements are entered into. A
repurchase agreement is considered to be a loan under the 1940 Act.
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Reverse Repurchase Agreements
Reverse repurchase agreements may be entered into only with high
quality counterparties, member banks of the Federal Reserve System and certain
non-bank dealers. This is an agreement in which the Seller agrees to repurchase
securities sold by it at a mutually agreed upon time and price. As such, it is
viewed as the borrowing of money. Proceeds of borrowings under reverse
repurchase agreements are invested. This is the speculative factor known as
"leverage." If interest rates rise during the term of a reverse repurchase
agreement utilized for leverage, the value of the securities to be repurchased
as well as the value of securities purchased with the proceeds will decline.
Proceeds of a reverse repurchase transaction are not invested for a period which
exceeds the duration of the reverse repurchase agreement. A reverse repurchase
agreement is not entered into if, as a result, more than one-third of the market
value of the Portfolio's assets, less liabilities other than the obligations
created by reverse repurchase agreements, is engaged in reverse repurchase
agreements. In the event that such agreements exceed, in the aggregate,
one-third of such market value, the amount of the obligations created by reverse
repurchase agreements is reduced within three days thereafter (not including
Sundays and holidays) or such longer period as the SEC may prescribe. A
segregated account with the Custodian is established and maintained with liquid
assets in an amount at least equal to the purchase obligations under the reverse
repurchase agreements. Such a segregated account consists of liquid, high grade
debt securities marked to the market daily, with additional liquid assets added
when necessary to insure that at all times the value of such account is equal to
the purchase obligations.
4(2) Commercial Paper
Under procedures adopted by each investor, 4(2) Commercial Paper may be
considered to be liquid. If not considered liquid, such 4(2) Commercial Paper
will be subject to the 10% limitation of the purchase of illiquid securities.
INVESTMENT TECHNIQUES
Non-U.S. Investments
Investors should recognize that investing in non-U.S. companies
involves certain considerations, including those discussed below, which are not
typically associated with investing in U.S. issuers. Since the Adviser will be
investing the Portfolio's assets substantially in securities denominated in
Swiss Francs, and since funds may be temporarily held in bank deposits
denominated in Swiss Francs, the value of the Portfolio's assets may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between the Swiss Franc or such other currencies, on the one hand,
and the dollar on the other. A change in the value of a non-U.S. currency
relative to the U.S. dollar will result in a corresponding change in the dollar
value of the assets denominated in that non-U.S. currency. Changes in non-U.S.
currency exchange rates may also affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed.
The rate of exchange between the U.S. dollar and other currencies is
determined by the forces of supply and demand in the non-U.S. exchange markets.
Changes in the exchange rate may result over time from the interaction of many
factors directly or indirectly affecting economic and political conditions in
the United States and a particular non-U.S. country, including economic and
political developments in other countries. Of particular importance are rates of
inflation, interest rate levels, the balance of payments and the extent of
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government surpluses or deficits in the United States and the particular
non-U.S. country, all of which are in turn sensitive to the monetary, fiscal and
trade policies pursued by the governments of the United States and other
non-U.S. countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies.
Many of the non-U.S. securities held will not be registered with, nor
the issuers thereof be subject to reporting requirements of, the SEC.
Accordingly, there may be less publicly available information about the
securities and about the non-U.S. company or government issuing them than is
available about a U.S. company or government entity. Non-U.S. issuers are
generally not subject to uniform financial reporting standards, practices and
requirements comparable to those applicable to U.S. issuers. In addition, with
respect to some non-U.S. countries, there is the possibility of expropriation or
confiscatory taxation, limitations on the removal of funds or other assets,
political or social instability, or U.S. developments which could affect U.S.
investments in those countries. Moreover, individual non-U.S. economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions. The Adviser may invest in
securities of non-U.S. governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such investments
as well.
The interest payable on non-U.S. securities may be subject to foreign
withholding taxes, and while investors may be able to claim some credit or
deduction for such taxes with respect to their allocated shares of such foreign
tax payments, the general effect of these taxes will be to reduce the income
derived from the Portfolio's assets.
HEDGING TECHNIQUES
Futures Activities
Futures contracts for the purchase and sale of fixed-income securities
or foreign currencies may be entered into and related options that are traded on
non-U.S. as well as U.S. exchanges may be purchased or written. These
investments may be made solely for the purpose of hedging against changes in the
value of portfolio securities due to anticipated changes in interest rates,
currency values and/or market conditions when the transactions are economically
appropriate to the reduction of risks inherent in the management of the
Portfolio's assets and not for purposes of speculation. Positions in currency
futures and interest rate futures transactions will not be entered into if the
value of such contracts exceeds the value of the assets of the Portfolio in the
applicable currency, and their terms are longer than the maturity dates of the
assets.
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Futures Contracts. A futures contract for the purchase or sale of
fixed-income securities provides for the future sale by one party and the
purchase by the other party of a certain amount of a specific debt instrument at
a specified price, date, time and place. A foreign currency futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specified foreign currency at a specified price, date,
time and place.
The purpose of entering into a futures contract is to protect the
Portfolio's assets from fluctuations in value without necessarily buying or
selling the securities. Of course, since the value of portfolio securities will
far exceed the value of the futures contracts sold, an increase in the value of
the futures contracts could only mitigate but not totally offset the decline in
the value of such assets. No consideration is paid or received upon entering
into a futures contract. Upon entering into a futures contract, an amount of
cash or other liquid obligations equal to a portion of the contract amount must
be deposited in a segregated account with the Custodian or approved Futures
Commodity Merchant (FCM). This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract which is
returned upon termination of the futures contract, assuming all contractual
obligations have been satisfied. The broker will have access to amounts in the
margin account if the contractual obligations are not met. Subsequent payments,
known as "variation margin," to and from the broker, will be made daily as the
price of the securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, the position may be closed by taking an opposite position,
which will operate to terminate the existing position in the contract.
There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts is subject to the
ability of the Adviser to predict correctly movements in the price of the
securities or currencies and the direction of the stock indices underlying the
particular hedge. These predictions and, thus, the use of futures contracts
involve skills and techniques that are different from those involved in the
management of the portfolio securities being hedged. In addition, there can be
no assurance that there will be a correlation between movements in the price of
the underlying securities or currencies and movements in the price of the
securities which are the subject of the hedge. A decision concerning whether,
when and how to hedge involves the exercise of skill and judgment and even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends in interest rates.
Positions in futures contracts and options on futures contracts may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market exists for such contracts. Although it is
intended that futures contracts will only be entered into if there is an active
market for such contracts, there is no assurance that an active market will
exist for the contracts at any particular time. Some futures exchanges limit the
amount of fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit. It is possible that
futures contract prices could move to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting the Portfolio's assets to substantial losses.
In such event, and in the event of adverse price movements, daily cash payments
of variation margin would be required. In such circumstances, an increase in the
value of the portion of the securities being hedged, if any, may partially or
completely offset losses on the futures contract. However, as described above,
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there is no guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and thus provide
an offset to losses on the futures contract.
If the Adviser has hedged against the possibility of an event adversely
affecting the value of securities being held through the Portfolio and that
event does not occur, part or all of the benefit of the increased value of
securities which have been hedged will be lost due to the offsetting losses in
futures positions. Losses incurred in hedging transactions and the costs of
these transactions will affect performance. In addition, in such situations, if
there is insufficient cash, securities might have to be sold to meet daily
variation margin requirements at a time when it would be disadvantageous to do
so. These sales of securities could, but will not necessarily, be at increased
prices which reflect the change in interest rates or currency values, as the
case may be.
Interest Rate Futures. Interest rate futures contracts are standardized
contracts traded on commodity exchanges involving an obligation to purchase or
sell a predetermined amount of debt security at a fixed date and price.
When deemed advisable, interest rate futures contracts or related
options that are traded on U.S. or non-U.S. exchanges may be entered into. Such
investments will be made solely for the purpose of hedging against the effects
of changes in the value of securities due to anticipated changes in interest and
when the transactions are economically appropriate to the reduction of risks
inherent in the management of the Portfolio's assets.
Options on Futures Contracts. Put and call options may be purchased and
written on interest rate and foreign currency futures contracts that are quoted
or traded on an official stock exchange or other regulated market as a hedge
against changes in interest rates and market conditions, and closing
transactions may be entered into with respect to such options to terminate
existing positions. There is no guarantee that such closing transactions can be
effected.
An option on an interest rate futures contract, as contrasted with the
direct investment in such a contract, gives the purchaser the right, in return
for the premium paid, to assume a position in a fixed-income security futures
contract at a specified exercise price at any time prior to the expiration date
of the option. An option on a foreign currency futures contract, as contrasted
with the direct investment in the contract, gives the purchaser the right, but
not the obligation, to assume a long or short position in the relevant
underlying currency at a predetermined exercise price at a time in the future.
Upon exercise of an option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the futures contract. The potential loss related to the purchase of an option
on futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and that
change would be reflected in the Portfolio's assets.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
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options will be based upon predictions as to anticipated trends in interest
rates and securities markets by the Adviser, which could prove to be incorrect.
Even if those expectations were correct, there may be an imperfect correlation
between the change in the value of the options and of the portfolio securities
hedged.
Equity Index Futures Contracts. The Adviser also may enter into equity
index futures contracts to offset anticipated price changes in securities that
are currently held or are anticipated to be purchased. An equity index future
contract is an agreement to buy or sell an index relating to equity securities
at a mutually agreed upon date and price. Equity index futures contracts are
often used to hedge against anticipated changes in the level of stock prices. As
with other types of futures contracts, as noted above, when this type of
contract is entered into a deposit called an "initial margin" will be made. This
initial margin must be equal to a specified percentage of the value of the
contract and it is in the nature of a performance bond or good faith deposit on
the contract. Subsequent payments may also be made, known as "variation margin,"
on a daily basis as the positions in the futures contract become more or less
valuable.
Limitations on Futures and Options Transactions.
The Commodity Exchange Act prohibits U.S. persons, such as the
Portfolio, from buying or selling certain foreign futures contracts or options
on such contracts. Accordingly, foreign futures or options transactions will not
be engaged in 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. The Supervisors have filed a notice of eligibility for exclusion
from the definition of the term "commodity pool operator" with the CFTC and the
National Futures Association, which regulate trading in the futures markets. The
Adviser intends to comply with Rule 4.5 under the Commodity Exchange Act, which
limits the extent to which the Portfolio's assets may be committed to initial
margin deposits and option premiums.
In addition, in order to assure that the Portfolio will not be
considered a "commodity pool" for purposes of CFTC rules, transaction in futures
contracts or options on futures contracts will only be entered into if (1) such
transactions constitute bona fide hedging transactions, as defined under CFTC
rules or (2) no more than 5% of the Portfolio's assets are committed as initial
margin or premiums to positions that do not constitute bona fide hedging
transactions.
Currency Hedging Transactions
Investments in non-U.S. securities involve non-U.S. currencies. The
value of the Portfolio's assets may be affected favorably or unfavorably by
changes in non-U.S. currency exchange rates and exchange control regulations,
including blockage of currency conversions, and costs may be incurred in
connection with conversions between various currencies. The Adviser may engage
in currency hedging transactions to protect against uncertainty in the level of
future exchange rates. The Adviser may seek to protect principally against
changes in the value of foreign currencies when compared to the Swiss Franc, the
principal denomination of the Portfolio's assets.
The value of the Portfolio's assets as measured in U.S. dollars also
may be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations. The Adviser, however, does not presently intend to
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engage in currency transactions to hedge the currency risks of investing in
Swiss Francs and other currencies, when compared to U.S. dollars. For this
reason, the Portfolio's assets may be exposed to increased risk of changes in
currency valuations.
Income received from currency hedging transactions could be used to pay
expenses and would increase total return. Foreign currency transactions will be
conducted either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency market or through forward foreign exchange contracts to
purchase or sell currency. Listed foreign currency options and options on
foreign currency futures may be purchased and sold for hedging purposes.
Instruments offered by brokers that combine forward contracts, options
and securities in order to reduce foreign currency exposure may also be invested
in.
The following is a description of the hedging instruments which may be
utilized with respect to foreign currency exchange rate fluctuation risks.
Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Dealings in forward
currency exchange will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the purchase or sale
of forward currency with respect to specific receivables or payables generally
accruing in connection with the purchase or sale of portfolio securities.
Position hedging is the sale of forward currency with respect to portfolio
security positions denominated or quoted in the currency being sold or in
another currency in which portfolio securities are denominated, the movements of
which tend to correlate to the movement in the currency sold forward (the
"hedged currency"). A hedge with respect to a particular currency may not be
positioned to an extent greater than the aggregate market value (at the time of
making such sale) of the securities denominated or quoted in or currently
convertible into that particular currency or the hedged currency. If a position
hedging transaction is entered into, cash or liquid securities will be placed in
a segregated account in an amount equal to the value of the assets committed to
the consummation of the forward contract or the currency will be owned subject
to the hedge, or the right to buy or sell it as the case may be. If the value of
the securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the commitment with respect to the contract. Hedging
transactions may be made from any non-Swiss currency into Swiss francs or into
other appropriate currencies.
Forward contracts are entered into in the interbank market conducted
directly between currency traders (usually large U.S. or non-U.S. commercial
banks) and their customers. Forward contracts may be entered into in the
following two circumstances:
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(1) When a foreign currency denominated security is purchased for
settlement in the near future, the non-U.S. currency needed to
pay for and settle the transaction, may immediately be
purchased in the forward market.
(2) When the Adviser believes that the currency of a specific
country may deteriorate against another currency, a forward
contract may be entered into to sell the less attractive
currency and buy the more attractive one. The amount in
question could be more or less than the value of the
securities being held through the Portfolio denominated in the
less attractive currency. While such actions are intended to
protect the value of the Portfolio's assets from adverse
currency movements, there is a risk that the currency
movements involved will not be properly anticipated. Use of
this currency hedging technique may also be limited by
management's need to protect the U.S. tax status of certain
investors in the Portfolio as a regulated investment
companies.
At or before the maturity of a forward contract, a portfolio security
may be sold and delivery of the currency may be taken, or the security may be
retained and the contractual obligation to deliver the currency may be offset by
purchasing a second contract pursuant to which, on the same maturity date, the
same amount of the currency that is obligated to be delivered will be obtained.
If the portfolio security is retained and an offsetting transaction is engaged
in, at the time of execution of the offsetting transaction, a gain or a loss
will be incurred to the extent that movement has occurred in forward contract
prices. Should forward prices decline during the period between entering into a
forward contract for the sale of a currency and the date an offsetting contract
is entered into for the purchase of the currency, a gain will be realized to the
extent the price of the currency to be sold exceeds the price of the currency to
be purchased. Should forward prices increase, a loss will be suffered to the
extent the price of the purchased currency exceeds the price of the sold
currency.
The cost of engaging in currency transactions varies with factors such
as the currency involved, the length of the contract period and the market
conditions then prevailing. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved. The
use of forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currency, at the same time, they limit any potential gain that might result
should the value of the currency increase.
If a devaluation is generally anticipated, it may not be possible to
contract to sell the currency at a price above the devaluation level it
anticipates.
Foreign Currency Options. Put and call options on foreign currencies
may be purchased for the purpose of hedging against changes in future currency
exchange rates. Foreign currency options generally have three, six and nine
month expiration cycles. Put options convey the right to sell the underlying
currency at a price which is anticipated to be higher than the spot price of the
currency at the time the option expires. Call options convey the right to buy
the underlying currency at a price which is expected to be lower than the spot
price of the currency at the time the option expires.
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Foreign currency options may be used under the same circumstances that
forward currency exchange transactions may be used. A decline in the value of a
foreign currency in which securities are denominated, for example, will reduce
the value of the securities, even if their value in the foreign currency remains
constant. In order to protect against such diminution in the value of
securities, put options on the foreign currency may be purchased. If the value
of the currency does decline the right to sell the currency for a fixed amount
will be maintained and will thereby offset, in whole or in part, the adverse
effect on its securities that otherwise would have resulted. Conversely, if a
rise in the value of a currency in which securities to be acquired are
denominated is projected, thereby potentially increasing the cost of the
securities, call options on the particular currency may be purchased. The
purchase of these options could offset, at least partially, the effects of the
adverse movements in exchange rates. The benefit derived from purchases of
foreign currency options, like the benefit derived from other types of options,
will be reduced by the amount of the premium and related transaction costs. In
addition, if currency exchange rates do not move in the direction or to the
extent anticipated, losses on transactions in foreign currency options could be
sustained that would require a portion or all of the benefits of advantageous
changes in the rates to be forgone.
Options on Securities
Call options may be sold and put options may be bought that are quoted
or traded on an official stock exchange or other regulated market exclusively
for hedging purposes i.e. at the time of selling call options or buying put
options on securities, either the underlying securities or equivalent call
options or other instruments which may be used to adequately cover the
liabilities arising therefrom, such as warrants must be held. The underlying
securities to said call options sold (or put options bought) may not be realized
as long as the options thereon have not expired, unless these are covered
(closed) by matching options or by other instruments which may be used to this
effect.
The contract value of the hedging transactions effected may not exceed
100% of the Portfolio's assets at the time the contract is concluded.
Potential commitments from sales of covered call options will not be
taken which, valued at the strike price, exceed 25% of the Portfolio's assets
less the options held through the Portfolio.
By buying a put, the risk of loss from a decline in the market value of
the security is limited until the put expires. Any appreciation in the value of
and the yield otherwise available from the underlying security, however, will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. In order to generate income or as a hedge to reduce
investment risk, the adviser may write covered call options (within the limits
described above). Fees (referred to as "premiums") are realized for granting the
rights evidenced by the call options written. If a put purchased is not sold or
exercised when it has remaining value, or if the market price of the underlying
security remains equal to or greater than the exercise price, during the life of
the option, the put will expire worthless and the premium paid for the option
will be lost.
Only covered call options may be written. Accordingly, whenever a call
option is written the ownership or the present right to acquire the underlying
security will be retained without additional consideration for as long as the
obligation, as the writer of the option, continues. To support the obligation to
purchase the underlying security, if a put option is exercised, either (1) cash,
U.S. Government securities or other liquid assets having a value at least equal
to the exercise price of the underlying securities will be deposited with the
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Custodian in a segregated account or (2) an equivalent number of puts of the
same "series" (that is, puts on the same underlying security having the same
exercise prices and expiration dates as those written), or an equivalent number
of puts of the same "class" (that is, puts on the same underlying security) with
exercise prices greater than those that have been written (or, if the exercise
prices of the puts held are less than the exercise prices of those written, the
difference will be deposited with the Custodian in a segregated account) will be
maintained.
The principal reason for writing covered call options on a security is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the writer
of a covered call option forfeits the right to any appreciation in the value of
the underlying security above the strike price for the life of the option (or
until a closing purchase transaction can be effected). Nevertheless, the call
writer retains the risk of a decline in the price of the underlying security.
The size of the premiums may be received may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
Options written will normally have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. In-the-money call options may be written when the Adviser expects
that the price of the underlying security will remain flat or decline moderately
during the option period. At-the-money call options may be written when the
Adviser expects that the price of the underlying security will remain flat or
advance moderately during the option period. Out-of-the-money call options may
be written when the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received.
Upon the exercise of a put option written an economic loss may be
suffered equal to the difference between the price required to purchase the
underlying security and its market value at the time of the option exercise,
less the premium received for writing the option. Upon the exercise of a call
option written, an economic loss may be suffered equal to the excess of the
security's market value at the time of the option's exercise over the greater of
(i) the acquisition cost of the security and (ii) the exercise price, less the
premium received for writing the option.
So long as the obligation of the writer of an option continues, the
writer may be assigned an exercise notice by the broker-dealer through which the
option was sold, requiring the writer to deliver the underlying security against
payment of the exercise price. This obligation terminates when the option
expires or the writer effects a closing purchase transaction. The writer can no
longer effect a closing purchase transaction with respect to an option once it
has been assigned an exercise notice. To secure its obligation to deliver the
underlying security when it writes a call option, the writer will be required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation (the "Clearing Corporation") and of
the securities exchange on which the option is written.
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A closing purchase transaction may be engaged in to realize a profit,
to prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, prior to the holder's
exercise of an option, an option would be purchased of the same series as that
on which there is a desire to terminate the obligation. The obligation under an
option that has been written would be terminated by a closing purchase
transaction, but an option would not be deemed to be owned as the result of the
transaction. There can be no assurance that the Adviser will be able to effect
closing purchase transactions at a time when it wishes to do so. To facilitate
closing purchase transactions, however, options will be written if a secondary
market for the option exists on a recognized securities exchange or in the
over-the-counter market. Option writing may be limited by position and exercise
limits established by securities exchanges and the National Association of
Securities Dealers, Inc. (the "NASD"). Furthermore, at times, option writing may
be limited in order for certain investors through the Portfolio to qualify as a
regulated investment company under the Code. Options transactions may be entered
into as hedges to reduce investment risk, generally by making an investment
expected to move in the opposite direction of a portfolio position. A hedge is
designed to offset a loss on a portfolio position with a gain on the hedge
position. The Portfolio's assets bear the risk that the prices of the securities
being hedged will not move in the same amount as the hedge. Hedging transactions
will only be engaged in when the Adviser deems advisable. Successful use of
options will depend on the Adviser's ability to correctly predict movements in
the direction of the security or currency underlying the option used as a hedge.
Losses incurred in hedging transactions and the costs of these transactions will
affect the performance of investments being made through the Portfolio.
A profit or loss may be realized upon entering into a closing
transaction. In cases where an option has been written, a profit will be
realized if the cost of the closing purchase transaction is less than the
premium received upon writing the original option and a loss will be incurred if
the cost of the closing purchase transaction exceeds the premium received upon
writing the original option. Similarly, when an option has been purchased and a
closing sale transaction has been engaged in, whether a profit or loss is
realized will depend upon whether the amount received in the closing sale
transaction is more or less than the premium initially paid for the original
option plus the related transaction costs.
Only those options for which the Adviser believes there is an active
secondary market so as to facilitate closing transactions will generally be
purchased or written. There is no assurance that sufficient trading interest
will exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
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the ability to terminate options positions established in the over-the-counter
market may be more limited than for exchange-traded options and also may involve
the risk that securities dealers participating in over-the-counter transactions
would fail to meet their obligations. Over-the-counter options will only be
purchased from dealers whose debt securities are considered to be investment
grade. If a covered call option writer is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. In either case, the writer would continue to be at market risk on the
security and could face higher transaction costs, including brokerage
commissions.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or written,
or exercised within certain time periods, by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the investors in
the Portfolio and other clients of the Adviser and certain of its affiliates may
be considered to be such a group. A securities exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions. Dollar amount limits apply to U.S. Government
securities. These limits may restrict the number of options that may be
purchased on a particular security.
In the case of options written that are deemed covered by virtue of
holding convertible or exchangeable preferred stock or debt securities, the time
required to convert or exchange and obtain physical delivery of the underlying
common stock with respect to options which have been written may exceed the time
within which delivery must be made in accordance with an exercise notice. In
these instances, the underlying securities may be purchased or temporarily
borrowed for purposes of physical delivery. By so doing, no market risk will be
born, since the absolute right to receive from the issuer of the underlying
security an equal number of shares to replace the borrowed stock will be
retained. However, additional transaction costs or interest expenses in
connection with any such purchase or borrowing may be incurred.
Additional risks exist with respect to certain of the U.S. Government
securities for which covered call options may be written. If covered call
options are written on mortgage-backed securities, the mortgage-backed
securities that are held as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, an
appropriate additional amount of mortgage-backed securities will be purchased to
compensate for the decline in the value of the cover.
In addition to covered options being written for other purposes,
options transactions may be entered into as hedges to reduce investment risk,
generally by making an investment expected to move in the opposite direction of
a portfolio position. A hedge is designed to offset a loss on a portfolio
position with a gain on the hedged position; at the same time, however, a
properly correlated hedge will result in a gain on the portfolio position being
offset by a loss on the hedged position. There is a risk that the prices of the
securities being hedged will not move in the same amount as the hedge. Hedging
transactions will only be engaged in when the Adviser deems advisable.
Successful use of options will be subject to the Adviser's ability to predict
correctly movements in the direction of the securities underlying the option
used as a hedge. Losses incurred in hedging transactions and the costs of these
transactions will affect the performance of the investments being held through
the Portfolio.
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Options on Share Indices
Call options may be sold and put options may be bought on share indices
for hedging purposes only. The following provisions apply:
a) there must be a high degree of correlation between the composition
of the share index and the composition of the underlying securities to
be hedged.
b) the contract value of the hedging transactions carried out according to
this paragraph may not exceed 100% of the market value of the underlying
securities to be hedged at the time the contract is concluded.
Options on indices are similar to options on securities except that on
exercise or assignment, the parties to the contract pay or receive an amount of
cash equal to the difference between the closing value of the index and the
exercise price of the option times a specified multiple. The effectiveness of a
hedge employing stock index options will depend primarily on the degree of
correlation between movements in the value of the index underlying the option
and in the portion of the portfolio being hedged.
INVESTMENT LIMITATIONS
The following investment limitations apply to the Portfolio's assets.
These limitations will continue to apply to all of the assets being held through
the Portfolio unless a majority in interest of the investors investing through
the Portfolio decide otherwise. Certain investors may be required by law to
consult with their shareholders prior to making such decisions.
The Adviser may not:
1 issue senior securities through the Portfolio. For purposes of this
limitation, borrowing money in accordance with paragraph 2 below,
making loans in accordance with paragraph 6 below, the issuance of
shares in multiple classes or series, the purchase or sale of options,
futures contracts, forward commitments, swaps and transactions in
repurchase agreements are not deemed to be senior securities;
2 borrow money, except in amounts not to exceed one third of the total
assets being held through the Portfolio (including the amount borrowed)
(i) from banks for temporary or short-term purposes or for the
clearance of transactions, (ii) in connection with a partial withdrawal
by an investor or to finance failed settlements of portfolio trades
without immediately liquidating portfolio securities or other assets,
(iii) in order to fulfill commitments or plans to purchase additional
securities pending the anticipated sale of other portfolio securities
or assets and (iv) pursuant to reverse repurchase agreements. For
purposes of this limitation, (a) the deposit of assets in escrow in
connection with the purchase of securities on a when-issued or
delayed-delivery basis and (b) collateral arrangements with respect to
options, futures or forward currency contracts will not be deemed to be
borrowings or pledges of the assets being held through the Portfolio;
3 underwrite any issue of securities through the Portfolio except to the
extent that the investment in restricted securities and the purchase of
fixed-income securities directly from the issuer thereof in accordance
with the Portfolio's investment objective, policies and limitations may
be deemed to be underwriting or as otherwise permitted by law;
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4 purchase or sell real estate or related option rights through the
Portfolio except that the Adviser may (i) invest through the Portfolio
in securities of issuers that invest in real estate or interests
therein, (ii) invest through the Portfolio in securities that are
secured by real estate or interests therein, (iii) purchase and sell
mortgage-related securities through the Portfolio, and (iv) hold and
sell real estate acquired through the Portfolio as a result of the
ownership of securities;
5 acquire commodities or commodity contracts (including precious metals
and certificates representing them), except the Adviser may purchase
and sell financial futures contracts, options on financial futures
contracts and warrants and may enter into swap and forward commitment
transactions through the Portfolio. The entry into forward foreign
currency exchange contracts is not and shall not be deemed to involve
investing in commodities;
6 make loans, except that the Adviser may (i) lend portfolio securities
with a value not exceeding one-third of the Portfolio's assets, (ii)
enter into repurchase agreements, and (iii) purchase all or a portion
of an issue of debt securities (including privately issued debt
securities), bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of the
securities.
Non-Fundamental Investment Limitations. The following investment limitations
apply to the Portfolio's assets. These limitations will continue to apply to all
of the assets being held through the Portfolio unless a majority in interest of
the investors investing through the Portfolio decide otherwise.
The Adviser may not:
(i) purchase securities of other investment companies if as a result
(i) more than 5% of the total assets being held through the Portfolio
will be invested in the securities of one investment company, (ii) more
than 5% of the total assets being held through the Portfolio will be
invested in the aggregate in securities of open-ended investment
companies as a group, (ii) more than 10% of the total assets being held
through the Portfolio will be invested in the aggregate in securities
of open-ended investment companies as a group, or (iv) more than 3% of
the outstanding voting stock of any one investment company will be held
through the Portfolio. Such investments may only be made if the
investment company in question is recognized as an UCITS.
(ii) invest more than 10% of the value of the Portfolio's assets in
securities which may be illiquid because of legal or contractual
limitations on resale or securities for which there are no readily
available market quotations. For purposes of this limitation,
repurchase agreements with maturities greater than seven days and time
deposits maturing in more than seven calendar days shall be considered
illiquid;
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(iii) make short sales of securities through the Portfolio or maintain a
short position through the Portfolio, except that the Adviser may
maintain short positions through the Portfolio in forward currency
contracts, options and futures contracts;
(iv) purchase securities through the Portfolio on margin, except that the
Adviser may obtain any short-term credits necessary for the clearance
of purchases and sales of securities through the Portfolio. For
purposes of this limitation, the maintenance of margin in connection
with options, forward contracts and futures contracts or related
options will not be deemed to be a purchase of securities on margin;
(v) invest more than 10% of the Portfolio's assets in securities that are
not Recognized Securities or in debt instruments that are treated as
equivalent to transferable securities;
(vi) invest more than 10% of the Portfolio's assets in securities of any one
issuer or invest more than 40% of the total assets being held through
the Portfolio in the aggregate in the securities of those issuers in
which the Adviser has invested in excess of 5% but not more than 10% of
the Portfolio's assets;
(vii) invest more than 35% of the Portfolio's assets in securities
issued or guaranteed by an EU member state, its local authorities,
another recognized country or a public international body of which one
or more member states of the EU are members. Such securities are not
taken into account in determining the 40% maximum in subsection (vi)
above. The limits in paragraphs (vi) and (vii) are not cumulative. As a
result, the investments in securities of the same issuer as defined in
paragraphs (vi) or (vii) may not under any circumstances exceed a total
of 35% of the Portfolio's assets. By way of derogation from sections
(vi) and (vii), the Adviser may invest in accordance with the principle
of risk diversification up to 100% of the Portfolio's assets in
transferable securities issued or guaranteed by an EU member state, its
local authorities, another recognized country or a public international
body of which one or more member states of the EU are members, provided
however, that the Adviser must hold through the Portfolio securities
from at least six different issues and that the securities from any one
issue may not account for more than 30% of the Portfolio's assets;
(viii) invest more than 10% in the securities in circulation of a particular
category from the same issuer or acquire shares through the Portfolio
carrying voting rights which would result in de jure or de facto
control or the exercise of a significant influence over the management
of the issuer;
(ix) grant loans through the Portfolio to third parties or act as
guarantor on behalf of third parties;
(x) take up loans through the Portfolio exceeding a total of 10% of the
Portfolio's assets at market, and only then in the form of short-term
credits from highly rated banks;
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(xi) pledge securities through the Portfolio as collateral for a
secured loan, mortgage them or otherwise lend them through the
Portfolio as collateral security unless necessary with regard to the
lendings permitted in paragraph (x). In this case, such mortgaging,
collateral lending or pledging may not account for more than 10% of the
Portfolio's assets at market. The lodgement of securities or other
assets in a special safe custody account in connection with options and
financial futures contracts are not deemed to constitute collateral
lending or pledging for the purpose of this provision;
(xii) invest through the Portfolio in any assets associated with an
unlimited liability;
(xiii) borrow money, except in amounts not to exceed 10% of the total
assets being held through the Portfolio (including the amount borrowed)
(i) from banks for temporary or short-term purposes or for the
clearance of transactions, (ii) in connection with the redemption of
interests or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets, (iii) in
order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets
and (iv) pursuant to reverse repurchase agreements entered into through
the Portfolio. For purposes of this limitation, (a) the deposit of
assets in escrow in connection with the purchase of securities on a
when-issued or delayed-delivery basis and (b) collateral arrangements
with respect to options, futures or forward currency contracts will not
be deemed to be borrowings or pledges of the assets being held through
the Portfolio;
In addition:
(xv) No associated party may for its own account, acquire securities
from, sell securities to or lend securities as collateral through the
Portfolio, nor for its own account , extend loans to or obtain loans
through the Portfolio, where such transactions do not fall within the
limitations and other regulations agreed upon by the investors and
either a) in the case of securities the price of the security cannot be
determined through a publicly available listing on an internationally
recognized securities market, or , on a case-by-case basis, by the
investors using market prices b) in the case of loans, the interest
rates are not in line with those applicable on internationally
recognized money markets. In this connection, "associated parties" are
the investment advisers and the custodian, all managers and employees,
and all their significant shareholders (this means investors which, in
the knowledge of the board of directors, hold on their own behalf or on
behalf of others more than 10% of the issued and outstanding shares of
a company).
Percentage and Rating Limitations. If a percentage or rating limitation on
investment or utilization of assets set forth above or referred to in Part A is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the portfolio
securities or a later change in the rating of a portfolio security is not
considered a violation of policy.
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Item 13. Management.
The Portfolio's Supervisors, as set forth below, monitor and oversee
investment through the Portfolio.
The Supervisors and executive officers of the Portfolio, their business
addresses, and principal occupation during the past five years (although their
titles may have varied during the period) are:
[INSERT SUPERVISOR/OFFICER (NAME, ADDRESS, 5 YEAR BIO)]
* Supervisor who has a discretionary account with Julius Baer Securities
(less than $100,000).
** "Interested person" of the Portfolio.
Messrs. [ ] and [ ] are members of the Audit Committee. The Audit
Committee provides advice with respect to accounting, auditing and financial
matters affecting the investments through the Portfolio.
No director, officer or employee of the investment adviser, the
placement agent, or the administrator of the Portfolio, or any parent or
subsidiary thereof receives any compensation from the Portfolio for serving as
an officer or Supervisor. Each Supervisor who is not a director, officer or
employee of the investment adviser, the placement agent or the administrator of
the Portfolio or any affiliate thereof will receive an annual fee of [] plus []
for each meeting attended and reimburse them for travel and out-of-pocket
expenses.
The address of each officer of the Portfolio is [].
Item 14. Control Persons and Principal Holders of Securities.
As of April 30, 2000, the Julius Baer Swiss Stock Fund, a series of the
Julius Baer Multistock Funds and the Julius Baer Multistock Swiss Stock Fund, a
series of the Julius Baer Multistock SICAV owned approximately []% and []%,
respectively, of the assets being held through the Portfolio.
So long as the Julius Baer Multistock Swiss Stock Fund has a majority in
interest of the investors investing through the Portfolio, it may take actions
without the approval of any other investor through the Portfolio.
Certain investors have informed the Portfolio that whenever they are
requested to vote on matters pertaining to the Portfolio (other than a vote to
continue the operation of the Portfolio upon the withdrawal of another
investor), they will hold a meeting of their shareholders and will cast their
votes as instructed by those shareholder.
Item 15. Investment Advisory and Other Services.
Bank Julius Baer & Co. Ltd., 330 Madison Avenue, New York, NY 10017,
serves as the investment adviser to each investor through the Portfolio. Each
investor has entered into a substantially identical investment advisory
agreement with the Adviser.
The Adviser is the New York branch of a Swiss bank.
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[] ("[]" or the "Administrator"), located at [ADDRESS], serves as
administrator to each investor through the Portfolio. The Adviser and the
Administrator each serve pursuant to separate written agreements.
Placement Agent
As the Portfolio is limited to private placement transactions, it has not
retained the services of a principal underwriter or distributor. [], acting as
agent for the Portfolio, serves as the placement agent for the Portfolio and is
responsible for seeking out additional entities to invest through the Portfolio.
[] receives no compensation for serving as placement agent.
Custodian
Banque Internationale a Luxembourg ("BIL") is custodian of the
Portfolio's assets pursuant to a substantially identical custodian agreement
(the "Custodian Agreement") with each investor through the Portfolio. For its
services under the Custodian Agreement and for administrative, fund accounting
and other services, BIL receives an annual fee equal to [ ]% of each investor's
average daily net assets. Under the Custodian Agreement, BIL (a) maintains a
separate account in the name of each investor, (b) holds and transfers portfolio
securities, (c) makes receipts and disbursements of money, (d) collects and
receives all income and other payments and distributions on account of the
securities being held through the Portfolio and (e) makes periodic reports to
the Board of Trustees of each investor. BIL is authorized to select one or more
U.S or non U.S. banks or trust companies to serve as sub-custodian on behalf of
each investor. The U.S. assets are held under bank custodianship in accordance
with the 1940 Act.
Rules adopted under the 1940 Act permit the Adviser to maintain
securities and cash in the custody of certain eligible non-U.S. banks and
depositories. All non-U.S. securities are held by the Custodian or by
sub-custodians which are approved by the investors or a non-U.S. custody manager
appointed by the Trustees of the investor in accordance with these rules. Each
investor has appointed BIL to be its non-U.S. custody manager. The determination
to place assets with a particular non-U.S. sub-custodian is made pursuant to
these rules which require a consideration of a number of factors including, but
not limited to, the reliability and financial stability of the sub-custodian;
the sub-custodian's practices, procedures and internal controls; and the
reputation and standing of the sub-custodian in its national market.
Independent Auditors
PriceWaterhouseCoopers act as the independent auditors of the
Portfolio.
Item 16. Brokerage Allocation, Transactions and Other Practices.
Purchases and sales of newly-issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid to underwriters of newly issued securities usually includes a concession
paid by the issuer to the underwriter, and purchases of securities from dealers,
acting as either principals or agents in the after market, are normally executed
at a price between the bid and asked price, which includes a dealer's mark-up or
mark-down. Transactions on U.S. stock exchanges and some non-U.S. stock
exchanges involve the payment of negotiated brokerage commissions. On exchanges
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on which commissions are negotiated, the cost of transactions may vary among
different brokers. On most non-U.S. exchanges, commissions are generally fixed.
There is generally no stated commission in the case of securities traded in U.S.
or non-U.S. over-the-counter markets, but the price of securities traded in
over-the-counter markets includes an undisclosed commission or mark-up. U.S.
Government securities are generally purchased from underwriters or dealers,
although certain newly-issued U.S. Government securities may be purchased
directly from the United States Treasury or from the issuing agency or
instrumentality.
The Adviser will select specific portfolio investments and effect
transactions. The Adviser seeks to obtain the best net price and the most
favorable execution of orders. In evaluating prices and executions, the Adviser
will consider the factors it deems relevant, which may include the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of a broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, to the extent that the execution and price offered by more than one
broker or dealer are comparable, an Adviser may, in its discretion, effect
transactions in portfolio securities with dealers who provide brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the investors and/or other accounts over which the
Adviser exercises investment discretion. Research and other services received
may be useful to the Adviser in serving both the Portfolio, its investors and
its other clients and, conversely, research or other services obtained by the
placement of business of other clients may be useful to the Adviser in carrying
out its obligations to each investor. The fee to the Adviser under its advisory
agreement with each investor is not reduced by reason of its receiving any
brokerage and research services.
Investment decisions made through the Portfolio concerning specific
portfolio securities are made independently from those for other clients advised
by its Adviser. Such other investment clients may invest in the same securities
that are being held through the Portfolio. When purchases or sales of the same
security are made at substantially the same time on behalf of such other
clients, transactions are averaged as to price and available investments
allocated as to amount, in a manner which the Adviser believes to be equitable
to each client. In some instances, this investment procedure may adversely
affect the price paid or received or the size of the position obtained or sold
through the Portfolio. To the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased through the Portfolio with those to be
sold or purchased for such other investment clients in order to obtain best
execution.
Any portfolio transaction entered into through the Portfolio may be
executed through [] ("[]")], each investor's distributor (a "Distributor"), or
Julius Baer Securities Inc., or any of their affiliates if, in the Adviser's
judgment, the use of such entity is likely to result in price and execution at
least as favorable as those of other qualified brokers, and if, in the
transaction, such entity charges a commission rate consistent with those charged
by such entity to comparable unaffiliated customers in similar transactions.
In no instance will portfolio securities be purchased from or sold to
the Adviser, the Distributor or any affiliated person of such companies as
principal unless permitted by SEC rules, orders or interpretive or no-action
positions of the SEC or its staff.
The Adviser may participate, if and when practicable, in bidding for
the purchase of securities directly from an issuer in order to take advantage of
the lower purchase price available to members of such a group. The Adviser will
engage in this practice, however, only when it, in its sole discretion, believes
such practice to be otherwise in an investor's interest.
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Portfolio Turnover
The Adviser does not intend to seek profits through short-term trading,
but the rate of turnover will not be a limiting factor when the Adviser deems it
desirable to sell or purchase securities. The Portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of securities being held
through the Portfolio for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
High rates of portfolio turnover can lead to increased taxable gains to
investors' shareholders and higher expenses.
Certain practices that may be employed by the Adviser could result in
high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold.
Item 17. Capital Stock and Other Securities.
The Portfolio is a fiduciary arrangement under the law of the State of
New York. The Portfolio was established on January 20, 2000 and is separately
registered with the SEC as an open-end management investment company within the
meaning of the 1940 Act.
U.S. mutual funds, investment funds organized outside the United States
and U.S. and non-U.S. institutional investors may invest all or a portion of
their assets through the Portfolio on the same terms and conditions. However,
these investors may have different sales commissions and other operating
expenses which may generate different aggregate performance results.
Investors though the Portfolio, such as investment funds organized
outside the United States, may be subject to laws and regulations that are
different from the laws and regulations to which a U.S. investment fund is
subject. In providing services with respect to the assets being held through the
Portfolio, the Adviser and other service providers will conduct their respective
activities in a manner so that those activities are in compliance with the laws
and regulations applicable to each investor through the Portfolio. As a result,
certain investment policies and restrictions governing the investment of the
aggregate assets being held through the Portfolio for all investors may be more
restrictive in certain respects than the investment policies and limitations
which would govern the investment of an investor's assets if it were not
investing through the Portfolio. However, the Adviser does not believe that this
difference will have any material impact on its selection of securities for
purchase or sale.
Investors are entitled to participate pro rata in distributions of
taxable income, loss, gain and credit from the Portfolio's assets. Upon
liquidation or dissolution of the Portfolio, investors are entitled to share pro
rata in the assets being held through the Portfolio available for distribution
to the investors. Investments through the Portfolio have no preference,
preemptive, conversion or similar rights and are fully paid and nonassessable,
except as set forth below. Investments through the Portfolio may not be
transferred but an investor may withdraw all or any portion of its investment at
any time at net asset value.
Each investor is entitled to a vote in proportion to the amount of its
investment through the Portfolio. Investors through the Portfolio do not have
cumulative voting rights, and investors holding more than 50% of assets being
held through the Portfolio may elect all of the Supervisors if they choose to do
27
<PAGE>
so and in such event the other investors in the Portfolio would not be able to
elect any Supervisor. There is no requirement nor current intention to hold
annual meetings of investors but meetings of investors will be held when it is
necessary or desirable to submit matters for an investor vote. Changes in
fundamental policies may only be made with the approval of investors.
The end of the Portfolio's fiscal year is December 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any U.S. income tax. However, each investor
through the Portfolio will be taxable on its share of the 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 the assets being held through the Portfolio, income
and distributions will be managed in such a way that a U.S. investor will be
able to satisfy the requirements of Subchapter M of the Code, assuming that the
investor invested all of its assets through the Portfolio.
Investor inquiries may be directed to [ADDRESS & PHONE NUMBER].
Upon the winding up or bankruptcy of any investor, or upon the total
withdrawal of any of the other investors from the Portfolio, the Portfolio shall
be terminated with effect from 120 days after such event. However, the investors
(other than such wound up, bankrupt or withdrawing investor) may by a written
instrument executed by or in respect of each such investor and by the
Supervisors agree to continue in respect of such investors even if there has
been such a termination.
Investors through the Portfolio share pro rata in the obligations and
liabilities incurred through the Portfolio.
Item 18. Purchase, Redemption and Pricing of Securities.
Investments in the Portfolio may only be made through private
placements transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments are limited to other
investment companies, insurance company separate accounts, common or commingled
trust funds, or similar organizations or entities which are "accredited
investors" as defined in Rule 501 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.
All investments are made at net asset value next determined after an
order is received in "good order." The net asset value of the Portfolio is
determined once on each day the banks in Luxembourg are open for business.
There is no minimum initial or subsequent investment through the
Portfolio. However, because the Adviser intends to fully invest the Portfolio's
assets at all times as is reasonably practicable in order to enhance the yield
on the assets, investments must be made in immediately available funds.
The right to cease accepting investments at any time or to reject any
investment is reserved.
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<PAGE>
Each investor in the Portfolio may add to or reduce the amount of its
assets being held through the Portfolio on each Portfolio Business Day. As of
4:00 P.M., Eastern time on each such day, the value of the assets of each
investor being held through the Portfolio is determined by multiplying the
aggregate value of the assets of all investors being held through the Portfolio
by the percentage for that participant, effective for that day, which represents
that investor's proportional share of such aggregate value. Any additions or
reductions, which are to be effected on that day, are then effected and the
aggregate value of the assets of all investors being held through the Portfolio
is then adjusted. The percentage representing each investor's proportional share
of such adjusted aggregate value is then computed as the percentage equal to the
fraction (i) the numerator of which is the value of the assets of such investor
being held through the Portfolio as of 4:00 P.M., Eastern time on such day plus
or minus, as the case may be, the amount of any addition to or reduction in the
amount of the assets of such investor being held through the Portfolio effected
on such day, and (ii) the denominator of which is the aggregate value of the
assets of all investors being held through the Portfolio as of 4:00 P.M.,
Eastern time on such day plus or minus, as the case may be, the amount of the
aggregate net addition to or reduction in the aggregate value of the assets of
all investors being held through the Portfolio effected on such day. The
percentage so determined is then applied to determine the value of the assets of
such investor being held through the Portfolio on the next Portfolio Business
Day.
An investor through the Portfolio may withdraw all of its assets which
were being held through the Portfolio at any time. Upon any such withdrawal, the
investor would receive specific securities selected by predetermined procedures
which have been designed so that each security position will be both a whole
unit (i.e., no fractional shares) and a commercially viable unit (i.e., one that
could be sold in the market with minimal transaction costs).
The net income and capital gains and losses, if any, are determined at
4:00 p.m., New York time on each business day. Net income for days other than
Portfolio Business Days is determined as of 4:00 p.m., New York time on the
immediately preceding business day. All the net income, as defined below, and
capital gains and losses, if any, so determined are allocated pro rata among the
investors through the Portfolio at the time of such determination.
For this purpose the "net income" (from the time of the immediately
preceding determination thereof) consists of (i) accrued interest, accretion of
discount and amortization of premium less (ii) all actual and accrued expenses
(including the fees payable to the Adviser and Administrator).
Because of the need to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of the net asset value
may not take place contemporaneously with the determination of the prices of
certain of the portfolio securities used in such calculation. A security which
is listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. All assets and
liabilities initially expressed in non-Swiss currency values will be converted
into Swiss Franc values at the mean between the bid and offered quotations of
such currencies against Swiss Francs as last quoted by any recognized dealer. If
such quotations are not available, the rate of exchange will be determined in
good faith in accordance with the terms of the Advisory Agreement. In carrying
out the valuation policies, BIL, as the accounting agent, may consult with an
independent pricing service retained by the investor.
Securities listed on a U.S. securities exchange (including securities
traded through the National Market System) or on a non-U.S. securities exchange
will be valued on the basis of the closing value on the date on which the
29
<PAGE>
valuation is made or, in the absence of sales, at the mean between the closing
bid and asked prices. U.S. over-the-counter securities and securities listed or
traded on certain non-U.S. stock exchanges whose operations are similar to the
U.S. over-the-counter market will be valued on the basis of the bid price at the
close of business on each day, or, if market quotations for those securities are
not readily available, at fair value, as determined pursuant to the terms of the
Advisory Agreement. Securities listed on a national securities exchange will be
valued on the basis of the last sale on the date on which the valuation is made
or, in the absence of sales, at the mean between the closing bid and asked
prices. The valuation of fixed-income securities held through the Portfolio
(other than U.S. Government securities and short-term investments) is made by
BIL after consultation with an approved independent pricing service (the
"Pricing Service"). When, in the judgment of the Pricing Service, quoted bid
prices for investments are readily available and are representative of the bid
side of the market, these investments are valued at the mean between the quoted
bid prices and asked prices. Investments for which, in the judgment of the
Pricing Service, there is no readily obtainable market quotation are carried at
fair value as determined by the Pricing Service. For the most part, such
investments are liquid and may be readily sold. Notwithstanding the above, the
Pricing Service may employ electronic data processing techniques and/or a matrix
system to determine valuations. The procedures of the Pricing Service are
reviewed periodically, and may be replaced by any such Pricing Service at any
time. Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined pursuant to the
Advisory Agreement. Amortized cost involves valuing an instrument at its
original cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. All other securities and other assets being
held through the Portfolio will be valued at their fair value as determined
pursuant to the Advisory Agreement.
Trading in securities on most non-U.S. exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and may also take place on days the New York Stock Exchange is closed. If events
materially affecting the value of non-U.S. securities occur between the time
when the exchange on which they are traded closes and the time when the net
asset value is calculated, such securities would be valued at fair value in
accordance with procedures established by and under the general supervision of
the Portfolio's Supervisors.
Item 19. Tax Status.
The Portfolio is not subject to any income or franchise tax in the
State of New York. However each investor in the Portfolio will be taxable on its
share (as determined in accordance with the governing instruments of the
Portfolio) of the 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.
Although, as described above, the Portfolio will not be subject to
federal income tax, appropriate income tax returns will be filed.
Transactions in non-U.S. currencies, forward contracts, options and
futures contracts (including options and futures contracts on non-U.S.
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of realized gains and losses (i.e., may affect
whether gains or losses are ordinary or capital), accelerate recognition of
income and defer losses. These rules could therefore affect the character,
amount and timing of distributions. These provisions also (a) will require the
30
<PAGE>
Adviser to mark-to-market certain types of the positions held through the
Portfolio (i.e., treat them as if they were closed out), and (b) may cause
income to be realized without receiving cash. The Adviser will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in the books and when it acquires any non-U.S. currency,
forward contract, option, futures contract or hedged investment in order to
mitigate the effect of these rules and prevent disqualification of any U.S.
investor as a "regulated investment company".
Certain options contracts held through the Portfolio at the end of each
fiscal year are required to be "marked to market" for federal income tax
purposes; that is, treated as having been sold at market value. Sixty percent of
any gain or loss recognized on these deemed sales and on actual dispositions are
treated as long-term capital gain or loss, and the remainder are treated as
short-term capital gain or loss regardless of how long such options were held.
The Adviser may be required to defer the recognition of losses on stock or
securities to the extent of any unrecognized gain on offsetting positions held
for through the Portfolio.
Non-U.S. Investors. Allocations of U.S. source dividend income to an
investor who, as to the United States, is a foreign trust, non-U.S. corporation
or other non-U.S. investor will be subject to U.S. withholding tax at the rate
of 30% (or lower treaty rate). Allocations of interest or short term or net long
term capital gains to non-U.S. investors will not be subject to U.S. tax.
Other Taxation. The investment by an investor through 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 through the Portfolio.
Item 20. Underwriters.
The placement agent for the Portfolio is [], which receives no compensation for
serving in this capacity. Other investment companies, insurance company separate
accounts, common and commingled trust funds and similar organizations and
entities may continuously invest through the Portfolio.
Item 21. Calculations of Performance Data.
Not applicable.
Item 22. Financial Statements.
Not Applicable
31
<PAGE>
APPENDIX -- DESCRIPTION OF RATINGS
Commercial Paper Ratings
Standard and Poor's Ratings Group Commercial Paper Ratings
A S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest.
A-1 - This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
Moody's Investors Service's Commercial Paper Ratings
Prime-1 - Issuers (or related supporting institutions) rated "Prime-1"
have a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2 - Issuers (or related supporting institutions) rated "Prime-2"
have a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions.
Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay principal.
AA -- Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay interest and repay principal is very strong and differs from AAA
issues only in small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
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BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC and C -- Bonds rated "BB", "B" , "CCC", "CC" and "C" are
regarded, on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CI - Bonds rated "CI" are income bonds on which no interest is being
paid.
To provide more detailed indications of credit quality, the ratings set
forth above may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa -- Bonds that are rated "Aaa" are judged to be of the best quality
and carry the smallest degree of investment risk. Interest payments are
protected by a large or exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated "Baa" are considered to be medium grade
obligations, that is, they are neither highly protected nor poorly secured.
Interest payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. These bonds lack outstanding
investment characteristics and may have speculative characteristics as well.
Ba -- Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B -- Bonds that are rated "B" generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
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Caa -- Bonds that are rated "Caa" are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca -- Bonds that are rated "Ca" represent obligations that are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds that are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "B." The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.
34
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PART C
Item 23. Exhibits.
(a) Form of Global Hub and Spokesm Agreement.
(b) By-laws.(1)
(c) Not Applicable.
(d) Form of Investment Management Agreement.(1)
(e) Placement Agent Agreement.(1)
(f) Not Applicable.
(g) Form of Custodian Agreement. (1)
(h) Form of Administration Agreement. (1)
(i) Not Applicable.
(j) Not Applicable.
(k) Not Applicable.
(l) Investment representation letters of initial investors.(1)
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Code of Ethics.(1)
(1) To be filed by Amendment.
_____________________________
"GLOBAL HUB AND SPOKEsm" is a service mark of Signature Financial Group, Inc.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Except for the material contracts attached as exhibits hereto and the
Global Hub and Spoke Agreement by and among the Supervisors of the Registrant
and the Julius Baer Multistock Funds on behalf of Julius Baer Swiss Stock Fund,
dated December [ ], 1999 (the "Declaration", there is no contract, arrangement
or statute under which any Trustee, Supervisor, officer, underwriter or
affiliated person of the Portfolio is insured or indemnified. The Declaration
provides that no Trustee or officer will be indemnified against any liability to
which the Portfolio would otherwise be subject by reason of or for willful
misfeasance, bad faith, gross negligence or reckless disregard of such person's
duties.
Item 26. Business and Other Connections of Investment Adviser.
Bank Julius Baer & Co., Ltd., New York Branch ("BJB-NY") serves as the
investment adviser to Julius Baer International Equity Fund, Julius Baer Global
Income Fund and each series of Julius Baer Multistock Funds. BJB-NY also
provides Julius Baer International Equity Fund with certain administrative and
shareholder services that are not provided by the Administrator and also acts as
servicing agent to Julius Baer Global Income Fund. BJB-NY is a Swiss bank that
has over 50 years experience in international portfolio management. A list of
officers and directors of BJB-NY as of January 1, 1999 is set forth below. The
address of the following individuals is 330 Madison Avenue, New York, New York.
Officers of BJB-NY are Brian Ach (Vice President), Karen Arrese (Vice
President), Jeanette Attina (Vice President), Nuri Benturk (First Vice
President), Francoise Birnholz (Senior Vice President), John Boys (First Vice
President), David Broder (Vice President), Keith Christopher (Vice President),
Philip Ciriello (Senior Vice President), Paula Cirigliano (Vice President),
Edward Clapp (First Vice President), Louis Dempsey (Vice President), Michael Di
Leo (Vice President), Denise Downey (First Vice President), David Durrant (Vice
President), Balthasar Eggimann (Management Committee), Peter Embiricos (Vice
President), Cono Gallo (First Vice President), Gary Goldschmidt (First Vice
President), Barbara Hahn (First Vice President), Martin Hirlemann (Vice
President), Anita Hlibczuk (Vice President), Josef Huber (First Vice President),
David Kreisa (Vice President), Gary Lespinasse (Management Committee), Hanson
Liang (First Vice President), Mark Linnan (Management Committee), Maria Lipton
(First Vice President), Lisa Markowitz (Vice President), William Marr (Senior
Vice President), Elliot Mayerhoff (First Vice President), Gina Mendoza (Vice
President), Larry Millman (First Vice President), Richard Pell (Senior Vice
President), Brenda Pimentel (Vice President), Alphonse Pugliesi (Vice
President), Michael Quain (First Vice President), Manuel Reyes (First Vice
President), Terrence Reynolds (Vice President), Ashley Richards (First Vice
President), Sadakichi Robbins (Vice President), Michael Rosen (Vice President),
Hector Santiago (Vice President), Susan Scarborough (Vice President), Urs
Schwytter (Management Committee), Paolo Seiferle (Vice President), Walter Simon
(First Vice President), Bernard Spilko (General Manager/Senior Vice President),
Dominique Spillman (Vice President), Joachim Straehle (Deputy Branch
Manager/Senior Vice President), Benjamin Strauss (Vice President), Elaine
Taranto (Vice President), David Taylor (First Vice President), Michael Testorf
(Vice President), Vasili Tsamis (First Vice President), Keith Walter (Vice
President), Oskar Weiss (First Vice President), Rudolf-Riad Younes (First Vice
President), Nicholas Zografos (Vice President).
C-2
<PAGE>
Item 27. Principal Underwriters.
[INSERT]
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of:
Swiss Stock Portfolio
21 Milk Street
Boston, MA 02109
Bank Julius Baer & Co., Ltd., New York Branch
330 Madison Avenue
New York, NY 10017
(investment manager)
Banque Internationale a Luxembourg
69, route d'Esch
L-2953 Luxembourg
(custodian)
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
Swiss Stock Portfolio has duly caused this registration statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston, Commonwealth of Massachusetts on the 20th day of January, 2000.
SWISS STOCK PORTFOLIO
By: /s/ PHILIP W. COOLIDGE
Philip W. Coolidge
President
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ---------- ----------------------
EX99.(a) Form of Global Hub and Spokesm Agreement
GHS001
[Name of Global Hub Portfolio]
--------------------------------------------------------
GLOBAL HUB AND SPOKEsm AGREEMENT
Dated as of [Date]
By and Among
[Name of Investment Fund]
and the Supervisors of the Global Hub Portfolio Named Therein
______________________________
"GLOBAL HUB AND SPOKEsm" is a service mark of Signature Financial Group, Inc.
<PAGE>
TABLE OF CONTENTS
Section Page
1. Supervisors......................................................... 2
1.1 Appointment................................................ 2
1.2 Vacancies; Qualifications.................................. 2
1.3 Term; Resignation, Removal and Retirement; By-Laws......... 2
1.4 Duties and Responsibilities................................ 3
1.5 Action by the Supervisors.................................. 3
1.6 Powers; Expenses........................................... 3
1.7 Limitation of Liability to the Fund........................ 3
1.8 Indemnification............................................ 3
1.9 No Duty of Investigation................................... 4
1.10 Reliance on Others......................................... 4
2. Representations and Warranty of the Fund ........................... 4
3. Term ............................................................... 5
4. Amendment .......................................................... 5
5. Non-Transferability................................................. 5
6. Notices............................................................. 5
7. Governing Law; Jurisdiction......................................... 6
8. Global Hub and Spoke Arrangements; Name............................. 6
9. Provisions or Arrangements in Conflict with Other Agreements,
Law or Regulations................................................. 6
Appendix Page
A-1. Form of Investment Advisory Arrangements with [Name of
Investment Adviser].............................................. A-1
A-2. Form of Administration Arrangements with [Name of Administrator].. A-[]
B. Form of Custodian Arrangements with [Name of Custodian]............ B-1
C. Investment Objective, Policies and Restrictions.................... C-1
i
<PAGE>
GHS001
GLOBAL HUB AND SPOKEsm AGREEMENT
GLOBAL HUB AND SPOKE AGREEMENT, dated as of [Date], by and among [Name
of Investment Fund], a [Form of Organization] (the "Fund"), and the individuals
named on the signature page hereof, such individuals (together with each
individual hereafter appointed as such pursuant to Section 1.2 hereof) acting
hereunder in a fiduciary capacity are hereinafter referred to as the
"Supervisors".
WITNESSETH:
WHEREAS, pursuant to an Agreement, the Fund has appointed and delegated
to [Name of Investment Adviser], a [Form of Organization] (the "Investment
Adviser"), the duties and responsibilities set forth in the investment advisory
arrangements set forth in Appendix A-1 hereof and the Investment Adviser has
accepted such appointment; and
WHEREAS, pursuant to an Agreement, the Fund has appointed and delegated
to [Name of Administrator], a [Form of Organization] (the "Administrator"), the
duties and responsibilities set forth in the administration arrangements set
forth in Appendix A-2 hereof and the Administrator has accepted such
appointment; and
WHEREAS, pursuant to an Agreement, the Fund has appointed and delegated
to [Name of Custodian], a [Form of Organization] (the "Custodian"), the duties
and responsibilities set forth in the custodian arrangements set forth in
Appendix B hereof and the Custodian has accepted such appointment; and
WHEREAS, the Fund desires to appoint the Supervisors, among other
things, to monitor and oversee the arrangements which are the subject of this
Global Hub and Spoke Agreement (the "Global Hub and Spoke arrangements") and
each Supervisor desires to accept such appointment and to serve in such
capacity; and
WHEREAS, in connection with such appointments and the Global Hub and
Spoke arrangements, the Fund desires all or part of the securities, cash and/or
other assets (collectively, "Assets") owned by the Fund to be held for
safekeeping by the Custodian or one or more sub-custodians; and
WHEREAS, with respect to all Assets of the Fund which are held from
time to time for safekeeping by the Custodian or one or more sub-custodians the
Fund desires to receive advice from the Investment Adviser in accordance with
the investment objective, policies and restrictions set forth in Appendix C
hereof.
______________________________
"GLOBAL HUB AND SPOKEsm" is a service mark of Signature Financial Group, Inc.
2
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Supervisors.
1.1 Appointment. The Fund hereby appoints each individual named on
the signature page hereof as a Supervisor and empowers each
such individual and each individual hereafter appointed as a
Supervisor pursuant to Section 1.2 hereof with the duties and
responsibilities to monitor and oversee in a fiduciary
capacity the Global Hub and Spoke arrangements, and each
individual named on the signature page hereof hereby accepts
such appointment to act in a fiduciary capacity as such a
Supervisor.
1.2 Vacancies; Qualifications. The number of Supervisors shall be
fixed from time to time by the Fund. The Fund may increase the
number of Supervisors and may fill any vacancy created by a
Supervisor's death, resignation, retirement, removal or
adjudicated incompetence or other incapacity to perform the
duties or discharge the responsibilities of a Supervisor by
the appointment of an individual of at least 21 years of age
who is not under a legal disability. No vacancy shall operate
to annul this Global Hub and Spoke Agreement or to revoke any
direction or delegation previously given or made pursuant to
the terms of this Global Hub and Spoke Agreement. Any
appointment of a Supervisor after the date hereof shall not
become effective until the individual named shall in writing
have accepted such appointment and agreed to be bound by the
terms of this Global Hub and Spoke Agreement. Until any such
appointment becomes effective, the remaining Supervisors,
regardless of their number, shall have all the powers granted
to the Supervisors by this Global Hub and Spoke Agreement and
shall perform all the duties and discharge all the
responsibilities imposed upon the Supervisors by this Global
Hub and Spoke Agreement.
1.3 Term; Resignation, Removal and Retirement; By-Laws. Each
Supervisor shall serve as such during the term of the Global
Hub and Spoke arrangements except in the event of a
Supervisor's death, resignation, retirement, removal or
adjudicated incompetence or other incapacity to perform the
duties or discharge the responsibilities of a Supervisor. A
Supervisor may resign without the need for a prior or
subsequent accounting for his or her acts and transactions as
a Supervisor. The Fund shall adopt By-Laws for the monitoring
and overseeing by the Supervisors of the Global Hub and Spoke
arrangements, including the appointment of officers or other
agents to assist the Supervisors. Such By-Laws may be amended
from time to time by the Fund. The Fund agrees to furnish the
Supervisors with a copy of such By-Laws (and any amendment
thereto) and to provide in such By-Laws (and in each amendment
thereto) that such By-Laws (or any such amendment) shall not
become effective until the Supervisors acknowledge receipt of
such By-Laws (or such amendment) and have agreed to be bound
by the terms of such By-Laws (or such amendment).
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1.4 Duties and Responsibilities. The Supervisors shall have the
duties and responsibilities of monitoring and overseeing the
Global Hub and Spoke arrangements. These duties and
responsibilities shall include, but not be limited to, the
duties and responsibilities referred to in Sections 1.5, 1.6,
1.9 and 1.10 hereof and the monitoring and oversight of the
Investment Adviser, Administrator and Custodian. No Supervisor
shall, as such, be obligated to give any bond or surety or
other security for the performance of any of such Supervisor's
duties or the discharge of any of such Supervisor's
responsibilities hereunder.
1.5 Action by the Supervisors. Any action which is or may be
required to be taken by the Supervisors pursuant to this
Global Hub and Spoke Agreement or applicable law or regulation
shall, unless otherwise expressly provided to the contrary, be
taken by a majority of the Supervisors either at a meeting or
by written consent. Unless otherwise expressly provided in
this Global Hub and Spoke Agreement or by applicable law or
regulation, the Supervisors shall have the power to delegate
the taking of any such action to such person or persons as the
Supervisors may determine and where applicable any such
delegation shall be deemed to be a delegation by the Fund to
such delegee.
1.6 Powers; Expenses. In connection with the performance of the
monitoring and oversight functions as described herein, the
powers of the Supervisors shall include any power vested in
the Supervisors by this Global Hub and Spoke Agreement and by
any applicable law or regulation, including, but not limited
to, the power to enter into other agreements pursuant to the
provisions of Section 8 hereof and the power to incur
liabilities for governmental fees, fees and expenses of
independent auditors and legal counsel, licensing fees,
insurance premiums, and expenses of preparing and mailing
reports to the Fund and to governmental officers and
commissions. Subject to the prior written consent of the Fund,
the Supervisors may also perform such other acts or incur such
other costs and liabilities as they deem proper for the
monitoring and oversight of the Global Hub and Spoke
arrangements, including the incurring of liability for fees
and expenses of the Supervisors. The powers of the Supervisors
may be exercised without order of or resort to any court.
1.7 Limitation of Liability to the Fund. No Supervisor shall be
liable to the Fund for any action or failure to act except for
such Supervisor's own bad faith, wilful misfeasance, gross
negligence or reckless disregard of such Supervisor's duties.
1.8 Indemnification. The Fund shall indemnify, to the fullest
extent permitted by applicable law and regulation, each
individual who is a Supervisor against all liabilities and
expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by such individual in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such
individual may be involved or with which such individual may
be threatened by reason of such individual being or having
been a Supervisor and which is brought by or on behalf of a
holder of shares in the Fund, except with respect to any
matter as to which such individual shall have been adjudicated
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<PAGE>
to have acted in bad faith or with wilful misfeasance or gross
negligence or reckless disregard of such individual's duties;
provided, however, that as to any matter disposed of by a
compromise payment by such individual, no indemnification
either for such payment or for any other expenses shall be
provided unless there has been a determination that such
individual did not act in bad faith or with wilful misfeasance
or gross negligence or reckless disregard of such individual's
duties by a court or other body approving the disposition or
by written opinion from independent legal counsel approved by
the Fund and the other Supervisors based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that such individual did not engage in such conduct.
The Fund shall make advance payments in connection with the
indemnification provided for in the preceding sentence,
provided that the indemnified individual shall have given a
written undertaking to reimburse the Fund in the event it is
subsequently determined that such individual is not entitled
to such indemnification. The rights accruing to any individual
under these provisions shall not exclude any other right to
which such individual may be lawfully entitled.
1.9 No Duty of Investigation. Every obligation, contract,
instrument, certificate or other interest or undertaking made
or given in connection with the monitoring and oversight by
the Supervisors of the Global Hub and Spoke arrangements, and
every other act or thing whatsoever done in connection
therewith, shall be conclusively taken to have been done by
the persons responsible therefor only in their capacity as
Supervisors. Any person dealing with a Supervisor may rely on
the validity of any such obligation, contract, instrument,
certificate, interest, undertaking, act or thing without any
obligation to make any further inquiry concerning such
validity.
1.10 Reliance on Others. Each Supervisor shall, in the performance
of such individual's duties and in the discharge of such
individual's responsibilities, be fully and completely
justified and protected with regard to any act or any failure
to act resulting from reliance in good faith upon the books
and records reflecting the Global Hub and Spoke arrangements,
upon an opinion of counsel, or upon reports made or
information or advice given, or the absence of certain reports
to be made or information or advice to be given, by any
officer or other agent appointed to assist the Supervisors or
by or under the direction of the Investment Adviser,
Administrator, Custodian or by any accountant, expert,
consultant or delegee of the Supervisors selected with
reasonable care by the Supervisors, regardless of whether such
counsel, accountant or expert may also be a Supervisor.
2. Representations and Warranty of the Fund. The Fund hereby represents
to each Supervisor that this Global Hub and Spoke Agreement has been,
and each agreement entered into by the Fund in connection herewith has
been or will be, duly executed and delivered by the Fund and constitute
the valid obligations of the Fund, legally binding upon it and
enforceable against it in accordance with their respective terms.
Neither such execution or delivery, nor the performance by the Fund of
its rights and obligations under this Global Hub and Spoke Agreement,
any such agreement or the Global Hub and Spoke arrangements, including
the delegation of functions to the Investment Adviser, Administrator
and Custodian, constitutes a violation or breach of any charter or
governing instrument of the Fund, or of any law, order, injunction or
regulation to which the Fund is subject, which would have a material
adverse effect on the ability of the Fund to carry out the terms of
5
<PAGE>
this Global Hub and Spoke Agreement, any such agreement or the Global
Hub and Spoke arrangements. The Fund hereby warrants that it will
inform each Supervisor in the event that the performance by the Fund of
its rights and obligations under this Global Hub and Spoke Agreement,
any such agreement or the Global Hub and Spoke arrangements would
constitute such violation or breach at any time subsequent to the
execution and delivery thereof.
3. Term. This Global Hub and Spoke Agreement may be terminated at any time
either by the Fund or, with the prior written approval of the Fund, by
a written instrument executed by the Supervisors. Upon the conclusion
of the winding up of the Global Hub and Spoke arrangements, the
Supervisors shall be discharged from all further liability,
accountability and responsibility under this Global Hub and Spoke
Agreement, and the rights and interests of all parties under this
Global Hub and Spoke Agreement shall thereupon cease.
4. Amendment. This Global Hub and Spoke Agreement may be amended by a
written instrument executed by the Fund and the Supervisors. No
amendment to any provision of this Global Hub and Spoke Agreement shall
affect any of the other provisions of this Global Hub and Spoke
Agreement or the Global Hub and Spoke arrangements or render invalid or
improper any action taken or omitted prior thereto, unless such
amendment expressly provides otherwise.
5. Non-Transferability. Each and all of the provisions of this Global Hub
and Spoke Agreement shall be binding upon and inure to the benefit of
the parties hereto and, except as otherwise specifically provided in
this Global Hub and Spoke Agreement, their respective successors and
assigns. This Global Hub and Spoke Agreement and any rights herein
granted and any obligations herein assumed may not be transferred,
sold, exchanged, assigned or encumbered by any party.
6. Notices. Any notice, instruction or other document to be given under
this Global Hub and Spoke Agreement by any party hereto to any other
shall be in writing and shall be delivered personally, sent by
registered or certified mail, postage prepaid, or sent by facsimile or
electronic mail transmission as follows:
(a) if to the Fund, to:
(b) if to [Name of Supervisor], to:
(c) if to [Name of Supervisor], to:
(d) if to [Name of Supervisor], to:
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<PAGE>
or to such other address as may be specified in writing to the other
parties hereto, and shall be deemed to have been given if delivered
personally upon delivery at the relevant address, if sent by registered
or certified mail seven business days after the date of posting, and if
sent by facsimile or electronic mail transmission when dispatched
subject to confirmation of uninterrupted transmission or receipt by a
transmission or similar report.
7. Governing Law; Jurisdiction. [Insert applicable provision]
8. Global Hub and Spoke Arrangements; Name. The Fund acknowledges that
the Supervisors, in their sole discretion, have entered or intend to
enter into one or more other agreements substantively identical in all
material respects to this Global Hub and Spoke Agreement (such other
agreements together with this Global Hub and Spoke Agreement are
hereinafter referred to as the "Agreements") with other collective
investment entities or investors (such entities or investors together
with the Fund are hereinafter referred to as the "Funds") and/or the
trustee, manager, depositor, depositary or sponsor thereof. At such
time as the Supervisors enter into one or more other Agreements the
Fund shall adopt procedures for the operation of the Global Hub and
Spoke arrangements. Such procedures shall be substantially identical in
all material respects to the procedures adopted by other Funds that
have entered into Agreements. Such procedures may be amended from time
to time by the Fund. Such procedures may be amended from time to time
by the Fund. The Fund agrees to furnish the Supervisors with a copy of
such procedures (and any amendment thereto) and to provide in such
procedures (and in each amendment thereto) that such procedures (or any
such amendment) shall not become effective until the Supervisors
acknowledge receipt of such procedures (or such amendment) and have
agreed to be bound by the terms of such procedures (or such amendment).
The Global Hub and Spoke arrangements may be referred to as the "[Name
of Global Hub Portfolio]".
9. Provisions or Arrangements in Conflict with Other Agreements, Law or
Regulations. If the provisions of this Global Hub and Spoke Agreement
conflict with the provisions of any other agreement entered into by the
Fund in connection with the Global Hub and Spoke arrangements, the
provisions of this Global Hub and Spoke Agreement shall prevail. The
provisions of this Global Hub and Spoke Agreement and the Global Hub
and Spoke arrangements shall at all times be interpreted and
implemented so as not to violate the requirements of any laws and
regulations with which the parties hereto and the parties to the other
Agreements must comply. In the event that such provisions or
arrangements or the interpretation or implementation thereof are in
violation of the requirements of such laws or regulations, this Global
Hub and Spoke Agreement may be amended by the Fund and the Supervisors
in accordance with Section 4 hereof to correct such violation.
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IN WITNESS WHEREOF, the parties hereto have caused this Global Hub and
Spoke Agreement to be executed as of the day and year first above written.
[Name of Investment Fund]
By:_________________________________
_________________________________
[Name of Supervisor]
_________________________________
[Name of Supervisor]
_________________________________
[Name of Supervisor]
GHS001
8
<PAGE>
APPENDIX A-1
INVESTMENT ADVISORY ARRANGEMENTS
GHS001
A-1
<PAGE>
APPENDIX A-2
ADMINISTRATION ARRANGEMENTS
GHS001
A-2
<PAGE>
APPENDIX B
CUSTODIAN ARRANGEMENTS
GHS001
B-1
<PAGE>
APPENDIX C
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objective
Investment Policies
Investment Restrictions
GHS001
C-1
