AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 1996
FILE NO. 811-6699
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4
ASSET MANAGEMENT PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 423-0800
Philip W. Coolidge, 6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
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BT0147D
EXPLANATORY NOTE
This Registration Statement has been filed by Asset Management
Portfolio (the "Registrant") pursuant to Section 8(b) of the Investment Company
Act of 1940, as amended. However, beneficial interests in the Registrant are not
being registered under the Securities Act of 1933, as amended (the "1933 Act")
because such interests will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in the Registrant may only be made by investment
companies, insurance company separate accounts, common or commingled trust funds
or similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
beneficial interests in the Registrant.
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BT0147D
PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
Asset Management Portfolio (the "Portfolio") is a no-load, diversified,
open-end management investment company which was organized as a trust under the
laws of the State of New York on December 11, 1991. Beneficial interests in the
Portfolio are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolio may only be made by investment companies, insurance company separate
accounts, common or commingled trust funds or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D under the
1933 Act. This Registration Statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
The investment objective of the Portfolio is to seek high total return
with reduced risk over the long term by allocating investments among stocks,
bonds and short-term instruments.
Additional information about the investment policies of the Portfolio
appears in Part B. There can be no assurance that the investment objective of
the Portfolio will be achieved.
INVESTMENT ALLOCATIONS. In seeking to achieve the Portfolio's
investment objective, Bankers Trust Company ("Bankers Trust"), as the
Portfolio's investment adviser (the "Adviser"), allocates the Portfolio's assets
among three principal asset classes (as discussed below): stocks, bonds and
short-term instruments. Bankers Trust will normally allocate the Portfolio's
assets among the asset classes within the following investment parameters: 0-25%
in short-term instruments; 25-55% in bonds (intermediate to long-term debt
securities); and 40%-70% in stocks (equities). The asset classes of the
Portfolio fluctuate around a neutral position of 10% in short-term investments,
35% in bonds and 55% in stocks. As of March 31, 1996, the Portfolio's asset
classes were allocated as follows: short-term instruments, 1%; bonds, 34%; and
stocks, 65%.
The Portfolio may make substantial temporary investments in cash and
money market instruments for defensive purposes when, in Bankers Trust's
judgment, market conditions warrant.
Bankers Trust regularly reviews the Portfolio's investment allocations,
and will gradually vary them over time to favor asset classes that, in Bankers
Trust's current judgment, provide the most favorable total return outlook. In
making allocation decisions, Bankers Trust will evaluate projections of risk,
market and economic conditions, volatility, yields and expected return. Bankers
Trust will seek to reduce risk relative to an investment in common stocks by
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emphasizing the bond and short-term classes when stocks appear overvalued.
Bankers Trust's management will include use of database systems to help analyze
past situations and trends, research specialists in each of the asset classes to
help in securities selection, portfolio management professionals to determine
asset allocation and to select individual securities, and its own credit
analysis as well as credit analysis provided by rating services to determine the
quality of debt securities.
SHORT-TERM SECURITIES. These securities include all types of domestic
and foreign securities and money market instruments with remaining maturities of
thirteen months or less. Bankers Trust will seek to maximize total return within
the short-term class by taking advantage of yield differentials between
different instruments, issuers and currencies. Short-term instruments may
include foreign and domestic: (i) short-term obligations of sovereign
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) other short-term debt securities rated Aa or higher by
Moody's Investors Service, Inc. ("Moody's") or AA or higher by Standard & Poor's
Corporation ("S&P") or, if unrated, of comparable quality in the opinion of
Bankers Trust; (iii) commercial paper; (iv) bank obligations, including
negotiable certificates of deposit, time deposits and bankers' acceptances; and
(v) repurchase agreements. At the time the Portfolio invests in commercial
paper, bank obligations or repurchase agreements, the issuer or the issuer's
parent must have outstanding debt rated Aa or higher by Moody's or AA or higher
by S&P or outstanding commercial paper or bank obligations rated Prime-1 by
Moody's or A-1 by S&P; or, if no such ratings are available, the instrument must
be of comparable quality in the opinion of Bankers Trust. These instruments may
be denominated in U.S. dollars or foreign currencies and will have been
determined to be of high quality by a nationally recognized statistical rating
organization ("NRSRO") or, if unrated, by Bankers Trust.
BONDS. These securities include all varieties of investment grade
domestic and foreign fixed-income securities with remaining maturities or
durations greater than thirteen months. Bankers Trust seeks to maximize total
returns within the bond class by adjusting the Portfolio's investments in
securities with different credit qualities, maturities, and coupon or dividend
rates, as well as by exploiting yield differentials between securities.
Securities in this class may include bonds, notes, adjustable rate preferred
stocks, convertible bonds, mortgage-related and asset-backed securities,
domestic and foreign government and government agency securities, zero coupon
bonds, Rule 144A securities and other intermediate and long-term securities. As
with the short-term class, these securities may be denominated in U.S. dollars
or foreign currency. No more than 5% of the Portfolio's net assets (at the time
of investment) may be in lower rated (BB/Ba or lower), high yield bonds. The
Portfolio may retain any bond whose rating drops below investment grade if it is
in the best interest of the Portfolio's investors. Securities rated BB/Ba by a
NRSRO are considered to have speculative characteristics. See the Appendix in
Part B for further information on these securities.
STOCKS. These securities include domestic and foreign equity securities
of all types (other than adjustable rate preferred stocks included in the bond
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class). Bankers Trust seeks to maximize total return within this asset class by
actively allocating assets to industry sectors expected to benefit from major
trends, and to individual stocks that it believes to have superior investment
potential. Securities in the stock class may include common stocks, fixed-rate
preferred stocks (including convertible preferred stocks), warrants, rights,
depositary receipts, securities of closed-end investment companies, and other
equity securities issued by companies of any size, located anywhere in the
world.
Bankers Trust believes that diversification of the Portfolio's
investments among the asset classes will, under most market conditions, better
enable the Portfolio to reduce risk while seeking high total return over the
long-term.
MATURITY AND DURATION. The remaining maturity of a fixed-income
instrument is the amount of time left before the bond's principal is due. The
duration of an instrument or a group of instruments measures the instrument's or
group of instruments' value's expected response to changes in interest rates.
FOREIGN INVESTMENTS AND CURRENCY MANAGEMENT. The Portfolio focuses on
U.S. investment opportunities, but may invest a portion of its assets in foreign
securities. The Portfolio will not invest more than 25% of its total assets in
equity securities of foreign issuers under normal conditions. The Portfolio also
will not invest more than 25% of its total assets in each of the bond and
short-term classes in foreign securities and securities denominated in foreign
currencies. Foreign securities of all types will normally constitute less than
50% of the Portfolio's assets.
In connection with the Portfolio's investments denominated in foreign
currencies, Bankers Trust may choose to utilize a variety of currency management
strategies. Bankers Trust seeks to take advantage of different yield, risk, and
return characteristics that different currencies, currency denominations, and
countries can provide to U.S. investors. In doing so, Bankers Trust will
consider such factors as the outlook for currency relationships, current and
anticipated interest rates, levels of inflation within various countries,
prospects for relative economic growth, and government policies influencing
currency exchange rates and business conditions.
To manage exposure to currency fluctuations, the Portfolio may enter
into forward currency exchange contracts (agreements to exchange one currency
for another at a future date), may buy and sell options and futures contracts
relating to foreign currencies, and may purchase securities indexed to foreign
currencies. The Portfolio will use currency exchange contracts in the normal
course of business to lock in an exchange rate in connection with purchases and
sales of securities denominated in foreign currencies. Other currency management
strategies allow Bankers Trust to hedge portfolio securities, to shift
investment exposure from one currency to another, or to attempt to profit from
anticipated declines in the value of a foreign currency relative to the U.S.
dollar. Some of these strategies will require the Portfolio to set aside liquid
assets in a segregated custodial account to cover its obligations. For
additional information on foreign investments and currency management, see the
Appendix and Part B.
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OPTIONS AND FUTURES CONTRACTS. The Portfolio may buy and sell options
and futures contracts to manage its exposure to changing interest rates,
security prices and currency exchange rates, and as an efficient means of
managing allocations between asset classes. The Portfolio may invest in options
and futures based on any type of security or index related to the Portfolio's
investments, including options and futures traded on foreign exchanges.
Some options and futures strategies, including selling futures, buying
puts, and writing calls, hedge the Portfolio's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other, or with forward contracts, in order to adjust the risk
and return characteristics of an overall strategy. See the Appendix for further
information on options on stocks, options and futures contracts on stock
indices, options on futures contracts, foreign currency exchange transactions,
and options on foreign currencies.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Portfolio may buy and
sell securities on a when-issued or delayed-delivery securities. These
transactions involve a commitment by the Portfolio to buy or sell securities at
a set price, with payment and delivery taking place at a future date. When the
Portfolio agrees to purchase a security on a when-issued or delayed-delivery
basis, it sets aside liquid securities in a segregated custodial account to
equal the payment that will be due. Purchasing securities in this manner may
cause greater fluctuations in the Portfolio's share price.
The Portfolio may engage in short sales with respect to securities that
it owns or has the right to obtain (for example, through conversion of a
convertible bond). These transactions, known as short sales "against the box,"
allow the Portfolio to hedge against price fluctuations by locking in a sale
price for securities it does not wish to sell immediately.
The Portfolio may invest in indexed securities whose value depends on
the price of foreign currencies, securities indices or other financial values or
statistics. Examples include debt securities whose value at maturity is
determined by reference to the relative prices of various currencies or to the
price of a stock index. These securities may be positively or negatively
indexed; that is, their value may increase or decrease if the underlying
instrument appreciates.
The Portfolio is permitted to lend up to 30% of the total value of its
securities. These loans must be secured continuously by cash or equivalent
collateral or by a letter of credit at least equal to the market value of the
securities loaned plus accrued income. By lending its securities, the Portfolio
can increase its income by continuing to receive income on the loaned securities
as well as by the opportunity to receive interest on the collateral. Any gain or
loss in the market price of the borrowed securities which occurs during the term
of the loan inures to the Portfolio and its investors.
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The Portfolio may invest in repurchase agreements. In a repurchase
agreement the Portfolio buys a security and simultaneously agrees to sell it
back at a higher price. In the event of the bankruptcy of the other party to
either a repurchase agreement or a securities loan, the Portfolio could
experience delays in recovering either its cash or the securities it lent. To
the extent that, in the meantime, the value of the securities repurchased had
decreased or the value of the securities lent had increased, the Portfolio could
experience a loss. In all cases, Bankers Trust must find the creditworthiness of
the other party to the transaction satisfactory. A repurchase agreement is
considered a collateralized loan under the Investment Company Act of 1940, as
amended (the "1940 Act").
ADDITIONAL INVESTMENT LIMITATIONS. As a diversified fund, no more than
5% of the assets of the Portfolio may be invested in the securities of one
issuer (other than U.S. Government securities), except that up to 25% of the
Portfolio's assets may be invested without regard to this limitation. The
Portfolio will not invest more than 25% of its assets in the securities of
issuers in any one industry. These are fundamental investment policies of the
Portfolio which may not be changed without investor approval. No more than 15%
of the Portfolio's net assets may be invested in illiquid or not readily
marketable securities (including repurchase agreements and time deposits
maturing in more than seven days). Additional investment policies of the
Portfolio are contained in Part B.
RISK FACTORS. The Portfolio allocates its investments within the
parameters described in "General Description of the Registrant." Since the
Portfolio's asset allocation involves significant investment in short-term
instruments and bonds over time, it is expected that the Portfolio will be less
volatile than a fund that invests primarily in common stocks.
The Portfolio's performance may be affected by many different factors,
depending on the Portfolio's emphasis. Short-term instruments are generally the
most stable securities in which the Portfolio will invest. Their returns depend
primarily on current short-term interest rates, although currency fluctuations
can also be significant with respect to foreign securities.
The bond class is affected primarily by interest rates: prices of
fixed-income securities tend to rise when interest rates fall, and fall when
interest rates rise. Interest rate changes will have a greater impact on the
Portfolio if it is heavily invested in long-term or zero-coupon bonds.
Fixed-income securities may also be affected by changes in credit quality.
The stock class is subject to the risks of stock market investing,
including the possibility of sudden or prolonged market declines as well as the
risks associated with individual companies. These risks may be intensified for
investments in smaller or less well-known companies or in foreign securities.
RISKS OF INVESTING IN FOREIGN SECURITIES. The investment in foreign
securities may involve additional risks. Foreign securities usually are
denominated in foreign currencies, which means their value will be affected by
changes in the strength of foreign currencies relative to the U.S. dollar as
well
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as the other factors that affect security prices. Foreign companies may not be
subject to accounting standards or governmental supervision comparable to U.S.
companies, and there often is less publicly available information about their
operations. Generally, there is less governmental regulation of foreign
securities markets, and security trading practices abroad may offer less
protection to investors such as the Portfolio. The value of such investments may
be adversely affected by changes in political or social conditions, diplomatic
relations, confiscatory taxation, expropriation, nationalization, limitation on
the removal of funds or assets, or imposition of (or change in) exchange control
or tax regulations in those foreign countries. Foreign securities may be less
liquid or more volatile than domestic investments. Bankers Trust considers these
factors in making investments for the Portfolio and limits the amount of the
Portfolio's assets that may be invested in foreign securities to 25% of its
total assets for each asset class and to less than 50% for all classes under
normal conditions. However, within the Portfolio's limitations, investments in
any one country or currency are not restricted.
DERIVATIVES. The Portfolio may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset or market index. Some "derivatives" such as mortgage-related and
other asset-backed securities are in many respects like any other investment,
although they may be more volatile or less liquid than more traditional debt
securities. There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated with those
uses. The Portfolio may use futures and options for traditional hedging purposes
to attempt to protect the Portfolio from exposure to changing interest rates,
securities prices or current exchanges rates for cash management or other
invesetment purposes as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. The use of
derivatives may result in some leverage. The Portfolio will limit the leverage
created by its use of derivatives in investment purposes by "covering" such
positions as required by the Securities and Exchange Commission ("SEC") However,
some derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets and
can, in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where the Adviser believes they offer the most
economical means of improving the risk/reward profile of the Portfolio.
Derivatives will not be used in increase portfolio risk above the level that
could be achieved using only traditional investment securities or to acquire
exposure to changes in the value of assets or indices that by themselves would
not be purchased for the Portfolio. The use of derivatives for non-hedging
purposes may be considered speculative. A description of the derivatives that
the Portfolio may use and some of their associated risks is found in the
Appendix.
The Portfolio's investments in options, futures or forward contracts,
and similar strategies depend on Bankers Trust's judgment as to the potential
risks and rewards of different types of strategies. Options and futures can be
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volatile investments, and may not perform as expected. If Bankers Trust applies
a hedge at an inappropriate time or judges price trends incorrectly, options and
futures strategies may lower the Portfolio's return. Options and futures traded
on foreign exchanges generally are not regulated by U.S. authorities, and may
offer less liquidity and less protection to the Portfolio in the event of
default by the other party to the contract. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market.
Further descriptions of a number of investments and investment
techniques available to the Portfolio, including foreign investments and the use
of options and futures and other investment techniques which may be considered
"derivatives", and certain risks associated with these investments and
techniques are included in the Appendix.
PORTFOLIO TURNOVER. The frequency of portfolio transactions - the
Portfolio's turnover rate - will vary from year to year depending on market
conditions. The Portfolio's portfolio turnover rate for the fiscal years ended
March 31, 1996 and 1995 and for the period from September 16, 1993 (commencement
of operations) through March 31, 1994 was 154%, 92% and 56% (not annualized),
respectively. Because a higher turnover rate increases transaction costs and may
increase taxable capital gains, Bankers Trust carefully weighs the anticipated
benefits of short-term investment against these consequences.
ITEM 5. MANAGEMENT OF THE TRUST.
The Board of Trustees provides broad supervision over the affairs of
the Portfolio. A majority of the Portfolio's Trustees are not affiliated with
the Adviser. Bankers Trust, the Portfolio's administrator (the "Administrator"),
supervises the overall administration of the Portfolio. The Portfolio's fund
accountant, transfer agent, custodian and dividend paying agent is also Bankers
Trust.
Bankers Trust, a New York banking corporation with principal offices at
280 Park Avenue, New York, New York 10017, is a wholly-owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of general
banking and trust activities and is a major wholesale supplier of financial
services to the international and domestic institutional market. As of December
31, 1995, Bankers Trust New York Corporation was the ninth largest bank holding
company in the United States with total assets of approximately $104 billion.
Bankers Trust is a worldwide merchant bank dedicated to servicing the needs of
corporations, governments, financial institutions and private clients through a
global network of over 120 offices in more than 40 countries. Investment
management is a core business of Bankers Trust, built on a tradition of
excellence from its roots as a trust bank founded in 1930. The scope of Bankers
Trust's investment management capability is unique due to its leadership
positions in both active and passive quantitative management and its presence in
major equity and fixed income markets around the world. Bankers Trust is one of
the nation's largest and most experienced investment managers, with
approximately
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$210 billion in assets under management globally, as of March 31, 1996. Of that
total, approximately $2 billion are in tactical asset allocation funds. This
makes Bankers Trust one of the nation's leading manager of tactical asset
allocation funds.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled fund
structures. Now, the BT Family of Funds brings Bankers Trust's extensive
investment management expertise, once available to only the largest institutions
in the U.S., to individual investors. Bankers Trust's officers have had
extensive experience in managing investment portfolios having objectives similar
to that of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Portfolio in accordance with the Portfolio's investment
objective and stated investment policies, makes investment decisions for the
Portfolio, places orders to purchase and sell securities and other financial
instruments on behalf of the Portfolio and employs professional investment
managers and securities analysts who provide research services to the Portfolio.
Bankers Trust may utilize the expertise of any of its worldwide subsidiaries and
affiliates to assist it in its role as investment adviser. All orders for
investment transactions on behalf of the Portfolio are placed by Bankers Trust
with broker-dealers and other financial intermediaries that it selects,
including those affiliated with Bankers Trust. A Bankers Trust affiliate will be
used in connection with a purchase or sale of an investment for the Portfolio
only if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. The Portfolio will not invest in
obligations for which Bankers Trust or any of its affiliates is the ultimate
obligor or accepting bank. The Portfolio may, however, invest in the obligations
of correspondents and customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee
from the Portfolio computed daily and paid monthly at the annual rate of 0.65%
of the average daily net assets of the Portfolio.
Bankers Trust has been advised by its counsel that, in counsel's
opinion, Bankers Trust currently may perform the services for the Portfolio
described in this Registration Statement without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretations of relevant federal law and banks and
financial institutions may be required to register as dealers pursuant to state
securities law.
Under an administration and services agreement with the Portfolio (the
"Administration and Services Agreement"), Bankers Trust calculates the value of
the assets of the Portfolio and generally assists the Board of Trustees in all
aspects of the administration and operation of the Portfolio. The Administration
and Services Agreement provides for the Portfolio to pay Bankers Trust a fee
computed daily and paid monthly at the rate of 0.10% of the average daily net
assets of the Portfolio. Under the Administration and Services Agreement,
Bankers Trust may delegate one or more of its responsibilities to others,
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including Signature Broker-Dealer Services, Inc. ("Signature"), at Bankers
Trust's expense.
The Portfolio bears its own expenses. Operating expenses for the
Portfolio generally consist of all costs not specifically borne by Bankers Trust
or Signature, the Trust's placement agent and sub-administrator, including
investment advisory and administration and service fees, fees for necessary
professional services, amortization of organizational expenses, the costs
associated with regulatory compliance and maintaining legal existence and
investor relations.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolio is organized as a trust under the laws of the State of
New York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments in the
Portfolio may not be transferred, but an investor may withdraw all or any
portion of its investment at any time at net asset value. Investors in the
Portfolio (E.G., investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations.
Investments in the Portfolio have no preemptive or conversion rights
and are fully paid and nonassessable, except as set forth below. The Portfolio
is not required and has no current intention to hold annual meetings of
investors, but the Portfolio will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote. Changes in fundamental policies will be submitted to investors
for approval. Investors have under certain circumstances (E.G., upon application
and submission of certain specified documents to the Trustees by a specified
number of investors) the right to communicate with other investors in connection
with requesting a meeting of investors for the purpose of removing one or more
Trustees. Investors also have the right to remove one or more Trustees without a
meeting by a declaration in writing by a specified number of investors. Upon
liquidation of the Portfolio, investors would be entitled to share pro rata in
the net assets of the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each day on which
the Portfolio is open ("Portfolio Business Day") (and on such other days as are
deemed necessary in order to comply with Rule 22c-1 under the 1940 Act). This
determination is made each such day as of the close of regular trading on the
New York Stock Exchange Inc. ("NYSE") which is currently 4:00 p.m., New York
time, or in the event that the NYSE closes early, at the time of such early
closing (the "Valuation Time").
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the close of business on each
such business day, the value of each investor's beneficial interest in the
Portfolio
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will be determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or withdrawals,
which are to be effected as of the close of business on that day, will then be
effected. The investor's percentage of the aggregate beneficial interests in the
Portfolio will then be re-computed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the close of business on such day plus or minus, as the case may
be, the amount of any additions to or withdrawals from the investor's investment
in the Portfolio effected on such day, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the close of business on such
day plus or minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in the Portfolio by all investors in
the Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio as of the close of
business, on the following business day of the Portfolio.
The "net income" of the Portfolio shall consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Interest income
includes discount earned (including both original issue and market discount) on
discount paper accrued ratably to the date of maturity and any net realized
gains or losses on the assets of the Portfolio. All the net income of the
Portfolio is allocated pro rata among the investors in the Portfolio. The net
income is accrued daily and distributed monthly to the investors in the
Portfolio.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. 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.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "General Description of the
Registrant" above.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined if an order is received
by the Portfolio by the designated cutoff time for each accredited investor. The
net asset value of the Portfolio is determined on each Portfolio Business Day.
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The Portfolio's portfolio securities are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Board of Trustees believes accurately reflects fair value.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (I.E., monies credited to the account
of the Portfolio's custodian bank by a Federal Reserve Bank).
The Portfolio may, at its own option, accept securities in payment for
interests. The securities delivered in payment for interests are valued by the
method described under "Purchase, Redemption and Pricing of Securities" in Part
B as of the day the Portfolio receives the securities. This is a taxable
transaction to the investor. Securities may be accepted in payment for interests
only if they are, in the judgment of Bankers Trust, appropriate investments for
the Portfolio. In addition, securities accepted in payment for interests must:
(i) meet the investment objective and policies of the Portfolio; (ii) be
acquired by the Portfolio for investment and not for resale; (iii) be liquid
securities which are not restricted as to transfer either by law or liquidity of
market; and (iv) if stock, have a value which is readily ascertainable as
evidenced by a listing on a stock exchange, over-the-counter market or by
readily available market quotations from a dealer in such securities. The
Portfolio reserves the right to accept or reject at its own option any and all
securities offered in payment for its interests.
The Portfolio and Signature reserve the right to cease accepting
investments at any time or to reject any investment order.
The placement agent for the Portfolio is Signature. The principal
business address of Signature is 6 St. James Avenue, Boston, Massachusetts
02116. Signature receives no additional compensation for serving as the
placement agent for the Portfolio.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request in
proper form is furnished by the investor to the Portfolio by the designated
cutoff time for each accredited investor. The proceeds of a withdrawal will be
paid by the Portfolio in federal funds normally on the Portfolio Business Day
the withdrawal is effected, but in any event within seven calendar days
following receipt of the request. The Portfolio reserves the right to pay
redemptions in kind. Unless requested by an investor, the Portfolio will not
make a redemption in kind to the investor, except in situations where that
investor may make redemptions in kind. Investments in the Portfolio may not be
transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds postponed
during any period in which the NYSE is closed (other than weekends or holidays)
or trading
<PAGE>
A-12
on the NYSE is restricted or, to the extent otherwise permitted by the 1940 Act,
if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
ADDITIONAL INFORMATION.
GOVERNMENT SECURITIES. Government securities may or may not be backed
by the full faith and credit of the U.S. Government. U.S. Treasury bonds, notes
and bills and certain agency securities, such as those issued by the Federal
Housing Administration, are backed by the full faith and credit of the U.S.
Government and are the highest quality government securities. The Portfolio may
also invest a substantial portion of its portfolio in securities issued by
government agencies or instrumentalities (such as executive departments of the
U.S. Government or independent federal organizations supervised by Congress),
which may have different degrees of government backing but which are not backed
by the full faith and credit of the U.S. Government. There is no guarantee that
the government will support these types of securities, and therefore they
involve more risk than other government obligations.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
representing interests in a pool of mortgages. Principal and interest payments
made on the mortgages in the underlying mortgage pool are passed through to the
investor. Unscheduled prepayments of principal shorten the securities' weighted
average life and may lower their total return. (When a mortgage in the
underlying pool is prepaid, an unscheduled principal prepayment is passed
through to the investor. This principal is returned to the investor at par. As a
result, if a mortgage security were trading at a premium, its total return would
be lowered by prepayments, and if a mortgage security were trading at a
discount, its total return would be increased by prepayments.) The value of
these securities also may change because of changes in the market's perception
of the creditworthiness of the federal agency that issued them. In addition, the
mortgage securities market in general may be adversely affected by changes in
governmental regulation or tax policies.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are pay-through
securities collateralized by mortgages or mortgage-backed securities. CMOs are
issued in classes and series that have different maturities and often are
retired in sequence. CMOs may be issued by governmental or non-governmental
entities such as banks and other mortgage lenders. Non-government securities may
offer a higher yield but also may be subject to greater price fluctuation than
government securities.
ASSET-BACKED SECURITIES. Asset-backed securities consist of undivided
fractional interests in pools of consumer loans (unrelated to mortgage loans)
held in a trust. Payments of principal and interest are passed through to
certificate holders and are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guarantee or
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A-13
senior/subordination. The degree of credit enhancement varies, but generally
amounts to only a fraction of the asset backed security's par value until
exhausted. If the credit enhancement is exhausted, certificate holders may
experience losses or delays in payment if the required payments of principal and
interest are not made to the trust with respect to the underlying loans. The
value of these securities also may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the loan pool, the
originator of the loans or the financial institution providing the credit
enhancement. Asset-backed securities are ultimately dependent upon payment of
consumer loans by individuals, and the certificate holder generally has no
recourse to the entity that originated the loans. The underlying loans are
subject to prepayments which shorten the securities' weighted average life and
may lower their return. (As prepayments flow through at par, total returns would
be affected by the prepayments: if a security were trading at a premium, its
total return would be lowered by prepayments, and if a security were trading at
a discount, its total return would be increased by prepayments).
ZERO COUPON DEBT SECURITIES. Zero coupon debt securities do not make
regular interest payments. Instead they are sold at a deep discount from their
face value. Because a zero coupon bond does not pay current income, its price
can be very volatile when interest rates change. In calculating its net income
the Portfolio takes into account as income a portion of the difference between a
zero coupon bond's purchase price and its face value.
RULE 144A SECURITIES. The Portfolio may purchase securities in the
United State that are not registered for sale under federal securities laws but
which can be resold to institutions under SEC Rule 144A. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are treated as exempt from the Portfolio's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees, Bankers Trust
determines the liquidity of restricted securities and, through reports from
Bankers Trust, the Board will monitor trading activity in restricted securities.
Because Rule 144A is relatively new, it is not possible to predict how these
markets will develop. If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.
FOREIGN INVESTMENTS. The Portfolio may invest in securities of foreign
issuers directly or in the form of American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or other
similar securities representing securities of foreign issuers. These securities
may not necessarily be denominated in the same currency as the securities they
represent. Designed for use in U.S., Global and European securities markets,
respectively, ADRs, GDRs and EDRs are alternatives to the purchase of the
underlying securities in their national markets and currencies. ADRs, GDRs and
EDRs are subject to the same risks as the foreign securities to which they
relate.
With respect to certain countries in which capital markets are either
less developed or not easily accessed, investments by the Portfolio may be made
through investment in other investment companies that in turn are authorized to
<PAGE>
A-14
invest in the securities of such countries. Investment in other investment
companies is limited in amount by the 1940 Act, will involve the indirect
payment of a portion of the expenses, including advisory fees, of such other
investment companies and may result in a duplication of fees and expenses.
OPTIONS ON STOCKS. The Portfolio may write and purchase put and call
options on stocks. A call option gives the purchaser of the option the right to
buy, and obligates the writer to sell, the underlying stock at the exercise
price at any time during the option period. Similarly, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying stock at the exercise price at any time during the option period. A
covered call option, which is a call option with respect to which the Portfolio
owns the underlying stock, sold by the Portfolio exposes the Portfolio during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying stock or to possible continued holding of
a stock which might otherwise have been sold to protect against depreciation in
the market price of the stock. A covered put option sold by the Portfolio
exposes the Portfolio during the term of the option to a decline in price of the
underlying stock. A put option sold by the Portfolio is covered when, among
other things, cash or liquid securities are placed in a segregated account to
fulfill the obligations undertaken.
To close out a position when writing covered options, the Portfolio may
make a "closing purchase transaction," which involves purchasing an option on
the same stock with the same exercise price and expiration date as the option
which it has previously written on the stock. The Portfolio will realize a
profit or loss for a closing purchase transaction if the amount paid to purchase
an option is less or more, as the case may be, than the amount received from the
sale thereof. To close out a position as a purchaser of an option, the Portfolio
may make a "closing sale transaction," which involves liquidating the
Portfolio's position by selling the option previously purchased.
The Portfolio intends to treat over-the-counter options ("OTC Options")
purchased and the assets used to "cover" OTC Options written as not readily
marketable and therefore subject to the limitations described in "Investment
Restrictions" in Part B.
OPTIONS ON STOCK INDICES. The Portfolio may purchase and write put and
call options on stock indices listed on stock exchanges. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
Options on stock indices are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
<PAGE>
A-15
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or the option
may expire unexercised.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock, whether the
Portfolio will realize a gain or loss from the purchase or writing of options on
an index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Portfolio of options on stock indices will be subject to
Bankers Trust's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
FUTURES CONTRACTS ON SECURITIES INDICES. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of securities ("Futures Contracts"). This
investment technique may be used to hedge against anticipated future change in
general market prices which otherwise might either adversely affect the value of
securities held by the Portfolio or adversely affect the prices of securities
which are intended to be purchased at a later date for the Portfolio or as an
efficient means of managing allocations between asset classes. A Futures
Contract may also be entered into to close out or offset an existing futures
position.
When used for hedging purposes, a Futures Contract involves the
establishment of a position which will move in a direction opposite to that of
the investment being hedged. If these hedging transactions are successful, the
futures positions taken for the Portfolio will rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments that are being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized.
Futures Contracts do involve certain risks. These risks could include a
lack of correlation between the Futures Contract and the corresponding
securities market, a potential lack of liquidity in the secondary market and
incorrect assessments of market trends which may result in poorer overall
performance than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be
posted and maintained as a good-faith deposit against performance of obligations
under Futures Contracts written for the Portfolio.
<PAGE>
A-16
OPTIONS ON FUTURES CONTRACTS. The Portfolio may invest in options on
such Futures Contracts for similar purposes.
The Portfolio may not purchase or sell a Futures Contract if
immediately thereafter its margin deposits on its outstanding Futures Contracts
(other than Futures Contracts entered into for bona fide hedging purposes) and
premiums paid for options thereon would exceed 5% of the market value of the
Portfolio's total assets.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and
sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Portfolio either enters into
these transactions on a spot (I.E., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. The Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
<PAGE>
A-17
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write covered put and
call options and purchase put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. The Portfolio may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different, but related currency. As with other types of
options, however, the writing of an option on foreign currency will constitute
only a partial hedge up to the amount of the premium received, and the Portfolio
could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may be used to hedge against fluctuations in exchange rates although,
in the event of exchange rate movements adverse to the Portfolio's position, it
may forfeit the entire amount of the premium plus related transaction costs. In
addition, the Portfolio may purchase call options on currency when the Adviser
anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio will not be able to sell the
underlying currency or dispose of assets held in a segregated account until the
options expire or are exercised. Similarly, if the Portfolio is unable to effect
a closing sale transaction with respect to options it has purchased, it would
have to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying currency. The
Portfolio pays brokerage commissions or spreads in connection with its options
transactions.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. The
Portfolio's ability to terminate over-the-counter options ("OTC Options") will
be more limited than with exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased OTC Options and assets used to cover written OTC
Options as illiquid securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
There can be no assurance that the use of these portfolio strategies
will be successful.
<PAGE>
A-18
ASSET COVERAGE. To reduce the leverage created by the Portfolio's use
of futures and related options, as well as when-issued and delayed-delivery
securities and foreign currency exchange transactions, are not used to achieve
investment leverage, the Portfolio will cover such transactions, as required
under applicable interpretations of the SEC, either by owning the underlying
securities or by establishing a segregated account with the Portfolio's
custodian containing high grade liquid debt securities in an amount at all times
equal to or exceeding the Portfolio's commitment with respect to these
instruments or contracts.
<PAGE>
BT0147D
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS. PAGE
General Information and History . . . . . . . . . . . B-1
Investment Objectives and Policies . . . . . . . . . B-1
Management of the Fund. . . . . . . . . . . . . . . . B-18
Control Persons and Principal Holder
of Securities . . . . . . . . . . . . . . . . B-21
Investment Advisory and Other Services . . . . . . . B-21
Brokerage Allocation and Other Practices . . . . . . B-23
Capital Stock and Other Securities . . . . . . . . . B-25
Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . B-26
Tax Status . . . . . . . . . . . . . . . . . . . . . B-27
Underwriters . . . . . . . . . . . . . . . . . . . . B-28
Calculation of Performance Data . . . . . . . . . . . B-28
Financial Statements . . . . . . . . . . . . . . . . B-29
Appendix. . . . . . . . . . . . . . . . . . . . . . . B-30
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
Part A contains additional information about the investment objective
and policies of Asset Management Portfolio (the "Portfolio"). This Part B should
only be read in conjunction with Part A. This section contains supplemental
information concerning the types of securities and other instruments in which
the Portfolio may invest, the investment policies and portfolio strategies that
the Portfolio may utilize and certain risks attendant to those investments,
policies and strategies.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the
<PAGE>
B-2
accepting bank as an earning asset or it may be sold in the secondary market at
the going rate of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see the Appendix.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven calendar days. Securities
which have not been registered under the 1933 Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven calendar days. A mutual fund might also have
to register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has recently adopted
Rule 144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act for resales of certain securities to qualified institutional buyers. Bankers
Trust Company ("Bankers Trust"), as the Portfolio's investment adviser (the
"Adviser"), anticipates that the market for certain restricted securities such
as institutional commercial paper will expand further as a result of this new
regulation and the development of automated systems for the trading,
<PAGE>
B-3
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. (the "NASD").
The Adviser will monitor the liquidity of Rule 144A securities in the
Portfolio's portfolio under the supervision of the Board of Trustees. In
reaching liquidity decisions, the Adviser will consider, among other things, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers and other potential purchasers wishing to purchase or sell
the security; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and of the marketplace trades (E.G., the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
LENDING OF PORTFOLIO SECURITIES. The Portfolio has the authority to
lend portfolio securities to brokers, dealers and other financial organizations.
The Portfolio will not lend securities to Bankers Trust, Signature Broker-Dealer
Services, Inc. ("Signature") or their affiliates. By lending its securities, the
Portfolio can increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash collateral in
short-term securities or obtaining yield in the form of interest paid by the
borrower when U.S. Government obligations are used as collateral. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially. The Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio must receive at
least 100% cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(iii) the Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must terminate
the loan and regain the right to vote the securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The successful use of such instruments draws upon the
Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures contracts and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.
<PAGE>
B-4
FUTURES CONTRACTS. The Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any index of U.S.
Government securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange. The Portfolio may enter into futures
contracts which are based on debt securities that are backed by the full faith
and credit of the U.S. Government, such as long-term U.S. Treasury bonds,
Treasury notes, Government National Mortgage Association modified pass-through
mortgage-backed securities and three-month U.S. Treasury bills. The Portfolio
may also enter into futures contracts which are based on bonds issued by
entities other than the U.S. Government.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the acquisition or sale of a futures contract, when the
Portfolio holds or intends to acquire fixed-income securities, is to attempt to
protect the Portfolio from fluctuations in interest or foreign exchange rates
without actually buying or selling fixed-income securities or foreign
currencies. For example, if interest rates were expected to increase, the
Portfolio might enter into futures contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the debt securities owned by the Portfolio. If interest rates did increase, the
value of the debt
<PAGE>
B-5
security in the Portfolio would decline, but the value of the futures contracts
to the Portfolio would increase at approximately the same rate, thereby keeping
the net asset value of the Portfolio from declining as much as it otherwise
would have. The Portfolio could accomplish similar results by selling debt
securities and investing in bonds with short maturities when interest rates are
expected to increase. However, since the futures market is more liquid than the
cash market, the use of futures contracts as an investment technique allows the
Portfolio to maintain a defensive position without having to sell its portfolio
securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Portfolio could
take advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent the Portfolio enters into futures contracts
for this purpose, the assets in the segregated asset account maintained to cover
the Portfolio's obligations with respect to such futures contracts will consist
of cash, cash equivalents or high quality liquid debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such futures
contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the Portfolio, if the Adviser's
investment judgment about the general direction of interest rates is incorrect,
the Portfolio's overall performance would be poorer than if it had not entered
into any such contract. For example, if the Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
<PAGE>
B-6
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Portfolio intends to purchase and
write options on futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the purchase of a
call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when the Portfolio is not fully invested it
may purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Portfolio may purchase a put option on a futures contract to hedge
its portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on
a futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees has adopted a further restriction that the
Portfolio will not enter into any futures contracts or options on futures
contracts if immediately thereafter the amount of margin deposits on all the
futures contracts
<PAGE>
B-7
of the Portfolio and premiums paid on outstanding options on futures contracts
owned by the Portfolio (other than those entered into for bona fide hedging
purposes) would exceed 5% of the market value of the total assets of the
Portfolio.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write
options on foreign currencies for hedging purposes in a manner similar to that
in which futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, the Portfolio will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, where the Portfolio anticipates a
decline in the dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the options will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
<PAGE>
B-8
The Portfolio intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the Portfolio is
"covered" if the Portfolio owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its Custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call option is also covered if the
Portfolio has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Portfolio in cash, U.S. Government securities and other high quality liquid
debt securities in a segregated account with its Custodian.
The Portfolio intends to write call options on foreign currencies that
are not covered for cross-hedging purposes. A call option on a foreign currency
is for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the
Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate. In
such circumstances, the Portfolio collateralizes the option by maintaining in a
segregated account with its custodian, cash or U.S. Government securities or
other high quality liquid debt securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by the Portfolio
in futures contracts, options on foreign currencies and forward contracts are
not traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
<PAGE>
B-9
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. The
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. Government Securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
OPTIONS ON SECURITIES. The Portfolio may write (sell) covered call and
put options to a limited extent on its portfolio securities ("covered options")
in an attempt to increase income. However, the Portfolio may forgo the benefits
of appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Portfolio.
<PAGE>
B-10
When the Portfolio writes a covered call option, it gives the purchaser
of the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price.
When the Portfolio writes a covered put option, it gives the purchaser
of the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. The Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.
The Portfolio may terminate its obligation as the writer of a call or
put option by purchasing an option with the same exercise price and expiration
date as the option previously written. This transaction is called a "closing
purchase transaction." Where the Portfolio cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
<PAGE>
B-11
The Portfolio may purchase call and put options on any securities in
which it may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The purchase
of a call option would entitle the Portfolio, in exchange for the premium paid,
to purchase a security at a specified price during the option period. The
Portfolio would ordinarily have a gain if the value of the securities increased
above the exercise price sufficiently to cover the premium and would have a loss
if the value of the securities remained at or below the exercise price during
the option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's portfolio securities. Put options also may be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.
The Portfolio has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. The Portfolio's
activities in options may also be restricted by the requirements of the Internal
Revenue Code for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
<PAGE>
B-12
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with whom the Portfolio enters into such options
transactions under the general supervision of the Portfolio's Trustees.
OPTIONS ON SECURITIES INDICES. In addition to options on securities,
the Portfolio may also purchase and write (sell) call and put options on
securities indices. Such options give the holder the right to receive a cash
settlement during the term of the option based upon the difference between the
exercise price and the value of the index. Such options will be used for the
purposes described above under "Options on Securities."
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Portfolio generally will only purchase or write such an option if the Adviser
believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Portfolio will not purchase such options unless
the Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Portfolio's portfolio may not correlate
precisely with movements in the level of an index and, therefore, the use of
options on indices cannot serve as a complete hedge. Because options on
securities indices require settlement in cash, the Adviser may be forced to
liquidate portfolio securities to meet settlement obligations.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Because the Portfolio buys
and sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Portfolio either enters into
these transactions on a spot (I.E., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. The Portfolio maintains with its Custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
<PAGE>
B-13
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event
the Portfolio's ability to utilize forward contracts in the manner set forth in
Part A to this Registration Statement may be restricted. Forward contracts may
reduce the potential gain from a positive change in the relationship between the
U.S. dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Portfolio than if it had not
entered into such contracts. The use of foreign currency forward contracts may
not eliminate fluctuations in the underlying U.S. dollar equivalent value of the
prices of or rates of return on the Portfolio's foreign currency denominated
portfolio securities and the use of such techniques will subject the Portfolio
to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Portfolio may not always be able to enter into foreign currency
forward contracts at attractive prices and this will limit the Portfolio's
ability to use such contract to hedge or cross-hedge its assets. Also, with
regard to the Portfolio's use of cross-hedges, there can be no assurance that
historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying the Portfolio's cross-hedges and the movements in the exchange rates
of the foreign currencies in which the Portfolio's assets that are the subject
of such cross-hedges are denominated.
<PAGE>
B-14
RATING SERVICES
The ratings of rating services represent their opinions as to the
quality of the securities that they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings are an initial criterion for selection of
portfolio investments, Bankers Trust also makes its own evaluation of these
securities, subject to review by the Board of Trustees. After purchase by the
Portfolio, an obligation may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither event would
require the Portfolio to eliminate the obligation from its portfolio, but
Bankers Trust will consider such an event in its determination of whether the
Portfolio should continue to hold the obligation. A description of the ratings
used herein and in Part A is set forth in the Appendix.
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following investment restrictions as
fundamental policies, which may not be changed without approval by holders of a
"majority of the outstanding voting securities" of the Portfolio, which as used
in this Registration Statement means the vote of the lesser of (i) 67% or more
of the outstanding voting securities of the Portfolio present at a meeting, if
the holders of more than 50% of the outstanding voting securities of the
Portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding "majority of the outstanding voting securities" of the Portfolio.
The term "voting securities" as used in this paragraph has the same meaning as
in the Investment Company Act of 1940, as amended (the "1940 Act").
As a matter of fundamental policy, the Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's net assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase agreements
or dollar roll transactions, and except that it may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings (it is
intended that money would be borrowed only from banks and only either to
accommodate requests for the withdrawal of beneficial interests while effecting
an orderly liquidation of portfolio securities or to maintain liquidity in the
event of an unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements, provided that
collateral arrangements with respect to options and futures, including deposits
of initial deposit and variation margin, are not considered a pledge of assets
for purposes of this restriction and except that assets may be pledged to secure
letters of credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "State and Federal Restrictions"
below (as an operating policy, the Portfolio may not engage in dollar roll
transactions);
<PAGE>
B-15
(2) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the 1933 Act in selling
a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not exceed 30%
of the Portfolio's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (except
that the Portfolio may hold and sell, for the Portfolio's portfolio, real estate
acquired as a result of the Portfolio's ownership of securities);
(5) concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for the achievement
of the Portfolio's investment objective, up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction.
As an operating policy the Portfolio will not invest in another
open-end registered investment company.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies the Portfolio will not as a matter of
operating policy:
(i) borrow money (including through reverse repurchase or dollar roll
transactions) for any purpose in excess of 5% of the Portfolio's
total assets (taken at cost) except that the Portfolio may borrow
for temporary or emergency purposes up to 1/3 of its assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10%
of the Portfolio's net assets (taken at market value), provided
that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, and
reverse repurchase agreements are not considered a pledge of
assets for purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
<PAGE>
B-16
clearance of purchases and sales of securities may be obtained
and except that deposits of initial deposit and variation
margin may be made in connection with the purchase, ownership,
holding or sale of futures;
(iv) sell securities it does not own such that the dollar amount of
such short sales at any one time exceeds 25% of the net equity of
the Portfolio, and the value of securities of any one issuer in
which the Portfolio is short exceeds the lesser of 2.0% of the
value of the Portfolio's net assets or 2.0% of the securities of
any class of any U.S. issuer and, provided that short sales may
be made only in those securities which are fully listed on a
national securities exchange or a foreign exchange (This
provision does not include the sale of securities of the
Portfolio contemporaneously owns or has the right to obtain
securities equivalent in kind and amount to those sold, i.e.,
short sales against the box.) (The Portfolio has no current
intention to engage in short selling.);
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that securities of any
investment company will not be purchased for the Portfolio if
such purchase at the time thereof would cause: (a) more than 10%
of the Portfolio's total assets (taken at the greater of cost or
market value) to be invested in the securities of such issuers;
(b) more than 5% of the Portfolio's total assets (taken at the
greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Portfolio;
provided further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any securities of
any open-end investment company unless the Portfolio (1) waives
the investment advisory fee with respect to assets invested in
other open-end investment companies and (2) incurs no sales
charge in connection with the investment (as an operating policy,
the Portfolio will not invest in another open-end registered
investment company);
(vii) invest more than 10% of the Portfolio's total assets (taken at
the greater of cost or market value) in securities (excluding
Rule 144A securities) that are restricted as to resale under the
1933 Act (other than Rule 144A securities deemed liquid by the
Portfolio's Board of Trustees);
(viii) invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid
or not readily marketable excluding (a) Rule 144A securities that
have
<PAGE>
B-17
been determined to be liquid by the Board of Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933
Act which: (i) is not traded flat or in default as to interest
or principal; and (ii) is rated in one of the two highest
categories by at least two nationally recognized statistical
rating organizations and the Portfolio's Board of Trustees
have determined the commercial paper to be liquid; or (iii) is
rated in one of the two highest categories by one nationally
recognized statistical rating agency and the Portfolio's Board
of Trustees has determined that the commercial paper is of
equivalent quality and is liquid;
(ix) with respect to 75% of the Portfolio's total assets, purchase
securities of any issuer if such purchase at the time thereof
would cause the Portfolio to hold more than 10% of any class of
securities of such issuer, for which purposes all indebtedness of
an issuer shall be deemed a single class and all preferred stock
of an issuer shall be deemed a single class, except that futures
or option contracts shall not be subject to this restriction;
(x) if the Portfolio is a "diversified" fund with respect to 75% of
its assets, invest more than 5% of its total assets in the
securities (excluding U.S. Government securities) of any one
issuer;
(xi) invest in securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee
of the Portfolio, or is an officer or partner of the Adviser, if
after the purchase of the securities of such issuer for the
Portfolio one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities, or both, all taken at
market value, of such issuer, and such persons owning more than
1/2 of 1% of such shares or securities together own beneficially
more than 5% of such shares or securities, or both, all taken at
market value;
(xii) invest in warrants (other than warrants acquired by the Portfolio
as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower
of cost or market) would exceed 5% of the value of the
Portfolio's net assets or if, as a result, more than 2% of the
Portfolio's net assets would be invested in warrants not listed
on a recognized United States or foreign stock exchange, to the
extent permitted by applicable state securities laws;
(xiii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call
is within the investment policies of the Portfolio and the option
is issued by the Options Clearing Corporation, except for put and
call options issued by non-U.S. entities or listed on non-U.S.
securities or commodities exchanges; (b) the aggregate value of
the obligations underlying the puts determined as of the date the
options are sold shall not exceed 50% of the Portfolio's net
assets; (c) the securities subject to the exercise of the call
written by the
<PAGE>
B-18
Portfolio must be owned by the Portfolio at the time the call
is sold and must continue to be owned by the Portfolio until
the call has been exercised, has lapsed, or the Portfolio has
purchased a closing call, and such purchase has been
confirmed, thereby extinguishing the Portfolio's obligation to
deliver securities pursuant to the call it has sold; and (d)
at the time a put is written, the Portfolio establishes a
segregated account with its custodian consisting of cash or
short-term U.S. Government securities equal in value to the
amount the Portfolio will be obligated to pay upon exercise of
the put (this account must be maintained until the put is
exercised, has expired, or the Portfolio has purchased a
closing put, which is a put of the same series as the one
previously written); and
(xiv) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options
on financial futures unless such options are written by other
persons and: (a) the options or futures are offered through the
facilities of a national securities association or are listed on
a national securities or commodities exchange, except for put and
call options issued by non-U.S. entities or listed on non-U.S.
securities or commodities exchanges; (b) the aggregate premiums
paid on all such options which are held at any time do not exceed
20% of the Portfolio's total net assets; and (c) the aggregate
margin deposits required on all such futures or options thereon
held at any time do not exceed 5% of the Portfolio's total
assets.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
The Portfolio will comply with the securities laws and regulations of
all states in which any investor in the Portfolio is registered. The Portfolio
will comply with the permitted investments and investment limitations in the
securities laws and regulations of all states in which any registered investment
company investing in the Portfolio is registered.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees and officers of the Portfolio and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. An asterisk indicates that a Trustee is an
"interested person" (as defined in the 1940 Act) of the Portfolio. Unless
otherwise indicated below, the address of each Trustee and officer is 6 St.
James Avenue, Boston, Massachusetts 02116.
<PAGE>
B-19
TRUSTEES
PHILIP W. COOLIDGE* (age 44) -- President and Trustee; Chairman, Chief
Executive Officer and President, Signature Financial Group, Inc. ("SFG") (since
December, 1988) and Signature (since April, 1989).
CHARLES P. BIGGAR (age 65) -- Retired; Director of Chase/NBW Bank
Advisory Board; Director Batemen, Eichler, Hill Richards Inc.; Formerly Vice
President of International Business Machines and President of the National
Services and the Field Engineering Divisions of IBM. His address is 12 Hitching
Post Lane, Chappaqua, New York 10514.
S. LELAND DILL (age 65) -- Retired; Director, Coutts & Co. Trust
Holdings Limited and Coutts & Co. (U.S.A.) International; Director, Zweig Cash
Fund and Zweig Series Trust; formerly Partner of KPMG Peat Marwick; Director,
Vinters International Company Inc.; General Partner of Pemco (an investment
company registered under the 1940 Act). His address is 5070 North Ocean Drive,
Singer Island, Florida 33404.
PHILIP SAUNDERS, JR. (age 60) -- Trustee; Principal, Philip Saunders
Associates (Consulting); former Director of Financial Industry Consulting, Wolf
& Company; President, John Hancock Home Mortgage Corporation; and Senior Vice
President of Treasury and Financial Services, John Hancock Mutual Life Insurance
Company, Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.
OFFICERS
JOHN R. ELDER (age 47) -- Treasurer; Vice President, SFG (since April,
1995); Treasurer, Phoenix Family of Mutual Funds (prior to April, 1995).
BARBARA M. O'DETTE (age 36) -- Assistant Treasurer; Assistant
Treasurer, SFG (since December, 1988); Assistant Treasurer, Signature (since
April, 1989).
DANIEL E. SHEA (age 34) -- Assistant Treasurer; Assistant Manager, SFG
(since November 1993); Supervisor and Senior Technical Advisor, Putnam
Investments (prior to November 1993).
LINDA T. GIBSON (age 31) -- Assistant Secretary; Vice President and
Associate General Counsel, SFG (since May, 1992); Assistant Secretary, Signature
(since October, 1992); student, Boston University School of Law (September, 1989
to May, 1992).
THOMAS M. LENZ (age 38) -- Secretary; Senior Vice President and
Associate General Counsel, SFG (since November, 1989); Assistant Secretary,
Signature (since February, 1991); Attorney, Ropes & Gray (prior to November,
1989).
MOLLY S. MUGLER (age 44) -- Assistant Secretary; Legal Counsel and
Assistant Secretary, SFG (since December, 1988); Assistant Secretary, Signature
(since April, 1989).
<PAGE>
B-20
ANDRES E. SALDANA (age 33) -- Assistant Secretary; Legal Counsel, SFG
(since November, 1992); Assistant Secretary, Signature (since September, 1993);
Attorney, Ropes & Gray (September, 1990 to November, 1992).
Messrs. Coolidge, Elder, Lenz, Saldana and Shea and Mss. Gibson, Mugler
and O'Dette also hold similar positions for other investment companies for which
Signature or an affiliate serves as the principal underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Portfolio. No director, officer or employee of Signature or
any of its affiliates will receive any compensation from the Portfolio for
serving as an officer or Trustee of the Portfolio. The Portfolio, Asset
Management Portfolio II, Asset Management Portfolio III, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, Equity 500 Index Portfolio, Short/Intermediate U.S. Government
Securities Portfolio, Intermediate Tax Free Portfolio, Utility Portfolio,
Capital Appreciation Portfolio and International Equity Portfolio (the "Fund
Complex") collectively pay each Trustee who is not a director, officer or
employee of the Adviser, the Administrator or any of their affiliates an annual
fee of $10,000, respectively, per annum plus $1,250, respectively, per meeting
attended and reimburses them for travel and out-of-pocket expenses.
The Portfolio accrued Trustees fees of $2,288 for the fiscal year ended
March 31, 1996.
Bankers Trust reimbursed the Portfolio for a portion for a portion of
its Trustees fees for the period above. See "Investment Advisory and Other
Services" below.
TRUSTEE COMPENSATION TABLE
AGGREGATE
COMPENSATION TOTAL COMPENSATION
NAME OF PERSON, FROM FROM FUND COMPLEX
POSITION PORTFOLIO PAID TO TRUSTEE
Philip W. Coolidge none none
Charles P. Biggar none $15,750
S. Leland Dill none $15,750
Philip S. Saunders none $15,750
The Portfolio's Declaration of Trust provides that it will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in wilful misfeasance,
bad faith, gross
<PAGE>
B-21
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Portfolio. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that such
officers or Trustees have not engaged in wilful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of July 15, 1996, BT Institutional Asset Management Fund and BT
Investment Lifecycle Long Range Fund (each a "Fund") (series of shares of BT
Pyramid Mutual Funds and BT Investment Funds, respectively) owned 75.97% and
24.03%, respectively, of the value of the outstanding interests in the
Portfolio. Because BT Institutional Asset Management Fund controls the
Portfolio, it may take actions without the approval of any other investor in the
Portfolio.
Each Fund has informed the Portfolio that whenever it is requested to
vote on matters pertaining to the Portfolio, the Fund will, except as permitted
by the SEC, hold a meeting of its shareholders and will cast its votes as
instructed by the Fund's shareholders and in the same proportion as the votes of
the Fund's shareholders. Fund shareholders who do not vote will not affect the
Fund's votes at the Portfolio meeting. The percentage of the Fund's votes
representing Fund shareholders not voting will be voted by the Trustees or
officers of the Fund in the same proportion as the Fund shareholders who do, in
fact, vote. Whenever a Fund is requested to vote on a matter pertaining to a
Portfolio, the Fund will vote its shares without a meeting of the Fund
shareholders if the proposal, if made with respect to such Fund, would not
require the vote of the Fund shareholders as long as such action is permissible
under applicable statutory and regulatory requirements. It is anticipated that
other registered investment companies investing in the Portfolio will follow the
same or a similar practice.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
Bankers Trust manages the assets of the Portfolio pursuant to an
investment advisory agreement (the "Advisory Agreement"). Subject to such
policies as the Board of Trustees may determine, the Adviser makes investment
decisions for the Portfolio. Bankers Trust will: (i) act in strict conformity
with the Portfolio's Declaration of Trust, the 1940 Act and the Investment
Advisors Act of 1940, as the same may from time to time be amended; (ii) manage
the Portfolio in accordance with the Portfolio's investment objectives,
restrictions and policies as stated herein; (iii) make investment decisions for
the Portfolio; and (iv) place purchase and sale orders for securities and other
financial instruments on behalf of the Portfolio.
The Adviser furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the Portfolio's investments and
effecting securities transactions for the Portfolio. The Advisory Agreement will
<PAGE>
B-22
continue in effect if such continuance is specifically approved at least
annually by the Board of Trustees or by a majority vote of the investors in the
Portfolio (with the vote of each being in proportion to the amount of its
investment) and, in either case, by a majority of the Portfolio's Trustees who
are not parties to the Advisory Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty on 60 days'
written notice by the Portfolio when authorized either by majority vote of the
investors in the Portfolio (with the vote of each being in proportion to the
amount of its investment) or by a vote of a majority of its Board of Trustees,
or by the Adviser, and will automatically terminate in the event of its
assignment. The Advisory Agreement provides that neither the Adviser nor its
personnel shall be liable for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in the execution
of security transactions for the Portfolio, except for wilful misfeasance, bad
faith or gross negligence or of reckless disregard of its or their obligations
and duties under the Advisory Agreement.
For compensation of investment advisory services provided to the
Portfolio, Bankers Trust earned $1,092,488 and $576,146 for the fiscal years
ended March 31, 1996 and 1995, respectively, and $94,329 for the period from
September 16, 1993 (commencement of operations) through March 31, 1994. For the
same periods, Bankers Trust reimbursed $279,200, $169,159 and $48,572,
respectively, to the Portfolio to cover expenses.
Pursuant to an administration and services agreement (the
"Administration Agreement"), Bankers Trust provides administration services to
the Portfolio. Under the Administration Agreement, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees reasonably deems necessary for the proper administration of the
Portfolio. Bankers Trust will generally assist in all aspects of the Portfolio's
operations; supply and maintain the Portfolio with office facilities,
statistical and research data, data processing services, clerical, accounting,
bookkeeping and recordkeeping services (including without limitation the
maintenance of such books and records as are required under the 1940 Act and the
rules thereunder, except as maintained by other agents of the Portfolio),
internal auditing, executive and administrative services, and stationery and
office supplies; prepare reports to investors; prepare and file tax returns;
supply financial information and supporting data for reports to and filings with
the SEC; supply supporting documentation for meetings of the Board of Trustees;
provide monitoring reports and assistance regarding compliance with the
Portfolio's Declaration of Trust, By-Laws, investment objective and policies and
with federal and state securities laws; arrange for appropriate insurance
coverage; calculate the net asset value, net income and realized capital gains
or losses of the Portfolio; and negotiate arrangements with, and supervise and
coordinate the activities of, agents and others retained by the Portfolio to
supply services to the Portfolio and/or its investors.
Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement"), Signature performs such sub-administration duties for the Portfolio
<PAGE>
B-23
as from time to time may be agreed upon by Bankers Trust and Signature. The Sub-
Administration Agreement provides that Signature will receive such compensation
as from time to time may be agreed upon by Signature and Bankers Trust. All such
compensation will be paid by Bankers Trust.
Bankers Trust also provides fund accounting, transfer agency and
custodian services to the Portfolio pursuant to the Administration Agreement.
In compensation for administrative and other services provided to the
Portfolio, Bankers Trust earned $168,075 and $88,368 for the fiscal years ended
March 31, 1996 and 1995, respectively, and $14,512 for the period from September
16, 1993 (commencement of operations) through March 31, 1994. See "Investment
Advisory and Other Services" above.
Coopers & Lybrand, L.L.P. are the independent certified public
accountants for the Portfolio, providing audit services, tax return preparation,
and assistance and consultation with respect to the preparation of filings with
the SEC. The principal business address of Coopers & Lybrand, L.L.P. is 1100
Main Street, Suite 900, Kansas City, Missouri 64105.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Portfolio,
the selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any. Broker-
dealers may receive brokerage commissions on portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed to
any broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain portfolio securities on behalf of the
Portfolio are frequently placed by the Adviser with the issuer or a primary or
secondary market-maker for these securities on a net basis, without any
brokerage commission being paid by the Portfolio. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers reflect
the spread between the bid and asked prices. Transaction costs may also include
fees paid to third parties for information as to potential purchasers or sellers
of securities. Purchases of underwritten issues may be made which will include
an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and skill
required of the executing broker-dealer through familiarity with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
<PAGE>
B-24
The Adviser is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, when placing portfolio transactions for the
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the NASD and such other policies as the Portfolio's Trustees may determine, the
Adviser may consider sales of securities of other investment company clients of
Bankers Trust as a factor in the selection of broker-dealers to execute
portfolio transactions. Bankers Trust will make such allocations if commissions
are comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Portfolio and to the Adviser, it is the
opinion of the management of the Portfolio that such information is only
supplementary to the Adviser's own research effort, since the information must
still be analyzed, weighed and reviewed by the Adviser's staff. Such information
may be useful to the Adviser in providing services to clients other than the
Portfolio, and not all such information is used by the Adviser in connection
with the Portfolio. Conversely, such information provided to the Adviser by
brokers and dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to the
Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
<PAGE>
B-25
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio is concerned. However, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
The Portfolio paid brokerage commissions in the amount of $132,955 and
$118,748 for the fiscal years ended March 31, 1996 and 1995, respectively, and
$42,311 for the period from September 16, 1993 (commencement of operations)
through March 31, 1994.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share pro rata in the Portfolio's net assets available for distribution to its
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Investments in the Portfolio may not be transferred. Certificates
representing an investor's beneficial interest in the Portfolio are issued only
upon the written request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees if they choose to do so
and in such event the other investors in the Portfolio would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual meetings of investors but the Portfolio will hold special meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. No material amendment may be
made to the Portfolio's Declaration of Trust without the affirmative majority
vote of investors (with the vote of each being in proportion to the amount of
its investment).
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds of its
investors (with the vote of each being in proportion to its percentage of the
beneficial interests in the Portfolio), except that if the Trustees recommend
such sale of assets, the approval by vote of a majority of the investors (with
the vote of each being in proportion to its percentage of the beneficial
interests of the Portfolio) will be sufficient. The Portfolio may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment) or (ii) by the Trustees by written
notice to its investors.
<PAGE>
B-26
The Portfolio is organized as a trust under the laws of the State of
New York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater portion
of the liabilities and obligations of the Portfolio than its proportionate
beneficial interest in the Portfolio. The Declaration of Trust also provides
that the Portfolio shall maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Portfolio,
its investors, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations.
The Declaration of Portfolio further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "Purchase of Securities Being
Offered" and "Redemption or Repurchase" in Part A.
The Portfolio determines its net asset value on each day on which the
NYSE is open ("Portfolio Business Day"). This determination is made each
Portfolio Business Day as of the close of regular trading on the NYSE (currently
4:00 p.m., New York time) (the "Valuation Time") by dividing the value of the
Portfolio's net assets (I.E., the value of its securities and other assets less
its liabilities, including expenses payable or accrued) by the value of the
investment of the investors in the Portfolio at the time the determination is
made. (As of the date of this Registration Statement, the NYSE is open for
trading every weekday except for: (a) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas; and (b) the preceding Friday of the subsequent
Monday when one of the calendar-determined holidays falls on a Saturday or
Sunday, respectively; and (c) such other bank holidays as from time to time may
be designated by the appropriate authorities of the state of New York.)
Purchases and withdrawals will be effected at the time of determination of net
asset value next following the receipt of any purchase or withdrawal order.
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which
<PAGE>
B-27
approximates market. Securities for which market quotations are not available
are valued by Bankers Trust pursuant to procedures adopted by the Portfolio's
Board of Trustees. It is generally agreed that securities for which market
quotations are not readily available should not be valued at the same value as
that carried by an equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Portfolio purchases securities which are
restricted as to resale or for which current market quotations are not
available, the Adviser of the Portfolio will value such securities based upon
all relevant factors as outlined in FRR 1.
ITEM 20. TAX STATUS.
The Portfolio is organized as a trust under New York law. Under the
anticipated method of operation of the Portfolio, the Portfolio will not be
subject to any income tax. 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.
The Portfolio's taxable year-end is be December 31. Although, as
described above, the Portfolio will not be subject to federal income tax, it
will file appropriate income tax returns.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
<PAGE>
B-28
There are certain tax issues that will be relevant to only certain of
the investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to the Portfolio. It is
intended that such segregated asset accounts will be able to satisfy
diversification requirements applicable to them and that such contributions of
assets will not be taxable provided certain requirements are met. Such investors
are advised to consult their own tax advisors as to the tax consequences of an
investment in the Portfolio.
FOREIGN SECURITIES. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to determine
the effective rate of foreign tax in advance since the amount of the Portfolio's
assets to be invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, it may make an
election pursuant to which certain foreign taxes paid by it would be treated as
having been paid directly by its investors. Pursuant to such election, the
amount of foreign taxes paid will be included in the income of the Portfolio's
investors, and such investors (except tax-exempt investors) may, subject to
certain limitations, claim either a credit or deduction for the taxes. Each such
investor will be notified after the close of the Portfolio's taxable year
whether the foreign taxes paid will "pass through" for that year and, if so,
such notification will designate (a) the investor's portion of the foreign taxes
paid to each such country and (b) the portion which represents income derived
from sources within each such country.
The amount of foreign taxes for which an investor may claim a credit in
any year will generally be subject to a separate limitation for "passive
income," which includes, among other items of income, dividends, interest and
certain foreign currency gains. Because capital gains realized by the Portfolio
on the sale of foreign securities will be treated as U.S.-source income, the
available credit of foreign taxes paid with respect to such gains may be
restricted by this limitation.
ITEM 21. UNDERWRITERS.
The placement agent for the Portfolio is Signature, which receives no
additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the Portfolio.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Not applicable.
<PAGE>
B-29
ITEM 23. FINANCIAL STATEMENTS.
The following financial statements are hereby incorporated by reference
from the Registrant's Annual Reports and have been included in reliance upon the
report of Coopers & Lybrand L.L.P., independent certified public accountants, as
experts in accounting and auditing.
Statement of Assets and Liabilities, March 31, 1996
Statement of Operations for the year ended March 31, 1996
Statements of Changes in Net Assets for the year ended March 31, 1996
and 1995
Financial Highlights: Selected ratios and supplemental data for the
periods indicated
Notes to Financial Statements
Report of Independent Accountants
<PAGE>
B-30
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of ratings which represent opinions as to the
quality of the securities. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS
AAA: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edged". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
<PAGE>
B-31
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MOODY'S INVESTORS SERVICE, INC.'S SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.
Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 or P-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
<PAGE>
B-32
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
<PAGE>
B-33
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NY: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.
STANDARD & POOR'S RATINGS GROUP'S COMMERCIAL PAPER RATINGS
A: S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
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 ".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
FITCH INVESTORS SERVICE, INC. BOND RATINGS
INVESTMENT GRADE
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
<PAGE>
B-34
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD GRADE
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS
<PAGE>
B-35
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
"F-1+" and "F-1 " categories.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
DUFF & PHELPS BOND RATINGS
INVESTMENT GRADE
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AND AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, AND A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, AND BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
HIGH YIELD GRADE
BB+, BB, AND BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, AND B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
<PAGE>
B-36
CCC: Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior position in the capital structure. Structured
financings are also rated on this scale.
DUFF & PHELPS PAPER/CERTIFICATES OF DEPOSIT RATINGS
CATEGORY 1: TOP GRADE
Duff 1 plus: Highest certainty of timely payment. Short-term liquidity including
internal operating factors and/or ready access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
DUFF 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1 MINUS: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
CATEGORY 2: GOOD GRADE
DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
CATEGORY 3: SATISFACTORY GRADE
DUFF 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
* * * * *
Bonds which are unrated expose the investor to risks with respect to capacity to
pay interest or repay principal which are similar to the risks of lower-rated
bonds. The Fund is dependent on the investment adviser's or investment
subadviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
BT0147C
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The financial statements called for by this Item are included
in Part B and listed in Item 23 hereof.
(B) EXHIBITS
1. Declaration of Trust of the Registrant.2
2. By-Laws of the Registrant.2
5. Advisory Agreement between the Registrant and Bankers Trust
Company ("Bankers Trust").2
9. Administration and Services Agreement between the Registrant
and Bankers Trust.1
13. Investment representation letters of initial investors.1
17. Financial Data Schedule.3
1Previously filed on June 9, 1992.
2Previously filed on August 1, 1995.
3Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Beneficial Interests 2 (as of July 31, 1996)
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an Exhibit herewith.
<PAGE>
C-2
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Bankers Trust serves as investment adviser to the Portfolio. Bankers
Trust, a New York banking corporation, is a wholly owned subsidiary of Bankers
Trust New York Corporation. Bankers Trust conducts a variety of commercial
banking and trust activities and is a major wholesale supplier of financial
services to the international institutional market.
To the knowledge of the Portfolio, none of the directors or officers of
Bankers Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Bankers Trust New York Corporation. Set forth below are the names and
principal businesses of the directors and officers of Bankers Trust who are
engaged in any other business, profession, vocation or employment of a
substantial nature.
NAME AND PRINCIPAL BUSINESS ADDRESS, PRINCIPAL OCCUPATION AND OTHER INFORMATION
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Retired Senior Vice President and Director, Member
of Advisory Board of International Business Machines Corporation. Director of
Bankers Trust and Bankers Trust New York Corporation. Director of
FlightSafety International, Inc. Director of Phillips Petroleum Company.
Director of Roadway Services, Inc. Director of Rohm and Hass Company.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman of the Board and Chief Executive Officer, J.C. Penney
Company, Inc. Director of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of Exxon Corporation, Halliburton Company and
Warner-Lambert Corporation.
Jon M. Huntsman, Huntsman Chemical Corporation, 2000 Eagle Gate Tower, Salt
Lake City, UT 84111. Chairman and Chief Executive Officer, Huntsman Chemical
Corporation, Director of Bankers Trust and Bankers Trust New York
Corporation. Chairman of Constar Corporation, Huntsman Corporation, Huntsman
Holdings Corporation and Petrostar Corporation. President of Autostar
Corporation, Huntsman Polypropylene Corporation and Restar Corporation.
Director of Razzleberry Foods Corporation and Thiokol Corporation. General
Partner of Huntsman Group Ltd., McLeod Creek Partnership and Trustar Ltd.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP. Director of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of American Express Company, Corning
Incorporated, Dow Jones, Inc., J.C. Penney Company, Inc., RJR Nabisco Inc.,
<PAGE>
C-3
Revlon Group Incorporated, Ryder System, Inc., Sara Lee Corporation, Union
Carbide Corporation and Xerox Corporation.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10017. Chairman of the Executive Committee, Philip Morris Companies Inc.
Director of Bankers Trust and Bankers Trust New York Corporation. Director of
The News Corporation Limited.
Donald F. McCullough, Collins & Aikman Corporation, 210 Madison Avenue, New
York, NY 10016. Chairman Emeritus, Collins & Aikman Corporation. Director
of Bankers Trust and Bankers Trust New York Corporation. Director of
Massachusetts Mutual Life Insurance Co. and Melville Corporation.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Former President,
Co-Chief Executive Officer and Director of Time Warner Inc. Director of
Bankers Trust and Bankers Trust New York Corporation. Also a Director of
Xerox Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group. Director of Bankers Trust and Bankers Trust New York Corporation. Also
Director of Allied-Signal Inc., Contel Cellular, Inc., Federal Home Loan
Mortgage Corporation, GTE Corporation, Goodyear Tire & Rubber Company, Imasco
Limited, May Department Stores Company and Safeguard Scientifics, Inc.
Member, Radnor Venture Partners Advisory Board.
Didier Pineau-Valencienne, Schneider S.A., 4 Rue de Longchamp, 75116 Paris,
France. Chairman and Chief Executive Officer, Schneider S.A. Director and member
of the European Advisory Board of Bankers Trust and Director of Bankers Trust
New York Corporation. Director of AXA (France) and Equitable Life Assurance
Society of America, Arbed (Luxembourg), Banque Paribas (France), Ciments
Francais (France), Cofibel (Belgique), Compagnie Industrielle de Paris (France),
SIAPAP, Schneider USA, Sema Group PLC (Great Britain), Spie- Batignolles,
Tractebel (Belgique) and Whirlpool. Chairman and Chief Executive Officer of
Societe Parisienne d'Entreprises et de Participations.
Charles S. Sanford, Jr., Bankers Trust Company, 280 Park Avenue, New York, NY
10017. Chairman of the Board of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of Mobil Corporation and J.C. Penney Company,
Inc.
Eugene B. Shanks, Jr., Bankers Trust Company, 280 Park Avenue, New York, NY
10017. President of Bankers Trust and Bankers Trust New York Corporation.
Patricia Carry Stewart, c/o Office of the Secretary, 280 Park Avenue, New
York, NY 10017. Former Vice President, The Edna McConnell Clark Foundation.
Director of Bankers Trust and Bankers Trust New York Corporation. Director,
Borden Inc., Continental Corp. and Melville Corporation.
<PAGE>
C-4
George J. Vojta, Bankers Trust Company, 280 Park Avenue, New York, NY 10017.
Vice Chairman of the Board of Bankers Trust and Bankers Trust New York
Corporation. Director of Northwest Airlines and Private Export Funding Corp.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
Signature Broker-Dealer 6 St. James Avenue
Services, Inc. Boston, MA 02116
(placement agent)
Bankers Trust Company 280 Park Avenue
(investment adviser, administrator, New York, NY 10017
custodian, transfer agent)
Investors Fiduciary Trust Company 127 West 10th Street
Kansas City, MO 64105
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant 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 the 29th day of July, 1996.
ASSET MANAGEMENT PORTFOLIO
By PHILIP W. COOLIDGE
Philip W. Coolidge
President
<PAGE>
ASSET MANAGEMENT PORTFOLIO
EXHIBIT INDEX
TO
REGISTRATION STATEMENT ON
FORM N-1A
EXHIBIT NO.
17 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Asset
Management Portfolio Annual Report dated March 31, 1996, and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000888569
<NAME>ASSET MANAGEMENT PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 230,224,245
<INVESTMENTS-AT-VALUE> 239,411,417
<RECEIVABLES> 917,912
<ASSETS-OTHER> 1,500,506
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 241,829,835
<PAYABLE-FOR-SECURITIES> 1,179,696
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 507,731
<TOTAL-LIABILITIES> 1,687,427
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 230,968,946
<SHARES-COMMON-STOCK> 0
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 240,142,408
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<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> 6,712,317
<REALIZED-GAINS-CURRENT> 14,006,189
<APPREC-INCREASE-CURRENT> 7,261,817
<NET-CHANGE-FROM-OPS> 27,980,323
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 143,613,644
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<AVERAGE-NET-ASSETS> 168,075,140
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
