<PAGE>
As filed with the Securities and Exchange Commission on February 28, 1996
File No. 811-7302
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
____
Amendment No. 5 / X /
GLOBAL HIGH INCOME PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
50 California Street, 27th Floor
San Francisco, California 94111
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 415-392-6181
David J. Thelander, Esq.
Assistant General Counsel
LGT Asset Management, Inc.
50 California Street, 27th Floor
San Francisco, California 94111
(Name and Address of Agent for Service)
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<PAGE>
EXPLANATORY NOTE
This Amendment to the Registration Statement of Global High
Income Portfolio has been filed by the Registrant pursuant to Section 8(b)
of the Investment Company Act of 1940, as amended (the "1940 Act").
However, beneficial interests in the Registrant have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), since such
interests are offered solely in private placement transactions which 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 which are
"accredited investors" as defined in Regulation D under the 1933 Act.
This Amendment to the 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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GLOBAL HIGH INCOME PORTFOLIO
CROSS-REFERENCE SHEET
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Item No. of Part A of
Form N-1A Captions in Document
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1. Cover Page . . . . . . . . . . . . . . . . . . . . . . [Not Applicable]
2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . [Not Applicable]
3. Condensed Financial Information . . . . . . . . . . . [Not Applicable]
4. General Description of Registrant . . . . . . . . . . General Description of Registrant
5. Management of the Fund . . . . . . . . . . . . . . . . Management of the Portfolio
6. Capital Stock and Other Securities . . . . . . . . . . Capital Stock and Other Securities
7. Purchase of Securities Being Offered . . . . . . . . . Purchase of Securities
8. Redemption or Repurchase . . . . . . . . . . . . . . . Redemption or Repurchase
9. Pending Legal Proceedings . . . . . . . . . . . . . . Pending Legal Proceedings
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Item No. of Part B of
Form N-1A Captions in Document
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10. Cover Page . . . . . . . . . . . . . . . . . . . . . . [Not Applicable]
11. Table of Contents . . . . . . . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . . . . . . . General Information and History
13. Investment Objectives and Policies . . . . . . . . . . Investment Objectives and Policies
14. Management of the Registrant . . . . . . . . . . . . . Management of the Portfolio
15. Control Persons and Principal Holders of Securities . Control Persons and Principal Holders of
Securities
16. Investment Advisory and Other Investment Advisory and Other Services
Services . . . . . . . . . . . . . . . . . . . . . . .
17. Brokerage Allocation . . . . . . . . . . . . . . . . . Brokerage Allocation and Other Practices
<PAGE>
18. Capital Stock and Other Securities . . . . . . . . . . Capital Stock and Other Securities
19. Purchase, Redemption and Pricing of Securities Being Purchase, Redemption and Pricing of
Offered . . . . . . . . . . . . . . . . . . . . . . . Securities
20. Tax Status . . . . . . . . . . . . . . . . . . . . . . Tax Status
21. Underwriters . . . . . . . . . . . . . . . . . . . . . [Not Applicable]
22. Calculation of Performance Data . . . . . . . . . . . [Not Applicable]
23. Financial Statements Financial Statements
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<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
CONTENTS OF REGISTRATION STATEMENT
This registration statement of Global Investment Portfolio contains the
following documents:
Facing Sheet
Contents of Registration Statement
Cross-Reference Sheet
Part A
Part B
Part C
Signature Page
Exhibits
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PART A
Responses to Items 1 through 3 have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant.
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Global High Income Portfolio (the "Portfolio") is a
non-diversified, open-end management investment company which was
organized, under its former name, Global Utilities Portfolio, as a trust
under the laws of the State of New York on April 27, 1992.
Beneficial interests in the Portfolio are offered solely in
private placement transactions which do not involve any "public offering"
within the meaning of Section 4(2) of 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 which are "accredited investors" as defined in
Regulation D under the 1933 Act. This Amendment to the 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 Portfolio's investment manager is LGT Asset Management, Inc.
("LGT Asset Management"), formerly G.T. Capital Management, Inc. LGT
Asset Management and its worldwide affiliates are part of Liechtenstein
Global Trust, formerly BIL GT Group Limited, a provider of global asset
management and private banking products and services to individual and
institutional investors. The Portfolio primarily seeks high current
income and secondarily seeks capital appreciation. The Portfolio seeks
its objectives by normally investing at least 65% of its total assets in
debt securities of issuers in emerging markets. There is no assurance
that the Portfolio's investment objectives will be achieved. The
Portfolio invests in the following types of debt securities: bonds, notes
and debentures of emerging market governments; securities issued or
guaranteed by such governments' agencies or instrumentalities; securities
issued or guaranteed by the central banks of emerging market countries;
securities issued by other banks and companies in such countries; and
securities denominated in or indexed to the currencies of emerging
markets. As used in this Amendment to the Registration Statement, an
issuer in an emerging market is an entity: (a) for which the principal
securities trading is an emerging market, as defined below; (b) that
(alone or on a consolidated basis) derives 50% or more of its total
revenue from either goods produced, sales made or services performed in
emerging markets, provided that, in LGT Asset Management's view, the value
of such issuer's securities will tend to reflect emerging market
developments to a greater extent than developments elsewhere; or (c)
organized under the laws of, or with a principal office in, an emerging
market. The Portfolio's investments in emerging market securities may
consist substantially of Brady Bonds and other sovereign debt securities
<PAGE>
issued by emerging market governments. "Sovereign debt securities" are
those issued by emerging market governments that are traded in the markets
of developed countries or groups of developed countries. See "Brady
Bonds," below.
Under normal circumstances, the Portfolio may invest up to 35% of
its total assets in a combination of (i) equity securities of issuers in
emerging markets included in the list below; (ii) equity and debt
securities of issuers in developed countries, including the United States;
(iii) securities of issuers in emerging markets not included in the list
of emerging markets below, if investing therein becomes feasible and
desirable subsequent to the date hereof; and (iv) cash and money market
instruments. In evaluating investments in securities of issuers in
developed markets, LGT Asset Management will consider, among other things,
the business activities of the issuer in emerging markets and the impact
that developments in emerging markets are likely to have on the issuer's
financial condition.
The Portfolio considers "emerging markets" to consist of all
countries determined by LGT Asset Management to have developing or
emerging economies and markets. These countries generally include every
country in the world except the United States, Canada, Japan, Australia,
New Zealand and most countries located in Western Europe. For purposes of
the Portfolio's policy of normally investing at least 65% of its total
assets in debt securities of issuers in emerging markets, emerging markets
include the following countries:
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<S> <C> <C> <C>
Algeria Finland Mauritius Republic of Slovakia
Argentina Ghana Mexico South Africa
Bolivia Greece Morocco South Korea
Botswana Hong Kong Nicaragua Sri Lanka
Brazil Hungary Nigeria Swaziland
Chile India Pakistan Taiwan
China Indonesia Panama Thailand
Colombia Israel Peru Turkey
Costa Rica Ivory Coast Philippines Uruguay
Cyprus Jamaica Poland Venezuela
Czech Republic Jordan Portugal Zimbabwe
Ecuador Kenya Russia
Egypt Malaysia Singapore
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Although the Portfolio considers each of the above listed
countries eligible for investment pursuant to the above described 65% of
total assets investment policy, the Portfolio will not be invested in all
such markets at all times. Moreover, investing in some of those markets
currently may not be desirable or feasible, due to the lack of adequate
custody arrangements for the Portfolio's assets, overly burdensome
repatriation and similar restrictions, the lack of organized and liquid
securities markets, unacceptable political risks or for other reasons.
The Portfolio may invest up to 15% of its assets in illiquid securities.
Under normal circumstances, substantially all of the Portfolio's
assets will be invested in debt securities of both governmental and
corporate issuers in emerging markets. Emerging markets debt securities
generally are considered to have a credit quality below "investment
grade," i.e., rated below the fourth highest ratings category of Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Services
("S&P") or, if unrated, determined to be of comparable quality by LGT
Asset Management. Lower grade securities involve a high degree of risk
and are predominantly speculative. The Portfolio may also use instruments
(including forward currency contracts) often referred to as "derivatives."
See "Options, Futures and Forward Currency Transactions." Many emerging
market debt securities are not rated by U.S. ratings agencies such as
Moody's and S&P. These debt securities are the equivalent of high yield,
high risk bonds, commonly known as "junk bonds." The Portfolio's ability
to achieve its investment objectives is thus more dependent on LGT Asset
Management's credit analysis. The Portfolio may invest in securities that
are in default in payment of principal and/or interest.
The Portfolio may invest in bank loan participations and
assignments, which are fixed and floating rate loans arranged through
private negotiations between foreign entities. See "Loan Participation
Assignments" below. The Portfolio may invest up to 15% of its net assets
in illiquid securities.
Other Information Regarding the Portfolio. The approval of the
investors in the Portfolio is not required to change the investment
objectives, policies or limitations of the Portfolio, unless otherwise
specified. Written notice shall be provided to investors in the Portfolio
at least 30 days prior to any changes in the Portfolio's investment
objectives.
General Policies
Temporary Defensive Strategies. The Portfolio retains the
flexibility to respond promptly to changes in market, economic or
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political conditions. Accordingly, in the interest of preserving
shareholders' capital and consistent with the Portfolio's investment
objectives, LGT Asset Management may employ a temporary defensive
investment strategy if it determines such a strategy to be warranted due
to market, economic or political conditions. Pursuant to such a defensive
strategy, the Portfolio temporarily may hold cash (U.S. dollars, foreign
currencies or multinational currency units) and/or invest up to 100% of
its assets in high quality debt securities or money market instruments of
U.S. or foreign issuers, and most or all of the Portfolio's investments
may be made in the United States and denominated in U.S. dollars. To the
extent the Portfolio employs a temporary defensive investment posture, it
will not be invested so as to directly achieve its investment objectives.
In addition, pending investment of proceeds from investments in
the Portfolio or to meet ordinary daily cash needs, the Portfolio
temporarily may hold cash (U.S. dollars, foreign currencies or
multinational currency units) and may invest any portion of its assets in
high quality foreign or domestic money market instruments.
Asset Allocation. The Portfolio invests in debt obligations
allocated among diverse markets and denominated in various currencies,
including U.S. dollars, or in multinational currency units such as
European Currency Units. The Portfolio may purchase securities that are
issued by the government or a company or financial institution of one
country but denominated in the currency of another country (or a
multinational currency unit).
LGT Asset Management selectively will allocate the assets of the
Portfolio in securities of issuers in countries and in currency
denominations where the combination of fixed income market returns, the
price appreciation potential of fixed income securities and currency
exchange rate movements will present opportunities primarily for high
current income and secondarily for capital appreciation. In so doing, LGT
Asset Management intends to take full advantage of the different yield,
risk and return characteristics that investment in the fixed income
markets of different countries can provide for U.S. investors.
Fundamental economic strength, credit quality and currency and interest
rate trends will be the principal determinants of the emphasis given to
various country, geographic and industry sectors within the Portfolio.
Securities held by the Portfolio may be invested in without limitation as
to maturity.
LGT Asset Management generally evaluates currencies on the basis
of fundamental economic criteria (e.g., relative inflation and interest
rate levels and trends, growth rate forecasts, balance of payments status
and economic policies) as well as technical and political data. If the
currency in which a security is denominated appreciates against the U.S.
dollar, the dollar value of the security will increase. Conversely, if
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the exchange rate of the foreign currency declines, the dollar value of
the security will decrease. However, the Portfolio may seek to protect
itself against such negative currency movements through the use of
sophisticated investment techniques. See "Options, Futures and Forward
Currency Transactions" and "Swaps, Caps, Floors and Collars."
Brady Bonds. The Portfolio may invest in "BradyBonds," which are
debt restructurings that provide for the exchange of cash and loans for
newly issued bonds. Brady Bonds recently have been issued by The
countries of, among others, Argentina, Brazil, Bulgaria, Costa Rica,
Dominican Republic, Jordan, Mexico, Nigeria, Philippines, Poland, Uruguay,
Venezuela, and are expected to be issued by Ecuador and other emerging
market countries. Approximately $139 billion in principal amount of Brady
Bonds are outstanding, the largest portion having been issued by Brazil
and Argentina. Brady Bonds issued by Brazil and Argentina currently are
rated below investment grade. As of the date hereof, the Portfolio is not
aware of the occurrence of any payment defaults on Brady Bonds. Investors
should recognize, however, that Brady Bonds have been issued only recently
and, accordingly, do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the secondary
market for Latin American debt. The Salomon Brothers Brady Bond Index
provides a benchmark that can be used to compare returns of emerging
market Brady Bonds with returns in other bond markets, e.g., the U.S. bond
market.
The Portfolio may invest in either collateralized or
uncollateralized Brady Bonds. U.S. dollar-denominated, collateralized
Brady Bonds, which may be fixed rate par bonds or floating rate discount
bonds, are collateralized in full as to principal by U.S. Treasury zero
coupon bonds having the same maturity as the bonds. Interest payments on
such bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of
rolling interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Loan Participations and Assignments. The Portfolio may invest in
fixed and floating rate loans ("Loans") arranged through private
negotiations between a foreign entity and one or more financial
institutions ("Lenders"). The majority of the Portfolio's investments in
Loans in emerging markets is expected to be in the form of participations
in Loans ("Participations") and assignments of portions of Loans from
third parties ("Assignments"). Participations typically will result in
the Portfolio having a contractual relationship only with the Lender, not
with the borrower government. The Portfolio will have the right to
receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon
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receipt by the Lender of the payments from the borrower. In connection
with purchasing Participations, the Portfolio generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
relating to the loan ("Loan Agreement"), nor any rights of set-off against
the borrower, and the Portfolio may not directly benefit from any
collateral supporting the Loan in which it has purchased the
Participation. As a result, the Portfolio will assume the credit risk of
both the borrower and the Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a
Participation, the Portfolio may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the
borrower. The Portfolio will acquire Participations only if the Lender
interpositioned between the Portfolio and the borrower is determined by
LGT Asset Management to be creditworthy. When the Portfolio purchases
Assignments from Lenders, the Portfolio will acquire direct rights against
the borrower on the Loan. However, since Assignments are arranged through
private negotiations between potential assignees and assignors, the rights
and obligations acquired by the Portfolio as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender.
The Portfolio may have difficulty disposing of Assignments and
Participations. The liquidity of such securities is limited and the
Portfolio anticipates that such securities could be sold only to a limited
number of institutional investors. The lack of a liquid secondary market
could have an adverse impact on the value of such securities and on the
Portfolio's ability to dispose of particular Assignments or Participations
when necessary to meet the Portfolio's liquidity needs or in response to a
specific economic event, such as a deterioration in the creditworthiness
of the borrower. The lack of a liquid secondary market for Assignments
and Participations also may make it more difficult for the Portfolio to
assign a value to those securities for purposes of valuing the Portfolio's
portfolio and calculating its net asset value. The investment of the
Portfolio in illiquid securities, including Assignments and
Participations, is limited to 15% of net assets.
When-Issued and Forward Commitment Securities. The Portfolio may
purchase securities on a "when-issued" basis and may purchase or sell debt
securities on a "forward commitment" basis in order to hedge against
anticipated changes in interest rates and prices. The price, which is
generally expressed in yield terms, is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later
date. When-issued securities and forward commitments may be sold prior to
the settlement date, but the Portfolio will purchase or sell when-issued
securities and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. No income
accrues on securities which have been purchased pursuant to a forward
commitment or on a when-issued basis prior to delivery of the securities.
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If the Portfolio disposes of the right to acquire a when-issued security
prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it may incur a gain or loss. At the time
the Portfolio enters into a transaction on a when-issued or forward
commitment basis, a segregated account consisting of cash or high grade
liquid debt securities equal to the value of the when-issued or forward
commitment securities will be established and maintained with its
custodian and will be marked to market daily. There is a risk that the
securities may not be delivered and that the Portfolio may incur a loss.
Borrowing. The Portfolio is authorized to borrow money from
banks in an amount up to 33 1/3% of its total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowings
and may use the proceeds of such borrowings for investment purposes. The
Portfolio will borrow for investment purposes only when LGT Asset
Management believes that such borrowings will benefit the Portfolio after
taking into account considerations such as the costs of the borrowing and
the likely investment returns on the securities purchased with the
borrowed monies.
Borrowing for investment purposes is known as leveraging, which
is a speculative practice. Such borrowing by the Portfolio creates the
opportunity for increased net income and appreciation but, at the same
time, involves special risk considerations. For example, leveraging might
exaggerate changes in net asset value and in the yield realized by the
Portfolio. Although the principal of such borrowings will be fixed, the
Portfolio's assets may change in value during the time the borrowing is
outstanding. By leveraging the Portfolio, changes in net asset values,
higher or lower, may be greater in degree than if leverage were not
employed. To the extent the income derived from the assets obtained with
borrowed funds exceeds the interest and other expenses that the Portfolio
will have to pay, the Portfolio's net income will be greater than if
borrowing were not used. Conversely, if the income from the assets
obtained with borrowed funds is not sufficient to cover the cost of
borrowing, the net income of the Portfolio will be less than if borrowing
were not used, and therefore the amount available for distribution to
investors as dividends will be reduced. The Portfolio expects that some
of its borrowings may be made on a secured basis.
In addition to the foregoing borrowings, the Portfolio may borrow
money for temporary or emergency purposes or payments in an amount not
exceeding 5% of the value of its total assets (not including the amount
borrowed) provided that the total amount borrowed by the Portfolio for any
purpose does not exceed 33 1/3% of its total assets.
Repurchase Agreements, Reverse Repurchase Agreements and Dollar
Rolls. The Portfolio may enter into repurchase agreements. Repurchase
agreements are transactions in which the purchaser buys a security from a
bank or recognized securities dealer and simultaneously commits to resell
A-7
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that security to the bank or dealer at an agreed upon price, date and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security.
The Portfolio may also enter into reverse repurchase agreements
with the same parties with whom it may enter into repurchase agreements.
Under a reverse repurchase agreement, the Portfolio would sell securities
and agree to repurchase them at a particular price at a future date. At
the time the Portfolio enters into a reverse repurchase agreement, it will
establish and maintain a segregated account with an approved custodian
containing cash or liquid high grade debt securities having a value not
less than the repurchase price, including accrued interest. Reverse
repurchase agreements involve the risk that the market value of the
securities retained in lieu of sale by the Portfolio may decline below the
price of the securities the Portfolio has sold but is obligated to
repurchase. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer
or its trustee or receiver may receive an extension of time to determine
whether to enforce the Portfolio's obligation to repurchase the
securities, and the Portfolio's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
The Portfolio also may enter into "dollar rolls," in which the
Portfolio sells fixed income securities for delivery in the current month
and simultaneously contracts to purchase substantially similar (same type,
coupon and maturity) securities on a specified future date. During the
roll period, the Portfolio would forego principal and interest paid on
such securities. The Portfolio would be compensated by the difference
between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the
initial sale.
Reverse repurchase agreements and dollar rolls will be treated as
borrowings and will be deducted from the Portfolio's assets for purposes
of calculating compliance with the Portfolio's borrowing limitation. See
"Investment Limitations."
Securities Lending. The Portfolio is authorized to make loans of
its portfolio securities to broker/dealers or to other institutional
investors. At all times a loan is outstanding, the Portfolio requires the
borrower to maintain with the Portfolio's custodian, collateral consisting
of cash, U.S. government securities or other liquid, high grade debt
securities equal to at least the value of the borrowed securities, plus
any accrued interest. The Portfolio will receive any interest paid on the
loaned securities and a fee and/or a portion of the interest earned on the
collateral. The Portfolio limits its loans of portfolio securities to an
aggregate of 30% of the value of its total assets, measured at the time
any such loan is made. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delays in
receiving additional collateral or in recovery of the loaned securities
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and possible loss of rights in the collateral should the borrower fail
financially.
Zero Coupon Securities. The Portfolio may invest in certain zero
coupon securities that are "stripped" U.S. Treasury notes and bonds. The
Portfolio also may invest in zero coupon and other deep discount
securities issued by foreign governments and domestic and foreign
corporations, including certain Brady Bonds and other Sovereign debt, and
in payment-in-kind securities. Zero coupon securities pay no interest to
holders prior to maturity, and payment-in-kind securities pay interest in
the form of additional securities. However, a portion of the original
issue discount on zero coupon securities and the "interest" on payment-in-
kind securities will be included in the Portfolio's income. Accordingly,
for an investor in the Portfolio to qualify for tax treatment as a
regulated investment company and to avoid a certain excise tax, it may be
required to distribute as a dividend an amount that is greater than the
total amount of cash it actually receives. These distributions must be
made from its cash assets or, if necessary, from the proceeds of sales of
portfolio securities. The investor will not be able to purchase
additional income-producing securities with cash used to make such
distributions and its current income ultimately may be reduced as a
result. Zero coupon and payment-in-kind securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities that make current distributions
of interest in cash.
Synthetic Security Positions. The Portfolio may utilize
combinations of futures on bonds and forward currency contracts to create
investment positions that have substantially the same characteristics as
bonds of the same type as those to which the futures contracts relate.
Investment positions of this type are generally referred to as "synthetic
securities." For example, in order to establish a synthetic security
position for the Portfolio that is comparable to owning a Japanese
government bond, LGT Asset Management might purchase futures contracts on
Japanese government bonds in the desired principal amount and purchase
forward currency contracts for Japanese Yen in an amount equal to the then
current purchase price for such bonds in the Japanese cash market, with
each contract having approximately the same delivery date.
LGT Asset Management might roll over the futures and forward
currency contract positions before taking delivery in order to continue
the Portfolio's investment position, or LGT Asset Management might close
out those positions, thus effectively selling the synthetic security.
Further, the amount of each contract might be adjusted in response to
market conditions and the forward currency contract might be changed in
amount or eliminated in order to eliminate the Portfolio's exposure to
currency fluctuations.
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Further, while these futures and currency contracts remain open,
the Portfolio will comply with applicable Securities and Exchange
Commission guidelines to set aside cash, U.S. government securities or
other liquid high grade debt securities in a segregated account with its
custodian in an amount sufficient to cover its potential obligations under
such contracts.
LGT Asset Management would create synthetic security positions
for the Portfolio when it believes that it can obtain a better yield or
achieve cost savings in comparison to purchasing actual bonds or when
comparable bonds are not readily available in the market. Synthetic
security positions are subject to the risk that changes in the value of
purchased futures contracts may differ from changes in the value of the
bonds that might otherwise have been purchased in the cash market. Also,
while LGT Asset Management believes that the cost of creating synthetic
security positions generally will be materially lower than the cost of
acquiring comparable bonds in the cash market, the Portfolio will incur
transaction costs in connection with each purchase and sale of a futures
contract. The use of futures contracts and forward currency contracts to
create synthetic security positions also is subject to substantially the
same risks as those that exist when these instruments are used in
connection with hedging strategies. See "Options, Futures and Forward
Currency Transactions" below.
Options, Futures and Forward Currency Transactions. In seeking
to protect against currency exchange rate or interest rate changes that
are adverse to its present or prospective positions, the Portfolio may
employ certain risk management practices involving the use of forward
currency contracts, options on securities, options on indices, options on
currencies, and futures contracts and options on futures contracts on U.S.
and foreign government securities, indices of those securities and
currencies. LGT Asset Management can also use futures contracts and
forward currency contracts to create synthetic security positions. See
"Synthetic Security Positions." The Portfolio also may enter into
interest rate, currency and index swaps and purchase or sell related caps,
floors and collars and other derivatives. See "Swaps, Caps, Floors and
Collars" below. These instruments are often referred to as "derivatives"
which may be defined as financial instruments whose performance is
derived, at least in part, from the performance of another asset (such as
a security, currency or an index of securities). The Portfolio may enter
into such instruments up to the full value of its assets. There can be no
assurance that these risk management practices will succeed. Those
techniques are described below and are further detailed in Part B.
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Only a limited market, if any, currently exists for forward
currency contracts and options and futures instruments relating to
currencies of most emerging markets, to securities denominated in such
currencies or to securities of issuers domiciled or principally engaged in
business in such emerging markets. To the extent that such a market does
not exist, LGT Asset Management may not be able to effectively hedge its
investment in such emerging markets.
To attempt to hedge against adverse movements in exchange rates
between currencies, the Portfolio may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified
future date. Such contracts may involve the purchase or sale of a foreign
currency against the U.S. dollar or may involve two foreign currencies.
The Portfolio may enter into forward currency contracts either with
respect to specific transactions or with respect to its portfolio
positions. For example, when the Portfolio anticipates making a purchase
or sale of a security, it may enter into a forward currency contract in
order to set the rate (either relative to the U.S. dollar or another
currency) at which a currency exchange transaction related to the purchase
or sale will be made. Further, when LGT Asset Management believes that a
particular currency may decline compared to the U.S. dollar or another
currency, the Portfolio may enter into a forward contract to sell the
currency LGT Asset Management expects to decline in an amount up to the
value of the portfolio securities held by the Portfolio denominated in a
foreign currency. The Portfolio also may purchase and sell put and call
options on currencies, futures contracts on currencies and options on
futures contracts on currencies to hedge against movements in exchange
rates.
In addition, the Portfolio may purchase and sell put and call
options on securities to hedge against the risk of fluctuations in the
prices of securities held by the Portfolio or that LGT Asset Management
intends to include in the Portfolio's portfolio. The Portfolio also may
buy and sell put and call options on indices. Such index options serve to
hedge against overall fluctuations in the securities markets or market
sectors generally, rather than anticipated increases or decreases in the
value of a particular security.
Further, the Portfolio may sell index futures contracts and may
purchase put options or write call options on such futures contracts to
protect against a general market or market sector decline that could
adversely affect the Portfolio's portfolio. The Portfolio also may buy
index futures contracts and purchase call options or write put options on
such contracts to hedge against a general market or market sector advance
and thereby attempt to lessen the cost of future securities acquisitions.
The Portfolio may use interest rate futures contracts and options thereon
A-11
<PAGE>
to hedge its portfolio against changes in the general level of interest
rates.
In addition, the Portfolio may write and purchase put and call
options on securities, currencies and indices that are traded on
recognized securities exchanges and over-the-counter ("OTC") markets.
These practices may result in the loss of principal under certain
conditions. In addition, certain provisions of the Internal Revenue Code
of 1986, as amended ("Code"), have the effect of limiting the extent to
which the Portfolio may enter into forward contracts or futures contracts,
or engage in options transactions. See "Tax Status" in Part B.
Although the Portfolio might not employ any of the foregoing
strategies, its use of forward currency contracts, options and futures
would involve certain investment risks and transaction costs to which it
might not otherwise be subject. These risks include: (1) dependence on
LGT Asset Management's ability to predict movements in the prices of
individual securities, fluctuations in the general securities markets and
movements in interest rates and currency markets; (2) imperfect
correlation, or even no correlation, between movements in the price of
forward contracts, options, futures contracts or options thereon and
movements in the price of the currency or security hedged or used for
cover; (3) the fact that the skills needed to trade options, futures
contracts and options thereon or to use forward currency contracts are
different from those needed to select the securities in which the
Portfolio invests; (4) lack of assurance that a liquid secondary market
will exist for any particular option, futures contract or option thereon
at any particular time; (5) the possible inability of the Portfolio to
purchase or sell a security at a time when it would otherwise be favorable
for it to do so, or the possible need for the Portfolio to sell a security
at a disadvantageous time, due to the need for the Portfolio to maintain
"cover" or to set aside securities in connection with hedging
transactions; and (6) the possible need of the Portfolio to defer closing
out of certain options, futures contracts and options thereon and forward
currency contracts in order to qualify or continue to qualify for the
beneficial tax treatment afforded regulated investment companies under the
Code. See "Tax Status" in Part B. If LGT Asset Management incorrectly
forecasts currency exchange rates or interest rates in utilizing a
strategy for the Portfolio, it would be in a better position if it had not
hedged at all. The Portfolio also may conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market.
Swaps, Caps, Floors and Collars. The Portfolio may enter into
interest rate, currency and index swaps, and purchase or sell related
caps, floors and collars and other derivative instruments. The Portfolio
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations as a technique for managing the portfolio's
A-12
<PAGE>
duration (i.e., the price sensitivity to changes in interest rates) or to
protect against any increase in the price of securities the Portfolio
anticipates purchasing at a later date. The Portfolio intends to use
these transactions as hedges, and will not sell interest rate caps or
floors if it does not own securities or other instruments providing an
income stream roughly equivalent to what it may be obligated to pay.
Interest rate swaps involve the exchange by the Portfolio with
another party of their respective commitments to pay or receive interest
(for example, an exchange of floating rate payments for fixed rate
payments) with respect to a notional amount of principal. A currency swap
is an agreement to exchange cash flows on a notional amount based on
changes in the values of the reference indices.
The purchase of a cap entitles the purchaser to receive payments
on a notional principal amount from the party selling the cap to the
extent that a specified index exceeds a predetermined interest rate. The
purchase of an interest rate floor entitles the purchaser to receive
payments on a notional principal amount from the party selling the floor
to the extent that a specified index falls below a predetermined interest
rate or amount. A collar is a combination of a cap and a floor that
preserves a certain return within a predetermined range of interest rates
or values.
Indexed Commercial Paper. The Portfolio may invest without
limitation in commercial paper which is indexed to certain specific
foreign currency exchange rates. The terms of such commercial paper
provide that its principal amount is adjusted upwards or downwards (but
not below zero) at maturity to reflect changes in the exchange rate
between two currencies while the obligation is outstanding. The Portfolio
will purchase such commercial paper with the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such
commercial paper entails the risk of loss of principal, the potential for
realizing gains as a result of changes in foreign currency exchange rates
enables the Portfolio to hedge against a decline in the U.S. dollar value
of investments denominated in foreign currencies while seeking to provide
an attractive money market rate of return. The Portfolio will not
purchase such commercial paper for speculation. The Portfolio will
establish a segregated account with respect to its investments in this
type of commercial paper and will maintain in such account cash not
available for investment or U.S. government securities or liquid, high
grade debt securities having a value equal to the aggregate, outstanding
principal amount of the commercial paper of this type that is held in the
portfolio of the Portfolio.
A-13
<PAGE>
Portfolio Turnover. For the fiscal years ended October 31, 1995
and 1994, portfolio turnover rates for the Portfolio were 213% and 178%,
respectively. High portfolio turnover (over 100%) involves
correspondingly greater brokerage commissions and other transaction costs
that a Portfolio will bear directly. In addition, such turnover rates may
have certain tax consequences, including increasing taxable gains.
Investment Limitations
The Portfolio is subject to certain investment limitations which
constitute fundamental policies. Fundamental policies cannot be changed
without the approval of the holders of a majority of the Portfolio's
outstanding voting securities, as defined in the 1940 Act. See
"Investment Limitations" in Item 13 of Part B.
Item 5. Management of the Portfolio.
------------------------------------
The Portfolio's Board of Trustees has overall responsibility for
the operation of the Portfolio. See "Trustees and Executive Officers" in
Item 14 of Part B for a complete description of the Trustees of the
Portfolio.
Investment Management and Administration. Services provided by
LGT Asset Management as the Portfolio's investment manager and
administrator include, but are not limited to, determining the composition
of its investment portfolio and placing orders to buy, sell or hold
particular securities. In addition, LGT Asset Management provides the
following administration services to the Portfolio: furnishing corporate
officers and clerical staff; providing office space, services and
equipment; and supervising all matters relating to its operation. For
these services, the Portfolio pays investment management and
administration fees directly to LGT Asset Management based on the average
daily net assets of the Portfolio at the annualized rate of 0.475% on the
first $500 million, 0.45% on the next $1 billion, 0.425 on the next $1
billion, and 0.40% on amounts thereafter average daily net assets, plus 2%
of the Portfolio's total investment income as stated in the Portfolio's
Statement of Operations, calculated in accordance with generally accepted
accounting principles, adjusted daily for currency revaluations, on a
marked to market basis, of the Portfolio's assets; provided, however, that
during any fiscal year this amount shall not exceed 2% of the Portfolio's
total investment income calculated in accordance with generally accepted
accounting principles. These rates are higher than those paid by most
mutual funds.
LGT Asset Management also serves as the Portfolio's pricing and
accounting agent. The monthly fee for these services to LGT Asset
Management is a percentage, not to exceed 0.03% annually, of the Global
A-14
<PAGE>
High Income Fund's average daily net assets. The annual fee rate is
derived by applying 0.03% to the first $5 billion of assets of GT Global
Mutual Funds and 0.02% to the assets in excess of $5 billion and dividing
the result by the aggregate assets of such Funds.
LGT Asset Management provides investment management and/or
administration services to the GT Global Mutual Funds. LGT Asset
Management and its worldwide asset management affiliates have provided
investment management and/or administration services to institutional,
corporate and individual clients around the world since 1969. The U.S.
offices of LGT Asset Management are located at 50 California Street, 27th
Floor, San Francisco, California 94111.
LGT Asset Management and its worldwide affiliates, including LGT
Bank in Liechtenstein, formerly Bank in Liechtenstein, comprise
Liechtenstein Global Trust, formerly BIL GT Group Limited. On January 1,
1996, G.T. Capital Management, Inc. was renamed LGT Asset Management, Bank
in Liechtenstein was renamed LGT Bank in Liechtenstein, and BIL GT Group
Limited was renamed Liechtenstein Global Trust. Liechtenstein Global
Trust is a provider of global asset management and private banking
products and services to individual and institutional investors.
Liechtenstein Global Trust is controlled by the Prince of Liechtenstein
Foundation, which serves as the parent organization for the various
business enterprises of the Princely Family of Liechtenstein. The
principal business address of the Prince of Liechtenstein Foundation is
Herrengasse 12, FL-9490, Vaduz, Liechtenstein.
As of November 30, 1995, LGT Asset Management and its worldwide
asset management affiliates managed or administered approximately $22
billion, of which approximately $20 billion consisted of GT Global retail
funds worldwide. In the U.S., as of November 30, 1995, LGT Asset
Management managed or administered approximately $9.6 billion in GT Global
Mutual Funds. As of November 30, 1995, assets under advice by LGT Bank in
Liechtenstein exceeded approximately $23 billion. As of November 30,
1995, assets entrusted to Liechtenstein Global Trust totaled approximately
$45 billion.
In addition to the resources of its San Francisco office, LGT
Asset Management uses the expertise, personnel, data and systems of other
offices of Liechtenstein Global Trust, including investment offices in
London, Hong Kong, Tokyo, Singapore, Sydney and Frankfurt. In managing
the Portfolio, LGT Asset Management employs a team approach, taking
advantage of the resources of these various investment offices around the
world in seeking to achieve the Portfolio's investment objective.
A-15
<PAGE>
The investment professionals primarily responsible for the
portfolio management of the Portfolio are as follows:
<TABLE>
<CAPTION>
Responsibilities Business Experience
Name/Office for the Portfolio Last Five Years
----------- ----------------- ---------------
<S> <C> <C>
Simon Nocera Portfolio manager since Portfolio Portfolio Manager and Economist for LGT Asset
San Francisco inception in 1992 Management since 1992; From 1991 to 1992, Mr. Nocera
was Senior Vice President and Director for Global
Fixed Income at The Putnam Companies; Prior thereto,
Mr. Nocera was a Financial Economist at the
International Monetary Fund
Donald W. Mattersdorff Assistant Portfolio Manager since 1994 Trader-Cargill Financial Services (London) from 1993
San Francisco to 1994. From 1992 to 1993, Mr. Mattersdorff was
Global Fixed Income Portfolio Manager at the Putnam
Companies (Boston). Prior thereto, Mr. Mattersdorff
was a trader and bond portfolio analyst at Putnam
from 1988-1993.
</TABLE>
The Portfolio has not retained the services of a principal
underwriter or distributor, as interests in the Portfolio are offered
solely in private placement transactions.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Portfolio's custodian.
Expenses. The Portfolio pays all of its expenses not assumed by
LGT Asset Management and other agents. These expenses include in addition
to the investment management and administration, service, pricing,
accounting, and brokerage fees discussed herein, legal and audit expenses,
custodian fees, trustees' fees, registration fees, organizational
expenses, fidelity bond and other insurance premiums, taxes, extraordinary
expenses and the expenses of reports sent to existing investors.
A-16
<PAGE>
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 Trustees of
the Portfolio believe that 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 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. Investors have the right to communicate with other
investors to the extent provided in Section 16(c) of the 1940 Act in
connection with requesting a meeting of investors for the purpose of
removing one or more Trustees, which removal requires a two-thirds vote of
the Portfolio's beneficial interests. Investors also have under certain
circumstances the right to remove one or more Trustees without a meeting.
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 Portfolio intends to distribute to its investors the
Portfolio's net investment income monthly and its net realized capital
gains, if any, annually after the end of the Portfolio's fiscal year on
October 31.
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
taxable income, gain, loss, deductions and credits in determining its
income tax liability. The determination of such share will be made in
accordance with 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.
A-17
<PAGE>
Investor inquiries may be directed to LGT Asset Management.
Item 7. Purchase of Securities.
-------------------------------
Beneficial interests in the Portfolio are issued solely in
private placement transactions which do not involve any "public offering"
within the meaning of Section 4(2) of the 1933 Act. 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 which are "accredited investors" as defined in
Regulation D under the 1933 Act. This Amendment to the 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.
An investment in the Portfolio may be made without a sales load
at the net asset value next determined after an order is received in "good
order" by the Portfolio. There is no minimum initial or subsequent
investment in the Portfolio. However, 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 reserves the right to cease accepting investments
at any time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange
("NYSE") is open for trading. At the close of regular trading on the NYSE
(which normally is 4:00 p.m. Eastern Time, unless weather, equipment
failure or other factors contribute to an earlier closing time), on each
such day, the value of each such investor's beneficial interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or reductions, which are to be effected as of the close of
regular trading on the NYSE, on such day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the
Portfolio will then be recomputed as the percentage equal to the fraction
(i) the numerator of which is the value of such investor's investment in
the Portfolio as of the close of regular trading on the NYSE, on such day
plus or minus, as the case may be, the amount of net additions to or
reductions in the investor's investment in the Portfolio effected as of
that time, and (ii) the denominator of which is the aggregate net asset
value of the Portfolio as of that time, on such day, plus or minus, as the
case may be, the amount of net additions to or reductions in the aggregate
investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of
the investor's interest in the Portfolio as of the close of regular
trading on the NYSE, on the following day the NYSE is open for trading.
A-18
<PAGE>
Item 8. Redemption or Repurchase.
---------------------------------
An investor in the Portfolio may reduce any portion or all of its
investment at any time at the net asset value next determined after a
request in "good order" is furnished by the investor to the Portfolio.
The proceeds of a reduction will be paid by the Portfolio in federal funds
normally on the next business day after the reduction is effected, but in
any event within seven days. Investments in the Portfolio may not be
transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom
postponed during any period (1) when the NYSE is closed (other than
customary weekend or holiday closings) or trading on the NYSE is
restricted as determined by the SEC, (2) when an emergency exists, as
defined by the SEC, which would prohibit the Portfolio in disposing of its
portfolio securities or in fairly determining the value of its assets, or
(3) as the SEC may otherwise permit.
Item 9. Pending Legal Proceedings.
----------------------------------
Not applicable.
A-19
<PAGE>
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 Portfolio . . . . . . . . . . . . . . . . B-19
Control Persons and Principal Holders of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
Investment Advisory and Other Services . . . . . . . . . . . B-22
Brokerage Allocation and Other Practices . . . . . . . . . . B-23
Capital Stock and Other Securities . . . . . . . . . . . . . B-25
Purchase, Redemption and Pricing of Securities . . . . . . . B-26
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . B-28
Underwriters . . . . . . . . . . . . . . . . . . . . . . B-30
Calculation of Performance Data . . . . . . . . . . . . . . B-30
Financial Statements . . . . . . . . . . . . . . . . . . . . B-30
Item 12. General Information and History.
-----------------------------------------
Not applicable.
Item 13. Investment Objectives and Policies.
--------------------------------------------
Part A contains additional information about the investment
objectives of Global High Income Portfolio (the "Portfolio"). This Part B
should only be read in conjunction with Part A.
Investment In Emerging Markets
The Portfolio seeks its objectives by investing, under normal
circumstances, at least 65% of its total assets in debt securities of
issuers in emerging markets. The Portfolio does not consider the
following countries to be emerging markets: Australia, Austria, Belgium,
Canada, Denmark, France, Germany, Ireland, Italy, Japan, the Netherlands,
New Zealand, Norway, Spain, Sweden, Switzerland, United Kingdom, and
United States.
<PAGE>
In determining what countries constitute emerging markets, LGT
Asset Management will consider, among other things, data, analysis, and
classification of countries published or disseminated by the International
Bank for Reconstruction and Development (commonly known as the World Bank)
and the International Finance Corporation.
Selection of Debt Investments
LGT Asset Management is the investment manager of the Portfolio.
In determining the appropriate distribution of investments among various
countries and geographic regions for the Portfolio, LGT Asset Management
ordinarily considers the following factors: prospects for relative
economic growth among the different countries in which the Portfolio may
invest; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range
of the individual investment opportunities available to international
investors.
Although the Portfolio values assets daily in terms of U.S.
dollars, the Portfolio does not intend to convert holdings of foreign
currencies into U.S. dollars on a daily basis. The Portfolio will do so
from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference ("spread")
between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to sell that currency to the dealer.
The Portfolio may invest in the following types of money market
instruments (i.e., debt instruments with less than 12 months remaining
until maturity) denominated in U.S. dollars or other currencies:
(a) obligations issued or guaranteed by the U.S. or foreign governments,
their agencies, instrumentalities or municipalities; (b) obligations of
international organizations designed or supported by multiple foreign
governmental entities to promote economic reconstruction or development;
(c) finance company obligations, corporate commercial paper and other
short-term commercial obligations; (d) bank obligations (including
certificates of deposit, time deposits, demand deposits and bankers'
acceptances), subject to the restriction that the Portfolio may not invest
more than 25% of its total assets in bank securities; (e) repurchase
agreements with respect to all the foregoing; and (f) other substantially
similar short-term debt securities with comparable characteristics.
Investments in Other Investment Companies
With respect to certain countries, investments by the Portfolio
presently may be made only by acquiring shares of other investment
companies with local governmental approval to invest in those countries.
B-2
<PAGE>
At such time as direct investment in these countries is allowed, the
Portfolio anticipates investing directly in these markets. The Portfolio
may also invest in the securities of closed-end investment companies
within the limits of the Investment Company Act of 1940 ("1940 Act").
These limitations currently provide that, in general, the Portfolio may
purchase shares of a closed-end investment company unless (a) such a
purchase would cause the Portfolio to own in the aggregate more than 3% of
the total outstanding voting securities of the investment company or
(b) such a purchase would cause the Portfolio to have more than 5% of its
total assets invested in the investment company or more than 10% of its
aggregate assets invested in an aggregate of all such investment
companies. Investment in investment companies may also involve the
payment of substantial premiums above the value of such companies'
portfolio securities. The Portfolio does not intend to invest in such
vehicles or funds unless, in the judgment of LGT Asset Management, the
potential benefits of such investments justify the payment of any
applicable premiums. The yield of such securities will be reduced by
operating expenses of such companies including payments to the investment
managers of those investment companies.
Samurai and Yankee Bonds
The Portfolio may invest in yen-denominated bonds sold in Japan
by non-Japanese issuers ("Samurai bonds"), and may invest in dollar-
denominated bonds sold in the United States by non-U.S. issuers ("Yankee
bonds"). It is the policy of the Portfolio to invest in Samurai or Yankee
bond issues only after taking into account considerations of quality and
liquidity, as well as yield.
Warrants or Rights
Warrants or rights may be acquired by the Portfolio in connection
with other securities or separately and provide the Portfolio with the
right to purchase at a later date other securities of the issuer. As a
condition of its continuing registration in a state, the Portfolio has
undertaken that its investments in warrants or rights, valued at the lower
of cost or market, will not exceed 5% of the value of its net assets and
not more than 2% of such assets will be invested in warrants and rights
which are not listed on the American or New York Stock Exchange ("NYSE").
Warrants or rights acquired by the Portfolio in units or attached to
securities will be deemed to be without value for purpose of this
restriction. These limits are not fundamental policies of the Portfolio
and may be changed by a vote of a majority of the Portfolio's Board of
Trustees without shareholder approval.
Lending of Portfolio Securities
For the purpose of realizing additional income, the Portfolio may
make secured loans of portfolio securities amounting to not more than 30%
of its total assets. Securities loans are made to broker-dealers or
B-3
<PAGE>
institutional investors pursuant to agreements requiring that the loans
continuously be secured by collateral at least equal at all times to the
value of the securities lent plus any accrued interest, "marked to market"
on a daily basis. The collateral received will consist of cash, U.S.
short-term government securities, bank letters of credit or such other
collateral as may be permitted under the Portfolio's investment program
and by regulatory agencies and approved by the Portfolio's Board of
Trustees. While the securities loan is outstanding, the Portfolio will
continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. The Portfolio has a right to call
each loan and obtain the securities on five business days' notice. The
Portfolio will not have the right to vote equity securities while they are
being lent, but will call in a loan in anticipation of any important vote.
The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional
collateral or in the recovery of the securities or possible loss of rights
in the collateral should the borrower fail financially. Loans only will
be made to firms deemed by LGT Asset Management to be of good standing and
will not be made unless, in the judgment of LGT Asset Management, the
consideration to be earned from such loans would justify the risk.
Commercial Bank Obligations
For the purposes of the Portfolio's investment policies with
respect to bank obligations, obligations of foreign branches of U.S. banks
and of foreign banks are obligations of the issuing bank and may be
general obligations of the parent bank. Such obligations, however, may be
limited by the terms of a specific obligation and by government
regulation. As with investment in non-U.S. securities in general,
investments in the obligations of foreign branches of U.S. banks and of
foreign banks may subject the Portfolio to investment risks that are
different in some respects from those of investments in obligations of
domestic issuers. Although the Portfolio typically will acquire
obligations issued and supported by the credit of U.S. or foreign banks
having total assets at the time of purchase in excess of $1 billion, this
$1 billion figure is not an investment or restriction of the Portfolio.
For the purposes of calculation with respect to the $1 billion figure, the
assets of a bank would be deemed to include the assets of its U.S. and
non-U.S. branches.
Repurchase Agreements
Although repurchase agreements carry certain risks not associated
with direct investments in securities, the Portfolio intends to enter into
repurchase agreements only with banks and dealers believed by LGT Asset
Management to present minimum credit risks in accordance with guidelines
approved by the Portfolio's Board of Trustees. LGT Asset Management would
review and monitor the creditworthiness of such institutions, and will
consider the capitalization of the institution, LGT Asset Management's
B-4
<PAGE>
prior dealings with the institution, any rating of the institution's
senior long-term debt by independent rating agencies and other relevant
factors.
The Portfolio will invest only in repurchase agreements
collateralized at all times in an amount at least equal to the repurchase
price plus accrued interest. To the extent that the proceeds from any
sale of such collateral upon a default in the obligation to repurchase
were less than the repurchase price, the Portfolio would suffer a loss.
If the financial institution which is party to the repurchase agreement
petitions for bankruptcy or otherwise becomes subject to bankruptcy or
other liquidation proceedings there may be restrictions on the Portfolio's
ability to sell the collateral and the Portfolio could suffer a loss.
However, with respect to financial institutions whose bankruptcy or
liquidation proceedings are subject to the U.S. Bankruptcy Code, the
Portfolio intends to comply with provisions under such Code that would
allow the immediate resale of such collateral.
Borrowing, Reverse Repurchase Agreements and "Roll" Transactions
The Portfolio's borrowings will not exceed 33 1/3% of its total
assets. The Portfolio may borrow up to 5% of its total assets for
temporary or emergency purposes other than to meet redemptions.
The Portfolio's fundamental investment limitations permit it to
borrow money for leveraging purposes. In the event that the Portfolio
employs leverage, it would be subject to certain additional risks. Use of
leverage creates an opportunity for greater growth of capital but would
exaggerate any increases or decreases in the Portfolio's net asset value.
When the income and gains on securities purchased with the proceeds of
borrowings exceed the costs of such borrowings, the Portfolio's earnings
or net asset value will increase faster than otherwise would be the case;
conversely, if such income and gains fail to exceed such costs, the
Portfolio's earnings or net asset value would decline faster than would
otherwise be the case.
The Portfolio may enter into reverse repurchase agreements. A
reverse repurchase agreement is a borrowing transaction in which the
Portfolio transfers possession of a security to another party, such as a
bank or broker/dealer, in return for cash, and agrees to repurchase the
security in the future at an agreed upon price, which includes an interest
component. The Portfolio also may engage in "roll" borrowing transactions
which involve the Portfolio's sale of Government National Mortgage
Association ("GNMA") certificates or other securities together with a
commitment (for which the Portfolio may receive a fee) to purchase
similar, but not identical, securities at a future date. The Portfolio
will maintain, in a segregated account with a custodian, cash, U.S.
government securities or other liquid, high grade debt securities in an
amount sufficient to cover its obligations under "roll" transactions and
reverse repurchase agreements with broker/dealers (but no segregation is
required for reverse repurchase agreements with banks).
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Short Sales
The Portfolio is authorized to make short sales of securities,
although it has no current intention of doing so. A short sale is a
transaction in which the Portfolio sells a security in anticipation that
the market price of that security will decline. The Portfolio may make
short sales as a form of hedging to offset potential declines in long
positions in securities it owns, or anticipates acquiring, and in order to
maintain portfolio flexibility. The Portfolio only may make short sales
"against the box." In this type of short sale, at the time of the sale,
the Portfolio owns the security it has sold short or has the immediate and
unconditional right to acquire the identical security at no additional
cost.
In a short sale, the seller does not immediately deliver the
securities sold and does not receive the proceeds from the sale. To make
delivery to the purchaser, the executing broker borrows the securities
being sold short on behalf of the seller. The seller is said to have a
short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. To secure its
obligation to deliver securities sold short, the Portfolio will deposit in
a separate account with its custodian an equal amount of the securities
sold short or securities convertible into or exchangeable for such
securities at no cost. The Portfolio could close out a short position by
purchasing and delivering an equal amount of the securities sold short,
rather than by delivering securities already held by the Portfolio,
because the Portfolio might want to continue to receive interest and
dividend payments on securities in its portfolio that are convertible into
the securities sold short.
The Portfolio might make a short sale "against the box" in order
to hedge against market risks when LGT Asset Management believes that the
price of a security may decline, causing a decline in the value of a
security owned by the Portfolio or a security convertible into or
exchangeable for such security, or when LGT Asset Management wants to sell
the security the Portfolio owns at a current attractive price, but also
wishes to defer recognition of gain or loss for federal income tax
purposes and for purposes of satisfying certain tests applicable to
regulated investment companies under the Internal Revenue Code of 1986, as
amended ("Code"). In such case, any future losses in the Portfolio's long
position should be reduced by a gain in the short position. Conversely,
any gain in the long position should be reduced by a loss in the short
position. The extent to which such gains or losses in the long position
are reduced will depend upon the amount of the securities sold short
relative to the amount of the securities the Portfolio owns, either
directly or indirectly, and, in the case where the Portfolio owns
convertible securities, changes in the investment values or conversion
premiums of such securities. There will be certain additional transaction
costs associated with short sales "against the box," but the Portfolio
will endeavor to offset these costs with income from the investment of the
cash proceeds of short sales.
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Options, Futures and Currency Strategies
Special Risks of Options, Futures and Currency Strategies
The use of options, futures contracts and forward currency
contracts ("Forward contracts") involves special considerations and risks,
as described below. Risks pertaining to particular instruments are
described in the sections that follow.
(1) Successful use of most of these instruments depends
upon LGT Asset Management's ability to predict movements of the
overall securities and currency markets, which requires different
skills than predicting changes in the prices of individual
securities. While LGT Asset Management is experienced in the use
of these instruments, there can be no assurance that any
particular strategy adopted will succeed.
(2) There might be imperfect correlation, or even no
correlation, between price movements of an instrument and price
movements of the investments being hedged. For example, if the
value of an instrument used in a short hedge increased by less
than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might
occur due to factors unrelated to the value of the investments
being hedged, such as speculative or other pressures on the
markets in which the hedging instrument is traded. The
effectiveness of hedges using hedging instruments on indices will
depend on the degree of correlation between price movements in
the index and price movements in the investments being hedged.
(3) Hedging strategies, if successful, can reduce risk
of loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged.
However, hedging strategies can also reduce opportunity for gain
by offsetting the positive effect of favorable price movements in
the hedged investments. For example, if the Portfolio entered
into a short hedge because LGT Asset Management projected a
decline in the price of a security in the Portfolio's portfolio,
and the price of that security increased instead, the gain from
that increase might be wholly or partially offset by a decline in
the price of the hedging instrument. Moreover, if the price of
the hedging instrument declined by more than the increase in the
price of the security, the Portfolio could suffer a loss. In
either such case, the Portfolio would have been in a better
position had it not hedged at all.
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(4) As described below, the Portfolio might be required
to maintain assets as "cover," maintain segregated accounts or
make margin payments when it takes positions in instruments
involving obligations to third parties (i.e., instruments other
than purchased options). If the Portfolio were unable to close
out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such
payments until the position expired or matured. The requirements
might impair the Portfolio's ability to sell a portfolio security
or make an investment at a time when it would otherwise be
favorable to do so, or require that the Portfolio sell a
portfolio security at a disadvantageous time. The Portfolio's
ability to close out a position in an instrument prior to
expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability
and willingness of the other party to the transaction ("contra
party") to enter into a transaction closing out the position.
Therefore, there is no assurance that any position can be closed
out at a time and price that is favorable to the Portfolio.
Writing Call Options
The Portfolio may write (sell) covered call options on
securities, indices and currencies. Call options generally will be
written on securities and currencies that, in the opinion of LGT Asset
Management, the investment manager of the Portfolio, are not expected to
make any major price moves in the near future but that, over the long
term, are deemed to be attractive investments for the Portfolio.
A call option gives the holder (buyer) the right to purchase a
security or currency at a specified price (the exercise price) at any time
until (American style) or on (European style) a certain date (the
expiration date). So long as the obligation of the writer of a call
option continues, he may be assigned an exercise notice, requiring him to
deliver the underlying security or currency against payment of the
exercise price. This obligation terminates upon the expiration of the
call option, or such earlier time at which the writer effects a closing
purchase transaction by purchasing an option identical to that previously
sold.
Portfolio securities or currencies on which call options may be
written will be purchased solely on the basis of investment considerations
consistent with the Portfolio's investment objectives. When writing a
call option, the Portfolio, in return for the premium, gives up the
opportunity for profit from a price increase in the underlying security or
currency above the exercise price, and retains the risk of loss should the
price of the security or currency decline. Unlike one who owns securities
or currencies not subject to an option, the Portfolio has no control over
when it may be required to sell the underlying securities or currencies,
since most options may be exercised at any time prior to the option's
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expiration. If a call option that the Portfolio has written expires, the
Portfolio will realize a gain in the amount of the premium; however, such
gain may be offset by a decline in the market value of the underlying
security or currency during the option period. If the call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security or currency, which will be increased or offset by the
premium received. The Portfolio does not consider a security or currency
covered by a call option to be "pledged" as that term is used in the
Portfolio's fundamental investment policy that limits the pledging or
mortgaging of its assets.
Writing call options can serve as a limited short hedge because
declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security or currency appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised
and the Portfolio will be obligated to sell the security or currency at
less than its market value.
The premium that the Portfolio receives for writing a call option
is deemed to constitute the market value of an option. The premium the
Portfolio will receive from writing a call option will reflect, among
other things, the current market price of the underlying investment, the
relationship of the exercise price to such market price, the historical
price volatility of the underlying investment, and the length of the
option period. In determining whether a particular call option should be
written, LGT Asset Management will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will
exist for those options.
Closing transactions will be effected in order to realize a
profit on an outstanding call option, to prevent an underlying security or
currency from being called, or to permit the sale of the underlying
security or currency. Furthermore, effecting a closing transaction will
permit the Portfolio to write another call option on the underlying
security or currency with either a different exercise price, expiration
date or both.
The Portfolio will pay transaction costs in connection with the
writing of options and in entering into closing purchase contracts.
Transaction costs relating to options activity normally are higher than
those applicable to purchases and sales of portfolio securities.
The exercise price of the options may be below, equal to or above
the current market values of the underlying securities or currencies at
the time the options are written. From time to time, the Portfolio may
purchase an underlying security or currency for delivery in accordance
with the exercise of an option, rather than delivering such security or
currency from its portfolio. In such cases, additional costs will be
incurred.
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<PAGE>
The Portfolio will realize a profit or loss from a closing
purchase transaction if the cost of the transaction is less or more,
respectively, than the premium received from writing the option. Because
increases in the market price of a call option generally will reflect
increases in the market price of the underlying security or currency, any
loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security or currency
owned by the Portfolio.
Writing Put Options
The Portfolio may write put options on securities, indices and
currencies. A put option gives the purchaser of the option the right to
sell, and the writer (seller) the obligation to buy, the underlying
security or currency at the exercise price at anytime until (American
style) or on (European style) the expiration date. The operation of put
options in other respects, including their related risks and rewards, is
substantially identical to that of call options.
The Portfolio generally would write put options in circumstances
where LGT Asset Management wishes to purchase the underlying security or
currency for the Portfolio's portfolio at a price lower than the current
market price of the security or currency. In such event, the Portfolio
would write a put option at an exercise price that, reduced by the premium
received on the option, reflects the lower price it is willing to pay.
Since the Portfolio also would receive interest on debt securities or
currencies maintained to cover the exercise price of the option, this
technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market
price of the underlying security or currency would decline below the
exercise price less the premium received.
Writing put options can serve as a limited long hedge because
increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security or currency depreciates to a price lower than the exercise price
of the put option, it can be expected that the put option will be
exercised and the Portfolio will be obligated to purchase the security or
currency at greater than its market value.
Purchasing Put Options
The Portfolio may purchase put options on securities, indices and
currencies. As the holder of a put option, the Portfolio would have the
right to sell the underlying security or currency at the exercise price at
any time until (American style) or on (European style) the expiration
date. The Portfolio may enter into closing sale transactions with respect
to such options, exercise them or permit them to expire.
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<PAGE>
The Portfolio may purchase a put option on an underlying security
or currency ("protective put") owned by the Portfolio as a hedging
technique in order to protect against an anticipated decline in the value
of the security or currency. Such hedge protection is provided only
during the life of the put option when the Portfolio, as the holder of the
put option, is able to sell the underlying security or currency at the put
exercise price regardless of any decline in the underlying security's
market price or currency's exchange value. For example, a put option may
be purchased in order to protect unrealized appreciation of a security or
currency when LGT Asset Management deems it desirable to continue to hold
the security or currency because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any profit
otherwise available for distribution when the security or currency
eventually is sold.
The Portfolio also may purchase put options at a time when the
Portfolio does not own the underlying security or currency. By purchasing
put options on a security or currency it does not own, the Portfolio seeks
to benefit from a decline in the market price of the underlying security
or currency. If the put option is not sold when it has remaining value,
and if the market price of the underlying security or currency remains
equal to or greater than the exercise price during the life of the put
option, the Portfolio will lose its entire investment in the put option.
In order for the purchase of a put option to be profitable, the market
price of the underlying security or currency must decline sufficiently
below the exercise price to cover the premium and transaction costs,
unless the put option is sold in a closing sale transaction.
Purchasing Call Options
The Portfolio may purchase call options on securities, indices
and currencies. As the holder of a call option, the Portfolio would have
the right to purchase the underlying security or currency at the exercise
price at any time until (American style) or on (European style) the
expiration date. The Portfolio may enter into closing sale transactions
with respect to such options, exercise them or permit them to expire.
Call options may be purchased by the Portfolio for the purpose of
acquiring the underlying security or currency for its portfolio. Utilized
in this fashion, the purchase of call options would enable the Portfolio
to acquire the security or currency at the exercise price of the call
option plus the premium paid. At times, the net cost of acquiring the
security or currency in this manner may be less than the cost of acquiring
the security or currency directly. This technique also may be useful to
the Portfolio in purchasing a large block of securities that would be more
difficult to acquire by direct market purchases. So long as it holds such
a call option, rather than the underlying security or currency itself, the
Portfolio is partially protected from any unexpected decline in the market
price of the underlying security or currency and, in such event, could
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<PAGE>
allow the call option to expire, incurring a loss only to the extent of
the premium paid for the option.
The Portfolio also may purchase call options on underlying
securities or currencies it owns in order to protect unrealized gains on
call options previously written by it. A call option could be purchased
for this purpose where tax considerations make it inadvisable to realize
such gains through a closing purchase transaction. Call options also may
be purchased at times to avoid realizing losses that would result in a
reduction of the Portfolio's current return. For example, where the
Portfolio has written a call option on an underlying security or currency
having a current market value below the price at which such security or
currency was purchased by the Portfolio, an increase in the market price
could result in the exercise of the call option written by the Portfolio
and the realization of a loss on the underlying security or currency.
Accordingly, the Portfolio could purchase a call option on the same
underlying security or currency, which could be exercised to fulfill the
Portfolio's delivery obligations under its written call (if it is
exercised). This strategy could allow the Portfolio to avoid selling the
security or currency at a time when it has an unrealized loss; however,
the Portfolio would have to pay a premium to purchase the call option plus
transaction costs.
Aggregate premiums paid for put and call options will not exceed
5% of the Portfolio's total assets at the time of purchase.
The Portfolio may attempt to accomplish objectives similar to
those involved in using Forward Contracts by purchasing put or call
options on currencies. A put option gives the Portfolio as purchaser the
right (but not the obligation) to sell a specified amount of currency at
the exercise price at any time until (American style) or on (European
style) the expiration of the option. A call option gives the Portfolio as
purchaser the right (but not the obligation) to purchase a specified
amount of currency at the exercise price at any time until (American
style) or on (European style) the expiration of the option. The Portfolio
might purchase a currency put option, for example, to protect itself
against a decline in the dollar value of a currency in which it holds or
anticipates holding securities. If the currency's value should decline
against the dollar, the loss in currency value should be offset, in whole
or in part, by an increase in the value of the put. If the value of the
currency instead should rise against the dollar, any gain to the Portfolio
would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of,
or to protect against, a rise in the value against the dollar of a
currency in which the Portfolio anticipates purchasing securities.
Options may be either listed on an exchange or traded over-the-
counter ("OTC options"). Listed options are third-party contracts (i.e.,
performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation), and have standardized strike
prices and expiration dates. OTC options are two-party contracts with
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<PAGE>
negotiated strike prices and expiration dates. The Portfolio will not
purchase an OTC option unless the Portfolio believes that daily valuations
for such options are readily obtainable. OTC options differ from
exchange-traded options in that OTC options are transacted with dealers
directly and not through a clearing corporation (which guarantees
performance). Consequently, there is a risk of non-performance by the
dealer. Since no exchange is involved, OTC options are valued on the
basis of an average of the last bid prices obtained from dealers, unless a
quotation from only one dealer is available, in which case only that
dealer's price will be used. In the case of OTC options, there can be no
assurance that a liquid secondary market will exist for any particular
option at any specific time.
The Securities and Exchange Commission ("SEC") staff considers
purchased OTC options to be illiquid securities. The Portfolio may also
sell OTC options and, in connection therewith, segregate assets or cover
its obligations with respect to OTC options written by the Portfolio. The
assets used as cover for OTC options written by the Portfolio will be
considered illiquid unless the OTC options are sold to qualified dealers
who agree that the Portfolio may repurchase any OTC option it writes at a
maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
option.
The Portfolio's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The
Portfolio intends to purchase or write only those exchange-traded options
for which there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating
directly with the contra party, or by a transaction in the secondary
market if any such market exists. Although the Portfolio will enter into
OTC options only with contra parties that are expected to be capable of
entering into closing transactions with the Portfolio, there is not
assurance that the Portfolio will in fact be able to close out an OTC
option position at a favorable price prior to expiration. In the extent
of insolvency of the contra party, the Portfolio might be unable to close
out an OTC option position at any time prior to its expiration.
Index Options
Puts and calls on indices are similar to puts and calls on
securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes on the index in question (and this on
price movements in the securities market or a particular market sector
generally) rather than on price movements in individual securities or
futures contracts. When the Portfolio writes a call on an index, it
receives a premium and agrees that, prior to the expiration date, the
purchaser of the call, upon exercise of the call, will receive from the
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Portfolio an amount of cash if the closing level of the index upon which
the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the
index and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of
such difference. When the Portfolio buys a call on an index, it pays a
premium and has the same rights as to such call as are indicated above.
When the Portfolio buys a put on an index, it pays a premium and has the
right, prior to the expiration date, to require the seller of the put,
upon the Portfolio's exercise of the put, to deliver to the Portfolio an
amount of cash if the closing level of the index upon which the put is
based is less than the exercise price of the put, which amount of cash is
determined by the multiplier, as described above for calls. When the
Portfolio writes a put on an index, it receives a premium and the
purchaser has the right, prior to expiration date, to require the
Portfolio to deliver to it an amount of cash equal to the difference
between the closing level of the index and the exercise price times the
multiplier, if the closing level is less than the exercise price.
The risks of investment in index options may be greater than
options on securities. Because index options are settled in cash, when
the Portfolio writes a call on an index it cannot provide in advance for
its potential settlement obligations by acquiring and holding the
underlying securities. The Portfolio can offset some of the risk of
writing a call index options position by holding a diversified portfolio
of securities similar to those on which the underlying index is based.
However, the Portfolio cannot, as a practical matter, acquire and hold a
portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will
vary from the value of the index.
Even if the Portfolio could assemble a securities portfolio that
exactly reproduced the composition of the underlying index, it still would
not be fully covered from a risk standpoint because of the "timing risk"
inherent in writing index options. When an index options is exercised,
the amount of cash that the holder is entitled to receive is determined by
the difference between the exercise price and the closing index level on
the date when the option is exercised. As with other kinds of options,
the Portfolio as the call writer will not know that it has been assigned
until the next business day at the earliest. The time lag between
exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock,
because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as
the writer already owns the underlying security, it can satisfy its
settlement obligations by simply delivering it, and the risk that its
value may have declined since the exercise date is borne by the exercising
holder. In contrast, even if the writer of an index call holds securities
that exactly match the composition of the underlying index, it will not be
able to satisfy its assignment obligations by delivering those securities
against payment of the exercise price. Instead, it will be required to
pay cash in an amount based on the closing index value on the exercise
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date; and by the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its securities
portfolio. This "timing risk" is an inherent limitation on the ability of
index call writers to cover their risk exposure by holding securities
positions.
If the Portfolio has purchased an index option and exercises it
before the closing index value for that day is available, it runs the risk
that the level of the underlying index may subsequently change. If such a
change causes the exercised option to fall out-of-the-money, the Portfolio
will be required to pay the difference between the closing index value and
the exercise price of the option (times the applicable multiplier) to the
assigned writer.
Interest Rate and Currency Futures Contracts
The Portfolio may enter into interest rate or currency futures
contracts,
including futures contracts on indices of debt securities, ("Futures" or
"Futures Contracts") as a hedge against changes in prevailing levels of
interest rates or currency exchange rates in order to establish more
definitely the effective return on securities or currencies held or
intended to be acquired by the Portfolio. The Portfolio's hedging may
include sales of Futures as an offset against the effect of expected
increases in interest rates or decreases in currency exchange rates, and
purchases of Futures as an offset against the effect of expected declines
in interest rates or increases in currency exchange rates.
The Portfolio only will enter into Futures Contracts that are
traded on futures exchanges and are standardized as to maturity date and
underlying financial instrument. Futures exchanges and trading thereon in
the United States are regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC"). Futures are exchanged in
London at the London International Financial Futures Exchange.
Although techniques other than sales and purchases of Futures
Contracts could be used to reduce the Portfolio's exposure to interest
rate and currency exchange rate fluctuations, the Portfolio may be able to
hedge exposure more effectively and at a lower cost through using Futures
Contracts.
A Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (debt security or currency) for a specified price at a
designated date, time and place. An index Futures Contract provides for
the delivery, and a designated date, time and place, of an amount of cash
equal to a specified dollar amount times the difference between the index
value at the close of trading on the contract and the price at which the
Futures Contract is originally struck; no physical delivery of the
securities comprising the index is made. Brokerage fees are incurred when
a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Futures Contract is outstanding.
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Although Futures Contracts typically require future delivery of
and payment for financial instruments or currencies, Futures Contracts
usually are closed out before the delivery date. Closing out an open
Futures Contract sale or purchase is effected by entering into an
offsetting Futures Contract purchase or sale, respectively, for the same
aggregate amount of the identical financial instrument or currency and the
same delivery date. If the offsetting purchase price is less than the
original sale price, the Portfolio realizes a gain; if it is more, the
Portfolio realizes a loss. Conversely, if the offsetting sale price is
more than the original purchase price, the Portfolio realizes a gain; if
it is less, the Portfolio realizes a loss. The transaction costs also
must be included in these calculations. There can be no assurance,
however, that the Portfolio will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular
time. If the Portfolio is not able to enter into an offsetting
transaction, the Portfolio will continue to be required to maintain the
margin deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual
obligations arising from the sale of one Futures Contract of September
Deutschemarks on an exchange may be fulfilled at any time before delivery
under the Futures Contract is required (i.e., on a specified date in
September, the "delivery month") by the purchase of another Futures
Contract of September Deutschemarks on the same exchange. In such
instance, the difference between the price at which the Futures Contract
was sold and the price paid for the offsetting purchase, after allowance
for transaction costs, represents the profit or loss to the Portfolio.
The Portfolio's Futures transactions will be entered into for
hedging purposes; that is, Futures Contracts will be sold to protect
against a decline in the price of securities or currencies that the
Portfolio owns, or Futures Contracts will be purchased to protect the
Portfolio against an increase in the price of securities or currencies it
has committed to purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds
that must be deposited by the Portfolio in order to initiate Futures
trading and to maintain the Portfolio's open positions in Futures
Contracts. A margin deposit made when the Futures Contract is entered
into ("initial margin") is intended to assure the Portfolio's performance
under the Futures Contract. The margin required for a particular Futures
Contract is set by the exchange on which the Futures Contract is traded,
and may be modified significantly from time to time by the exchange during
the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the
futures commission merchant through which the Portfolio entered into the
Futures Contract will be made on a daily basis as the price of the
underlying security, currency or index fluctuations making the Futures
Contract more or less valuable, a process known as marking-to-market.
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Risks of Using Futures Contracts. The prices of Futures
Contracts are volatile and are influenced, among other things, by actual
and anticipated changes in interest and currency rates, which in turn are
effected by fiscal and monetary policies and national and international
political and economic events.
There is a risk of imperfect correlation between changes in
prices of Futures Contracts and prices of the securities or currencies in
the Portfolio's portfolio being hedged. The degree of imperfection of
correlation depends upon circumstances such as: variations in speculative
market demand for futures and for securities or currencies, including
technical influences in Futures trading; and differences between the
financial instruments being hedged and the instruments underlying the
standard Futures Contracts available for trading. A decision of whether,
when, and how to hedge involves skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest and currency rate trends.
Because of the low margin deposits required, Futures trading
involves an extremely high degree of leverage. As a result, a relatively
small price movement in a Futures Contract may result in immediate and
substantial loss, as well as gain, to the investor. For example, if at
the time of purchase, 10% of the value of the Futures Contract is
deposited as margin, a subsequent 10% decrease in the value of the Futures
Contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out.
A 15% decrease would result in a loss equal to 150% of the original margin
deposit, if the Futures Contract were closed out. Thus, a purchase or
sale of a Futures Contract may result in losses in excess of the amount
invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation
permitted in Futures Contract and option on Futures Contracts prices
during a single trading day. The daily limit establishes the maximum
amount that the price of a Futures Contract or option may vary either up
or down from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular type of
Futures Contract or option, no trades may be made on that day at a price
beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions.
Futures Contract and option prices occasionally have moved to the daily
limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting some
traders to substantial losses.
If the Portfolio were unable to liquidate a Futures or options on
Futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The
Portfolio would continue to be subject to market risk with respect to the
position. In addition, except in the case of purchased options, the
Portfolio would continue to be required to make daily variation margin
B-17
<PAGE>
payments and might be required to maintain the position being hedged by
the Future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the Futures market might increase the
risk that movements in the prices of Futures Contracts or options on
Futures might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the Futures
and options on Futures markets are subject to daily variation margin calls
and might be compelled to liquidate Futures or options on Futures
positions whose prices are moving unfavorably to avoid being subject to
further calls. These liquidations could increase price volatility of the
instruments and distort the normal price relationship between the Futures
or options and the investments being hedged. Also, because the initial
margin deposit requirements in the Futures market are less onerous than
margin requirements in the securities markets, there might be increased
participation by speculators in the Futures markets. This participation
also might cause temporary distortions. In addition, activities of large
traders in both the Futures and securities markets involving arbitrage,
"program trading" and other investment strategies might result in
temporary price distortions.
Options on Futures Contracts
Options on Futures Contracts are similar to options on securities
or currencies except that options on Futures Contracts give the purchaser
the right, in return for the premium paid, to assume a position in a
Futures Contract (a long position if the option is a call and a short
position if the option is a put) at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the
delivery of the Futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance
in the writer's Futures margin account, which represents the amount by
which the market price of the Futures Contract, at exercise, exceeds (in
the case of a call) or is less than (in the case of a put) the exercise
price of the option on the Futures Contract. If an option is exercised on
the last trading day prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the difference between
the exercise price of the option and the closing level of the securities,
currencies or index upon which the Futures Contract is based on the
expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
The purchase of call options on Futures can serve as a long
hedge, and the purchase of put options on Futures can serve as a short
hedge. Writing call options on Futures can serve as a limited short
hedge, and writing put options on Futures can serve as a limited long
hedge, using a strategy similar to that used for writing options on
securities, foreign currencies or indices.
If the Portfolio writes an option on a Futures Contract, it will
be required to deposit initial and variation margin pursuant to
B-18
<PAGE>
requirements similar to those applicable to Futures Contracts. Premiums
received from the writing of an option on a Futures Contract are included
in the initial margin deposit.
The Portfolio may seek to close out an option position by selling
an option covering the same Futures Contract and having the same exercise
price and expiration date. The ability to establish and close out
positions on such options is subject to the maintenance of a liquid
secondary market.
Limitations on Use of Futures, Options and Certain Options on Currencies
To the extent that the Portfolio enters into Futures Contracts,
options on Futures Contracts and options on foreign currencies traded on a
CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by
which the options are "in-the-money") will not exceed 5% of the
liquidation value of the Portfolio's portfolio, after taking into account
unrealized profits and unrealized losses on any contracts the Portfolio
has entered into. In general, a call option on a Futures Contract is "in-
the-money" if the value of the underlying Futures Contract exceeds the
strike, i.e., exercise, price of the call; a put option on a Futures
Contract is "in-the-money" if the value of the underlying Futures Contract
is exceeded by the strike price of the put. This guideline may be
modified by the Portfolio's Board of Trustees without a shareholder vote.
This limitation does not limit the percentage of the Portfolio's assets at
risk to 5%.
Forward Currency Contracts
A Forward Contract is an obligation, generally arranged with a
commercial bank or currency dealer, to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties.
The Portfolio either may accept or make delivery of the currency at the
maturity of the Forward Contract. The Portfolio may also, if its contra
party agrees, prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract.
The Portfolio engages in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange
rates. The Portfolio might sell a particular foreign currency forward,
for example, when it holds bonds denominated in a foreign currency but
anticipates, and seeks to be protected against, a decline in the currency
against the U.S. dollar. Similarly, the Portfolio might sell the U.S.
dollar forward when it holds bonds denominated in U.S. dollars but
anticipates, and seeks to be protected against, a decline in the U.S.
dollar relative to other currencies. Further, the Portfolio might
purchase a currency forward to "lock in" the price of securities
denominated in that currency that it anticipates purchasing.
B-19
<PAGE>
Forward Contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and
their customers. A Forward Contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. The Portfolio
will enter into such Forward Contracts with major U.S. or foreign banks
and securities or currency dealers in accordance with guidelines approved
by the Portfolio's Board of Trustees.
The Portfolio may enter into Forward Contracts either with
respect to specific transactions or with respect to the overall investment
of the Portfolio. The precise matching of the Forward Contract amounts
and the value of specific securities generally will not be possible
because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those
securities between the date the Forward Contract is entered into and the
date it matures. Accordingly, it may be necessary for the Portfolio to
purchase additional foreign currency on the spot (i.e., cash) market (and
bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Portfolio is obligated to
deliver and if a decision is made to sell the security and make delivery
of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency the Portfolio is obligated to
deliver. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward Contracts involve the risk that
anticipated currency movements will not be predicted accurately, causing
the Portfolio to sustain losses on these contracts and transaction costs.
At or before the maturity of a Forward Contract requiring the
Portfolio to sell a currency, the Portfolio either may sell a portfolio
security and use the sale proceeds to make delivery of the currency or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Portfolio
will obtain, on the same maturity date, the same amount of the currency
that it is obligated to deliver. Similarly, the Portfolio may close out a
Forward Contract requiring it to purchase a specified currency by, if its
contra party agrees, entering into a second contract entitling it to sell
the same amount of the same currency on the maturity date of the first
contract. The Portfolio would realize a gain or loss as a result of
entering into such an offsetting Forward Contract under either
circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to a Portfolio of engaging in Forward Contracts varies
with factors such as the currencies involved, the length of the contract
period and the market conditions then prevailing. Because Forward
Contracts usually are entered into on a principal basis, no fees or
commissions are involved. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying securities the Portfolio owns
or intends to acquire, but it does establish a rate of exchange in
advance. In addition, while Forward Contracts limit the risk of loss due
B-20
<PAGE>
to a decline in the value of the hedged currencies, they also limit any
potential gain that might result should the value of the currencies
increase.
Foreign Currency Strategies -- Special Considerations
The Portfolio may use options on foreign currencies, Futures on
foreign currencies, options on Futures on foreign currencies and Forward
Contracts to hedge against movements in the values of the foreign
currencies in which the Portfolio's securities are denominated. Such
currency hedges can protect against price movements in a security that the
Portfolio owns or intends to acquire that are attributable to changes in
the value of the currency in which it is denominated. Such hedges do not,
however, protect against price movements in the securities that are
attributable to other causes.
The Portfolio might seek to hedge against changes in the value of
a particular currency when no Futures Contract, Forward Contract or option
involving that currency is available or one of such contracts is more
expensive than certain other contracts. In such cases, the Portfolio may
hedge against price movements in that currency by entering into a contract
on another currency or basket of currencies, the values of which LGT Asset
Management believes will have a positive correlation to the value of the
currency being hedged. The risk that movements in the price of the
contract will not correlate perfectly with movements in the price of the
currency being hedged is magnified when this strategy is used.
The value of Futures Contracts, options on Futures Contracts,
Forward Contracts and options on foreign currencies depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts that those involved in the use of Futures
Contracts, Forward Contracts or options, the Portfolio could be
disadvantaged by dealing in the odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirements that quotations
available through dealers or other market sources be firm or revised on a
timely basis. Quotation information generally is representative of very
large transactions in the interbank market and thus might not reflect odd-
lot transactions where rates might be less favorable. The interbank
market in foreign currencies is a global, round-the-clock market. To the
extent the U.S. options or Futures markets are closed while the markets
for the underlying currencies remain open, significant price and rate
movements might take place in the underlying markets that cannot be
reflected in the markets for the Futures Contracts or options until they
reopen.
B-21
<PAGE>
Settlement of Futures Contracts, Forward Contracts and options
involving foreign currencies might be required to take place within the
country issuing the underlying currency. Thus, the Portfolio might be
required to accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign regulations regarding the maintenance
of foreign banking arrangements by U.S. residents and might be required to
pay any fees, taxes and charges associated with such delivery assessed in
the issuing country.
Cover
Transactions using Forward Contracts, Futures Contracts and
options (other than options that the Portfolio has purchased) expose the
Portfolio to an obligation to another party. The Portfolio will not enter
into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies, or other options, Forward
Contracts or Futures Contracts, or (2) cash, receivables and short-term
debt securities with a value sufficient at all times to cover its
potential obligations not covered as provided in (1) above. The
Portfolio will comply with the SEC guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash, U.S.
government securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be
sold while the position in the corresponding Forward Contract, Futures
Contract or option is open, unless they are replaced with other
appropriate assets. If a large portion of the Portfolio's assets are used
for cover or segregated accounts, it could affect portfolio management or
the Portfolio's ability to meet redemption requests or other current
obligations.
Interest Rate and Currency Swaps
The Portfolio usually will enter into interest rate swaps on a
net basis, that is, the two payment streams are netted out in a cash
settlement on the payment date or dates specified in the instrument, with
the Portfolio receiving or paying, as the case may be, only the net amount
of the two payments. The net amount of excess, if any, of the Portfolio's
obligations over its entitlements with respect to each swap will be
accrued on a daily basis and an amount of cash, U.S. government securities
or other liquid high grade debt obligations having an aggregate net asset
value at least equal to the accrued excess will be maintained in an
account by a custodian that satisfies the requirements of the 1940 Act.
The Portfolio will also establish and maintain such segregated accounts
with respect to its total obligations under any swaps that are not entered
into on a net basis and with respect to any caps or floors that are
written by the Portfolio. LGT Asset Management and the Portfolio believe
that swaps, caps and floors do not constitute senior securities under the
1940 Act and, accordingly, will not treat them as being subject to the
Portfolio's borrowing restrictions. The Portfolio will not enter into any
B-22
<PAGE>
swap, cap, floor, collar or other derivative transaction unless, at the
time of entering into the transaction, the unsecured long-term debt rating
of the counterparty combined with any credit enhancements is rated at
least A by Moody's or S&P or has an equivalent rating from a nationally
recognized statistical rating organization or is determined to be of
equivalent credit quality by LGT Asset Management. If a counterparty
defaults, the Portfolio may have contractual remedies pursuant to the
agreements related to the transactions. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
for that reason, they are less liquid than swaps.
Investment Limitations
The Portfolio has adopted fundamental investment limitations
which may not be changed without approval by the affirmative vote of the
lesser of (i) 67% of the total beneficial interests of the Portfolio
represented at a meeting at which more than 50% of the total beneficial
interests of the Portfolio are represented, or (ii) more than 50% of the
total beneficial interests of the Portfolio.
The Portfolio may not:
(1) Invest 25% or more of the value of its total
assets in the securities of issuers conducting their
principal business activities in the same industry,
except that this limitation shall not apply to securities
issued or guaranteed as to principal and interest by the
U.S. Government or any of its agencies or
instrumentalities;
(2) Purchase or sell real estate, including real
estate limited partnerships, provided that the Portfolio
may invest in securities secured by real estate or
interests therein or issued by companies that invest in
real estate or interests therein;
(3) Purchase or sell commodities or commodity
contracts, except that the Portfolio may purchase and
sell financial and currency futures contracts and options
thereon, and may purchase and sell currency forward
contracts, options on foreign currencies and may
otherwise engage in transactions in foreign currencies;
(4) Underwrite securities of other issuers,
except to the extent that, in connection with the
disposition of portfolio securities, the Portfolio may be
B-23
<PAGE>
deemed an underwriter under federal or state securities
laws;
(5) Make loans, except that the Portfolio may
invest in loans and participations, purchase debt
securities and enter into repurchase agreements and make
loans of portfolio securities;
(6) Purchase securities on margin, provided that
the Portfolio may obtain such short-term credits as may
be necessary for the clearance of purchases and sales of
securities; except that it may make margin deposits in
connection with the use of options, futures contracts,
options thereon or forward currency contracts. The
Portfolio may make deposits of margin in connection with
futures and forward contracts and options thereon;
(7) Borrow money in excess of 33 1/3% of the
Portfolio's total assets (including the amount borrowed),
less all liabilities and indebtedness (other than
borrowing). This restriction shall not prevent the
Portfolio from entering into reverse repurchase
agreements and engaging in "roll" transactions, provided
that reverse repurchase agreements, "roll" transactions
and any other transactions constituting borrowing by the
Portfolio may not exceed one-third of the Portfolio's
total assets. In the event that the asset coverage for
the Portfolio's borrowings falls below 300%, the
Portfolio will reduce, within three days (excluding
Sundays and holidays), the amount of its borrowings in
order to provide for 300% asset coverage. Transactions
involving options, futures contracts, options on futures
contracts and forward currency contracts, and collateral
arrangements relating thereto will not be deemed to be
borrowings.
(8) Mortgage, pledge, or in any other manner
transfer as security for any indebtedness any of its
assets, except to secure permitted borrowings.
Collateral arrangements with respect to initial or
variation margin for futures contracts will not be deemed
to be a pledge of the Portfolio's assets;
(9) Invest in direct interests or leases in oil,
gas, or other mineral exploration or development
programs, however, the Portfolio may invest in securities
of companies that engage in these activities; or
(10) With respect to 50% of its total assets,
invest more than 5% of its assets in the securities of
any one issuer or purchase more than 10% of the
outstanding voting securities of any one issuer.
B-24
<PAGE>
For purposes of the Portfolio's concentration policy contained in
limitation (1) above, the Portfolio intends to comply with the SEC staff
positions that securities issued or guaranteed as to principal and
interest by any single foreign government or any supranational
organizations in the aggregate are considered to be securities of issuers
in the same industry.
The following investment policies are not fundamental policies
and may be changed by a vote of a majority of the Portfolio's Board of
Trustees without shareholder approval.
The Portfolio may not:
(1) Invest in securities of an issuer if the
investment would cause the Portfolio to own more than 10%
of any class of securities of any one issuer;
(2) Invest in companies for the purpose of
exercising control or management;
(3) Purchase or retain the securities of any
issuer, if, to the Portfolio's knowledge, one or more of
the officers, directors or trustees of the Portfolio or
its investment manager each own beneficially more than
1/2 of 1% of the securities of such issuer and together
own beneficially more than 5% of the securities of such
issuer;
(4) Enter into a futures contract, an option or a
futures contract or an option or foreign currency traded
on a CFTC - regulated exchange, in each case other than
for bona fide hedging purposes (as defined by the CFTC),
if the aggregate initial margin and premiums required to
establish all of those positions (excluding the amount by
which options are "in-the-money") exceeds 5% of the
liquidation value of the Portfolio's portfolio, after
taking into account unrealized profits and unrealized
losses on any contracts the Portfolio has entered into;
(5) Invest more than 5% of its total assets in
securities of companies having, together with their
predecessors, a record of less than three years of
continuous operation;
(6) Invest more than 10% of its total assets in
shares of other investment companies and invest more than
5% of its total assets in any one investment company or
acquire more than 3% of the outstanding voting securities
of any one investment company.
B-25
<PAGE>
The Portfolio will comply with all state securities laws in any
states in which the shares of any investor in the Portfolio are registered
for sale.
Item 14. Management of the Portfolio.
-------------------------------------
Trustees and Executive Officers. The Portfolio's Trustees and
executive officers are listed below.
<TABLE>
<CAPTION>
Names, Position(s) with the Principal Occupations and Business Experience for
Company/Portfolio and Address Past 5 Years
----------------------------- -------------------------------------------------
<S> <C>
David A. Minella*, 43 Director of Liechtenstein Global Trust (holding company of the
Trustee, Chairman of the Board and various international LGT companies) since 1990; President of the
President Asset Management Division, Liechtenstein Global Trust, since 1995;
50 California Street Director and President of LGT Asset Management Holdings, Inc. ("LGT
San Francisco, CA 94111 Asset Management Holdings") since 1988; Director and President of LGT
Asset Management since 1989; Director of GT Global since 1987;
President of GT Global from 1987 to 1995; Director of GT Services
since 1990; President of GT Services from 1990 to 1995; Director of
G.T. Global Insurance Agency, Inc. ("G.T. Insurance") since 1992; and
President of G.T. Insurance from 1992 to 1995. Prior to 1987, Mr.
Minella held various positions with the Putnam Companies (a mutual
fund and investment advisory organization). Mr. Minella also is a
director or trustee of each of the other investment companies
registered under the 1940 Act that is managed or administered by LGT
Asset Management.
C. Derek Anderson, 54 Chief Executive Officer of Anderson Capital Management, Inc.;
Director Chairman and Chief Executive Officer of Plantagenet Holdings, Ltd.
220 Sansome Street from 1991 to present; Director, Munsingwear, Inc.; Director, American
Suite 400 Heritage Group Inc. and various other companies. Mr. Anderson also
San Francisco, CA 94104 is a director or trustee of each of the other investment companies
registered under the 1940 Act that is managed or administered by LGT
Asset Management.
Frank S. Bayley, 55 A partner with Baker & McKenzie (a law firm); Director and Chairman
Trustee of C.D. Stimson Company (a private investment company); Trustee,
2 Embarcadero Center Seattle Art Museum. Mr. Bayley also is a director or trustee of each
San Francisco, CA 94118 of the other investment companies registered under the 1940 Act that
is managed or administered by LGT Asset Management.
B-26
<PAGE>
Arthur C. Patterson, 51 Managing Partner of Accel Partners (a venture capital firm). He also
Trustee serves as a director of various computing and software companies.
One Embarcadero Center Mr. Patterson also is a director or trustee of each of the other
Suite 3820 investment companies registered under the 1940 Act that is managed or
San Francisco, CA 94111 administered by LGT Asset Management.
Ruth H. Quigley, 60 Private investor. From 1984 to 1986, Miss Quigley was President of
Trustee Quigley Friedlander & Co., Inc. (a financial advisory services firm).
1055 California Street San Ms. Quigley also is a director or trustee of each of the other
Francisco, CA 94108 investment companies registered under the 1940 Act that is managed or
administered by LGT Asset Management.
F. Christian Wignall, 39 Director of LGT Asset Management Holdings since 1989, Senior Vice
Vice President and Chief President, Chief Investment Officer - Global Equities and a Director
Investment Officer of LGT Asset Management since 1987, and Chairman of the Investment
Global Equities Policy Committee of the affiliated international LGT companies since
50 California Street 1990.
San Francisco, CA 94111
Helge K. Lee, 49 Senior Vice President and General Counsel of LGT Asset Management
Vice President and Secretary Holdings, LGT Asset Management, GT Global, GT Services and G.T.
50 California Street Insurance since February, 1996. Senior Vice President, Secretary and
San Francisco, CA 94111 General Counsel of LGT Asset Management Holdings, LGT Asset
Management, GT Global, GT Services and G.T. Insurance from May, 1994,
to February, 1996. Mr. Lee was the Senior Vice President, General
Counsel and Secretary of Strong/Corneliuson Management, Inc. and
Secretary of each of the Strong Funds from October, 1991 through May,
1994. For more than five years prior to October, 1991, he was a
shareholder in the law firm of Godfrey & Kahn, S.C., Milwaukee,
Wisconsin.
James R. Tufts, 37 President of GT Services since 1995; from 1994 to 1995, Senior Vice
Vice President and Chief President--Finance and Administration of GT Global, GT Services and
Financial Officer G.T. Insurance. Senior Vice President - Finance and Administration
50 California Street of LGT Asset Management Holdings and LGT Asset Management since 1994.
San Francisco, CA 94111 From 1990 to 1994, Mr. Tufts was Vice President--Finance of LGT Asset
Management Holdings, LGT Asset Management and GT Global since 1987;
Vice President - Finance of G.T. Insurance from 1992 to 1994; and a
Director of LGT Asset Management, GT Global and GT Services since
1991.
Kenneth W. Chancey, 50 Vice President of Mutual Fund Accounting at LGT Asset Management
Vice President and since 1992. Mr. Chancey was Vice President of Putnam Fiduciary Trust
Chief Accounting Company from 1989-1992.
Officer
50 California Street
San Francisco, CA 94111
B-27
<PAGE>
Peter R. Guarino, 36 Secretary of LGT Asset Management Holdings, LGT Asset Management, GT
Assistant Secretary Global, GT Services and G.T. Insurance since February 1996.
50 California Street Assistant General Counsel of LGT Asset Management, GT Global and GT
San Francisco, CA 94111 Services since 1991. Assistant General Counsel of G.T. Insurance
since 1992. From 1989 to 1991, Mr. Guarino was an attorney at The
Dreyfus Corporation.
David J. Thelander, 40 Vice President of LGT Asset Management Holdings, LGT Asset
Assistant Secretary Management, GT Global, GT Services and G.T. Insurance since February
50 California Street 1996. Assistant General Counsel of LGT Asset Management since
San Francisco, CA 94111 January 1995. From 1993 to 1994, Mr. Thelander was an associate at
Kirkpatrick & Lockhart LLP (a law firm). Prior thereto, he was an
attorney with the U.S. Securities and Exchange Commission.
</TABLE>
-------------------
* Mr. Minella is an "interested person" of the Portfolio as defined by
the 1940 Act due to his affiliations with the LGT companies.
The Board of Trustees has a Nominating and Audit Committee,
composed of Miss Quigley and Messrs. Anderson, Bayley and Patterson, which
is responsible for nominating persons to serve as Trustees, reviewing
audits of the Portfolio and recommending firms to serve as independent
auditors of the Portfolio. Each of the Trustees and officers of the
Portfolio is also a Director and officer of G.T. Investment Funds, Inc.,
G.T. Global Developing Markets Fund, Inc. and G.T. Investment Portfolios,
Inc., and a Trustee and officer of G.T. Global Growth Series, G.T. Greater
Europe Fund, G.T. Global Variable Investment Trust, G.T. Global Variable
Investment Series and Global Investment Portfolio, Growth Portfolio, and
Global High Income Portfolio which also are registered investment
companies managed by LGT Asset Management. Each Trustee who is not a
director, officer or employee of LGT Asset Management or any affiliated
company is paid an annual fee of $5,000 a year, plus $300 for each meeting
of the Board attended, and reimbursed travel and other expenses incurred
in connection with attending Board meetings. Other Trustees and officers
receive no compensation or expense reimbursement from the Portfolio. For
the fiscal year ended October 31, 1995, the Portfolio paid Mr. Anderson,
Mr. Bayley, Mr. Patterson and Ms. Quigley $1,700 each. Each Director and
Officer serves in total as a Director or Trustee and Officer,
respectively, of 10 registered investment companies with 40 series managed
or administered by LGT Asset Management. For the year ended October 31,
1995, Mr. Anderson, Mr. Bayley, Mr. Patterson and Ms. Quigley, who are not
directors, officers or employees of LGT Asset Management or any affiliated
company, received total compensation of $92,176.78, $87,868.64,
$92,260.90, and $86,957.55, respectively from the 40 investment companies
managed and/or administered by LGT Asset Management for which he or she
B-28
<PAGE>
serves as a Director or Trustee. Fees and expenses disbursed to the
Trustees contained no accrued or payable pension or retirement benefits.
As of the fiscal year end October 31, 1995, the officers and Trustees and
their families as a group owned in the aggregate beneficially or of record
less than 1% of the outstanding shares of the Portfolio.
The Declaration of Trust provides that the Portfolio will
indemnify its Trustees and officers as described below under Item 18.
Item 15. Control Persons and Principal Holders of Securities.
-------------------------------------------------------------
As of the date of this filing, GT Global High Income Fund owned
99.9% of the value of the outstanding interests in the Portfolio. Because
GT Global High Income Fund controls the Portfolio, GT Global High Income
Fund may take actions without the approval of any other investor.
GT Global High Income Fund has informed the Portfolio that
whenever it is requested to vote on any proposal of the Portfolio, it will
hold a meeting of shareholders and will cast its vote as instructed by its
shareholders. It is anticipated that other investors in the Portfolio
will follow the same or a similar practice.
Item 16. Investment Advisory and Other Services.
------------------------------------------------
Investment Management and Administration Services. LGT Asset
Management serves as the Portfolio's investment manager and administrator
under an Investment Management and Administration Contract ("Management
Contract"). As investment manager and administrator, LGT Asset Management
makes all investment decisions for the Portfolio and administers the
Portfolio's affairs. LGT Asset Management provides a continuous
investment program for the Portfolio, including investment research and
management with respect to all securities and cash equivalents of the
Portfolio. LGT Asset Management will determine from time to time what
securities and other investments will be purchased, retained or sold by
the Portfolio, and the brokers and dealers through whom trades will be
executed. Among other things, LGT Asset Management furnishes the services
and pays the compensation and travel expenses of persons who perform the
executive, administrative, clerical and bookkeeping functions of the
Portfolio and provides suitable office space, necessary small office
equipment and utilities. For these services, the Portfolio pays LGT Asset
Management investment management and administration fees, based on the
average daily net assets, at the annualized rate of 0.475% on the first
$500 million, 0.45% on the next $1 billion, 0.425% on the next $1 billion,
and 0.4% on amounts thereafter, plus 2% of the Portfolio's total
B-29
<PAGE>
investment income as stated in the Portfolio's Statement of Operations,
calculated in accordance with generally accepted accounting principles,
adjusted daily for currency revaluations, on a marked to market basis, of
the Portfolio's assets; provided, however, that during any fiscal year
this amount shall not exceed 2% of the Portfolio's total investment income
calculated in accordance with generally accepted accounting principles.
The Management Contract may be renewed for one-year terms,
provided that any such renewal has been specifically approved at least
annually by: (i) the Portfolio's Board of Trustees, or by the vote of a
majority of the Portfolio's outstanding voting securities (as defined in
the 1940 Act), and (ii) a majority of Trustees who are not parties to the
Management Contract or "interested persons" of any such party (as defined
in the 1940 Act), cast in person at a meeting called for the purpose of
voting on such approval. The Management Contract provides that with
respect to each Fund and the Portfolio either the Company, the Portfolio
or LGT Asset Management may terminate the Contract without penalty upon
sixty days' written notice to the other party. The Management Contract,
which is an investment advisory contract, as defined under the 1940 Act,
would terminate automatically in the event of its assignment (as defined
in the 1940 Act). For the fiscal years ended October 31, 1993, October
31, 1994 and October 31, 1995, the Portfolio paid investment management
and administration fees of $547,543, $2,266,420 and $2,411,786,
respectively to LGT Asset Management.
Custodian. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of the Portfolio's
assets.
Independent Accountants. The Portfolio's independent accountants
are Coopers & Lybrand, One Post Office Square, Boston, Massachusetts
02109.
Item 17. Brokerage Allocation and Other Practices.
--------------------------------------------------
Subject to policies established by the Portfolio's Board of
Trustees, LGT Asset Management is responsible for the execution of the
Portfolio's portfolio transactions and the selection of brokers and
dealers that execute such transactions on behalf of the Portfolio. In
executing portfolio transactions, LGT Asset Management seeks the best net
results for the Portfolio, taking into account such factors as the price
(including the applicable brokerage commission or dealer spread), size of
the order, difficulty of execution and operational facilities of the firm
involved. Although LGT Asset Management generally seeks reasonably
competitive commission rates and spreads, payment of the lowest commission
B-30
<PAGE>
or spread is not necessarily consistent with the best net results. While
the Portfolio may engage in soft dollar arrangements for research
services, as described below, the Portfolio has no obligation to deal with
any broker or dealer or group of brokers or dealers in the execution of
portfolio transactions.
Debt securities generally are traded on a "net" basis with a
dealer acting as principal for its own account without a stated
commission, although the price of the security usually includes a profit
to the dealer. U.S. and foreign government securities and money market
instruments generally are traded in the OTC markets. In underwritten
offerings, securities usually are purchased at a fixed price which
includes an amount of compensation to the underwriter. On occasion,
securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Broker/dealers may receive commissions
on futures, currency and options transactions.
Consistent with the interests of the Portfolio, LGT Asset
Management may select brokers to execute the Portfolio's portfolio
transactions on the basis of the research and brokerage services they
provide to LGT Asset Management for its use in managing the Portfolio and
its other advisory accounts. Such services may include furnishing
analyses, reports and information concerning issuers, industries,
securities, geographic regions, economic factors and trends, portfolio
strategy, and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as
clearance and settlement). Research and brokerage services received from
such brokers is in addition to, and not in lieu of, the services required
to be performed by LGT Asset Management under the Management Contract. A
commission paid to such brokers may be higher than that which another
qualified broker would have charged for effecting the same transaction,
provided that LGT Asset Management determines in good faith that such
commission is reasonable in terms either of that particular transaction or
the overall responsibility of LGT Asset Management to the Portfolio and
its other clients and that the total commissions paid by the Portfolio
will be reasonable in relation to the benefits received by the Portfolio
over the long term. Research services may also be received from dealers
who execute Portfolio transactions.
LGT Asset Management may allocate brokerage transactions to
broker/dealers who have entered into arrangements under which the
broker/dealer allocates a portion of the commissions paid by the Portfolio
toward payment of the Portfolio's expenses, such as transfer agency or
custodian fees.
Investment decisions for the Portfolio and for other investment
accounts managed by LGT Asset Management are made independently of each
other in light of differing conditions. However, the same investment
B-31
<PAGE>
decision occasionally may be made for two or more of such accounts,
including the Portfolio. In such cases, simultaneous transactions may
occur. Purchases or sales are then allocated as to price or amount in a
manner deemed fair and equitable to all accounts involved. While in some
cases this practice could have a detrimental effect upon the price or
value of the security as far as the Portfolio is concerned, in other cases
LGT Asset Management believes that coordination and the ability to
participate in volume transactions will be beneficial to the Portfolio.
Under a policy adopted by the Portfolio's Board of Trustees, and
subject to the policy of obtaining the best net results, LGT Asset
Management may consider a broker/dealer's sale of the shares of the funds
for which LGT Asset Management serves as investment manager in selecting
brokers and dealers for the execution of portfolio transactions. This
policy does not imply a commitment to execute portfolio transactions
through all broker/dealers that sell shares of such other funds.
The Portfolio contemplates purchasing most foreign equity
securities in over-the-counter markets or stock exchanges located in the
countries in which the respective principal offices of the issuers of the
various securities are located, if that is the best available market. The
fixed commissions paid in connection with most such foreign stock
transactions generally are higher than negotiated commissions on United
States transactions. There generally is less government supervision and
regulation of foreign stock exchanges and brokers than in the United
States. Foreign security settlements may in some instances be subject to
delays and related administrative uncertainties.
Foreign equity securities may be held by the Portfolio in the
form of American Depository Receipts ("ADRs"), American Depository Shares
("ADSs"), Continental Depository Receipts ("CDRs") or European Depository
Receipts ("EDRs") or securities convertible into foreign equity
securities. ADRs, ADSs, CDRs and EDRs may be listed on stock exchanges,
or traded in the over-the-counter markets in the United States or Europe,
as the case may be. ADRs, like other securities traded in the United
States, will be subject to negotiated commission rates. The foreign and
domestic debt securities and money market instruments in which the
Portfolio may invest generally are traded in the over-the-counter markets.
The Portfolio contemplates that, consistent with the policy of
obtaining the best net results, brokerage transactions may be conducted
through certain companies that are members of Liechtenstein Global Trust.
The Portfolio's Board of Trustees has adopted procedures in conformity
with Rule 17e-1 under the 1940 Act to ensure that all brokerage
commissions paid to such affiliates are reasonable and fair in the context
of the market in which they are operating. Any such transactions will be
effected and related compensation paid only in accordance with applicable
SEC regulations. The Portfolio for the fiscal years ended October 31,
1993, October 31, 1994, and October 31, 1995, paid aggregate brokerage
commissions of $2,000, $24,000, and $0, respectively.
B-32
<PAGE>
The Portfolio engages in portfolio trading when LGT Asset
Management concludes that the sale of a security owned by the Portfolio
and/or the purchase of another security of better value can enhance
principal and/or increase income. A security may be sold to avoid any
prospective decline in market value, or a security may be purchased in
anticipation of a market rise. Consistent with the Portfolio's investment
objectives, a security also may be sold and a comparable security
purchased coincidentally in order to take advantage of what is believed to
be a disparity in the normal yield and price relationship between the two
securities. Although the Portfolio generally does not intend to trade for
short-term profits, the securities in the Portfolio's portfolio will be
sold whenever LGT Asset Management believes it is appropriate to do so,
without regard to the length of time a particular security may have been
held. Higher portfolio turnover involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions
and other costs that the Portfolio will bear directly, and could result in
the realization of net capital gains which would be taxable when
distributed to shareholders. The Portfolio turnover rate for the
Portfolio for the fiscal years ended October 31, 1995, 1994 and 1993, was
213%, 195% and 178%, respectively.
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 of the Portfolio 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 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
B-33
<PAGE>
investors (with the vote of each being in proportion to the amount of
their 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 the
amount of their investment), except that if the Trustees of the Portfolio
recommend such sale of assets, the approval by vote of a majority of the
investors (with the vote of each being in proportion to the amount of
their investment) 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 their investment), or (ii) by the
Trustees of the Portfolio by written notice to its investors.
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 Trust 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 willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. The
Declaration of Trust provides that the trustees and officers will be
indemnified by the Portfolio 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 willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or unless with respect to any other
matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
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,
B-34
<PAGE>
that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
Item 19. Purchase, Redemption and Pricing of Securities.
--------------------------------------------------------
Beneficial interests in the Portfolio are issued solely in
private placement transactions which do not involve any "public offering"
within the meaning of Section 4(2) of the Securities Act of 1933, as
amended ("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 which are
"accredited investors" as defined in 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 Portfolio determines its net asset value as of the close of
regular trading on the NYSE (currently 4:00 p.m. Eastern Time, unless
weather, equipment failure or other factors contribute to an earlier
closing time) each Business Day. Additions or reductions will be effected
at the time of determination of net asset value next following the receipt
of an order. The Portfolio's portfolio securities and other assets are
valued as follows:
Equity securities, including ADRs, ADSs and EDRs, which are
traded on stock exchanges are valued at the last sale price on the
exchange or in the principal over-the-counter market in which such
securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available
bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange determined by LGT
Asset Management to be the primary market.
Long-term debt obligations are valued at the mean of
representative quoted bid or asked prices for such securities or, if such
prices are not available, at prices for securities of comparable maturity,
quality and type; however, when LGT Asset Management deems it appropriate,
prices obtained for the day of valuation from a bond pricing service will
be used. Short-term debt investments are amortized to maturity based on
their cost, adjusted for foreign exchange translation.
Options on currencies purchased by the Portfolio are valued at
their last bid price in the case of listed options or at the average of
the last bid prices obtained from dealers, unless a quotation from only
one dealer is available, in which case only that dealer's price will be
used, in the case of OTC options. The value of each security denominated
B-35
<PAGE>
in a currency other than U.S. dollars will be translated into U.S. dollars
at the prevailing market rate as determined by LGT Asset Management on
that day.
Securities and assets for which market quotations are not readily
available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in
good faith by or under the direction of the Portfolio's Board of Trustees.
The valuation procedures applied in any specific instance are likely to
vary from case to case. However, consideration is generally given to the
financial position of the issuer and other fundamental analytical data
relating to the investment and to the nature of the restrictions on
disposition of the securities (including any registration expenses that
might be borne in connection with such disposition). In addition,
specific factors also are generally considered, such as the cost of the
investment, the market value of any unrestricted securities of the same
class (both at the time of purchase and at the time of valuation), the
size of the holding, the prices of any recent transactions or offers with
respect to such securities and any available analysts' reports regarding
the issuer.
Any assets or liabilities initially denominated in terms of
foreign currencies are translated into U.S. dollars at the official
exchange rate or, alternatively, at the mean of the current bid and asked
prices of such currencies against the U.S. dollar last quoted by a major
bank that is a regular participant in the foreign exchange market or on
the basis of a pricing service that takes into account the quotes provided
by a number of such major banks. If neither of these alternatives is
available or both are deemed not to provide a suitable methodology for
converting a foreign currency into U.S. dollars, the Board of Trustees, in
good faith, will establish a conversion rate for such currency.
The Portfolio reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or
repurchase order by making payment in whole or in part in readily
marketable securities chosen by the Portfolio and valued as they are for
purposes of computing the Portfolio's net asset value (a redemption in
kind). If payment is made in securities, an investor may incur
transaction expenses in converting these securities into cash. The
Portfolio has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Portfolio is obligated to redeem
beneficial interests with respect to any one investor during any 90 day
period, solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Portfolio at the beginning of the period.
Each investor in the Portfolio may add to or reduce its
investment in the Portfolio on each day that the New York Stock Exchange
is open for trading. At 4:00 p.m., Eastern Time, on each such day, the
value of each investor's interest in the Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage
representing that investor's share of the aggregate beneficial interests
B-36
<PAGE>
in the Portfolio. Any additions or reductions which are to be effected on
that day will then be effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio will then be recomputed as
the percentage equal to the fraction (i) the numerator of which is the
value of such investor's investment in the Portfolio as of 4:00 p.m. on
such day plus or minus, as the case may be, the amount of net additions to
or reductions in the investor's investment in the Portfolio effected on
such day, and (ii) the denominator of which is the aggregate net asset
value of the Portfolio as of 4:00 p.m. on such day plus or minus, as the
case may be, the amount of the net additions to or reductions in the
aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value
of the investor's interest in the Portfolio as of 4:00 p.m. on the
following day the New York Stock Exchange is open for trading.
Item 20. Tax Status.
--------------------
Taxation of the Portfolio
The Portfolio is treated as a partnership for federal income tax
purposes and is not a "publicly traded partnership." As a result, the
Portfolio is not subject to federal income tax; instead, the High Income
Fund, as an investor in the Portfolio, is required to take into account in
determining its federal income tax liability its share of the Portfolio's
income, gains, losses, deductions and credits, without regard to whether
it has received any cash distributions from the Portfolio. The Portfolio
also is not subject to New York income or franchise tax.
Because, as noted above, the High Income Fund is deemed to own a
proportionate share of the Portfolio's assets, and to earn a proportionate
share of the Portfolio's income, for purposes of determining whether that
Fund satisfies the requirements to qualify as a RIC, the Portfolio intends
to conduct its operations so that the High Income Fund will be able to
satisfy all those requirements.
Distributions to the High Income Fund from the Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result
in that Fund's recognition of any gain or loss for federal income tax
purposes, except that (1) gain will be recognized to the extent any cash
that is distributed exceeds that Fund's basis for its interest in the
Portfolio before the distribution, (2) income or gain will be recognized
if the distribution is in liquidation of that Fund's entire interest in
the Portfolio and includes a disproportionate share of any unrealized
receivables held by the Portfolio, and (3) loss will be recognized if a
liquidation distribution consists solely of cash and/or unrealized
receivables. The High Income Fund's basis for its interest in the
Portfolio generally will equal the amount of cash and the basis of any
B-37
<PAGE>
property that Fund invests in the Portfolio, increased by that Fund's
share of the Portfolio's net income and gains and decreased by (a) the
amount of cash and the basis of any property the Portfolio distributes to
that Fund and (b) that Fund's share of the Portfolio's losses.
Taxation of Certain Investment Activities
Foreign Taxes. Interest and dividends received by the Portfolio
may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield on its
securities. Tax conventions between certain countries and the United
States may reduce or eliminate these foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the value of the
Portfolio's total assets at the close of its taxable year consists of
securities of foreign corporations, the Portfolio will be eligible to, and
may, file an election with the Internal Revenue Service that will enable
its shareholders, in effect, to receive the benefit of the foreign tax
credit with respect to any foreign income taxes paid by it. Pursuant to
the election, the Portfolio will treat those taxes as dividends paid to
its shareholders and each shareholder will be required to (1) include in
gross income, and treat as paid by him, his proportionate share of those
taxes, (2) treat his share of those taxes and of any dividend paid by the
Portfolio that represents income from foreign sources as his own income
from those sources, and (3) either deduct the taxes deemed paid by him in
computing his taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against his federal
income tax. The Portfolio will report to its shareholders shortly after
each taxable year their respective shares of the Portfolio's income.
Passive Foreign Investment Companies. The Portfolio may invest
in the stock of PFICs. A PFIC is a foreign corporation that, in general,
meets either of the following tests: (1) at least 75% of its gross income
is passive or (2) an average of at least 50% of its assets produce, or are
held for the production of, passive income. Under certain circumstances,
the Portfolio will be subject to federal income tax on a part of any
"excess distribution" received by it on the stock of a PFIC or of any gain
on the Portfolio's disposition of that stock (collectively "PFIC income"),
plus interest thereon, even if the Portfolio distributes the PFIC income
as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in the Portfolio's investment company taxable income and,
accordingly, will not be taxable to the Fund to the extent that income is
distributed to its shareholders.
B-38
<PAGE>
If the Portfolio invests in a PFIC and elects to treat the PFIC
as a "qualified electing fund" ("QEF"), then in lieu of the foregoing tax
and interest obligation, the Portfolio will be required to include in
income each taxable year its pro rata share of the QEF's ordinary earnings
and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) -- which most likely would have to be distributed
to satisfy the Distribution Requirement and to avoid imposition of the
Excise Tax -- even if those earnings and gain were not received thereby.
In most instances it will be very difficult, if not impossible, to make
this election because of certain requirements thereof.
Pursuant to proposed regulations, an open-end RIC such as the
Portfolio, would be entitled to elect to "mark-to-market" their stock in
certain PFICs. "Marking-to-market," in this context, means recognizing as
gain for each taxable year the excess, as of the end of that year, of the
fair market value of each such PFIC's stock over the adjusted basis in
that stock (including mark-to-market gain for each prior year for which an
election was in effect).
Options, Futures and Foreign Currency Transactions. The
Portfolio's use of hedging transactions, such as selling (writing) and
purchasing options and Futures Contracts and entering into Forward
Contracts, involves complex rules that will determine, for federal income
tax purposes, the character and timing of recognition of the gains and
losses the Portfolio realizes in connection therewith. Income from
foreign currencies (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options, Futures and
Forward Contracts derived by the Portfolio with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement for that Portfolio. However, income
from the disposition by the Portfolio of options and Futures (other than
those on foreign currencies) will be subject to the Short-Short Limitation
for that Investor Fund if they are held for less than three months.
Income from the disposition by the Portfolio of foreign currencies, and
options, Futures and Forward Contracts on foreign currencies, that are not
directly related to its principal business of investing in securities,
also will be subject to the Short-Short Limitation for the Portfolio if
they are held for less than three months.
If the Portfolio satisfies certain requirements, any increase in
value of a position that is part of a "designated hedge" will be offset by
any decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining
whether that Portfolio satisfies the Short-Short Limitation. Thus, only
the net gain (if any) from the designated hedge will be included in gross
income for purposes of that limitation. Each Portfolio intends that, when
B-39
<PAGE>
it engages in hedging transactions, it will qualify for this treatment,
but at the present time it is not clear whether this treatment will be
available for all those transactions. To the extent this treatment is not
available, the Portfolio may be forced to defer the closing out of certain
options, Futures, Forward Contracts on foreign currency positions beyond
the time when it otherwise would be advantageous to do so, in order for
that Portfolio to continue to qualify as a RIC.
Futures and Forward Contracts that are subject to Section 1256 of
the Code (other than those that are part of a "mixed straddle") ("Section
1256 Contracts") and that are held by the Portfolio at the end of its
taxable year generally will be deemed to have been sold at market value
for federal income tax purposes. Sixty percent of any net gain or loss
recognized on these deemed sales, and 60% of any net gain or loss realized
from any actual sales of Section 1256 Contracts, will be treated as long-
term capital gain or loss, and the balance will be treated as short-term
capital gain or loss. Section 988 of the Code also may apply to foreign-
currency-denominated debt securities and options, Futures and Forward
Contracts on foreign currencies ("Section 988" gains or losses). Section
988 gain or loss generally is computed separately and treated as ordinary
income or loss. In the case of overlap between sections 1256 and 988,
special provisions determine the character and timing of any income, gain
or loss. Each Portfolio attempts to monitor Section 988 transactions to
minimize any adverse tax impact.
Item 21. Underwriters.
----------------------
Not applicable.
Item 22. Calculation of Performance Data.
-----------------------------------------
Not applicable.
Item 23. Financial Statements.
------------------------------
The financial statements of the Portfolio for the fiscal year
ended October 31, 1995, and GT Global High Income Fund for the fiscal year
ended October 31, 1995, included herein has been so included in reliance
on the report of Coopers & Lybrand, independent auditors, given on the
authority of said firm as experts in auditing and accounting.
B-40
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
ANNUAL REPORT
To the Shareholders and Board of Trustees of Global High Income Portfolio:
We have audited the accompanying statement of assets and liabilities of Global
High Income Portfolio, including the portfolio of investments as of October 31,
1995, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the supplementary data for each of the three years in the period then
ended and for the period from October 22, 1992 (commencement of operations) to
October 31, 1992. These financial statements and the supplementary data are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and the supplementary data based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the
supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 1995 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the supplementary data referred to
above present fairly, in all material respects, the financial position of Global
High Income Portfolio as of October 31, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the supplementary data for each of the three years in
the period then ended and for the period from October 22, 1992 (commencement of
operations) to October 31, 1992, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
DECEMBER 15, 1995
F-10
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market % of Net
Fixed Income Investments Currency Amount Value Assets {d}
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (70.7%)
Argentina (10.7%)
Republic of Argentina:
Par Bond, 5% due 3/31/23=/= ........................ USD 35,000,000 $ 16,712,500 4.7
Discount Bond, 6.875% due 3/31/23+ ................. USD 17,100,000 9,640,125 2.7
BOCON Pre 2, 5.83% due 4/1/01[.] + ................. USD 5,676,301 4,631,910 1.3
8.375% due 12/20/03 ................................ USD 6,240,000 4,539,600 1.3
Floating Rate Bond, 6.8125% due 3/31/05+ ........... USD 4,500,000 2,666,250 0.7
Brazil (13.2%)
Federal Republic of Brazil:
Par Z-L Bond, 4.25% due 4/15/24=/= ................. USD 32,400,000 15,714,000 4.4
C Bond, 4% due 4/15/14 (Effective rate at year end
is 6.035%, including "payment-in-kind" shares.)[.]
=/= ............................................... USD 26,530,200 13,497,239 3.8
New Money Bond Series L, 6.875% due 4/15/09+ ....... USD 10,500,000 6,168,750 1.7
Debt Conversion Bond Series L, 6.875% due
4/15/12+ .......................................... USD 11,000,000 6,036,250 1.7
IDU Notes, 6.6875% due 1/1/01+ ..................... USD 6,536,000 5,580,110 1.6
Bulgaria (4.8%)
Bulgaria:
Discount Bond Series A, 6.75% due 7/28/24 -
Euro+ ............................................ USD 13,032,000 6,564,870 1.8
Front Loaded Interest Reduction Bond Series A, 2%
due 7/28/12=/= .................................... USD 21,000,000 5,880,000 1.6
Discount Bond Series A, 6.75% due 7/28/24 - 144A+
{.} ............................................... USD 7,468,426 3,762,220 1.0
Discount Bond Series B, 7.25% due 7/28/24 - Euro+ .... USD 3,000,000 1,518,750 0.4
Costa Rica (2.4%)
Banco Central de Costa Rica:
Interest Bond Series A, 6.76563% due 5/21/05+ ...... USD 8,876,432 7,056,763 2.0
Principal Bond Series A, 6.25% due 5/21/10 ......... USD 2,700,000 1,579,500 0.4
Ecuador (4.1%)
Ecuador:
Par Bond, 3% due 2/28/25 - 144A=/= {.} ............. USD 17,000,000 5,652,500 1.6
Par Bond, 3% due 2/28/25 - Euro=/= ................. USD 10,750,000 3,574,375 1.0
Past Due Interest Bond, 3% due 2/27/15 - 144A
(Effective rate at year end is 4.27%, including
"payment-in-kind" shares.)[.] + {.} .............. USD 8,883,865 2,953,885 0.8
Discount Bond, 6.8125% due 2/28/25 - Euro+ ......... USD 3,500,000 1,741,250 0.5
Earned Interest Bond, 6.75% due 12/21/04 - 144A+
{.} ............................................... USD 1,330,875 805,179 0.2
Mexico (8.3%)
United Mexican States:
Par Bond Series B, 6.25% due 12/31/19+/+ ........... USD 30,250,000 17,828,594 5.0
Par Bond Series A, 6.25% due 12/31/19+/+ ........... USD 15,500,000 9,135,313 2.5
Discount Bond Series A, 6.76563% due 12/31/19+
+/+ ............................................... USD 4,500,000 3,015,000 0.8
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
Principal Market % of Net
Fixed Income Investments Currency Amount Value Assets {d}
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Nigeria (3.9%)
Central Bank of Nigeria, Par Bond, 6.25% due
11/15/20=/= +/+ .................................... USD 28,750,000 $ 13,458,594 3.7
Nigeria Promissory Notes, 5.092% due 1/5/10=/= ...... USD 2,500,000 912,500 0.2
Panama (0.5%)
Panama, Interest Reduction Bond, When-issued - 3.5%,
due 6/30/14 - 144A=/= {.} -/- ....................... USD 4,700,000 1,809,500 0.5
Philippines (3.9%)
Central Bank of the Philippines:
Par Bond Series B, 5.75% due 12/1/17=/= ............ USD 16,000,000 11,740,000 3.3
Front Loaded Interest Reduction Bond Series B, 5%
due 6/1/08=/= ..................................... USD 3,000,000 2,295,000 0.6
Poland (10.1%)
Poland:
Past Due Interest Bond, 3.75% due 10/27/14 - 144A=/=
{.} ............................................... USD 25,162,000 15,914,965 4.4
Discount Bond, 6.875% due 10/27/24 - Euro+ ......... USD 19,967,000 15,299,714 4.3
Past Due Interest Bond, 3.75% due 10/27/14 -
Euro=/= ........................................... USD 8,000,000 5,160,000 1.4
South Africa (3.2%)
Republic of South Africa:
11.5% due 5/30/00 ................................. ZAR 30,050,000 7,442,247 2.1
9.625% due 12/15/99 ................................ USD 3,600,000 3,834,000 1.1
Uruguay (1.5%)
Banco Central del Uruguay:
New Money Bond, 6.875% due 2/18/06+ ................ USD 3,750,000 2,718,750 0.8
Par Bond Series A, 6.75% due 2/18/21+/+ ............ USD 2,290,000 1,431,250 0.4
Par Bond Series B, 6.75% due 2/18/21+/+ ............ USD 1,500,000 937,500 0.3
Venezuela (4.1%)
Republic of Venezuela:
Discount Bond Series A, 6.6875% due 3/31/20+ +/+ ... USD 9,925,000 5,260,250 1.5
Discount Bond Series B, 6.9375% due 3/31/20+ +/+ ... USD 7,000,000 3,710,000 1.0
Par Bond Series A, 6.75% due 3/31/20+/+ ............ USD 5,750,000 2,972,031 0.8
Front Loaded Interest Reduction Bond Series A,
6.8125% due 3/31/07+ .............................. USD 2,750,000 1,381,875 0.4
Par Bond Series B, 6.75% due 3/31/20+/+ ............ USD 2,500,000 1,292,188 0.4
------------
Total Government & Government Agency Obligations (cost
$242,911,251) ........................................... 253,825,297
------------
Sovereign Debt (11.5%)
Morocco (4.7%)
Kingdom of Morocco, Tranche A Loan Agreement, 6.6875%
due 1/1/09+ ........................................ USD 28,000,000 16,712,500 4.7
Peru (2.0%)
Peru Loan Agreement ** -/- ........................... USD 9,200,000 6,348,000 1.8
Peru Loan Agreement (Citibank Issued) ** -/- ........ USD 1,000,000 690,000 0.2
Russia (4.8%)
Bank for Foreign Economic Affairs (Vnesheconombank)
Loan Agreement ** -/- ............................... USD 53,000,000 17,157,425 4.8
------------
Total Sovereign Debt (cost $39,833,286) .................. 40,907,925
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
Principal Market % of Net
Fixed Income Investments Currency Amount Value Assets {d}
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Corporate Bonds (6.4%)
Brazil (0.8%)
Banco BCN - BCN Leasing, 11% due 6/9/97 - 144A{.} .... USD 3,000,000 $ 2,955,000 0.8
Colombia (0.4%)
Oleoducto Central S.A. (OCENSA), 9.35% due 9/1/05 -
144A{.} ............................................. USD 1,500,000 1,511,250 0.4
Hong Kong (0.4%)
Pacific Concord Finance Ltd., Convertible Bond, 4.75%
due 12/10/98 ........................................ USD 2,000,000 1,590,000 0.4
India (0.2%)
Reliance Industries Ltd., 8.125% due 9/27/05 -
144A{.} ............................................. USD 700,000 705,250 0.2
Indonesia (2.6%)
PT Polysindo Eka Perkasa, effective yield 23.23%, due
7/27/97 ............................................. IDR 12,000,000,000 3,766,520 1.0
Dharmala Sakti Sejahtera Promissory Note, effective
yield 23.10%, due 6/9/97 ............................ IDR 9,000,000,000 2,892,291 0.8
PT Tjiwi Kimia, 13.25% due 8/1/01 .................... USD 1,000,000 1,097,500 0.3
Asia Pulp & Paper International Finance Co., Ltd.,
11.75% due 10/1/05 ................................. USD 1,000,000 1,025,939 0.3
PT Indah Kiat, 8.875% due 11/1/00 ................... USD 800,000 768,000 0.2
Malaysia (0.5%)
Aokam Perdana Bhd., Convertible Bond, 3.5% due
6/13/04 ............................................. USD 2,000,000 1,630,000 0.5
Philippines (0.9%)
Philippine Long Distance Telephone, 9.875% due
8/1/05 .............................................. USD 2,000,000 2,085,000 0.6
Philippine National Power, 9% due 7/5/02 ............. USD 1,000,000 1,030,000 0.3
South Africa (0.6%)
Sappi BVI Finance Ltd., Convertible Bond, 7.5% due
8/1/02 - 144A{.} .................................... USD 2,000,000 2,030,000 0.6
------------
Total Corporate Bonds (cost $23,474,518) ................ 23,086,750
------------
Structured Notes (1.2%)
Argentina (1.2%)
Republic of Argentina, BOCON Pre 2 Linked Note,
13.875%due 4/2/01 (Issued by Bankers Trust New York
Corporation. The underlying asset is Republic of
Argentina BOCON Pre 2.) (cost $5,000,000) .......... USD 5,000,000 4,259,500 1.2
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $311,219,055) ....... 322,079,472 89.8
------------ -----
<PAGE>
<CAPTION>
Principal Market % of Net
Short-Term Investments Currency Amount Value Assets {d}
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Treasury Bills (3.7%)
Mexico (3.7%)
Mexican Cetes: ....................................... MXN -- -- 3.7
Effective yield 47.33%, due 3/20/96 ............... -- 54,000,000 6,405,219 --
Effective yield 47.57%, due 3/28/96 ............... -- 31,000,000 3,641,716 --
Effective yield 45.14%, due 9/26/96 ............... -- 33,500,000 3,328,027 --
------------
Total Treasury Bills (cost $15,091,791) ................. 13,374,962
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
Principal Market % of Net
Short-Term Investments Currency Amount Value Assets {d}
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial Paper - Discounted (0.5%)
Indonesia (0.5%)
PT Indah Kiat Pulp & Paper Corp., effective
yield16.88%, due 3/21/96 (cost $1,693,821) ........ IDR 4,000,000,000 $ 1,652,844 0.5
------------ -----
TOTAL SHORT-TERM INVESTMENTS (cost $16,785,612) .......... 15,027,806 4.2
------------ -----
<CAPTION>
Market % of Net
Repurchase Agreement Value Assets {d}
- ---------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 31, 1995 with State Street Bank & Trust
Company, due November 1, 1995, for an effective yield
of 5.80% collateralized by $3,640,000 U.S. Treasury
Strips, due 2/15/02 (market value of collateral is
$2,519,129, including accrued interest). (cost
$2,438,393) .......................................... 2,438,393 0.7
------------ -----
TOTAL INVESTMENTS (cost $330,443,060) .................... 339,545,671 94.7
Other Assets and Liabilities ............................. 19,135,095 5.3
------------ -----
NET ASSETS ............................................... $358,680,766 100.0
------------ -----
------------ -----
</TABLE>
- ----------------
{d} Percentages indicated are based on net assets of $358,680,766.
+ The coupon rate shown on floating rate note represents the rate at
period end.
-/- Non-income producing security.
** Underlying loan agreement currently in default.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
[.] Bond pays stated or additional interest with "payment-in-kind"
(PIK) shares.
=/= The coupon rate shown on step-up coupon bond represents the rate at
period end.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
* For Federal income tax purposes, cost is $334,925,427 and
appreciation (depreciation) is as follows:
Unrealized appreciation: $ 17,054,207
Unrealized depreciation: (12,433,963)
-------------
Net unrealized appreciation: $ 4,620,244
-------------
-------------
The accompanying notes are an integral part of the financial statements.
F-14<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$330,443,060) (Note 1)........................... $339,545,671
U.S. currency..................................... 658
Receivable for securities sold.................... 14,709,780
Interest receivable............................... 9,226,637
Unamortized organizational costs (Note 1)......... 9,886
------------
Total assets.................................... 363,492,632
------------
Liabilities:
Payable for securities purchased.................. 4,448,672
Payable for investment management and
administration fees (Note 2)..................... 209,120
Payable for custodian fees (Note 1)............... 25,012
Payable for printing and postage expenses......... 22,733
Payable for professional fees..................... 19,894
Payable for Trustees' fees and expenses (Note
2)............................................... 2,815
Other accrued expenses............................ 83,620
------------
Total liabilities............................... 4,811,866
------------
Net assets.......................................... $358,680,766
------------
------------
Net assets consist of:
Paid in capital................................... $323,645,829
Undistributed net investment income............... 78,582,766
Accumulated net realized loss on investments and
foreign currency transactions.................... (52,656,675)
Net unrealized appreciation on translation of
assets and liabilities in foreign currencies..... 6,235
Net unrealized appreciation of investments........ 9,102,611
------------
Total -- representing net assets applicable to
shares of beneficial interest outstanding.......... $358,680,766
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income (net of foreign withholding tax of
$37,276)................................................... $ 46,834,087
------------
Total investment income................................... 46,834,087
------------
Expenses:
Investment management and administration fees (Note 2)...... 2,411,786
Custodian fees (Note 1)..................................... 230,918
Legal fees.................................................. 16,972
Audit fees.................................................. 15,550
Trustees' fees and expenses (Note 2)........................ 6,935
Amortization of organization costs (Note 1)................. 4,997
Printing and postage expenses............................... 2,520
Other expenses.............................................. 7,300
------------
Total expenses.............................................. 2,696,978
------------
Net investment income......................................... 44,137,109
------------
Net realized and unrealized gain (loss) on
investments and foreign currencies: (Note 1)
Net realized loss on investments........... $(61,405,151)
Net realized loss on foreign currency
transactions.............................. (707,803)
------------
Net realized loss during the year......................... (62,112,954)
Net change in unrealized appreciation on
translation of assets and liabilities in
foreign currencies........................ (302)
Net change in unrealized appreciation of
investments............................... 24,969,840
------------
Net unrealized appreciation during the year............... 24,969,538
------------
Net realized and unrealized loss on investments and foreign
currencies................................................... (37,143,416)
------------
Net increase in net assets resulting from operations.......... $ 6,993,693
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
----------------- -----------------
Increase (Decrease) in net assets
<S> <C> <C>
Operations:
Net investment income...................... $ 44,137,109 $ 27,856,747
Net realized loss on investments and
foreign currency transactions............. (62,112,954) (170,977)
Net change in unrealized appreciation
(depreciation) on translation of assets
and liabilities in foreign currencies..... (302) (517,677)
Net change in unrealized appreciation
(depreciation) of investments............. 24,969,840 (39,147,073)
----------------- -----------------
Net increase (decrease) in net assets
resulting from operations............... 6,993,693 (11,978,980)
Beneficial interest transactions:
Contributions.............................. 322,934,028 632,988,502
Withdrawals................................ (372,158,223) (476,837,876)
----------------- -----------------
Net increase (decrease) from beneficial
interest transactions................... (49,224,195) 156,150,626
----------------- -----------------
Total increase (decrease) in net assets...... (42,230,502) 144,171,646
Net assets:
Beginning of year.......................... 400,911,268 256,739,622
----------------- -----------------
End of year................................ $ 358,680,766 $ 400,911,268
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Contained below are ratios and supplemental data that have been derived
from information provided in the financial statements.
<TABLE>
<CAPTION>
OCTOBER 22, 1992
YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
------------------------------------- OPERATIONS) TO
1995 1994 1993 OCTOBER 31, 1992
----------- ----------- ----------- --------------------
<S> <C> <C> <C> <C>
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 358,681 $ 400,911 $ 256,740 $ 200
Ratio of net investment income to
average net assets..................... 12.8% 7.93% 8.0% N/A(a)
Ratio of expenses to average net
assets................................. 0.78% 0.72% 0.9% N/A(a)
Ratio of interest expense to average net
assets................................. N/A 0.22% N/A N/A
Portfolio turnover rate................. 213% 178% 195% none
</TABLE>
- ----------------
(a) Ratios are not meaningful due to short period of operation.
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
NOTES TO
FINANCIAL STATEMENTS
October 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Global High Income Portfolio ("Portfolio") is organized as a New York Trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as a non-diversified, open-end management investment company. The following is a
summary of significant accounting policies consistently followed by the
Portfolio in the preparation of the financial statements. The policies are in
conformity with generally accepted accounting principles.
(A) PORTFOLIO VALUATION
The Portfolio calculates the net asset value of and completes orders to purchase
or repurchase Portfolio shares of beneficial interest on each business day, with
the exception of those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by G.T. Capital Management,
Inc. ("G.T. Capital") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when G.T.
Capital deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Portfolio's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Portfolio's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATIONS
The accounting records of the Portfolio are maintained in U.S. dollars. The
market values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Portfolio after
translation to U.S. dollars based on the exchange rates on that day. The cost of
each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred.
The Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of forward foreign currency
contracts, sales of foreign currencies, currency gains or losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign withholding
taxes recorded on the Portfolio's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains or
losses arise from changes in the value of assets and liabilities other than
investments in securities at year end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States government
securities or other high quality debt securities of which the value, including
accrued interest, is at least equal to the amount to be repaid to the Portfolio
under each agreement at its maturity.
F-19
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward") is an agreement between two
parties to buy and sell a currency at a set price on a future date. The market
value of the Forward Contract fluctuates with changes in currency exchange
rates. The Forward Contract is marked-to-market daily and the change in market
value is recorded by the Portfolio as an unrealized gain or loss. When the
Forward Contract is closed, the Portfolio records a realized gain or loss equal
to the difference between the value at the time it was opened and the value at
the time it was closed. Forward Contracts involve market risk in excess of the
amounts shown in the Portfolio's "Statement of Assets and Liabilities." The
Portfolio could be exposed to risk if a counterparty is unable to meet the terms
of the contract or if the value of the currency changes unfavorably. The
Portfolio may enter into Forward Contracts in connection with planned purchases
or sales of securities, or to hedge against adverse fluctuations in exchange
rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the option.
The current market value of an option listed on a traded exchange is valued at
its last bid price, or, in the case of an over-the-counter option, is valued at
the average of the last bid prices obtained from brokers. If an option expires
on its stipulated expiration date or if the Portfolio enters into a closing
purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Portfolio can write options
only on a covered basis, which, for a call, requires that the portfolio hold the
underlying security and, for a put, requires the Portfolio to set aside cash,
U.S. government securities, or other liquid, high-grade debt securities in an
amount not less than the exercise price or otherwise provide adequate cover at
all times while the put option is outstanding. The Portfolio may use options to
manage its exposure to the bond market and to fluctuations in currency values or
interest rates.
The premium paid by the Portfolio for the purchase of a call or put option is
included in the Portfolio's "Statement of Assets and Liabilities" as an
investment and subsequently "marked-to-market" to reflect the current market
value of the option. If an option which the Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes a gain or loss, depending on whether proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Portfolio exercises a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Portfolio exercises a put option, it realizes a gain or loss from the sale of
the underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Portfolio may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Portfolio may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Portfolio may not be able to enter into a closing transaction because of an
illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio may use futures contracts to manage its
exposure to the bond market and to fluctuations in currency values or interest
rates.
F-20
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Portfolio may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Portfolio to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the market
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 103% of the market value of the loaned
securities during the period of the loan. For domestic securities, cash
collateral is received by the Portfolio against loaned securities in an amount
at least equal to 102% of the market value of the loaned securities at the
inception of each loan, and is maintained at this level during the period of the
loan. For the year ended October 31, 1995, the Portfolio received fees of $929
which were used to reduce the Fund's custodian fees. At October 31, 1995, there
were no securities on loan to brokers.
(I) TAXES
It is the policy of the Portfolio to meet the requirements of the Internal
Revenue Code of 1986, as amended ("Code"). Therefore, no provision has been made
for Federal taxes on income, capital gains, or unrealized appreciation of
securities held.
(J) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the Portfolio in connection with its organization, its
registration with the Securities and Exchange Commission and with various states
and the initial public offering of its shares aggregated $25,000. These expenses
are being amortized on a straightline basis over a five-year period.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent with
investments of domestic origin. The Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) INDEXED SECURITIES
The Portfolio may invest in indexed securities whose value is linked either
directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(M) RESTRICTED SECURITIES
The Portfolio is permitted to invest in privately placed restricted securities.
These securities may be resold in transactions exempt from registration or to
the public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult.
2. RELATED PARTIES
G.T. Capital is the Portfolio's investment manager and administrator. The
Portfolio pays investment management and administration fees to G.T. Capital at
the annualized rate of 0.475% on the first $500 million of average daily net
assets of the Portfolio; 0.45% on the next $1 billion; 0.425% on the next $1
billion; and 0.40% on amounts thereafter, plus 2% of the Portfolio's total
investment income calculated in accordance with generally accepted accounting
principles, adjusted daily for currency revaluations, on a mark to market basis,
of the Portfolio's assets; provided, however, that during any fiscal year this
amount shall not exceed 2% of the Portfolio's total investment income calculated
in accordance with generally accepted accounting principles. These fees are
computed daily and paid monthly.
The Portfolio pays each of its Trustees who is not an employee, officer or
director of G.T. Capital, G.T. Global or G.T. Services $500 per year plus $150
for each meeting of the board or any committee thereof attended by the Trustees.
At October 31, 1995, all of the shares of beneficial interest of the Portfolio
were owned either by G.T. Global High Income Fund or G.T. Capital.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1995, purchases and sales of investment
securities by the Portfolio, other than U.S. government obligations and
short-term investments, aggregated $528,728,519 and $504,864,711, respectively.
Purchases and sales of U.S. government obligations by the Portfolio aggregated
$128,514,376 and $145,460,470, respectively.
F-21
<PAGE>
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO
4. WRITTEN OPTIONS:
The Portfolio's written options contract activity for the year ended October 31,
1995 was as follows:
COVERED CALL AND PUT OPTIONS WRITTEN
<TABLE>
<CAPTION>
UNDERLYING
NOMINAL
AMOUNT PREMIUMS
------------- -----------
<S> <C> <C>
Options outstanding at October 31, 1994.................................... 0 $ 0
Options written............................................................ 12,500,000 111,000
Options cancelled in closing purchase transactions......................... 0 0
Options expired prior to exercise.......................................... (12,500,000) (111,000)
Options exercised.......................................................... 0 0
------------- -----------
Options outstanding at October 31, 1995.................................... 0 $ 0
------------- -----------
------------- -----------
</TABLE>
F-22
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
-------------------------------------------
(a) Financial Statements -- The following financial
statements as of October 31, 1995, and for the fiscal year ended for
Global High Income Portfolio and GT Global High Income Fund are included
herewith:
-- Reports of Independent Accountants
-- Portfolios of Investments
-- Statements of Assets and Liabilities
-- Statements of Operations
-- Statements of Changes in Net Assets
-- Per Share Income and Capital Changes
-- Notes to Financial Statements
(b) Exhibits
1. Declaration of Trust of the Registrant.(1)
2. By-Laws of the Registrant.(1)
5. Investment Management and Administration Contract
between the Registrant and LGT Asset Management,
Inc.(2)
8. Form of Custodian Agreement between the
Registrant and State Street Bank and Trust
Company -- (3)
11. Consent of Coopers & Lybrand, Independent
Accountants -- Filed herewith
13. Investment representation letters of initial
investors (2)
_____________________
(1) Incorporated by reference to the identically enumerated Exhibit of
the Registration Statement on Form N-1A, filed on October 21, 1992.
(2) Incorporated by reference to the identically enumerated Exhibit of
the Amendment to the Registration Statement on Form N-1A, filed on
March 1, 1993.
(3) Incorporated by reference to the identically enumerated Exhibit of
the Amendment to the Registration Statement on Form N-1A, filed on
February 28, 1995.
<PAGE>
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 February 14, 1996)
Item 27. Indemnification.
-------------------------
Reference is hereby made to Article V of the Registrant's
Declaration of Trust, filed as Exhibit 1 to this Registration Statement.
The Trustees and officers of the Registrant are insured under an
errors and omissions liability insurance policy and 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.
--------------------------------------------------------------
See the material under Item 5 (Management of the Fund) included
in Part A of this Registration Statement and the material under Items 14
(Management of the Fund) and 16 (Investment Advisory and Other Services)
included in Part B of this Registration Statement. Information as to the
directors and officers of LGT Asset Management, Inc., Registrant's
investment manager, is included in such manager's Form ADV (File No. 801-
10254), filed with the Commission, which is incorporated herein by
reference thereto.
Item 29. Principal Underwriters.
--------------------------------
Not applicable.
Item 30. Location of Accounts and Records.
------------------------------------------
Accounts, books and other records required by Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, as amended, are maintained
and held in the offices of the Registrant and its investment manager, LGT
Asset Management, Inc., 50 California Street, 27th Floor, San Francisco,
California 94111.
C-2
<PAGE>
Records covering shareholder accounts and portfolio transactions
are also maintained and kept by the Registrant's Custodian, State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110.
Item 31. Management Services.
-----------------------------
Not applicable.
Item 32. Undertakings.
----------------------
Not applicable.
C-3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of
1940, the Global High Income Portfolio has duly caused this Amendment to
its Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of San Francisco, and
the State of California, on the 28th day of February, 1996.
GLOBAL HIGH INCOME PORTFOLIO
By: /s/ Helge K. Lee
---------------------------------
Helge K. Lee
Vice President and Secretary
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
1. Declaration of Trust of the Registrant.(1)
2. By-Laws of the Registrant.(1)
5. Investment Management and Administration Contract between
the Registrant and LGT Asset Management, Inc.(2)
8. Form of Custodian Agreement between the Registrant and
State Street Bank and Trust Company -- (3)
11. Consent of Coopers & Lybrand, Independent Accountants --
Filed herewith
13. Investment representation letters of initial
investors (2)
_____________________
(1) Incorporated by reference to the identically enumerated Exhibit of
the Registration Statement on Form N-1A, filed on October 21, 1992.
(2) Incorporated by reference to the identically enumerated Exhibit of
the Amendment to the Registration Statement on Form N-1A, filed on
March 1, 1993.
(3) Incorporated by reference to the identically enumerated Exhibit of
the Amendment to the Registration Statement on Form N-1A, filed on
February 28, 1995.
C-5
<PAGE>
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
& LYBRAND a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Global High Income Portfolio:
We consent to the inclusion in the Registration Statement of Global High
Income Portfolio of our report dated December 15, 1995 on the financial
statements of Global High Income Portfolio as of and for the year ended
October 31, 1995. We also consent to the reference to our firm under the
caption "Independent Accountants" in such Registration Statement.
/s/ Coopers & Lybrand L.L.P.
-----------------------------
COOPERS & LYBRAND L.L.P
Boston, Massachusetts
February 27, 1996
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FUND'S ANNUAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000893580
<NAME> GLOBAL HIGH INCOME PORTFOLIO
<MULTIPLIER> 1000
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<PERIOD-TYPE> 12-MOS
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<PAGE>
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