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'40 Act File No. 811-9791
As filed with the Securities and Exchange Commission on September 5, 2000.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
(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
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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.
Julius Baer Investment Management Inc. ("JBIMI" or the "Adviser") acts
as the investment 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 in a non-diversified and
concentrated selection of common stock, convertible securities and preferred
stock. Ordinarily, the Adviser invests at least two-thirds of the Portfolio's
assets in common or preferred stock -- together with warrants, options or other
instruments that give the right to buy 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's assets, the Adviser seeks to invest in
companies in various industrial groupings in roughly the same proportion as
those categories are represented in a representative index for Swiss securities.
For this purpose, the Adviser currently plans to use the industrial categories
of the Swiss Performance Index ("SPI") -- an index of major companies whose
stock is listed on the SWX Swiss Stock Exchange. The Adviser will treat a
company as falling within an industrial category if it is listed within that
category in the SPI or if the Adviser determines that the company's largest line
of business corresponds to that industrial category. If an industrial category
represents more than 20% of the index, the Adviser could invest more than 25% of
the Portfolio's assets in that industrial category and could weight its
investments by up to 5% over the representation of that industrial category in
the index. Thus, for example, if a specific industrial category represented 25%
of the SPI, the Adviser may (but is not required to) invest up to 30% of the
Portfolio's asssets in that industrial category.
Because the Adviser seeks to invest in industrial categories in roughly
the same proportion as they are reflected in the SPI (with, as described, some
potential over-weighting) and because a small number of companies account for a
large percentage of some industrial categories in the SPI, the Portfolio may be
non-diversified and may be concentrated in particular industrial categories. As
a non-diversified fund, the Portfolio may hold only a small number of stocks or
a have a high percentage of its assets in the equity securities of one company
because that company's stock is heavily weighted in the SPI. As a fund that may
be concentrated, the Adviser may invest a substantial portion of the Portfolio's
assets in a few industrial categories, and it may be
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more susceptible to the risks associated with a single industrial category than
an unconcentrated mutual fund might be.
As of June 1, 2000, the SPI consisted of twelve different industrial
categories. In descending order of their relative weight in the SPI, the
categories were: chemicals and pharmaceuticals; banks; foods; insurance;
electronic and electrical engineering; machinery; building materials;
miscellaneous services; miscellaneous industries; retailers; utilities; and
transportation. On June 1, 2000, chemicals and pharmaceuticals represented the
largest percentage of the SPI, at nearly 33% of its total; banks were the second
largest industrial category in the SPI, representing approximately 19% of the
SPI. By contrast, the transportation category was the smallest in the index and
represented less than 1% of the SPI. The attached chart shows the composition of
the SPI, as of June 1, 2000, broken down by category.
Composition of the
Swiss Performance Index
By Industrial Category
(as of June 30, 2000)
<TABLE>
<S> <C>
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Banks 19.13%
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Insurance Companies 9.86%
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Transportation 0.55%
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Retailers 0.63%
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Miscellaneous Service Businesses 8.22%
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Machinery 2.20%
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Utilities 0.55%
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Chemicals 32.91%
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Food 11.85%
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Electronics 8.99%
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Building and Construction 1.72%
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Miscellaneous Industrial Businesses 3.39%
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TOTAL 100.00%
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</TABLE>
The Adviser will invest at least 90% of the Portfolio's assets in
"recognized securities." For this purpose, "recognized securities" are
securities issued by companies with their registered offices or the major part
of their business activities in Switzerland or Liechtenstein, which securities
are either (a) quoted and transferable on a stock exchange or other regulated
public market in Switzerland or elsewhere in the world, or (b) new issues of
stock that have applied for listing on a stock exchange or other regulated
market, provided that such listing is granted within one year of the
application. This means that the Adviser may invest in securities before they
are listed on an exchange or other regulated market, provided that an
application for listing has been made, but that the Adviser must dispose of such
securities if listing is not granted within one year.
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The Adviser may invest up to one-third of the Portfolio's assets in
securities of companies with their registered offices or the major portion of
their business activities located in the Principality of Liechtenstein. The
Adviser may pursue investments in issuers in Liechtenstein because of the close
affiliations between that country and Switzerland. Liechtenstein is a small
country of 62 square miles and fewer than 35,000 people, which is located on the
border of Switzerland. Liechtenstein shares a common and close history with
Switzerland. The Principality also maintains close economic ties with
Switzerland: It participates in a customs union with Switzerland; it utilizes
the Swiss Franc as its currency; and the shares of Liechtenstein companies are
traded on the SWX Swiss Stock Exchange.
Although the Adviser intends to achieve the investment goals primarily
by investing the Portfolio's assets in equity securities of Swiss companies, the
Adviser also may invest up to one-third of the Portfolio's assets in fixed-rate
or variable-rate debt instruments, convertible bonds or bonds with warrants
attached from corporate issuers. In addition, the Adviser 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 may determine to invest the Portfolio's assets in debt
instruments and warrants and options when it believes that these securities
present superior investment opportunities to investments in equity securities.
When the Adviser determines to invest in these securities, the Portfolio may not
participate in advances or declines in the equity markets to the extent that it
would have if the Portfolio's assets had remained fully invested in equity
securities.
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.
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
forward contracts for hedging purposes. The Adviser may enter into hedging
transactions in an attempt to reduce specific risks, but hedging strategies are
not always successful and could result in increased expenses and losses to the
Portfolio. The Adviser may use hedging transactions to protect the Portfolio
from changes in market or economic conditions that might cause securities that
are already held by the Portfolio to decline in value. The Adviser also may use
hedging transactions to take positions in or to gain exposure to a particular
security or currency in advance of the purchase or sale by the Adviser of that
security or securities denominated in that currency.
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
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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
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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.
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Non-Diversification Risk. The Portfolio is classified as "non-diversified" under
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the 1940 Act. This means that the Portfolio is not limited under the 1940 Act in
the percentage of its assets that it may be invested in any one issuer. However,
the Adviser intends to comply with certain diversification standards applicable
to regulated investment companies under the Internal Revenue Code of 1986. In
order to meet those standards, among other requirements, at the close of each
quarter of its taxable year, not more than 25% of the Portfolio's total assets
(valued at the time of investment) may be invested in the securities of any one
issuer (other that U.S. government securities or securities of other regulated
investment companies).
Because the Adviser may invest a significant percentage of the Portfolio's
assets in a single security, the appreciation or depreciation of such a security
may have a greater effect on the net asset value of the Portfolio than would a
smaller investment in that security. For this reason, the net asset value per
share of the Portfolio may fluctuate more than would the net asset value of a
comparable mutual fund that is diversified.
Industry Concentration Risk. Because a significant portion of a Portfolio's
investments may be invested in one or more industrial categories, the
Portfolio's performance could be hurt significantly by problems affecting those
particular industrial categories. For example, the Portfolio's performance may
be affected significantly by the market, legal, political and other developments
that affect those industries in which the Portfolio's investments are
concentrated. Thus, there could be greater losses in the Portfolio than if its
assets had been invested less in a particular industrial category and more
broadly in a range of industrial categories.
Non-U.S. Investing. Investing in securities of non-U.S. issuers, which
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securities are generally denominated in Swiss Francs and other foreign
currencies, involves both opportunities and risks that are not typically
associated with investing in U.S. securities. The principal risks may include:
fluctuations in the rates of exchange between the U.S. Dollar and the Swiss
Franc and other foreign currencies in which the Portfolio invests; 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 and securities brokers and issuers;
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
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securities of issuers with registered offices or the major part of their
business in one country, Switzerland, and it also may have a significant stake
in securities of issuers of a second and closely related country, Liechtenstein.
Investing and trading in securities of issuers located in one or two countries
increases the Portfolio's vulnerability to economic, political and regulatory
developments within those particular countries.
Special Risks Associated with Swiss and Liechtenstein Securities. In
addition to the above risks, investing in issuers with registered offices or the
major part of their business in Switzerland and Liechtenstein involves special
considerations not usually associated with investing in securities of
established U.S. companies.
To begin with, the accounting and reporting standards that are
applicable to Swiss and Liechtenstein companies differ substantially from U.S.
standards. In general, Swiss and Liechtenstein companies do not provide all of
the disclosures required under U.S. laws and accounting practices, and such
disclosures may be less timely and less frequent than that required of U.S.
companies. For this reason, there may be less information available regarding
Swiss and Liechtenstein companies than U.S. companies.
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Moreover, the Swiss equity markets generally have less trading volume
than U.S. securities markets, and the capitalization of the Swiss equities
markets is highly concentrated in a relatively small number of companies. The
combination of lower trading volume and greater concentration may create a
greater risk of price volatility for the Portfolio than if the Portfolio were
invested in the U.S. securities markets. Finally, there is generally less
government regulation of the Swiss capital markets than the U.S. markets, and
the Swiss market is smaller and less liquid than the markets in the United
States.
Foreign Currency Risk. The Adviser focuses the Portfolio's investments
---------------------
in securities that are denominated in Swiss Francs, and the Adviser also may
make investments in securities denominated in other foreign currencies. The
Adviser does not, however, intend to engage in transactions to protect against
the risk that the value of the Swiss Franc, or other foreign currencies in which
the Portfolio's assets will be invested, will change against the value of the
U.S. Dollar. Thus, a change in the value of the Swiss Franc generally will
result in a change in the U.S. Dollar value of the Fund's assets. This means
that, for example, if the value of the Swiss Franc moves down against the value
of the U.S. Dollar, the Portfolio's net asset value and income for distribution
may decline even if the Portfolio had a positive performance as measured in
Swiss Francs.
Any hedging transactions in which the Adviser determines to engage will
seek to protect the Portfolio's assets only from changes in the exchange rates
between foreign currencies anthe Swiss Franc. For example, if the Adviser
invests in securities that are denominated in Euros, it may (but is not required
to) buy Euro futures or options to attempt to protect the Portfolio from changes
to the value of Euros, as compared to Swiss Francs. That hedging strategy will
not, however, protect the Portfolio from changes in the value of Euros in
relation to U.S. Dollars. Thus, if the value of the Euro falls when compared to
the U.S. Dollar, the Portfolio's value -- in U.S. Dollar terms -- will fall
despite the Adviser's hedging transactions.
For this reason, the Portfolio may be exposed to increased risk of
changes in the value of the Swiss Franc and other foreign currencies, when
compared to the U.S. Dollar.
Interest Rate Risk. Investing in debt securities is subject to the risk that the
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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.
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. 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.
. Participation in 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
JBIMI serves as investment adviser to the Portfolio. Accordingly, JBIMI
makes all investment decisions and performs all of the portfolio management
functions for the Portfolio. JBIMI is registered as an investment adviser with
the SEC under the Investment Advisers Act of 1940; it was founded in 1983 and is
located at 330 Madison Avenue, New York, New York. JBIMI is a subsidiary of
Julius Baer Securities Inc., which in turn is a subsidiary of Julius Baer
Holding Ltd., a publicly traded Swiss-based banking and asset management
firm.
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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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------------------------------------------------------------------------
Investor Fee (as a % of average daily net assets)
------------------------------------------------------------------------
Swiss Stock Fund, a series [ ]%
of Julius Baer Multistock
Funds
------------------------------------------------------------------------
Julius Baer Multistock [_]%
Swiss Stock Fund, a series
of Julius Baer Multistock
SICAV
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Portfolio Management
Messrs. Lorenz Reinhard and Urs Heiniman, who are located in Zurich,
Switzerland, are Vice President and First Vice President, respectively, of
JBIMI, and they manage the day-to-day affairs of the Portfolio. This means that
they make the daily decisions about the securities to purchase and sell to
achieve the Portfolio's investment goal. Mr. Reinhard serves as the portfolio
manager for the Portfolio. From 1995 until 1997, he worked for Bank Julius Baer
as Primary Financial Analyst Switzerland. In 1997, Mr. Reinhard joined Julius
Baer Asset Management Ltd., Zurich, as a portfolio manager and financial analyst
. Since July 1, 1999, he has served as portfolio manager for the predecessor to
the Portfolio. Before joining Bank Julius Baer in 1995, Mr. Reinhard was Primary
Financial Analyst for Zurich Cantonal Bank. Mr. Urs Heiniman serves as the
deputy portfolio manager for the Fund and the Portfolio. Since July 1, 1999, he
has served as deputy portfolio manager for the Portfolio's predecessor. For the
five years before serving as deputy portfolio manager for the Portfolio's
predecessor, Mr. Heiniman was responsible for the Swiss equity portfolios of the
institutional clients of the Julius Baer Group.
Item 7. Investor Information.
The net asset value of the Portfolio's assets is determined once daily
at 4:00 p.m., Eastern time , every day that banks in Luxembourg and Zurich are
open for business (Portfolio Business Day) and are based on the closing prices
of the regular trading session on that day on the SWX Swiss Stock Exchange.
Banks in Luxembourg and Zurich are closed on the following days: January 1 and
2; April 21 and 24; May 1; June 1, 12 and 23; August 1 and 15; November 1, and
December 25 and 26.
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."
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 are 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.
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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.
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<CAPTION>
Table of Contents. Page
<S> <C>
Portfolio History................................................ B-1
Description of Portfolio and Its Investments and Risks........... B-1
Management....................................................... B-23
Control Persons and Principal Holders of Securities.............. B-24
Investment Advisory and Other Services........................... B-25
Brokerage Allocation and Other Practices......................... B-26
Capital Stock and Other Securities............................... B-27
Purchase, Redemption and Pricing of securities................... B-28
Tax Status....................................................... B-31
Underwriters..................................................... B-31
Calculations of Performance Data................................. B-32
Financial Statements............................................. B-32
</TABLE>
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 [_], 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.
Julius Baer Investment Management Inc. ("JBIMI" or "Adviser") acts as
the investment 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 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 Adviser will invest at least 90% of the Portfolio's assets in
"recognized securities." For this purpose, "recognized securities" are
securities issued by companies with their registered offices or the major part
of their business activities in Switzerland or Liechtenstein, which securities
are either (a) quoted and transferable on a stock exchange or other regulated
public market in Switzerland
B-1
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or elsewhere in the world, or (b) new issues of stock that have applied for
listing on a stock exchange or other regulated market , provided that such
listing is granted within one year of the application. This means that the
Adviser may invest in securities before they are listed on an exchange or other
regulated market, provided that an application for listing has been made, but
that the Adviser must dispose of such securities if listing is not granted
within one year.
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.
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
B-2
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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
of transferable securities of international issuers, that is, by banks and firms
in Switzerland or elsewhere in the world, that give the Adviser the right to
purchase equity securities of companies with their registered offices or the
major part of their business activities in Switzerland or Liechtenstein.
Investments in warrants constitute a principal part of the investment strategy
of the Adviser and an important means by which the Adviser anticipates meeting
the investment objectives of the Portfolio and, thereby, the Fund and the other
Spoke funds that invest through the Portfolio. Warrant holdings will consist of
equity warrants, index warrants, covered warrants, interest rate 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
generally have terms
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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".
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.
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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-end
investment company holdings do not exceed 5% 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 to
participate in market advances or declines to the extent that it would if the
Portfolio remained fully invested in equity securities.
The performance of the debt component of securities in 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.
Unrated Debt Securities
The Adviser may invest the Portfolio's assets 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
The Adviser may invest the Portfolio's assets in transferable
convertible securities, consisting of both convertible debt and convertible
preferred stock, which 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
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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,
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.
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
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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
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.
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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.
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 an approved Futures
Commissions 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,
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
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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
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
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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
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:
(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 Portfolio's securities
B-10
<PAGE>
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
anticipated.
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.
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 the 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.
B-11
<PAGE>
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.
Through the purchase of 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
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 that 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.
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
B-12
<PAGE>
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.
When 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,
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.
B-13
<PAGE>
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.
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 Fund seeks to achieve its goal by investing through the Portfolio.
The Adviser invests the Portfolio's assets in a non-diversified and concentrated
selection of common stock, convertible securities and preferred stock.
Ordinarily, the Adviser invests at least two-thirds of the Portfolio's assets in
common or preferred stock -- together with warrants, options or other
instruments that give the Portfolio the right to buy 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's assets, the Adviser seeks to
invest in companies in various industrial groupings in roughly the same
proportion as those categories are represented in a representative index for
Swiss securities. For this purpose, the Adviser currently plans to use the
industrial categories of the Swiss Performance Index ("SPI") -- an index of
major companies whose stock is listed on the SWX Swiss Stock Exchange. The
Adviser will treat a company as falling within an industrial category if it is
listed within that category in the SPI or if the Adviser determines that the
company's largest line of business corresponds to that industrial category. If
an industrial category represents more than 20% of the index, the Adviser could
invest more than 25% of the Portfolio's assets in that industrial category and
could weight its investments by up to 5% over the representation of that
industrial category in the index. Thus, for example, if a specific industrial
category represented 25% of the SPI, the Adviser may (but is not required to)
invest up to 30% of the Portfolio's assets in that industrial category.
The Adviser seeks to invest the Portfolio's assets in industrial
categories in roughly the same proportion as they are reflected in the Swiss
Performance Index ("SPI") (with, as described in the prospectus, some potential
over-weighting). Because a small number of companies and certain industry
classifications account for a large percentage of the SPI, the Portfolio may be
both non-diversified and concentrated in particular industries. As a non-
diversified fund, the Portfolio may hold only a small number of stocks or a have
a high percentage of its assets in the equity securities of one company because
that company's stock is heavily weighted in the SPI. As a fund that may be
concentrated in a few industries, the Adviser may invest a substantial portion
of the Portfolio's assets in a few industrial categories, such as banking or
pharmaceuticals, and it may be
B-14
<PAGE>
more susceptible to the risks associated with a single industrial category than
an unconcentrated mutual fund might be.
As of June 30, 2000, the SPI consisted of twelve different industrial
categories. In descending order of their relative weight in the SPI, the
categories were: chemicals and pharmaceuticals; banks; foods; insurance;
electronic and electrical engineering; machinery; building materials;
miscellaneous services; miscellaneous industries; retailers; utilities; and
transportation. On June 30, 2000, chemicals and pharmaceuticals represented the
largest percentage of the SPI, at nearly 33% of its total; banks were the second
largest industrial category in the SPI, representing approximately 19% of the
SPI. By contrast, the transportation category was the smallest in the index and
represented less than 1% of the SPI. The attached chart shows the composition of
the SPI, as of June 30, 2000, broken down by category.
Composition of the
Swiss Performance Index
By Industrial Category
(as of June 30, 2000)
<TABLE>
<S> <C>
--------------------------------------------------
Banks 19.13%
--------------------------------------------------
Insurance Companies 9.86%
--------------------------------------------------
Transportation 0.55%
--------------------------------------------------
Retailers 0.63%
--------------------------------------------------
Miscellaneous Service Businesses 8.22%
--------------------------------------------------
Machinery 2.20%
--------------------------------------------------
Utilities 0.55%
--------------------------------------------------
Chemicals 32.91%
--------------------------------------------------
Food 11.85%
--------------------------------------------------
Electronics 8.99%
--------------------------------------------------
Building and Construction 1.72%
--------------------------------------------------
Miscellaneous Industrial Businesses 3.39%
--------------------------------------------------
TOTAL 100.00%
--------------------------------------------------
</TABLE>
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.
As a matter of fundamental policy, the following transactions may not take
place in the Fund or Portfolio:
B-15
<PAGE>
1 issuing senior securities through the Portfolio. For purposes of this
restriction, 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 involve the issuance of senior
securities;
2 borrowing money, except as permitted under the 1940 Act, rules or other
applicable exemptions thereunder, as they may be interpreted or modified by
the SEC or its staff from time to time;
3 underwriting 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 limitation may be deemed
to be underwriting or as otherwise permitted by law;
4 purchasing or selling real estate or related option rights through the
Portfolio except that the Adviser may (i) acquire or lease office space for
the use of the Fund, (ii) invest through the Portfolio in securities of
issuers that invest in real estate or interests therein, (iii) invest
through the Portfolio in securities that are secured by real estate or
interests therein, (iv) purchase and sell mortgage-related securities
through the Portfolio, and (v) hold and sell real estate acquired through
the Portfolio as a result of the ownership of securities;
5 acquiring 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 making loans, except that the Adviser may (i) lend portfolio securities
with a value not exceeding one-third of the net assets being held through
the Portfolio, (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.
As a matter of non-fundamental policy, the following transactions may not take
place in the Fund or Portfolio:
(i) purchasing securities of other investment companies if as a result (i) more
than 5% of the Portfolio's total assets will be invested in the securities
of one investment company, (ii) more than 5% of the total assets will be
invested in the aggregate in securities of open-end investment companies as
a group, or (iii) 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.
B-16
<PAGE>
(ii) investing 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;
(iii) making short sales of securities through the Portfolio or maintaining 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) purchasing 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) investing 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) investing more than 10% of the Portfolio's assets in securities of any
one issuer or investing 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) investing 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. Notwithstanding paragraphs (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) acquiring more than 10% in the securities in circulation of a
particular category from the same issuer or acquiring 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) granting loans through the Portfolio to third parties or acting as
guarantor on behalf of third parties;
(x) taking 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;
(xi) pledging securities in the Portfolio as collateral for a secured loan,
mortgage them or otherwise lending 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. Escrow, collateral or custody
arrangements in connection with purchases of securities on a when-
issued or delayed-delivery basis, options, futures or forward currency
contracts are not deemed to constitute collateral lending or pledging
for the purpose of this provision;
(xii) investing through the Portfolio in any assets associated with an
unlimited liability;
(xiii) borrowing money, except in amounts not to exceed 10% of the Portfolio's
total assets (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
B-17
<PAGE>
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;
(xiv) acquiring or leasing office space for use of the Fund.
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.
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:
<TABLE>
<CAPTION>
Name, Address, and Age Position(s) Held with Portfolio Principal Occupation(s) During Past 5 Years
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Martin Vogel, age 36** Supervisor Director of the Legal and Tax Department,
Julius Baer Investment Funds Julius Baer Investment Fund Services
Services Ltd (Zurich) (1996-present); Attorney,
Freighutstrasse 40 Schaufelberger & van Hoboken
Postfach CH - 8010 (1994-1996); Secretary of the Board
Zurich, Switzerland of Directors of the Luxembourg
domiciled investment companies and of
Julius Baer Investment Funds, Ltd
(1996-present); Trustee of BJB Investment
Funds (1997-present)
Antoine Bernheim, age 46 Supervisor President, Dome Capital Management Inc.;
405 Park Avenue President, The U.S. Offshore Funds
New York, New York 10174 Directory Inc.
Harvey B. Kaplan, age 62* Supervisor Controller (Chief Financial Officer),
80 Voice Road Easter Unlimited, Inc. (manufacturer)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Carle Place, New York 11514
Thomas J. Gibbons, age 52 Supervisor President, Cornerstone Associates
111 Sleepy Hollow Management (Consulting Firm)
Sparta, New Jersey 07871
Peter Spinnler, age 54** Supervisor Member, Management Committee of the
Baarerstrasse 63 Julius Baer Group; Head, Business
6300 Zug Line Investment Funds
Switzerland
</TABLE>
* 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.
JBIMI serves as investment adviser to each investor that invests all of its
assets through the Portfolio. Accordingly, JBIMI makes all investment decisions
and performs all of the portfolio management functions for the Portfolio. JBIMI
is registered as an investment adviser with the SEC under the Investment
Advisers Act of 1940; it was founded in 1983 and is located at 330 Madison
Avenue, New York, New York. JBIMI is a subsidiary of Julius Baer Securities
Inc., which in turn is a subsidiary of Julius Baer Holding Ltd., a publicly
traded Swiss-based banking and asset management firm.
B-19
<PAGE>
[] ("[]" 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
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 on behalf of the Portfolio and/or other
accounts over which the Adviser exercises investment discretion with dealers
that provide brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) to the
B-20
<PAGE>
Adviser. 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 the Adviser. Such other investment clients may invest in the same securities
that are held in 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.
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 [ ], 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
B-21
<PAGE>
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
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.
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
B-22
<PAGE>
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
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.
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<PAGE>
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
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
B-24
<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.
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.
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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.
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.
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PART C
Item 23. Exhibits.
(a) Form of Global Hub and Spokesm Agreement. (1)
(b) By-laws. (2)
(c) Not Applicable.
(d) Form of Investment Management Agreement. (2)
(e) Placement Agent Agreement. (2)
(f) Not Applicable.
(g) Form of Custodian Agreement. (2)
(h) Form of Administration Agreement. (2)
(i) Not Applicable.
(j) Not Applicable.
(k) Not Applicable.
(1) Investment representation letters of initial investors. (2)
(m) Not Applicable.
(n) Not Applicable.
(0) Not Applicable.
(p) Code of Ethics. (2)
---------------
(1) Exhibit is incorporated herein by reference to the Portfolio's initial
registration statement on Form N-1A, filed January 20, 2000.
(2) To be filed by Amendment.
Item 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
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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.
Julius Baer Investment Management Inc. ("JBIMI") serves as the investment
adviser to the Julius Baer Swiss Stock Fund and the Swiss Stock Fund. JBIMI is
a subsidiary of Julius Baer Securities Inc., which in turn is a subsidiary of
Julius Baer Holding Ltd., a publicly traded Swiss-based banking and asset
management firm. A list of officers and directors of JBIMI is set forth below.
The address of the following individuals is 330 Madison Avenue, New York, New
York, unless otherwise noted.
Dr. Leo Schrutt (Chairman), Jonathan C. Minter (Vice-Chairman and Chief
Investment Officer), Edward C. Dove (Director - Fixed Income), Tim Haywood
(Senior Fixed Income Portfolio Manager), Glen Wisher (Senior Fixed Income
Portfolio Manager), Dick Howard (Director - Research), Dennis Curtain
(Operations Manager), Jay A. Dirnberger (Vice Chairman and Managing Director),
Michael J. Byl (Assistant Director), Gerald Levy (Assistant Director,
Marketing).
Item 27. Principal Underwriters.
Not applicable.
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
Julius Baer Investment Management Inc.
330 Madison Avenue
New York, NY 10017
(investment manager)
Banque Internationale a Luxembourg
69, route d'Esch
L-2953 Luxembourg
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(custodian)
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
3
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SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
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, and Commonwealth of Massachusetts on this fifth day of
September, 2000.
SWISS STOCK PORTFOLIO
By /s/ PHILIP W. COOLIDGE
Philip W. Coolidge, President
4
