AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1996
File No. 811-7408
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
CAPITAL APPRECIATION PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 423-0800
Philip W. Coolidge, 6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940, as amended. However,
beneficial interests in the Registrant are not being registered under the
Securities Act of 1933, as amended (the "1933 Act"), because such interests will
be issued solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant may only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in the Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
Capital Appreciation Portfolio (the "Portfolio") is a no-load, diversified,
open-end management investment company which was organized as a trust under the
laws of the State of New York on August 18, 1992. Beneficial interests in the
Portfolio are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolio may only be made by investment companies, insurance company separate
accounts, common or commingled trust funds or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D under the
1933 Act. This Registration Statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
The investment objective of the Portfolio is long-term capital growth; the
production of any current income is secondary to this objective.
Additional information about the investment policies of the Portfolio
appears in Part B. There can be no assurance that the investment objective of
the Portfolio will be achieved.
INVESTMENT ALLOCATIONS. The Portfolio invests primarily in growth-oriented
common stocks of domestic corporations and, to a lesser extent, foreign
corporations. Bankers Trust Company ("Bankers Trust"), as the Portfolio's
investment adviser (the "Adviser"), employs a flexible investment program in
pursuit of the Portfolio's investment objective. The Portfolio is not restricted
to investments in specific market sectors. The Portfolio may invest in any
market sectors and in companies of any size and may take advantage of any
investment opportunity with attractive long-term prospects. The Adviser takes
advantage of its market access and the research available to it to select
investments in promising growth companies that are involved in new technologies,
new products, foreign markets and special developments, such as research
discoveries, acquisitions, recapitalizations, liquidations or management
changes, and companies whose stock may be undervalued by the market. These
situations are only illustrative of the types of investment the Portfolio may
make. The Portfolio is free to invest in any common stock which in the Adviser's
judgment provides above average potential for long-term growth of capital and
income.
The Portfolio will generally invest a majority of its assets in securities
of medium-sized companies (companies with a market capitalization of between
$500 million and $2 billion), but may invest in securities of companies having
various levels of market capitalization, including smaller companies whose
securities may be more volatile and less liquid than securities issued by larger
companies with higher levels of net worth. Investments will be in companies in
various industries. Industry and company fundamentals along with key investment
themes and various quantitative screens will be used in the investment process.
Criteria for selection of individual securities include the issuer's competitive
environment and position, prospects for growth, managerial strength, earnings
momentum and quality, underlying asset value, relative market value and overall
marketability. The Portfolio will follow a disciplined selling process to lessen
market risks.
The Portfolio may also invest up to 25% of its assets in similar securities
of foreign issuers. For further information on foreign investments and related
hedging techniques, see "Risk Factors", the Appendix and Part B to this
Registration Statement.
EQUITY INVESTMENTS. The Portfolio invests primarily in common stock and
other securities with equity characteristics, such as trust or limited
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partnership interests, rights and warrants. These investments may or may not pay
dividends and may or may not carry voting rights. The Portfolio may also invest
in convertible securities when, due to market conditions, it is more
advantageous to obtain a position in an attractive company by purchase of its
convertible securities than by purchase of its common stock. The convertible
securities in which the Portfolio invests may include any debt securities or
preferred stock which may be converted into common stock or which carries the
right to purchase common stock. Convertible securities entitle the holder to
exchange the securities for a specified number of shares of common stock usually
of the same company, at specified prices within a certain period of time and to
receive interest or dividends until the holder elects to exercise the conversion
privilege. Since the Portfolio invests in both common stock and convertible
securities, the risks of the general equity markets may be tempered to a degree
by the Portfolio's investments in convertible securities which are often not as
volatile as equity securities.
SHORT-TERM INSTRUMENTS. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its objective and
long-term investment perspective. However, the Portfolio's assets may be
invested in short-term instruments with remaining maturities of 397 days or less
to meet anticipated withdrawals and expenses or for day-to-day operating
purposes and when, in Bankers Trust's opinion, it is advisable to adopt a
temporary defensive position because of unusual and adverse conditions affecting
the equity markets. In addition, when the Portfolio experiences large cash
inflows through the sale of securities and desirable equity securities that are
consistent with the Portfolio's investment objective are unavailable in
sufficient quantities or at attractive prices, the Portfolio may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated Aa or higher by Moody's Investors Service, Inc. ("Moody's") or AA or
higher by Standard & Poor's Corporation ("Standard & Poor's") or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and (v) repurchase agreements. At the time the
Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding debt rated
Aa or higher by Moody's or AA or higher by Standard & Poor's or outstanding
commercial paper or bank obligations rated Prime-1 by Moody's or A-1 by Standard
& Poor's; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of Bankers Trust. These instruments may be
denominated in U.S. dollars or in foreign currencies.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Portfolio may also utilize
the following investments and investment techniques and practices: Rule 144A
securities, when-issued and delayed delivery securities, securities lending,
repurchase agreements, foreign investments, options on stocks, options on stock
indices, futures contracts on stock indices, options on futures contracts,
foreign currency exchange transactions and options on foreign currencies. See
the Appendix for further information.
ADDITIONAL INVESTMENT LIMITATIONS
No more than 5% of the assets of the Portfolio may be invested in the
securities of one issuer (other than U.S. Government securities), except that up
to 25% of the Portfolio's assets may be invested without regard to this
limitation. The Portfolio will not invest more than 25% of its assets in the
securities of issuers in any one industry. These are fundamental investment
policies of the Portfolio which may not be changed without investor approval. No
more than 15% of the Portfolio's net assets may be invested in (i) securities
the resale of which is restricted under U.S. Federal securities laws (other than
Rule 144A securities); (ii) illiquid or not readily marketable securities
(including repurchase agreements and time deposits maturing in more than seven
days); and (iii) securities of issuers which have been in operation for three
years or less. Additional investment policies of the Portfolio are contained in
Part B.
RISK FACTORS. By itself the Portfolio does not constitute a balanced
investment plan; the Portfolio seeks to provide long-term capital growth, with
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the production of any current income being incidental to this objective, by
investments primarily in growth-oriented common stocks of domestic corporations
and, to a limited extent, foreign corporations. The Portfolio is designed for
those investors primarily interested in capital growth from investments in
medium-sized growth companies. In view of the long-term capital growth objective
of the Portfolio and the smaller size of the companies, the risks of investment
in the Portfolio may be greater than the general equity markets, and changes in
domestic and foreign interest rates may also affect the value of the Portfolio's
investments, and rising interest rates can be expected to reduce the Portfolio's
net asset value. The Appendix includes a description of a number of investments
and investment techniques available to the Portfolio, including foreign
investments and the use of options and futures, and sets out certain risks
associated with these investments and techniques.
Risks of Investing in Foreign Securities. In seeking its investment
objectives, the Portfolio may invest in securities of foreign issuers. Foreign
securities may involve a higher degree of risk and may be less liquid or more
volatile than domestic investments. Foreign securities usually are denominated
in foreign currencies, which means their value will be affected by changes in
the strength of foreign currencies relative to the U.S. dollar as well as the
other factors that affect security prices. Foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S.
companies, and there often is less publicly available information about their
operations. Generally, there is less governmental regulation of foreign
securities markets, and security trading practices abroad may offer less
protection to investors such as the Portfolio. The value of such investments may
be adversely affected by changes in political or social conditions, diplomatic
relations, confiscatory taxation, expropriation, nationalization, limitation on
the removal of funds or assets, or imposition of (or change in) exchange control
or tax regulations in those foreign countries. Additional risks of foreign
securities include settlement delays and costs, difficulties in obtaining and
enforcing judgments, and taxation of dividends at the source of payment. The
Portfolio will not invest more than 5% of the value of its total assets in the
securities of issuers based in developing countries, including Eastern Europe.
PORTFOLIO TURNOVER. The Portfolio intends to manage its holdings actively
to pursue its investment objective. Since the Portfolio has a long-term
investment perspective, it does not intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, it may take advantage of short-term trading opportunities that are
consistent with its objective. The portfolio turnover rate of the Portfolio may
exceed 100%. For the period January 1, 1995 to September 30, 1995, the year
ended December 31, 1994 and for the period March 9, 1993 (commencement of
operations) to December 31, 1993 the Portfolio's portfolio turnover rate was
125%, 157% and 135%, respectively.
DERIVATIVES. The Portfolio may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset or market index. There are, in fact, many different types of
derivatives and many different ways to use them. There are a range of risks
associated with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
However, some derivatives are used for leverage, which tends to magnify the
effects of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount of
financial assets and can, in some circumstances, lead to significant losses. The
Adviser will use derivatives only in circumstances where the Adviser believes
they offer the most economic means of improving the risk/reward profile of the
Portfolio. Derivatives will not be used to increase portfolio risk above the
level that could be achieved using traditional investment securities or to
acquire exposure to changes in the value of assets or indices that by themselves
would not be purchased for the Portfolio. The use of derivatives for non-hedging
purposes may be considered speculative. A description of the derivatives that
the Portfolio may use and some of their associated risks is found in the
Appendix.
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ITEM 5. MANAGEMENT OF THE TRUST.
The Board of Trustees provides broad supervision over the affairs of the
Portfolio. Bankers Trust is the Portfolio's investment adviser. A majority of
the Portfolio's Trustees are not affiliated with the Adviser. Bankers Trust, as
the Portfolio's administrator (the "Administrator"), supervises the overall
administration of the Portfolio. Bankers Trust is also the Portfolio's fund
accountant, transfer agent, custodian and dividend paying agent.
Ms. Mary Lisanti, Managing Director of Bankers Trust, is responsible for
the day to day management of the Portfolio. Ms. Lisanti has been employed by
Bankers Trust since February, 1993 and has managed the Portfolio's assets since
the Portfolio commenced operations. Prior to 1993, she was Vice President and
Portfolio Manager with Lieber & Company/the Evergreen Funds (since 1990).
Bankers Trust, a New York banking corporation with principal executive
offices at 280 Park Avenue, New York, New York 10017, is a wholly owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets. As of September 30, 1995 Bankers Trust New York Corporation was the
ninth largest bank holding company in the United States with total assets of
approximately $104 billion. Bankers Trust is a worldwide merchant bank dedicated
to servicing the needs of corporations, governments, financial institutions and
private clients through a global network of over 120 offices in more than 40
countries. Investment management is a core business of Bankers Trust, built on a
tradition of excellence from its roots as a trust bank founded in 1930. The
scope of Bankers Trust's investment management capability is unique due to its
leadership positions in both active and passive quantitative management and its
presence in major equity and fixed income markets around the world. Bankers
Trust is one of the nation's largest and most experienced investment managers
with approximately $200 billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled fund
structures. Now, the BT Family of Funds brings Bankers Trust's extensive
investment management expertise, once available to only the largest institutions
in the U.S., to individual investors. Bankers Trust's officers have had
extensive experience in managing investment portfolios having objectives similar
to that of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Portfolio in accordance with the Portfolio's investment
objective and stated investment policies, makes investment decisions for the
Portfolio, places orders to purchase and sell securities and other financial
instruments on behalf of the Portfolio and employs professional investment
managers and securities analysts who provide research services to the Portfolio.
All orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels. The Portfolio will
not invest in obligations for which Bankers Trust or any of its affiliates is
the ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents and customers of Bankers Trust. As
compensation for its investment advisory services, the Portfolio will pay
Bankers Trust a fee computed daily and paid monthly at the annual rate of 0.65%
of the Portfolio's average daily net assets pursuant to an investment advisory
agreement.
Under an administration and services agreement with the Portfolio (the
"Administration and Services Agreement"), Bankers Trust calculates the value of
the assets of the Portfolio and generally assists the Board of Trustees in all
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aspects of the administration and operation of the Portfolio. The Administration
and Services Agreement provides for the Portfolio to pay Bankers Trust a fee,
computed daily and paid monthly, at the rate of 0.10% of the average daily net
assets of the Portfolio. Under the Administration and Services Agreement,
Bankers Trust may delegate one or more of its responsibilities to others at
Bankers Trust's expense.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Portfolio described in
this Registration Statement without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. State laws on this issue may differ from
the interpretations of relevant Federal law and banks and financial institutions
may be required to register as dealers pursuant to state securities law.
The Portfolio bears its own expenses. Operating expenses for the Portfolio
generally consist of all costs not specifically borne by Bankers Trust or
Signature Broker-Dealer Services, Inc. ("Signature") including investment
advisory and administration and service fees, fees for necessary professional
services, amortization of organizational expenses, the costs associated with
regulatory compliance and maintaining legal existence and investor relations.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolio is organized as a trust under the laws of the State of New
York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments in the
Portfolio may not be transferred, but an investor may withdraw all or any
portion of its investment at any time at net asset value. Investors in the
Portfolio (e.g., investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations.
Investments in the Portfolio have no preemptive or conversion rights and
are fully paid and nonassessable, except as set forth below. The Portfolio is
not required and has no current intention to hold annual meetings of investors,
but the Portfolio will hold special meetings of investors when in the judgment
of the Trustees it is necessary or desirable to submit matters for an investor
vote. Changes in fundamental policies will be submitted to investors for
approval. Investors have under certain circumstances (e.g., upon application and
submission of certain specified documents to the Trustees by a specified number
of investors) the right to communicate with other investors in connection with
requesting a meeting of investors for the purpose of removing one or more
Trustees. Investors also have the right to remove one or more Trustees without a
meeting by a declaration in writing by a specified number of investors. Upon
liquidation of the Portfolio, investors would be entitled to share pro rata in
the net assets of the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each day on which the
New York Stock Exchange Inc. ("NYSE") is open ("Portfolio Business Day") (and on
such other days as are deemed necessary in order to comply with Rule 22c-1 under
the Investment Company Act of 1940, as amended (the "1940 Act")). This
determination is made each Portfolio Business Day as of the close of regular
trading on the NYSE (currently 4:00 p.m., New York time or in the event the NYSE
closes early, at the time of such early closing) (the "Valuation Time").
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Portfolio Business Day. At the Valuation Time, on each such
business day, the value of each 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, that represents that investor's share of the
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aggregate beneficial interests in the Portfolio. Any additions or withdrawals,
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
re-computed as the percentage equal to the fraction (i) the numerator of which
is the value of such investor's investment in the Portfolio as of the Valuation
Time, on such day plus or minus, as the case may be, the amount of any additions
to or withdrawals from the investor's investment in the Portfolio effected on
such day, and (ii) the denominator of which is the aggregate net asset value of
the Portfolio as of the Valuation Time on such day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in the Portfolio as of the Valuation Time, on the following business
day of the Portfolio.
The "net income" of the Portfolio shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of the Portfolio, less (ii)
all actual and accrued expenses of the Portfolio determined in accordance with
generally accepted accounting principles. Interest income includes discount
earned (including both original issue and market discount) on discount paper
accrued ratably to the date of maturity and any net realized gains or losses on
the assets of the Portfolio. All the net income of the Portfolio is allocated
pro rata among the investors in the Portfolio. The net income is accrued daily
and distributed monthly to the investors in the Portfolio.
Under the anticipated method of operation of the Portfolio, the Portfolio
will not be subject to any income tax. However, each investor in the Portfolio
will be taxable on its share (as determined in accordance with the governing
instruments of the Portfolio) of the Portfolio's ordinary income and capital
gain in determining its income tax liability. The determination of such share
will be made in accordance with the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions will
be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. See "General Description
of the Registrant" above.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined if an order is received
by the Portfolio by the designated cutoff time for each accredited investor. The
net asset value of the Portfolio is determined on each Portfolio Business Day.
The Portfolio's portfolio securities are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Board of Trustees believes accurately reflects fair value.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in Federal funds (i.e., monies credited to the account
of the Portfolio's custodian bank by a Federal Reserve Bank).
The Portfolio and Signature reserve the right to cease accepting
investments at any time or to reject any investment order.
The placement agent for the Portfolio is Signature. The principal business
address of Signature is 6 St. James Avenue, Boston, Massachusetts 02116.
Signature receives no additional compensation for serving as the placement agent
for the Portfolio.
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ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request in
proper form is furnished by the investor to the Portfolio by the designated
cutoff time for each accredited investor. The proceeds of a withdrawal will be
paid by the Portfolio in Federal funds normally on the Portfolio Business Day
the withdrawal is effected, but in any event within seven calendar days. The
Portfolio reserves the right to pay redemptions in kind. Unless requested by an
investor, the Portfolio will not make a redemption in kind to the investor,
except in situations where that investor may make redemptions in kind.
Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds postponed
during any period in which the NYSE is closed (other than weekends or holidays)
or trading on the NYSE is restricted or, to the extent otherwise permitted by
the 1940 Act, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
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APPENDIX.
RULE 144A SECURITIES. The Portfolio may purchase securities in the United
States that are not registered for sale under Federal securities laws but which
can be resold to institutions under the Securities and Exchange Commission
("SEC") Rule 144A. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as exempt from
the Portfolio's 15% limit on illiquid securities. Under the supervision of the
Board of Trustees of the Portfolio, Bankers Trust determines the liquidity of
restricted securities and, through reports from Bankers Trust, the Board will
monitor trading activity in restricted securities. Because Rule 144A is
relatively new, it is not possible to predict how these markets will develop. If
institutional trading in restricted securities were to decline, the liquidity of
the Portfolio could be adversely affected.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.
SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of the
total value of its securities. These loans must be secured continuously by cash
or equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. In lending securities to brokers, dealers and other organizations,
the Portfolio is subject to risks which, like those associated with other
extensions of credit, include delays in recovery and possible loss of rights in
the collateral should the borrower fail financially.
REPURCHASE AGREEMENTS. In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price. In the
event of the bankruptcy of the other party to either a repurchase agreement or a
securities loan, the Portfolio could experience delays in recovering either its
cash or the securities it lent. To the extent that, in the meantime, the value
of the securities repurchased had decreased or the value of the securities lent
had increased, the Portfolio could experience a loss. In all cases, Bankers
Trust must find the creditworthiness of the other party to the transaction
satisfactory. A repurchase agreement is considered a collateralized loan under
the 1940 Act.
FOREIGN INVESTMENTS. The Portfolio may invest in securities of foreign
issuers directly or in the form of American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or other
similar securities representing securities of foreign issuers. Designated for
use in U.S., global and European securities markets, respectively, ADRs, GDRs
and EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies. ADRs, GDRs and EDRs are subject to the same
risks as the foreign securities to which they relate.
With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Portfolio may be made
through investment in other investment companies that in turn are authorized to
invest in the securities of such countries. Investment in other investment
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companies is limited in amount by the 1940 Act, will involve the indirect
payment of a portion of the expenses, including advisory fees, of such other
investment companies and may result in a duplication of fees and expenses.
OPTIONS ON STOCKS. The Portfolio may write and purchase put and call
options on stocks. A call option gives the purchaser of the option the right to
buy, and obligates the writer to sell, the underlying stock at the exercise
price at any time during the option period. Similarly, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying stock at the exercise price at any time during the option period. A
covered call option, which is a call option with respect to which the Portfolio
owns the underlying stock, sold by the Portfolio exposes the Portfolio during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying stock or to possible continued holding of
a stock which might otherwise have been sold to protect against depreciation in
the market price of the stock. A covered put option sold by the Portfolio
exposes the Portfolio during the term of the option to a decline in price of the
underlying stock. A put option sold by the Portfolio is covered when, among
other things, cash or liquid securities are placed in a segregated account to
fulfill the obligations undertaken.
To close out a position when writing covered options, the Portfolio may
make a "closing purchase transaction", which involves purchasing an option on
the same stock with the same exercise price and expiration date as the option
which it has previously written on the stock. The Portfolio will realize a
profit or loss for a closing purchase transaction if the amount paid to purchase
an option is less or more, as the case may be, than the amount received from the
sale thereof. To close out a position as a purchaser of an option, the Portfolio
may make a "closing sale transaction", which involves liquidating the
Portfolio's position by selling the option previously purchased.
The Portfolio intends to treat over-the-counter options ("OTC Options")
purchased and the assets used to "cover" OTC Options written as not readily
marketable and therefore subject to the limitations described in "Investment
Restrictions" in Part B.
The Portfolio will write and purchase options only to the extent permitted
by the policies of state securities authorities in states where shares of the
investors in the Portfolio are qualified for offer and sale.
OPTIONS ON STOCK INDICES. The Portfolio may purchase and write put and
call options on stock indices listed on stock exchanges. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
Options on stock indices are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier". Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or the option
may expire unexercised.
Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular stock, whether the Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
<PAGE>
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Portfolio of options on stock indices will be subject to
Bankers Trust's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
FUTURES CONTRACTS ON STOCK INDICES. The Portfolio may enter into contracts
providing for the making and acceptance of a cash settlement based upon changes
in the value of an index of securities ("Futures Contracts"). This investment
technique is designed only to hedge against anticipated future change in general
market prices which otherwise might either adversely affect the value of
securities held by the Portfolio or adversely affect the prices of securities
which are intended to be purchased at a later date for the Portfolio. A Futures
Contract may also be entered into to close out or offset an existing futures
position.
In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to that of
the investment being hedged. If these hedging transactions are successful, the
futures positions taken for the Portfolio will rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments that are being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized.
Although Futures Contracts would be entered into for hedging purposes
only, such transactions do involve certain risks. These risks could include a
lack of correlation between the Futures Contract and the equity market being
hedged, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be
posted and maintained as a good-faith deposit against performance of obligations
under Futures Contracts written for the Portfolio. The Portfolio may not
purchase or sell a Futures Contract if immediately thereafter its margin
deposits on its outstanding Futures Contracts would exceed 5% of the market
value of the Portfolio's total assets.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may invest in options
on such Futures Contracts for similar purposes.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio may buy and
sell securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Portfolio either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. The Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
<PAGE>
The Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write covered put and
call options and purchase put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. The Portfolio may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different, but related currency. As with other types of
options, however, the writing of an option on foreign currency will constitute
only a partial hedge up to the amount of the premium received, and the Portfolio
could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may be used to hedge against fluctuations in exchange rates although,
in the event of exchange rate movements adverse to the Portfolio's position, it
may forfeit the entire amount of the premium plus related transaction costs. In
addition, the Portfolio may purchase call options on currency when the Adviser
anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio will not be able to sell the
underlying currency or dispose of assets held in a segregated account until the
options expire or are exercised. Similarly, if the Portfolio is unable to effect
a closing sale transaction with respect to options it has purchased, it would
have to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying currency. The
Portfolio pays brokerage commissions or spreads in connection with its options
transactions.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-traded currency options. The Portfolio's
ability to terminate OTC Options will be more limited than with exchange-traded
options. It is also possible that broker-dealers participating in OTC Options
transactions will not fulfill their obligations. Until such time as the staff of
the SEC changes its position, the Portfolio will treat purchased OTC Options and
assets used to cover written OTC Options as illiquid securities. With respect to
options written with primary dealers in U.S. Government securities pursuant to
an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
All options that the Portfolio writes will be covered under applicable
requirements of the SEC. There can be no assurance that the use of these
portfolio strategies will be successful.
<PAGE>
ASSET COVERAGE. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities are not used to
achieve investment leverage, the Portfolio will cover such transactions, as
required under applicable interpretations of the SEC, either by owning the
underlying securities or by establishing a segregated account with the
Portfolio's custodian containing high grade liquid debt securities in an amount
at all times equal to or exceeding the Portfolio's commitment with respect to
these instruments or contracts.
<PAGE>
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS. Page
General Information and History ............... B-1
Investment Objective and Policies.............. B-1
Management of the Portfolio.................... B-14
Control Persons and Principal Holder
of Securities................................ B-16
Investment Advisory and Other Services......... B-17
Brokerage Allocation and Other Practices....... B-18
Capital Stock and Other Securities............. B-20
Purchase, Redemption and Pricing of
Securities Being Offered..................... B-21
Tax Status..................................... B-22
Underwriters................................... B-23
Calculation of Performance Data................ B-23
Financial Statements........................... B-23
Appendix: Bond and Commercial Paper Ratings.... B-24
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
Part A contains additional information about the investment objective and
policies of Capital Appreciation Portfolio (the "Portfolio"). This Part B should
only be read in conjunction with Part A.
Certificates of Deposit and Bankers' Acceptances. Certificates of deposit
are receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
<PAGE>
For a description of commercial paper ratings, see the Appendix.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a remaining maturity of longer than seven calendar days.
Securities which have not been registered under the 1933 Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has recently adopted
Rule 144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. Bankers
Trust Company ("Bankers Trust"), as the Portfolio's investment adviser (the
"Adviser"), anticipates that the market for certain restricted securities such
as institutional commercial paper will expand further as a result of this new
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc. (the "NASD").
The Adviser will monitor the liquidity of Rule 144A securities in the
Portfolio's portfolio securities under the supervision of the Board of Trustees.
In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers and other potential purchasers wishing to purchase or
sell the security; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Lending of Portfolio Securities. The Portfolio has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Portfolio will not lend securities to Bankers Trust, Signature Broker-Dealer
Services, Inc. ("Signature") or their affiliates. By lending its securities, the
Portfolio can increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash collateral in
short-term securities or obtaining yield in the form of interest paid by the
borrower when U.S. Government obligations are used as collateral. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially. The Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio must receive at
least 100% cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(iii) the Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
<PAGE>
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must terminate
the loan and regain the right to vote the securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
General. The successful use of such instruments draws upon the Adviser's
skill and experience with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on futures
contracts and movements in the price of the securities and currencies hedged or
used for cover will not be perfect and could produce unanticipated losses.
Futures Contracts. The Portfolio may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, foreign currencies, or
contracts based on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC"), and
must be executed through a futures commission merchant, or brokerage firm, which
is a member of the relevant contract market. Futures contracts trade on a number
of exchange markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. The Portfolio may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury bonds, Treasury notes, Government National
Mortgage Association modified pass-through mortgage-backed securities and
three-month U.S. Treasury bills. The Portfolio may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
Government.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Portfolio will incur brokerage fees when
it purchases or sells futures contracts.
<PAGE>
The purpose of the acquisition or sale of a futures contract, when the
Portfolio holds or intends to acquire fixed-income securities, is to attempt to
protect the Portfolio from fluctuations in interest or foreign exchange rates
without actually buying or selling fixed-income securities or foreign
currencies. For example, if interest rates were expected to increase, the
Portfolio might enter into futures contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the debt securities owned by the Portfolio. If interest rates did increase, the
value of the debt security in the Portfolio would decline, but the value of the
futures contracts to the Portfolio would increase at approximately the same
rate, thereby keeping the net asset value of the Portfolio from declining as
much as it otherwise would have. The Portfolio could accomplish similar results
by selling debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the futures market is
more liquid than the cash market, the use of futures contracts as an investment
technique allows the Portfolio to maintain a defensive position without having
to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Portfolio could
take advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent the Portfolio enters into futures contracts
for this purpose, the assets in the segregated asset account maintained to cover
the Portfolio's obligations with respect to such futures contracts will consist
of cash, cash equivalents or high quality liquid debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such futures
contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes
that use of such contracts will benefit the Portfolio, if the Adviser's
investment judgment about the general direction of interest rates is incorrect,
the Portfolio's overall performance would be poorer than if it had not entered
into any such contract. For example, if the Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
Options on Futures Contracts. The Portfolio intends to purchase and write
options on futures contracts for hedging purposes. The purchase of a call option
<PAGE>
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when the Portfolio is not fully invested it
may purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Portfolio may purchase a put option on a futures contract to hedge
its portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees has adopted the requirement that futures contracts
and options on futures contracts be used only as a hedge and not for
speculation. In addition to this requirement, the Board of Trustees of the
Portfolio has also adopted a restriction that the Portfolio will not enter into
any futures contracts or options on futures contracts if immediately thereafter
the amount of margin deposits on all the futures contracts of the Portfolio and
premiums paid on outstanding options on futures contracts owned by the Portfolio
(other than those entered into for bona fide hedging purposes) would exceed 5%
of the market value of the total assets of the Portfolio.
Options on Foreign Currencies. The Portfolio may purchase and write
options on foreign currencies for hedging purposes in a manner similar to that
in which futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, the Portfolio will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
<PAGE>
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same types
of hedging purposes. For example, where the Portfolio anticipates a decline in
the dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
The Portfolio intends to write covered call options on foreign currencies.
A call option written on a foreign currency by the Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government securities and other high quality liquid debt securities in a
segregated account with its custodian.
The Portfolio also intends to write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in the U.S. dollar value of a security which
the Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate. In
such circumstances, the Portfolio collateralizes the option by maintaining in a
segregated account with its custodian, cash or U.S. Government securities or
other high quality liquid debt securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars marked to market daily.
Additional Risks of Options on Futures Contracts, Forward Contracts and
Options on Foreign Currencies. Unlike transactions entered into by the Portfolio
in futures contracts, options on foreign currencies and forward contracts are
not traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
<PAGE>
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-traded currency options. The Portfolio's
ability to terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Portfolio will
treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. Government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
Options on Securities. The Portfolio may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options") in
an attempt to increase income. However, the Portfolio may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Portfolio.
When the Portfolio writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
<PAGE>
the option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price.
When the Portfolio writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. The Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.
The Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing purchase
transaction." The Portfolio will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Portfolio may make a "closing sale
transaction" which involves liquidating the Portfolio's position by selling the
option previously purchased. Where the Portfolio cannot effect a closing
purchase transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on any securities in which
it may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The purchase
of a call option would entitle the Portfolio, in exchange for the premium paid,
to purchase a security at a specified price during the option period. The
Portfolio would ordinarily have a gain if the value of the securities increased
above the exercise price sufficiently to cover the premium and would have a loss
if the value of the securities remained at or below the exercise price during
the option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
<PAGE>
designed merely to offset or hedge against a decline in the market value of the
Portfolio's portfolio securities. Put options also may be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.
The Portfolio has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The Portfolio's activities in
options may also be restricted by the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for qualification as a regulated investment
company.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with whom the Portfolio enters into such options
transactions under the general supervision of the Portfolio's Trustees.
Options on Securities Indices. In addition to options on securities, the
Portfolio may also purchase and write (sell) call and put options on securities
indices. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index. Such options will be used for the purposes
described above under "Options on Securities".
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Portfolio generally will only purchase or write such an option if the Adviser
believes the option can be closed out.
Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included in the
index is interrupted. The Portfolio will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Portfolio's portfolio securities may not correlate
precisely with movements in the level of an index and, therefore, the use of
options on indices cannot serve as a complete hedge. Because options on
securities indices require settlement in cash, the Adviser may be forced to
liquidate portfolio securities to meet settlement obligations.
<PAGE>
Forward Foreign Currency Exchange Contracts. Because the Portfolio buys
and sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Portfolio either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. The Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event
the Portfolio's ability to utilize forward contracts in the manner set forth in
Part A to this Registration Statement may be restricted. Forward contracts may
reduce the potential gain from a positive change in the relationship between the
U.S. dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Portfolio than if it had not
entered into such contracts. The use of foreign currency forward contracts may
not eliminate fluctuations in the underlying U.S. dollar equivalent value of the
prices of or rates of return on the Portfolio's foreign currency denominated
portfolio securities and the use of such techniques will subject the Portfolio
to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Portfolio may not always be able to enter into foreign currency
forward contracts at attractive prices and this will limit the Portfolio's
ability to use such contract to hedge or cross-hedge its assets. Also, with
regard to the Portfolio's use of cross-hedges, there can be no assurance that
historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying the Portfolio's cross-hedges and the movements in the exchange rates
<PAGE>
of the foreign currencies in which the Portfolio's assets that are the subject
of such cross-hedges are denominated.
RATING SERVICES
The ratings of rating services represent their opinions as to the quality
of the securities that they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and are not absolute standards of
quality. Although these ratings are an initial criterion for selection of
portfolio investments, Bankers Trust also makes its own evaluation of these
securities, subject to review by the Board of Trustees. After purchase by the
Portfolio, an obligation may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither event would
require the Portfolio to eliminate the obligation from its portfolio, but
Bankers Trust will consider such an event in its determination of whether the
Portfolio should continue to hold the obligation. A description of the ratings
used herein and in Part A is set forth in the Appendix.
INVESTMENT RESTRICTIONS
The Portfolio has adopted its investment objective and the following
investment restrictions as "fundamental policies", which may not be changed
without approval by holders of a "majority of the outstanding shares" of the
Portfolio, which as used in this Registration Statement means the vote of the
lesser of (i) 67% or more of the outstanding "voting securities" of the
Portfolio present at a meeting, if the holders of more than 50% of the
outstanding "voting securities" of the Portfolio are present or represented by
proxy, or (ii) more than 50% of the outstanding "voting securities" of the
Portfolio. The term "voting securities" as used in this paragraph has the same
meaning as in the Investment Company Act of 1940 (the "1940 Act").
As a matter of fundamental policy, the Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's assets, it may borrow money as a temporary measure for extraordinary
or emergency purposes and enter into reverse repurchase agreements or dollar
roll transactions, and except that it may pledge, mortgage or hypothecate not
more than 1/3 of such assets to secure such borrowings (it is intended that
money would be borrowed only from banks and only either to accommodate requests
for the withdrawal of beneficial interests while effecting an orderly
liquidation of portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or other
similar situations) or reverse repurchase agreements, provided that collateral
arrangements with respect to options and futures, including deposits of initial
deposit and variation margin, are not considered a pledge of assets for purposes
of this restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "State and Federal Restrictions"
below. (As an operating policy, the Portfolio may not engage in dollar roll
transactions);
(2) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the 1933 Act in selling
a portfolio security;
(3) make loans to other persons except (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not exceed 30%
of the Portfolio's total assets (taken at market value), (b) through the use of
repurchase agreements or the purchase of short-term obligations or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately;
(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein), interests
<PAGE>
in oil, gas or mineral leases, commodities or commodity contracts (except
futures and option contracts) in the ordinary course of business (the Portfolio
may hold and sell, for the Portfolio's portfolio, real estate acquired as a
result of the Portfolio's ownership of securities);
(5) concentrate its investments in any particular industry
(excluding U.S. Government securities), but if it is deemed appropriate
for the achievement of the Portfolio's investment objective, up to 25%
of its total assets may be invested in any one industry; and
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction.
State and Federal Restrictions. In order to comply with certain state and
Federal statutes and policies the Portfolio will not as a matter of operating
policy:
(i) borrow money (including through reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Portfolio's
total assets (taken at cost), except that the Portfolio may borrow
for temporary or emergency purposes up to 1/3 of its total assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, and
reverse repurchase agreements are not considered a pledge of assets
for purposes of this restriction;
(iii)purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;
(iv) sell securities it does not own such that the dollar amount of such
short sales at any one time exceeds 25% of the net equity of the
Portfolio, and the value of securities of any one issuer in which the
Portfolio is short exceeds the lesser of 2.0% of the value of the
Portfolio's net assets or 2.0% of the securities of any class of any
U.S. issuer, and provided that short sales may be made only in those
securities which are fully listed on a national securities exchange
or a foreign exchange (This provision does not include the sale of
securities the Portfolio contemporaneously owns or where the
Portfolio has the right to obtain securities equivalent in kind and
amount to those sold, i.e., short sales against the box.) (The
Portfolio has no current intention to engage in short selling.);
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the customary
broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation;
provided, however, that securities of any investment company will not
be purchased for the Portfolio if such purchase at the time thereof
would cause (a) more than 10% of the Portfolio's total assets (taken
at the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the Portfolio's total
assets (taken at the greater of cost or market value) to be invested
in any one investment company; or (c) more than 3% of the outstanding
voting securities of any such issuer to be held for the Portfolio;
provided further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any securities of any
open-end investment company unless (1) the Portfolio's investment
<PAGE>
adviser waives the investment advisory fee with respect to assets
invested in other open-end investment companies and (2) the Portfolio
incurs no sales charge in connection with the investment;
(vii)invest more than 10% of the Portfolio's total assets (taken at the
greater of cost or market value) in securities (excluding Rule 144A
securities) that are restricted as to resale under the 1933 Act;
(viii) invest more than 15% of the Portfolio's total assets (taken at the
greater of cost or market value) in (a) securities (excluding Rule
144A securities) that are restricted as to resale under the 1933 Act,
and (b) securities that are issued by issuers which (including
predecessors) have been in operation less than three years (other
than U.S. Government securities), provided, however, that no more
than 5% of the Portfolio's total assets are invested in securities
issued by issuers which (including predecessors) have been in
operation less than three years;
(ix) invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or
not readily marketable (excluding Rule 144A securities deemed by the
Board of Trustees of the Portfolio to be liquid);
(x) with respect to 75% of its assets, invest more than 5% of its
total assets in the securities (excluding U.S. Government
securities) of any one issuer;
(xi) invest in securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of
the Portfolio, or is an officer or director of the Adviser, if after
the purchase of the securities of such issuer for the Portfolio one
or more of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, all taken at market value, of such
issuer, and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or
securities, or both, all taken at market value;
(xii)invest in warrants (other than warrants acquired by the Portfolio as
part of a unit or attached to securities at the time of purchase) if,
as a result, the investments (valued at the lower of cost or market)
would exceed 5% of the value of the Portfolio's net assets or if, as
a result, more than 2% of the Portfolio's net assets would be
invested in warrants not listed on a recognized United States or
foreign stock exchange, to the extent permitted by applicable state
securities laws;
(xiii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the investment policies of the Portfolio and the option is
issued by the Options Clearing Corporation, except for put and call
options issued by non-U.S. entities or listed on non-U.S. securities
or commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold
shall not exceed 5% of the Portfolio's net assets; (c) the securities
subject to the exercise of the call written by the Portfolio must be
owned by the Portfolio at the time the call is sold and must continue
to be owned by the Portfolio until the call has been exercised, has
lapsed, or the Portfolio has purchased a closing call, and such
purchase has been confirmed, thereby extinguishing the Portfolio's
obligation to deliver securities pursuant to the call it has sold;
and (d) at the time a put is written, the Portfolio establishes a
segregated account with its custodian consisting of cash or
short-term U.S. Government securities equal in value to the amount
the Portfolio will be obligated to pay upon exercise of the put (this
account must be maintained until the put is exercised, has expired,
<PAGE>
or the Portfolio has purchased a closing put, which is a put of the
same series as the one previously written); and
(xiv)buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons
and: (a) the options or futures are offered through the facilities of
a national securities association or are listed on a national
securities or commodities exchange, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all such
options which are held at any time do not exceed 20% of the
Portfolio's total net assets; and (c) the aggregate margin deposits
required on all such futures or options thereon held at any time do
not exceed 5% of the Portfolio's total assets.
The Portfolio will comply with the permitted investments and investment
limitations in the securities laws and regulations of all states in which any
registered investment company investing in the Portfolio is registered.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees and officers of the Portfolio and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. An asterisk indicates that a Trustee is an "interested
person" (as defined in the 1940 Act) of the Portfolio. Unless otherwise
indicated below, the address of each Trustee and officer is 6 St. James Avenue,
Boston, Massachusetts 02116.
TRUSTEES
CHARLES P. BIGGAR (aged 65) -- Retired; Director of Chase/NBW Bank Advisory
Board; Director Batemen, Eichler, Hill Richards Inc.; Formerly Vice President of
International Business Machines and President of the National Services and the
Field Engineering Divisions of IBM. His address is 12 Hitching Post Lane,
Chappaqua, New York 10514.
PHILIP W. COOLIDGE* (aged 44) -- President of the Portfolio; Chairman,
Chief Executive Officer and President, Signature Financial Group, Inc. ("SFG")
(since December, 1988) and Signature (since April, 1989).
S. LELAND DILL (aged 65) -- Retired; Director, Coutts & Co. Trust Holdings
Limited and Coutts & Co. (U.S.A.) International; Director, Zweig Series Trust;
formerly Partner of KPMG Peat Marwick; Director, Vinters International Company
Inc.; General Partner of Pemco (an investment company registered under the 1940
Act). His address is 5070 North Ocean Drive, Singer Island, Florida 33404.
PHILIP SAUNDERS, JR. (aged 60) -- Principal, Philip Saunders Associates
(Consulting); former Director of Financial Industry Consulting, Wolf & Company;
President, John Hancock Home Mortgage Corporation; and Senior Vice President of
Treasury and Financial Services, John Hancock Mutual Life Insurance Company,
Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.
OFFICERS
PHILIP W. COOLIDGE (aged 44) -- President; Chairman, Chief Executive
Officer and President, SFG (since December, 1988) and Signature (since April,
1989).
<PAGE>
DAVID G. DANIELSON (aged 30) -- Assistant Treasurer; Assistant Manager, SFG
(since May, 1991); Graduate Student, Northeastern University (from April, 1990
to March, 1991); Tax Accountant & Systems Analyst, Putnam Companies (prior to
March, 1990).
JOHN R. ELDER (aged 47) -- Treasurer; Senior Vice President, Vice
President, SFG (since April, 1995); Treasurer, Phoenix Family of Mutual Funds
(prior to April, 1995); Audit Manager, Price Waterhouse (prior to 1983).
LINDA T. GIBSON (aged 30) -- Assistant Secretary; Legal Counsel and
Assistant Secretary, SFG (since May, 1992); Assistant Secretary, Signature
(since October, 1992); student, Boston University School of Law (September, 1989
to May, 1992); Product Manager, SFG (January, 1989 to September, 1989).
JAMES S. LELKO, JR. (aged 30) -- Assistant Treasurer; Assistant Manager,
SFG (since January, 1993); Senior Tax Compliance Accountant, Putnam Investments
(prior to December, 1992).
THOMAS M. LENZ (aged 37) -- Secretary; Vice President and Associate General
Counsel, SFG (since November, 1989); Assistant Secretary, Signature (since
February, 1991); Attorney, Ropes & Gray (prior to November, 1989).
MOLLY S. MUGLER (aged 44) -- Assistant Secretary; Legal Counsel and
Assistant Secretary, SFG (since December, 1988); Assistant Secretary, Signature
(since April, 1989).
BARBARA M. O'DETTE (aged 36) -- Assistant Treasurer; Assistant Treasurer,
SFG (since December, 1988); Assistant Treasurer, Signature (since April, 1989).
ANDRES E. SALDANA (aged 33) -- Assistant Secretary; Legal Counsel, SFG
(since November, 1992); Assistant Secretary, Signature (since September, 1993);
Attorney, Ropes & Gray (September, 1990 to November, 1992); law student, Yale
Law School (September, 1987 to May, 1990).
DANIEL E. SHEA (aged 33) -- Assistant Treasurer; Assistant Manager, SFG
(since November, 1993); Supervisor and Senior Technical Advisor, Putnam
Investments (prior to November, 1993).
Messrs. Coolidge, Elder, Danielson, Lelko, Lenz, Saldana and Shea and Mss.
Gibson, Mugler and O'Dette also hold similar positions for other investment
companies for which Signature or an affiliate serves as the principal
underwriter.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Portfolio. No director, officer or employee of Signature or any
of its affiliates will receive any compensation from the Portfolio for serving
as an officer or Trustee of the Portfolio. The Portfolio and Cash Management,
Treasury Money, Tax Free Money, NY Tax Free Money, International Equity,
Utility, Equity 500 Index, Short/Intermediate U.S. Government Securities,
Intermediate Tax Free, Asset Management and BT Investment Portfolios (the "Fund
Complex") collectively pay each Trustee who is not a director, officer or
employee of the Adviser, the Administrator or any of their affiliates an annual
fee of $10,000, respectively, per annum plus $1,250, respectively, per meeting
attended and reimburses them for travel and out-of-pocket expenses.
For the period January 1, 1995 to September 30, 1995, the year ended
December 31, 1994 and the period March 9, 1993 (commencement of operations) to
December 31, 1993, the Portfolio accrued Trustees fees equal to $1,107, $1,231
and $890, respectively. Bankers Trust reimbursed the Portfolio for a portion of
its Trustees fees for the period above. See "Investment Advisory and Other
Services" below.
<PAGE>
The Trustees of the Portfolio received the following remuneration from the
Portfolio for the period January 1, 1995 to September 30, 1995:
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
PENSION OR
AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ESTIMATED ANNUAL FROM
NAME OF PERSON, FROM AS PART OF BENEFITS UPON FUND COMPLEX
POSITION PORTFOLIO PORTFOLIO EXPENSES RETIREMENT PAID TO TRUSTEES
<S> <C> <C> <C> <C>
Philip W. Coolidge, none none none none
Trustee of Portfolio
Charles P. Biggar, $1,042 none none $12,500
Trustee of Portfolio
S. Leland Dill, $1,042 none none $12,500
Trustee of Portfolio
Philip Saunders, Jr. $1,042 none none $12,500
Trustee of Portfolio
</TABLE>
The Portfolio's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Portfolio, unless, as to liability to the Portfolio or its investors, it is
finally adjudicated that they engaged in wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Portfolio. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that such
officers or Trustees have not engaged in wilful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of December 31, 1995 BT Investment Equity Appreciation Fund and Capital
Appreciation Fund (each a "Fund") (series of shares of BT Pyramid Mutual Funds
and BT Investment Funds, respectively) owned approximately 61.54% and 38.46%,
respectively, of the value of the outstanding interests in the Portfolio.
Because BT Investment Equity Appreciation Fund controls the Portfolio, it may
take actions without the approval of any other investor in the Portfolio.
Each Fund has informed the Portfolio that whenever it is requested to vote
on matters pertaining to the fundamental policies of the Portfolio, the Fund
will hold a meeting of shareholders and will cast its votes as instructed by the
Fund's shareholders. It is anticipated that other registered investment
companies investing in the Portfolio will follow the same or a similar practice.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
Bankers Trust manages the assets of the Portfolio pursuant to an
investment advisory agreement (the "Advisory Agreement"). Subject to such
policies as the Board of Trustees may determine, the Adviser makes investment
decisions for the Portfolio. Bankers Trust will: (i) act in strict conformity
<PAGE>
with the Portfolio's Declaration of Trust, the 1940 Act and the Investment
Advisors Act of 1940, as the same may from time to time be amended; (ii) manage
the Portfolio in accordance with the Portfolio's investment objectives,
restrictions and policies; (iii) make investment decisions for the Portfolio;
and (iv) place purchase and sale orders for securities and other financial
instruments on behalf of the Portfolio.
The Adviser furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the Portfolio's investments and
effecting securities transactions for the Portfolio. The Advisory Agreement will
continue in effect if such continuance is specifically approved at least
annually by the Board of Trustees or by a majority vote of the investors in the
Portfolio (with the vote of each being in proportion to the amount of its
investment) and, in either case, by a majority of the Portfolio's Trustees who
are not parties to the Advisory Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty on 60 days' written
notice by the Portfolio when authorized either by majority vote of the investors
in the Portfolio (with the vote of each being in proportion to the amount of its
investment) or by a vote of a majority of its Board of Trustees, or by the
Adviser, and will automatically terminate in the event of its assignment. The
Advisory Agreement provides that neither the Adviser nor its personnel shall be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the execution of security
transactions for the Portfolio, except for wilful misfeasance, bad faith or
gross negligence or of reckless disregard of its or their obligations and duties
under the Advisory Agreement.
For the period January 1, 1995 to September 30, 1995, the year ended
December 31, 1994 and the period March 9, 1993 (commencement of operations) to
December 31, 1993, Bankers Trust accrued $482,453, $329,399 and $67,695,
respectively, in compensation for investment advisory services provided to the
Portfolio. During the same periods, Bankers Trust reimbursed $131,702, $114,930
and $43,137, respectively, to the Portfolio to cover expenses.
Pursuant to an administration and services agreement (the "Administration
Agreement"), Bankers Trust provides administration services to the Portfolio.
Under the Administration Agreement, Bankers Trust is obligated on a continuous
basis to provide such administrative services as the Board of Trustees
reasonably deems necessary for the proper administration of the Portfolio.
Bankers Trust will generally assist in all aspects of the Portfolio's
operations; supply and maintain the Portfolio with office facilities (which may
be in Bankers Trust's own offices), statistical and research data, data
processing services, clerical, accounting, bookkeeping and recordkeeping
services (including without limitation the maintenance of such books and records
as are required under the 1940 Act and the rules thereunder, except as
maintained by other agents of the Portfolio), internal auditing, executive and
administrative services, and stationery and office supplies; prepare reports to
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC; supply supporting
documentation for meetings of the Board of Trustees; provide monitoring reports
and assistance regarding compliance with the Portfolio's Declaration of Trust,
By-Laws, investment objective and policies and with Federal and state securities
laws; arrange for appropriate insurance coverage; calculate the net asset value,
net income and realized capital gains or losses of the Portfolio; and negotiate
arrangements with, and supervise and coordinate the activities of, agents and
others retained by the Portfolio to supply services to the Portfolio and/or its
investors.
Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement"), Signature performs such sub-administration duties for the Portfolio
as from time to time may be agreed upon by Bankers Trust and Signature. The
Sub-Administration Agreement provides that Signature will receive such
compensation as from time to time may be agreed upon by Signature and Bankers
Trust. All such compensation will be paid by Bankers Trust.
Bankers Trust shall also provide fund accounting, transfer agency and
custodian services to the Portfolio pursuant to the Administration Agreement.
<PAGE>
For the period January 1, 1995 to September 30, 1995, the year ended
December 31, 1994 and the period March 9, 1993 (commencement of operations) to
December 31, 1993, Bankers Trust received $48,877, $50,677 and $10,415,
respectively, in compensation for administrative and other services provided to
the Portfolio.
Coopers & Lybrand L.L.P. are the Independent Accountants for the
Portfolio, providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC. The
principal business address of Coopers & Lybrand L.L.P. is 1100 Main Street,
Suite 900, Kansas City, Missouri 64105.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Portfolio,
the selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of the Portfolio are frequently placed by the Adviser with the issuer
or a primary or secondary market-maker for these securities on a net basis,
without any brokerage commission being paid by the Portfolio. Trading does,
however, involve transaction costs. Transactions with dealers serving as
market-makers reflect the spread between the bid and asked prices. Transaction
costs may also include fees paid to third parties for information as to
potential purchasers or sellers of securities. Purchases of underwritten issues
may be made which will include an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for the Portfolio taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for the
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of the
NASD and such other policies as the Portfolio's Trustees may determine, the
Adviser may consider sales of securities of other investment company clients of
Bankers Trust as a factor in the selection of broker-dealers to execute
portfolio transactions. Bankers Trust will make such allocations if commissions
are comparable to those charged by nonaffiliated, qualified broker-dealers for
similar services.
<PAGE>
Higher commissions may be paid to firms that provide research services to
the extent permitted by law. Bankers Trust may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention
to place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers
and dealers can be useful to the Portfolio and to the Adviser, it is the opinion
of the management of the Portfolio that such information is only supplementary
to the Adviser's own research effort, since the information must still be
analyzed, weighed and reviewed by the Adviser's staff. Such information may be
useful to the Adviser in providing services to clients other than the Portfolio,
and not all such information is used by the Adviser in connection with the
Portfolio. Conversely, such information provided to the Adviser by brokers and
dealers through whom other clients of the Adviser effect securities transactions
may be useful to the Adviser in providing services to the Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio in concerned. However, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
For the period January 1, 1995 to September 30, 1995, the year ended
December 31, 1994 and the period March 9, 1993 (commencement of operations) to
December 31, 1993, the Portfolio paid brokerage commissions in the amount of
$247,868, $162,941 and $58,016, respectively.
<PAGE>
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share pro rata in the Portfolio's net assets available for distribution to its
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Investments in the Portfolio may not be transferred. Certificates
representing an investor's beneficial interest in the Portfolio are issued only
upon the written request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees if they choose to do so
and in such event the other investors in the Portfolio would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual meetings of investors but the Portfolio will hold special meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. No material amendment may be
made to the Portfolio's Declaration of Trust without the affirmative majority
vote of investors (with the vote of each being in proportion to the amount of
its investment).
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds of its
investors (with the vote of each being in proportion to its percentage of the
beneficial interests in the Portfolio), except that if the Trustees recommend
such sale of assets, the approval by vote of a majority of the investors (with
the vote of each being in proportion to its percentage of the beneficial
interests of the Portfolio) will be sufficient. The Portfolio may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment) or (ii) by the Trustees by written
notice to its investors.
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 wilful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
<PAGE>
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "Purchase of Securities Being
Offered" and "Redemption or Repurchase" in Part A.
The Portfolio determines its net asset value on each day on which the New
York Stock Exchange (the "NYSE") is open ("Portfolio Business Day"). This
determination is made each Portfolio Business Day as of the close of regular
trading on the NYSE (currently 4:00 p.m., New York time or earlier should the
NYSE close earlier) (the "Valuation Time") by dividing the value of the
Portfolio's net assets (i.e., the value of its securities and other assets less
its liabilities, including expenses payable or accrued) by the value of the
investment of the investors in the Portfolio at the time the determination is
made. As of the date of this Registration Statement, the NYSE and New York
chartered banks are both open for trading every weekday except for (a) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas; and (b) the
preceding Friday or the subsequent Monday when one of the calendar-determined
holidays falls on a Saturday or Sunday, respectively. Purchases and withdrawals
will be effected at the time of determination of net asset value next following
the receipt of any purchase or withdrawal order.
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market.
Securities for which market quotations are not readily available are
valued by Bankers Trust pursuant to procedures adopted by the Board of Trustees.
It is generally agreed that securities for which market quotations are not
readily available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of purchase,
special reports prepared by analysts, information as to any
transactions or offers with respect to the security, existence of
merger proposals or tender offers affecting the security, price
and extent of public trading in similar securities of the issuer
or comparable companies, and other relevant matters.
To the extent that the Portfolio purchases securities which are restricted
as to resale or for which current market quotations are not readily available,
the Adviser will value such securities based upon all relevant factors as
outlined in FRR 1.
The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or withdrawal 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). 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
<PAGE>
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.
The Portfolio has agreed to make a redemption in kind to a Fund which
invests its assets in the Portfolio whenever such Fund wishes to make a
redemption in kind and therefore shareholders of that Fund that receive
redemptions in kind will receive portfolio securities of the Portfolio and in no
case will they receive a security issued by the Portfolio. The Portfolio will
not redeem in kind except in circumstances in which such Fund is permitted to
redeem in kind or unless requested by that Fund.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each day the Portfolio determines its net asset value. At the close
of each such business day, the value of each 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 withdrawals which are to be effected as of the close of business on
that day will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio will then be 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 business on such day plus or
minus, as the case may be, the amount of net additions to or withdrawals from
the investor's investment in the Portfolio effected as of the close of business
on such day, and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the close of business on such day plus or minus, as the
case may be, the amount of net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in the Portfolio as the close of business on the following business
day.
ITEM 20. TAX STATUS.
The Portfolio is organized as a trust under New York law. Under the
anticipated method of operation of the Portfolio, the Portfolio will not be
subject to any income tax. However each investor in the Portfolio will be
taxable on its share (as determined in accordance with the governing instruments
of the Portfolio) of the Portfolio's ordinary income and capital gain in
determining its income tax liability. The determination of such share will be
made in accordance with the Code and regulations promulgated thereunder.
The Portfolio's taxable year-end is September 30. Although, as described
above, the Portfolio will not be subject to Federal income tax, it will file
appropriate income tax returns.
It is intended that the Portfolio's assets, income and distributions will
be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
There are certain tax issues that will be relevant to only certain of the
investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to the Portfolio. It is
intended that such segregated asset accounts will be able to satisfy
diversification requirements applicable to them and that such contributions of
assets will not be taxable provided certain requirements are met. Such investors
are advised to consult their own tax advisors as to the tax consequences of an
investment in the Portfolio.
Foreign Securities. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to determine
the effective rate of foreign tax in advance since the amount of the Portfolio's
assets to be invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of the
value of the Portfolio's total assets at the close of its taxable year consists
<PAGE>
of stocks or securities of foreign corporations, it may make an election
pursuant to which certain foreign taxes paid by it would be treated as having
been paid directly by its investors. Pursuant to such election, the amount of
foreign taxes paid will be included in the income of the Portfolio's investors,
and such investors (except tax-exempt investors) may, subject to certain
limitations, claim either a credit or deduction for the taxes. Each such
investor will be notified after the close of the Portfolio's taxable year
whether the foreign taxes paid will "pass through" for that year and, if so,
such notification will designate (a) the investor's portion of the foreign taxes
paid to each such country and (b) the portion which represents income derived
from sources within each such country.
The amount of foreign taxes for which an investor may claim a credit in
any year will generally be subject to a separate limitation for "passive
income", which includes, among other items of income, dividends, interest and
certain foreign currency gains. Because capital gains realized by the Portfolio
on the sale of foreign securities will be treated as U.S.-source income, the
available credit of foreign taxes paid with respect to such gains may be
restricted by this limitation.
ITEM 21. UNDERWRITERS.
The placement agent for the Portfolio is Signature, which receives no
additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the Portfolio.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The following financial statements, contained in the Annual Report of the
Portfolio, filed on December 5, 1995 (Accession Number 0000950123-95-003596),
for the fiscal year ended September 30, 1995, are incorporated by reference into
this Part B:
Statement of Assets and Liabilities, September 30, 1995
Statement of Operations for the period from January 1, 1995 to
September 30, 1995
Statement of Changes in Net Assets for the period from January, 1995 to
September 30, 1995 and the year ended December 31, 1994
Financial Highlights: Selected ratios and supplemental data for the period
indicated
Schedule of Portfolio of Investments, September 30, 1995 Notes to
Financial Statements Report of Independent Accountants
<PAGE>
APPENDIX: BOND AND COMMERCIAL PAPER RATINGS.
Set forth below are descriptions of the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"), which
represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute
standards of quality.
S&P's Bond Ratings
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt rated
"AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong. Debt rated "AA" has a very strong capacity to pay
interest and to repay principal and differs from the highest rated issues only
in small degree.
The rating "AA" may be modified by the addition of a plus or minus sign to
show relative standing within such category.
Moody's Bond Ratings
Excerpts from Moody's description of its corporate bond ratings:
Aaa--judged to be the best quality, carry the smallest degree of investment
risk; Aa--judged to be of high quality by all standards.
Fitch Investors Service Bond Ratings
AAA. Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, and liable to but slight market fluctuation other than through
changes in the money rate. The factor last named is of importance varying with
the length of maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public utility fields,
though some industrial obligations have this rating. The prime feature of an AAA
rating is showing of earnings several times or many times interest requirements
with such stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may enter in, such
as a wide margin of protection through collateral security or direct lien on
specific property as in the case of high class equipment certificates or bonds
that are first mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors, while guarantee or
assumption by parties other than the original debtor may also influence the
rating.
AA. Securities in this group are of safety virtually beyond question, and
as a class are readily salable while many are highly active. Their merits are
not greatly unlike those of the AAA class, but a security so rated may be of
junior though strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be the obligation
of a small company, strongly secured but influenced as to ratings by the lesser
financial power of the enterprise and more local type of market.
S&P's Commercial Paper Ratings
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
<PAGE>
Moody's Commercial Paper Ratings
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Fitch Investors Service and Duff & Phelps Commercial Paper Ratings
Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for timely
payment. "Fitch-2" is considered very good grade paper and reflects an assurance
of timely payment only slightly less in degree than the strongest issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by strong fundamental protection factors, and risk
factors which are very small. Issues rated "Duff 2" have a good certainty of
timely payment, sound liquidity factors and company fundamentals, small risk
factors, and good access to capital markets.
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The financial statements called for by this Item are included in Part
B and listed in Item 23 thereof.
(B) EXHIBITS
1. Declaration of Trust of the Registrant.
2. By-Laws of the Registrant.
5. Advisory Agreement between the Registrant and Bankers Trust
Company ("Bankers Trust").
9. Administration and Services Agreement between the
Registrant and Bankers Trust.1
13. Investment representation letters of initial investors.1
27. Financial Data Schedule.
-----------------
1Previously filed on December 31, 1992.
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
(AS OF JANUARY 25, 1996)
Beneficial Interests 4
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration of
Trust, filed as an Exhibit herewith.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Bankers Trust serves as investment adviser to the Portfolio. Bankers
Trust, a New York banking corporation, is a wholly owned subsidiary of Bankers
Trust New York Corporation. Bankers Trust conducts a variety of commercial
banking and trust activities and is a major wholesale supplier of financial
services to the international institutional market.
To the knowledge of the Portfolio, none of the directors or officers of
Bankers Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Bankers Trust New York Corporation. Set forth below are the names and
principal businesses of the directors and officers of Bankers Trust who are
engaged in any other business, profession, vocation or employment of a
substantial nature.
Name and Principal
Business Address Principal Occupation and Other Information
George B. Beitzel Retired Senior Vice President and
International Business Machines Director, Member of Advisory Board of
Corporation International Business Machines
Old Orchard Road Corporation. Director of Bankers
Armonk, NY 10504 Trust and Bankers Trust New York
Corporation. Director of FlightSafety
International, Inc. Director of
Phillips Petroleum Company. Director
of Roadway Services, Inc. Director of
Rohm and Hass Company.
William R. Howell Chairman of the Board and Chief
J.C. Penney Company, Inc. Executive Officer, J.C. Penney
P.O. Box 10001 Company, Inc. Director of Bankers
Plano, TX 75301-0001 Trust and Bankers Trust New York
Corporation. Also a Director of Exxon
Corporation, Halliburton Company and
Warner-Lambert Corporation.
Jon M. Huntsman Chairman and Chief Executive Officer,
Huntsman Chemical Corporation Huntsman Chemical Corporation,
2000 Eagle Gate Tower Director of Bankers Trust and Bankers
Salt Lake City, UT 84111 Trust New York Corporation. Chairman
of Constar Corporation, Huntsman
Corporation, Huntsman Holdings
Corporation and Petrostar
Corporation. President of Autostar
Corporation, Huntsman Polypropylene
Corporation and Restar Corporation.
Director of Razzleberry Foods
Corporation and Thiokol Corporation.
General Partner of Huntsman Group
Ltd., McLeod Creek Partnership and
Trustar Ltd.
Vernon E. Jordan, Jr. Partner, Akin, Gump, Strauss, Hauer &
Akin, Gump, Strauss, Feld, LLP. Director of Bankers Trust
Hauer & Feld, LLP and Bankers Trust New York
1333 New Hampshire Ave., N.W. Corporation. Also a Director of
Washington, DC 20036 American Express Company, Corning
Incorporated, Dow Jones, Inc.,
J.C. Penney Company, Inc., RJR Nabisco
Inc., Revlon Group Incorporated, Ryder
System, Inc., Sara Lee Corporation,
Union Carbide Corporation and Xerox
Corporation.
<PAGE>
Hamish Maxwell Chairman of the Executive Committee,
Philip Morris Companies Inc. Philip Morris Companies Inc. Director
120 Park Avenue of Bankers Trust and Bankers Trust New
New York, NY 10017 York Corporation. Director of The News
Corporation Limited.
Donald F. McCullough Chairman Emeritus, Collins & Aikman
Collins & Aikman Corporation Corporation. Director of Bankers
210 Madison Avenue Trust and Bankers Trust New York
New York, NY 10016 Corporation. Director of Massachusetts
Mutual Life Insurance Co. and Melville
Corporation.
N.J. Nicholas, Jr. Former President, Co-Chief Executive
745 Fifth Avenue Officer and Director of Time Warner
New York, NY 10020 Inc. Director of Bankers Trust and
Bankers Trust New York Corporation.
Also a Director of Xerox Corporation.
Russell E. Palmer Chairman and Chief Executive Officer
The Palmer Group of The Palmer Group. Director of
3600 Market Street, Suite 530 Bankers Trust and Bankers Trust New
Philadelphia, PA 19104 York Corporation. Also Director of
Allied-Signal Inc., Contel Cellular, Inc.,
Federal Home Loan Mortgage Corporation, GTE
Corporation, Goodyear Tire & Rubber
Company, Imasco Limited, May Department
Stores Company and Safeguard Scientifics,
Inc. Member, Radnor Venture Partners
Advisory Board.
Didier Pineau-Valencienne Chairman and Chief Executive Officer,
Schneider S.A. Schneider S.A. Director and member of
4 Rue de Longchamp the European Advisory Board of Bankers
75116 Paris, France Trust and Director of Bankers Trust
New York Corporation. Director of AXA
(France) and Equitable Life Assurance
Society of America, Arbed (Luxembourg),
Banque Paribas (France), Ciments Francais
(France), Cofibel (Belgique), Compagnie
Industrielle de Paris (France), SIAPAP,
Schneider USA, Sema Group PLC (Great
Britain), Spie-Batignolles, Tractebel
(Belgique) and Whirlpool. Chairman and
Chief Executive Officer of
SocieteParisienne d'Entreprises et de
Participations.
Charles S. Sanford, Jr. Chairman of the Board of Bankers Trust
Bankers Trust Company and Bankers Trust New York
280 Park Avenue Corporation. Also a Director of Mobil
New York, NY 10017 Corporation and J.C. Penney Company,
Inc.
Eugene B. Shanks, Jr. President of Bankers Trust and Bankers
Bankers Trust Company Trust New York Corporation.
280 Park Avenue
New York, NY 10017
Patricia Carry Stewart Former Vice President, The Edna
c/o Office of the Secretary McConnell Clark Foundation. Director
280 Park Avenue of Bankers Trust and Bankers Trust New
New York, NY 10017 York Corporation. Director, Borden
Inc., Continental Corp. and Melville
Corporation.
<PAGE>
George J. Vojta Vice Chairman of the Board of Bankers
Bankers Trust Company Trust and Bankers Trust New York
280 Park Avenue Corporation. Director of Northwest
New York, NY 10017 Airlines and Private Export Funding
Corp.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
Signature Broker-Dealer 6 St. James Avenue
Services, Inc. Boston, MA 02116
(placement agent)
Bankers Trust Company 280 Park Avenue (investment adviser, administrator, New
York, NY 10017 fund accountant, custodian, transfer agent)
Investors Fiduciary Trust Company 127 West 10th Street
Kansas City, MO 64105
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston and Commonwealth of Massachusetts on the 26th day of January,
1996.
CAPITAL APPRECIATION PORTFOLIO
By Thomas M. Lenz
Thomas M. Lenz
Secretary
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
1 Declaration of Trust of the Registrant
2 By-Laws of the Registrant
5 Advisory Agreement between the Registrant and
Bankers Trust Company
27 Financial Data Schedule
B
Exhibit 1
CAPITAL APPRECIATION PORTFOLIO
DECLARATION OF TRUST
Dated as of August 18, 1992
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . 1
ARTICLE II--Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Number and Qualification . . . . . . . . . . . . . 3
Section 2.2 Term and Election . . . . . . . . . . . . . . . . 3
Section 2.3 Resignation, Removal and Retirement . . . . . . . 3
Section 2.4 Vacancies . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 Meetings . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6 Officers; Chairman of the Board . . . . . . . . . 5
Section 2.7 By-Laws . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III--Powers of Trustees . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 General . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Investments . . . . . . . . . . . . . . . . . . . 6
Section 3.3 Legal Title . . . . . . . . . . . . . . . . . . . 6
Section 3.4 Sale and Increases of Interests . . . . . . . . . 7
Section 3.5 Decreases and Redemptions of Interests . . . . . . 7
Section 3.6 Borrow Money . . . . . . . . . . . . . . . . . . 7
Section 3.7 Delegation; Committees . . . . . . . . . . . . . . 7
Section 3.8 Collection and Payment . . . . . . . . . . . . . . 7
Section 3.9 Expenses . . . . . . . . . . . . . . . . . . . . . 7
Section 3.10 Miscellaneous Powers . . . . . . . . . . . . . . . 7
Section 3.11 Further Powers . . . . . . . . . . . . . . . . . . 8
ARTICLE IV--Investment Advisory, Administration and Placement
Agent Arrangements . . . . . . . . . . . . . . . . . . . . . 8
Section 4.1 Investment Advisory and Other Arrangements . . . . 8
Section 4.2 Parties to Contract . . . . . . . . . . . . . . . 9
ARTICLE V--Liability of Holders; Limitations of Liability of Trustees,
fficers, etc. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.1 Liability of Holders; Indemnification 9
Section 5.2 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Third Parties . . . . . . . . . . . . . . . . 10
Section 5.3 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Trust, Holders, etc. . . . . . . . . . . . . 10
Section 5.4 Mandatory Indemnification . . . . . . . . . . . . 10
Section 5.5 No Bond Required of Trustees . . . . . . . . . . . 11
<PAGE>
PAGE
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc. . . . . . . . . . . . . . . . 11
Section 5.7 Reliance on Experts, etc. . . . . . . . . . . . . 11
ARTICLE VI--Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1 Interests . . . . . . . . . . . . . . . . . . . . 12
Section 6.2 Non-Transferability . . . . . . . . . . . . . . . 12
Section 6.3 Register of Interests . . . . . . . . . . . . . . 12
ARTICLE VII--Increases, Decreases And Redemptions of Interests . . . . . . 12
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions . . . . . . . . . . . . . . . . . . . . 13
Section 8.1 Book Capital Account Balances . . . . . . . . . . 13
Section 8.2 Allocations and Distributions to Holders . . . . . 13
Section 8.3 Power to Modify Foregoing Procedures . . . . . . . 13
ARTICLE IX--Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9.1 Rights of Holders . . . . . . . . . . . . . . . . 13
Section 9.2 Meetings of Holders . . . . . . . . . . . . . . . 13
Section 9.3 Notice of Meetings . . . . . . . . . . . . . . . . 14
Section 9.4 Record Date for Meetings, Distributions, etc. . . 14
Section 9.5 Proxies, etc. . . . . . . . . . . . . . . . . . . 14
Section 9.6 Reports . . . . . . . . . . . . . . . . . . . . . 15
Section 9.7 Inspection of Records . . . . . . . . . . . . . . 15
Section 9.8 Holder Action by Written Consent . . . . . . . . . 15
Section 9.9 Notices . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE X--Duration; Termination; Amendment; Mergers; Etc.. . . . . . . . . 15
Section 10.1 Duration . . . . . . . . . . . . . . . . . . . . . 15
Section 10.2 Termination . . . . . . . . . . . . . . . . . . . 16
Section 10.3 Dissolution . . . . . . . . . . . . . . . . . . . 17
Section 10.4 Amendment Procedure . . . . . . . . . . . . . . . 17
Section 10.5 Merger, Consolidation and Sale of Assets . . . . . 18
Section 10.6 Incorporation . . . . . . . . . . . . . . . . . . 18
ARTICLE XI--Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11.1 Certificate of Designation; Agent for
Service of Process . . . . . . . . . . . . . . . 19
Section 11.2 Governing Law . . . . . . . . . . . . . . . . . . 19
Section 11.3 Counterparts . . . . . . . . . . . . . . . . . . . 19
Section 11.4 Reliance by Third Parties . . . . . . . . . . . . 19
Section 11.5 Provisions in Conflict With Law or Regulations . . 19
<PAGE>
BT0182
DECLARATION OF TRUST
OF
CAPITAL APPRECIATION PORTFOLIO
This DECLARATION OF TRUST of the Capital Appreciation
Portfolio is made as of the 18th day of August, 1992 by the parties signatory
hereto, as trustees (each such individual, so long as such individual shall
continue in office in accordance with the terms of this Declaration of Trust,
and all other individuals who at the time in question have been duly elected or
appointed and have qualified as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, being hereinafter called the
"Trustees").
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the
law of the State of New York for the investment and reinvestment of its assets;
and
WHEREAS, it is proposed that the trust assets be composed of
money and property contributed thereto by the holders of interests in the trust
entitled to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will
hold in trust all money and property contributed to the trust fund and will
manage and dispose of the same for the benefit of the holders of interests in
the Trust and subject to the provisions hereof, to wit:
ARTICLE I
The Trust
1.1. Name. The name of the trust created hereby (the "Trust")
shall be the Capital Appreciation Portfolio and so far as may be practicable the
Trustees shall conduct the Trust's activities, execute all documents and sue or
be sued under that name, which name (and the word "Trust" wherever hereinafter
used) shall refer to the Trustees as Trustees, and not individually, and shall
not refer to the officers, employees, agents or independent contractors of the
Trust or holders of interests in the Trust.
1.2. Definitions. As used in this Declaration, the following
terms shall have the following meanings:
The term "Interested Person" shall have the meaning given it
in the 1940 Act.
"Administrator" shall mean any party furnishing services to
the Trust pursuant to any administrative services contract described in Section
4.1 hereof.
<PAGE>
"Book Capital Account" shall mean, for any Holder at any time,
the Book Capital Account of the Holder for such day, determined in accordance
with Section 8.1 hereof.
"Code" shall mean the United States Internal Revenue Code of
1986, as amended from time to time, as well as any non-superseded provisions of
the Internal Revenue Code of 1954, as amended (or any corresponding provision or
provisions of succeeding law).
"Commission" shall mean the United States Securities and
Exchange Commission.
"Declaration" shall mean this Declaration of Trust as amended
from time to time. References in this Declaration to "Declaration", "hereof",
"herein" and "hereunder" shall be deemed to refer to this Declaration rather
than the article or section in which any such word appears.
"Fiscal Year" shall mean an annual period determined by the
Trustees which ends on December 31 of each year or on such other day as is
permitted by the Code.
"Holders" shall mean as of any particular time all holders of
record of Interests in the Trust.
"Institutional Investor(s)" shall mean any regulated
investment company, segregated asset account, foreign investment company, common
trust fund, group trust or other investment arrangement, whether organized
within or without the United States of America, other than an individual, S
corporation, partnership or grantor trust beneficially owned by any individual,
S corporation or partnership.
"Interest(s)" shall mean the interest of a Holder in the
Trust, including all rights, powers and privileges accorded to Holders by this
Declaration, which interest may be expressed as a percentage, determined by
calculating, at such times and on such basis as the Trustees shall from time to
time determine, the ratio of each Holder's Book Capital Account balance to the
total of all Holders' Book Capital Account balances. Reference herein to a
specified percentage of, or fraction of, Interests, means Holders whose combined
Book Capital Account balances represent such specified percentage or fraction of
the combined Book Capital Account balances of all, or a specified group of,
Holders.
"Investment Adviser" shall mean any party furnishing services
to the Trust pursuant to any investment advisory contract described in Section
4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a meeting of
Holders, of (A) 67% or more of the Interests present or represented at such
meeting, if Holders of more than 50% of all Interests are present or represented
by proxy, or (B) more than 50% of all Interests, whichever is less.
<PAGE>
"Person" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"Redemption" shall mean the complete withdrawal of an Interest
of a Holder the result of which is to reduce the Book Capital Account balance of
that Holder to zero.
"Trustees" shall mean each signatory to this Declaration, so
long as such signatory shall continue in office in accordance with the terms
hereof, and all other individuals who at the time in question have been duly
elected or appointed and have qualified as Trustees in accordance with the
provisions hereof and are then in office, and reference in this Declaration to a
Trustee or Trustees shall refer to such individual or individuals in their
capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any and
all property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees.
The "1940 Act" shall mean the United States Investment Company
Act of 1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE II
Trustees
2.1. Number and Qualification. The number of Trustees shall be
fixed from time to time by action of the Trustees taken as provided in Section
2.5 hereof; provided, however, that the number of Trustees so fixed shall in no
event be less than three or more than 15. Any vacancy created by an increase in
the number of Trustees may be filled by the appointment of an individual having
the qualifications described in this Section 2.1 made by action of the Trustees
taken as provided in Section 2.5 hereof. Any such appointment shall not become
effective, however, until the individual named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office. Whenever
a vacancy occurs, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees continuing in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A Trustee shall be an individual
at least 21 years of age who is not under legal disability.
2.2. Term and Election. Each Trustee named herein, or
elected or appointed prior to the first meeting of Holders, shall (except in
the event of resignations, retirements, removals or vacancies pursuant to
Section 2.3 or Section 2.4 hereof) hold office until a successor to such Trustee
has been elected at such meeting and has qualified to serve as Trustee,
as required under the 1940 Act. Subject to the provisions of Section 16(a) of
the 1940 Act and
<PAGE>
except as provided in Section 2.3 hereof, each Trustee shall hold office during
the lifetime of the Trust and until its termination as hereinafter provided.
2.3. Resignation, Removal and Retirement. Any Trustee may
resign his or her trust (without need for prior or subsequent accounting) by an
instrument in writing executed by such Trustee and delivered or mailed to the
Chairman, if any, the President or the Secretary of the Trust and such
resignation shall be effective upon such delivery, or at a later date according
to the terms of the instrument. Any Trustee may be removed by the affirmative
vote of Holders of two-thirds of the Interests or (provided the aggregate number
of Trustees, after such removal and after giving effect to any appointment made
to fill the vacancy created by such removal, shall not be less than the number
required by Section 2.1 hereof) with cause, by the action of two-thirds of the
remaining Trustees. Removal with cause includes, but is not limited to, the
removal of a Trustee due to physical or mental incapacity or failure to comply
with such written policies as from time to time may be adopted by at least
two-thirds of the Trustees with respect to the conduct of the Trustees and
attendance at meetings. Any Trustee who has attained a mandatory retirement age,
if any, established pursuant to any written policy adopted from time to time by
at least two-thirds of the Trustees shall, automatically and without action by
such Trustee or the remaining Trustees, be deemed to have retired in accordance
with the terms of such policy, effective as of the date determined in accordance
with such policy. Any Trustee who has become incapacitated by illness or injury
as determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the date of
such Trustee's retirement. Upon the resignation, retirement or removal of a
Trustee, or a Trustee otherwise ceasing to be a Trustee, such resigning,
retired, removed or former Trustee shall execute and deliver such documents as
the remaining Trustees shall require for the purpose of conveying to the Trust
or the remaining Trustees any Trust Property held in the name of such resigning,
retired, removed or former Trustee. Upon the death of any Trustee or upon
removal, retirement or resignation due to any Trustee's incapacity to serve as
Trustee, the legal representative of such deceased, removed, retired or
resigning Trustee shall execute and deliver on behalf of such deceased, removed,
retired or resigning Trustee such documents as the remaining Trustees shall
require for the purpose set forth in the preceding sentence.
2.4. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
retirement, adjudicated incompetence or other incapacity to perform the duties
of the office, or removal, of a Trustee. No such vacancy shall operate to annul
this Declaration or to revoke any existing agency created pursuant to the terms
of this Declaration. In the case of a vacancy, Holders of at least a majority of
the Interests entitled to vote, acting at any meeting of Holders held in
accordance with Section 9.2 hereof, or, to the extent permitted by the 1940 Act,
a majority vote of the Trustees continuing in office acting by written
instrument or instruments, may fill such vacancy, and any Trustee so elected by
the Trustees or the Holders shall hold office as provided in this Declaration.
2.5. Meetings. Meetings of the Trustees shall be held from
time to time upon the call of the Chairman, if any, the President, the Secretary
an Assistant Secretary or any two Trustees. Regular meetings of the Trustees
may
<PAGE>
be held without call or notice at a time and place fixed by the By-Laws or by
resolution of the Trustees. Notice of any other meeting shall be mailed or
otherwise given not less than 24 hours before the meeting but may be waived in
writing by any Trustee either before or after such meeting. The attendance of a
Trustee at a meeting shall constitute a waiver of notice of such meeting except
in the situation in which a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting was
not lawfully called or convened. The Trustees may act with or without a meeting.
A quorum for all meetings of the Trustees shall be a majority of the Trustees.
Unless provided otherwise in this Declaration, any action of the Trustees may be
taken at a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all meetings
of any such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee may be
taken at a meeting by vote of a majority of the members present (a quorum being
present) or without a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of
the Trustees, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 2.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
All or any one or more Trustees may participate in a meeting
of the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all individuals participating
in the meeting can hear each other and participation in a meeting by means of
such communications equipment shall constitute presence in person at such
meeting.
2.6. Officers; Chairman of the Board. The Trustees shall, from
time to time, elect a President, a Secretary and a Treasurer. The Trustees may
elect or appoint, from time to time, a Chairman of the Board who shall preside
at all meetings of the Trustees and carry out such other duties as the Trustees
may designate. The Trustees may elect or appoint or authorize the President to
appoint such other officers, agents or independent contractors with such powers
as the Trustees may deem to be advisable. The Chairman, if any, shall be and
each other officer may, but need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and, from time to time,
amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
Powers of Trustees
3.1. General.The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and such
business in their own right, but with such powers of delegation as may be
<PAGE>
permitted by this Declaration. The Trustees may perform such acts as in their
sole discretion they deem proper for conducting the business of the Trust. The
enumeration of or failure to mention any specific power herein shall not be
construed as limiting such exclusive and absolute control. The powers of the
Trustees may be exercised without order of or resort to any court.
3.2. Investments. The Trustees shall have power to:
(a)conduct, operate and carry on the business of an
investment company;
(b)subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of United States and foreign currencies and related
instruments including forward contracts, and securities, including common and
preferred stock, warrants, bonds, debentures, time notes and all other evidences
of indebtedness, negotiable or non-negotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities, forward
contracts, options, futures contracts, and other securities, including, without
limitation, those issued, guaranteed or sponsored by any state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United States
Government, any foreign government, or any agency, instrumentality or political
subdivision of the United States Government or any foreign government, or any
international instrumentality, or by any bank, savings institution, corporation
or other business entity organized under the law of the United States or under
any foreign law; and to exercise any and all rights, powers and privileges of
ownership or interest in respect of any and all such investments of any kind and
description, including, without limitation, the right to consent and otherwise
act with respect thereto, with power to designate one or more Persons to
exercise any of such rights, powers and privileges in respect of any of such
investments; and the Trustees shall be deemed to have the foregoing powers with
respect to any additional instruments in which the Trustees may determine to
invest.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
3.3. Legal Title. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have the
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name or
nominee name of any other Person on behalf of the Trust, on such terms as the
Trustees may determine.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each individual who may hereafter become a
Trustee upon his due election and qualification. Upon the resignation, removal
or death of a Trustee, such resigning, removed or deceased Trustee shall
automatically cease to have any right, title or interest in any Trust Property,
and the right, title and interest of such resigning, removed or deceased Trustee
in the Trust
<PAGE>
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
3.4. Sale and Increases of Interests. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit any
Institutional Investor to purchase an Interest, or increase its Interest, for
such type of consideration, including cash or property, at such time or times
(including, without limitation, each business day), and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. Individuals, S corporations, partnerships and
grantor trusts that are beneficially owned by any individual, S corporation or
partnership may not purchase Interests. A Holder who has redeemed its Interest
may not be permitted to purchase an Interest until the later of 60 calendar days
after the date of such Redemption or the first day of the Fiscal Year next
succeeding the Fiscal Year during which such Redemption occurred.
3.5 Decreases and Redemptions of Interests. The Trustees, in
their discretion, may, from time to time, without a vote of the Holders, permit
a Holder to redeem its Interest, or decrease its Interest, for either cash or
property, at such time or times (including, without limitation, each business
day), and on such terms as the Trustees may deem best.
3.6. Borrow Money. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging, pledging
or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee, or undertake the
performance of any obligation, contract or engagement of any other Person.
3.7. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive and absolute control over the Trust
Property and over the business of the Trust, to delegate from time to time to
such of their number or to officers, employees, agents or independent
contractors of the Trust the doing of such things and the execution of such
instruments in either the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
3.8. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; and to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust or the Trust Property; to foreclose any security
interest securing any obligation, by virtue of which any property is owed to the
Trust; and to enter into releases, agreements and other instruments.
3.9. Expenses. The Trustees shall have power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the Trust Property to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for special services, including legal and
<PAGE>
brokerage services, as they in good faith may deem reasonable, and reimbursement
for expenses reasonably incurred by themselves on behalf of the Trust.
3.10. Miscellaneous Powers. The Trustees shall have power to:
(a) employ or contract with such Persons as the Trustees may deem appropriate
for the transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies insuring the Investment
Adviser, Administrator, placement agent, Holders, Trustees, officers, employees,
agents or independent contractors of the Trust against all claims arising by
reason of holding any such position or by reason of any action taken or omitted
by any such Person in such capacity, whether or not the Trust would have the
power to indemnify such Person against such liability; (d) establish pension,
profit-sharing and other retirement, incentive and benefit plans for the
Trustees, officers, employees or agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious, educational,
scientific, civic or similar purposes; (f) to the extent permitted by law,
indemnify any Person with whom the Trust has dealings, including the Investment
Adviser, Administrator, placement agent, Holders, Trustees, officers, employees,
agents or independent contractors of the Trust, to such extent as the Trustees
shall determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the Fiscal Year of the Trust and the method by
which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such a seal shall not impair the validity of any instrument executed
on behalf of the Trust.
3.11. Further Powers. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices, whether within or without the State of New York,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper, appropriate or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust which is made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration, the presumption shall be in favor
of a grant of power to the Trustees. The Trustees shall not be required to
obtain any court order in order to deal with Trust Property.
ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements
4.1. Investment Advisory and Other Arrangements. The Trustees
may in their discretion, from time to time, enter into investment advisory and
administration contracts or placement agent agreements whereby the other party
to such contract or agreement shall undertake to furnish the Trustees such
investment advisory, administration, placement agent and/or other services as
the
<PAGE>
Trustees shall, from time to time, consider appropriate or desirable and all
upon such terms and conditions as the Trustees may in their sole discretion
determine. Notwithstanding any provision of this Declaration, the Trustees may
authorize any Investment Adviser (subject to such general or specific
instructions as the Trustees may, from time to time, adopt) to effect purchases,
sales, loans or exchanges of Trust Property on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of any such Investment Adviser
(all without any further action by the Trustees). Any such purchase, sale, loan
or exchange shall be deemed to have been authorized by the Trustees.
4.2. Parties to Contract. Any contract of the character
described in Section 4.1 hereof or in the By-Laws of the Trust may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any individual holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust under
or by reason of any such contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when entered into
was reasonable and fair and not inconsistent with the provisions of this Article
IV or the By-Laws of the Trust. The same Person may be the other party to one or
more contracts entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any individual may be financially interested or otherwise affiliated
with Persons who are parties to any or all of the contracts mentioned in this
Section 4.2 or in the By-Laws of the Trust.
ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
5.1. Liability of Holders; Indemnification. Each Holder shall
be jointly and severally liable (with rights of contribution inter se in
proportion to their respective Interests in the Trust) for the liabilities and
obligations of the Trust in the event that the Trust fails to satisfy such
liabilities and obligations; provided, however, that, to the extent assets are
available in the Trust, the Trust shall indemnify and hold each Holder harmless
from and against any claim or liability to which such Holder may become subject
by reason of being or having been a Holder to the extent that such claim or
liability imposes on the Holder an obligation or liability which, when compared
to the obligations and liabilities imposed on other Holders, is greater than
such Holder's Interest (proportionate share), and shall reimburse such Holder
for all legal and other expenses reasonably incurred by such Holder in
connection with any such claim or liability. The rights accruing to a Holder
under this Section 5.1 shall not exclude any other right to which such Holder
may be lawfully entitled, nor shall anything contained herein restrict the right
of the Trust to indemnify or reimburse a Holder in any appropriate situation
even though not specifically provided herein. Notwithstanding the
indemnification procedure described above, it is intended that each Holder shall
remain jointly and severally liable to the Trust's creditors as a legal matter.
<PAGE>
5.2. Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors to Third Parties. No Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust shall be subject to any personal liability whatsoever to
any Person, other than the Trust or the Holders, in connection with Trust
Property or the affairs of the Trust; and all such Persons shall look solely to
the Trust Property for satisfaction of claims of any nature against a Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust arising in connection with the affairs of the Trust.
5.3. Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors to Trust, Holders, etc. No Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust shall be liable to the Trust or the Holders for any
action or failure to act (including, without limitation, the failure to compel
in any way any former or acting Trustee to redress any breach of trust) except
for such Person's own bad faith, willful misfeasance, gross negligence or
reckless disregard of such Person's duties.
5.4. Mandatory Indemnification. The Trust shall indemnify, to
the fullest extent permitted by law (including the 1940 Act), each Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust (including any Person who serves at the Trust's request
as a director, officer or trustee of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred by
such Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to any
matter as to which such Person shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties; provided, however, that as to any matter disposed of by a
compromise payment by such Person, pursuant to a consent decree or otherwise, no
indemnification either for such payment or for any other expenses shall be
provided unless there has been a determination that such Person did not engage
in willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Person's office by the court or other
body approving the settlement or other disposition or by a reasonable
determination, based upon a review of readily available facts (as opposed to a
full trial-type inquiry), that such Person did not engage in such conduct by
written opinion from independent legal counsel approved by the Trustees. The
rights accruing to any Person under these provisions shall not exclude any other
right to which such Person may be lawfully entitled; provided that no Person may
satisfy any right of indemnity or reimbursement granted in this Section 5.4 or
in Section 5.2 hereof or to which such Person may be otherwise entitled except
out of the Trust Property. The Trustees may make
<PAGE>
advance payments in connection with indemnification under this Section 5.4,
provided that the indemnified Person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined that such Person
is not entitled to such indemnification.
5.5. No Bond Required of Trustees. No Trustee shall, as such,
be obligated to give any bond or surety or other security for the performance of
any of such Trustee's duties hereunder.
5.6. No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender or other Person dealing with any Trustee, officer,
employee, agent or independent contractor of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
such Trustee, officer, employee, agent or independent contractor or be liable
for the application of money or property paid, loaned or delivered to or on the
order of such Trustee, officer, employee, agent or independent contractor. Every
obligation, contract, instrument, certificate or other interest or undertaking
of the Trust, and every other act or thing whatsoever executed in connection
with the Trust shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees,
agents or independent contractors of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the Trust
made or sold by any Trustee, officer, employee, agent or independent contractor
of the Trust, in such capacity, shall contain an appropriate recital to the
effect that the Trustee, officer, employee, agent or independent contractor of
the Trust shall not personally be bound by or liable thereunder, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim thereunder, and appropriate references shall be made therein to the
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any Trustee, officer, employee, agent or independent
contractor of the Trust. Subject to the provisions of the 1940 Act, the Trust
may maintain insurance for the protection of the Trust Property, the Holders,
and the Trustees, officers, employees, agents and independent contractors of the
Trust in such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
5.7. Reliance on Experts, etc. Each Trustee, officer,
employee, agent or independent contractor of the Trust shall, in the performance
of such Person's duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust (whether or not the
Trust would have the power to indemnify such Persons against such liability),
upon an opinion of counsel, or upon reports made to the Trust by any of its
officers or employees or by any Investment Adviser or Administrator, accountant,
appraiser or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
<PAGE>
ARTICLE VI
Interests
6.1. Interests. The beneficial interest in the Trust Property
shall consist of non-transferable Interests. The Interests shall be personal
property giving only the rights in this Declaration specifically set forth. The
value of an Interest shall be equal to the Book Capital Account balance of the
Holder of the Interest.
6.2. Non-Transferability. A Holder may not transfer, sell or
exchange its Interest.
6.3. Register of Interests. A register shall be kept at the
Trust under the direction of the Trustees which shall contain the name, address
and Book Capital Account balance of each Holder. Such register shall be
conclusive as to the identity of the Holders. No Holder shall be entitled to
receive payment of any distribution, nor to have notice given to it as herein
provided, until it has given its address to such officer or agent of the Trust
as is keeping such register for entry thereon.
ARTICLE VII
Increases, Decreases And Redemptions of Interests
Subject to applicable law and to such restrictions as may from
time to time be adopted by the Trustees, each Holder shall have the right to
vary its investment in the Trust at any time without limitation by increasing
(through a capital contribution) or decreasing (through a capital withdrawal) or
by a Redemption of its Interest. An increase in the investment of a Holder in
the Trust shall be reflected as an increase in the Book Capital Account balance
of that Holder and a decrease in the investment of a Holder in the Trust or the
Redemption of the Interest of a Holder shall be reflected as a decrease in the
Book Capital Account balance of that Holder. The Trust shall, upon appropriate
and adequate notice from any Holder increase, decrease or redeem such Holder's
Interest for an amount determined by the application of a formula adopted for
such purpose by resolution of the Trustees; provided that (a) the amount
received by the Holder upon any such decrease or Redemption shall not exceed the
decrease in the Holder's Book Capital Account balance effected by such decrease
or Redemption of its Interest, and (b) if so authorized by the Trustees, the
Trust may, at any time and from time to time, charge fees for effecting any such
decrease or Redemption, at such rates as the Trustees may establish, and may, at
any time and from time to time, suspend such right of decrease or Redemption.
The procedures for effecting decreases or Redemptions shall be as determined by
the Trustees from time to time.
<PAGE>
ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
8.1. Book Capital Account Balances. The Book Capital Account
balance of each Holder shall be determined on such days and at such time or
times as the Trustees may determine. The Trustees shall adopt resolutions
setting forth the method of determining the Book Capital Account balance of each
Holder. The power and duty to make calculations pursuant to such resolutions may
be delegated by the Trustees to the Investment Adviser or Administrator,
custodian, or such other Person as the Trustees may determine. Upon the
Redemption of an Interest, the Holder of that Interest shall be entitled to
receive the balance of its Book Capital Account. A Holder may not transfer, sell
or exchange its Book Capital Account balance.
8.2. Allocations and Distributions to Holders. The Trustees
shall, in compliance with the Code, the 1940 Act and generally accepted
accounting principles, establish the procedures by which the Trust shall make
(i) the allocation of unrealized gains and losses, taxable income and tax loss,
and profit and loss to each Holder, (ii) the payment of distributions, if any,
to Holders, and (iii) upon liquidation, the final distribution of items of
taxable income and expense. Such procedures shall be set forth in writing and be
furnished to the Trust's accountants. The Trustees may amend the procedures
adopted pursuant to this Section 8.2 from time to time. The Trustees may retain
from the net profits such amount as they may deem necessary to pay the
liabilities and expenses of the Trust, to meet obligations of the Trust, and as
they may deem desirable to use in the conduct of the affairs of the Trust or to
retain for future requirements or extensions of the business.
8.3. Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the net
income of the Trust, the allocation of income of the Trust, the Book Capital
Account balance of each Holder, or the payment of distributions to the Holders
as they may deem necessary or desirable to enable the Trust to comply with any
provision of the 1940 Act or any order of exemption issued by the Commission.
ARTICLE IX
Holders
9.1. Rights of Holders. The ownership of the Trust Property
and the right to conduct any business described herein are vested exclusively in
the Trustees, and the Holders shall have no right or title therein other than
the beneficial interest conferred by their Interests and they shall have no
power or right to call for any partition or division of any Trust Property.
9.2. Meetings of Holders. Meetings of Holders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests, such request specifying the purpose or purposes for which such
meeting
<PAGE>
is to be called. Any such meeting shall be held within or without the State of
New York and within or without the United States of America on such day and at
such time as the Trustees shall designate. Holders of one-third of the
Interests, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the 1940
Act, other applicable law, this Declaration or the By-Laws of the Trust. If a
quorum is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the Holders
present, either in person or by proxy, at such meeting constitutes the action of
the Holders, unless a greater number of affirmative votes is required by the
1940 Act, other applicable law, this Declaration or the By-Laws of the Trust.
All or any one of more Holders may participate in a meeting of Holders by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other and participation
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting.
9.3. Notice of Meetings. Notice of each meeting of Holders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at least 10
days and not more than 60 days before the meeting. Notice of any meeting may be
waived in writing by any Holder either before or after such meeting. The
attendance of a Holder at a meeting shall constitute a waiver of notice of such
meeting except in the situation in which a Holder attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting was not lawfully called or convened. At any meeting, any
business properly before the meeting may be considered whether or not stated in
the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
9.4. Record Date for Meetings, Distributions, etc. For the
purpose of determining the Holders who are entitled to notice of and to vote at
any meeting, or to participate in any distribution, or for the purpose of any
other action, the Trustees may from time to time fix a date, not more than 90
days prior to the date of any meeting of Holders or the payment of any
distribution or the taking of any other action, as the case may be, as a record
date for the determination of the Persons to be treated as Holders for such
purpose.
9.5. Proxies, etc. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote is to be taken. A
proxy may be revoked by a Holder at any time before it has been exercised by
placing on file with the Secretary, or with such other officer or agent of the
Trust as the Secretary may direct, a later dated proxy or written revocation.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of the Trust or of one or more Trustees or of one or more officers
of the Trust. Only Holders on the record date shall be entitled to vote. Each
such Holder shall be entitled to a vote proportionate to its Interest. When an
Interest is held jointly by several Persons, any one of them may vote at any
meeting in person or by proxy in respect of such Interest, but if more than one
of them is present at such meeting in person or by proxy, and such joint owners
or their proxies so present
<PAGE>
disagree as to any vote to be cast, such vote shall not be received in respect
of such Interest. A proxy purporting to be executed by or on behalf of a Holder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger.
9.6. Reports. The Trustees shall cause to be prepared and
furnished to each Holder, at least annually as of the end of each Fiscal Year, a
report of operations containing a balance sheet and a statement of income of the
Trust prepared in conformity with generally accepted accounting principles and
an opinion of an independent public accountant on such financial statements. The
Trustees shall, in addition, furnish to each Holder at least semi-annually
interim reports of operations containing an unaudited balance sheet as of the
end of such period and an unaudited statement of income for the period from the
beginning of the then-current Fiscal Year to the end of such period.
9.7. Inspection of Records. The records of the Trust shall be
open to inspection by Holders during normal business hours for any purpose not
harmful to the Trust.
9.8. Holder Action by Written Consent. Any action which may be
taken by Holders may be taken without a meeting if Holders holding more than 50%
of all Interests entitled to vote (or such larger proportion thereof as shall be
required by any express provision of this Declaration) consent to the action in
writing and the written consents are filed with the records of the meetings of
Holders. Such consents shall be treated for all purposes as a vote taken at a
meeting of Holders. Each such written consent shall be executed by or on behalf
of the Holder delivering such consent and shall bear the date of such execution.
No such written consent shall be effective to take the action referred to
therein unless, within one year of the earliest dated consent, written consents
executed by a sufficient number of Holders to take such action are filed with
the records of the meetings of Holders.
9.9. Notices. Any and all communications, including any and
all notices to which any Holder may be entitled, shall be deemed duly served or
given if mailed, postage prepaid, addressed to a Holder at its last known
address as recorded on the register of the Trust.
ARTICLE X
Duration; Termination;
Amendment; Mergers; Etc.
10.1. Duration. Subject to possible termination or dissolution
in accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration of 20
years after the death of the last survivor of the initial Trustees named herein
and the following named persons:
<PAGE>
<TABLE>
<CAPTION>
Date of
Name Address Birth
<S> <C> <C>
Nelson Stewart Ruble 65 Duck Pond Road 04/10/91
Glen Cove, NY 11542
Shelby Sara Wyetzner 8 Oak Brook Lane 10/18/90
Merrick, NY 11566
Amanda Jehan Sher Coolidge 400 South Pointe Drive, #803 08/16/89
Miami Beach, FL 33139
David Cornelius Johnson 752 West End Avenue, Apt. 10J 05/02/89
New York, NY 10025
Conner Leahy McCabe 100 Parkway Road, Apt. 3C 02/22/89
Bronxville, NY 10708
Andrea Hellegers 530 East 84th Street, Apt. 5H 12/22/88
New York, NY 10028
Emilie Blair Ruble 65 Duck Pond Road 02/24/89
Glen Cove, NY 11542
Brian Patrick Lyons 152-48 Jewel Avenue 01/20/89
Flushing, NY 11367
Caroline Bolger Cima 11 Beechwood Lane 12/23/88
Scarsdale, NY 10583
</TABLE>
10.2. Termination.
(a) The Trust may be terminated (i) by the
affirmative vote of Holders of not less than two-thirds of all Interests at any
meeting of Holders or by an instrument in writing without a meeting, executed by
a majority of the Trustees and consented to by Holders of not less than
two-thirds of all Interests, or (ii) by the Trustees by written notice to the
Holders. Upon any such termination,
(i) the Trust shall carry on no business except for
the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust have been
wound up, including the power to fulfill or discharge the contracts of
the Trust, collect the assets of the Trust, sell, convey, assign,
exchange or otherwise dispose of all or any part of the Trust Property
to one or more Persons at public or private sale for consideration
which may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay the liabilities of the Trust,
and do all other acts appropriate to
<PAGE>
liquidate the business of the Trust; provided that any sale,
conveyance, assignment, exchange or other disposition of all or
substantially all the Trust Property shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by the vote of Holders holding more than 50% of all
Interests; and
(iii) after paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for their
protection, the Trustees shall distribute the remaining Trust Property,
in cash or in kind or partly each, among the Holders according to their
respective rights.
(b) Upon termination of the Trust and distribution to
the Holders as herein provided, a majority of the Trustees shall execute and
file with the records of the Trust an instrument in writing setting forth the
fact of such termination and distribution. Upon termination of the Trust, the
Trustees shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Holders shall thereupon cease.
10.3. Dissolution. Upon the bankruptcy or expulsion of any
Holder, the Trust shall be dissolved effective 120 days after the event.
However, the Holders (other than such bankrupt or expelled Holder) may, by a
unanimous affirmative vote at any meeting of such Holders or by an instrument in
writing without a meeting executed by a majority of the Trustees and consented
to by all such Holders, agree to continue the business of the Trust even if
there has been such a dissolution.
10.4. Amendment Procedure.
(a) This Declaration may be amended by the vote of
Holders of more than 50% of all Interests at any meeting of Holders or by an
instrument in writing without a meeting, executed by a majority of the Trustees
and consented to by the Holders of more than 50% of all Interests.
Notwithstanding any other provision hereof, this Declaration may be amended by
an instrument in writing executed by a majority of the Trustees, and without the
vote or consent of Holders, for any one or more of the following purposes: (i)
to change the name of the Trust, (ii) to supply any omission, or to cure,
correct or supplement any ambiguous, defective or inconsistent provision hereof,
(iii) to conform this Declaration to the requirements of applicable federal law
or regulations or the requirements of the applicable provisions of the Code,
(iv) to change the state or other jurisdiction designated herein as the state or
other jurisdiction whose law shall be the governing law hereof, (v) to effect
such changes herein as the Trustees find to be necessary or appropriate (A) to
permit the filing of this Declaration under the law of such state or other
jurisdiction applicable to trusts or voluntary associations, (B) to permit the
Trust to elect to be treated as a "regulated investment company" under the
applicable provisions of the Code, or (C) to permit the transfer of Interests
(or to permit the transfer of any other beneficial interest in or share of the
Trust, however denominated), and (vi) in conjunction with any amendment
contemplated by the foregoing clause (iv) or the foregoing clause (v) to make
any and all such further changes or
<PAGE>
modifications to this Declaration as the Trustees find to be necessary or
appropriate, any finding of the Trustees referred to in the foregoing clause (v)
or the foregoing clause (vi) to be conclusively evidenced by the execution of
any such amendment by a majority of the Trustees; provided, however, that unless
effected in compliance with the provisions of Section 10.4(b) hereof, no
amendment otherwise authorized by this sentence may be made which would reduce
the amount payable with respect to any Interest upon liquidation of the Trust
and; provided, further, that the Trustees shall not be liable for failing to
make any amendment permitted by this Section 10.4(a).
(b) No amendment may be made under Section 10.4(a)
hereof which would change any rights with respect to any Interest by reducing
the amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of Holders of two-thirds of all Interests.
(c) A certification in recordable form executed by a
majority of the Trustees setting forth an amendment and reciting that it was
duly adopted by the Holders or by the Trustees as aforesaid or a copy of the
Declaration, as amended, in recordable form, and executed by a majority of the
Trustees, shall be conclusive evidence of such amendment when filed with the
records of the Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees at any meeting of
Trustees or by an instrument executed by a majority of the Trustees.
10.5. Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including good will, upon such terms and conditions and for such
consideration when and as authorized at any meeting of Holders called for such
purpose by the affirmative vote of Holders of not less than two-thirds of all
Interests, or by an instrument in writing without a meeting, consented to by
Holders of not less than two-thirds of all Interests, and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the State of New York.
10.6. Incorporation. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the law of any jurisdiction or a trust, partnership,
association or other organization to take over the Trust Property or to carry on
any business in which the Trust directly or indirectly has any interest, and to
sell, convey and transfer the Trust Property to any such corporation, trust,
partnership, association or other organization in exchange for the equity
interests thereof or otherwise, and to lend money to, subscribe for the equity
interests of, and enter into any contract with any such corporation, trust,
partnership, association or other organization, or any corporation, trust,
partnership, association or other organization in which the Trust holds or is
about to acquire equity interests. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership,
<PAGE>
association or other organization if and to the extent permitted by law. Nothing
contained herein shall be construed as requiring approval of the Holders for the
Trustees to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to one or more of such
organizations or entities.
ARTICLE XI
Miscellaneous
11.1. Certificate of Designation; Agent for Service of
Process. The Trust shall file, with the Department of State of the State of New
York, a certificate, in the name of the Trust and executed by an officer of the
Trust, designating the Secretary of State of the State of New York as an agent
upon whom process in any action or proceeding against the Trust may be served.
11.2. Governing Law. This Declaration is executed by the
Trustees and delivered in the State of New York and with reference to the law
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed in accordance with the
law of the State of New York and reference shall be specifically made to the
trust law of the State of New York as to the construction of matters not
specifically covered herein or as to which an ambiguity exists.
11.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any one such original
counterpart.
11.4. Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or Holders, (b)
the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Holders, (d) the fact that
the number of Trustees or Holders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (e) the form
of any By-Laws adopted by or the identity of any officer elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees.
11.5. Provisions in Conflict With Law or Regulations.
(a) The provisions of this Declaration are severable,
and if the Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, or with other applicable law
and regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
<PAGE>
(b) If any provision of this Declaration shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this
instrument as of the day and year first above written.
PHILIP W. COOLIDGE
Philip W. Coolidge
As Trustee and not Individually
THOMAS M. LENZ
Thomas M. Lenz
As Trustee and not Individually
DONALD S. RUMERY
Donald S. Rumery
As Trustee and not Individually
BT0182
<PAGE>
BT0182
Exhibit 2
CAPITAL APPRCIATION PORTFOLIO
BY-LAWS
These By-Laws are made and adopted pursuant to Section 2.7 of
the Declaration of Trust establishing the Capital Appreciation Portfolio (the
"Trust"), dated as of August 18, 1992, as from time to time amended (hereinafter
called the "Declaration"). All words and terms capitalized in these By-Laws
shall have the meaning or meanings set forth for such words or terms in
the Declaration.
ARTICLE I
Holders Meetings
Section 1.1. Chairman. The President shall act as chairman at
all meetings of the Holders, or the Trustee or Trustees present at each meeting
may elect a temporary chairman for the meeting, who may be one of themselves.
Section 1.2. Proxies; Voting. Holders may vote either in
person or by duly executed proxy and each Holder shall be entitled to a vote
proportionate to his Interest in the Trust, all as provided in Article IX of the
Declaration. No proxy shall be valid after eleven 11 months from the date of its
execution, unless a longer period is expressly stated in such proxy.
Section 1.3. Fixing Record Dates. For the purpose of
determining the Holders who are entitled to notice of or to vote or act at a
meeting, including any adjournment thereof, or who are entitled to participate
in any distributions, or for any other proper purpose, the Trustees may from
time to time fix a record date in the manner provided in Section 9.3 of the
Declaration. If the Trustees do not, prior to any meeting of the Holders, so fix
a record date, then the date of mailing notice of the meeting shall be the
record date.
Section 1.4. Inspectors of Election. In advance of any meeting
of the Holders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman, if any, of any meeting of the Holders may, and on the
request of any Holder or his proxy shall, appoint Inspectors of Election of the
meeting. The number of Inspectors shall be either one or three. If appointed at
the meeting on the request of one or more Holders or proxies, a Majority
Interests Vote shall determine whether one or three Inspectors are to be
appointed, but failure to allow such determination by the Holders shall not
affect the validity of the appointment of Inspectors of Election. In case any
person appointed as Inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the Trustees in advance of the
convening of the meeting or at the meeting by the person acting as chairman. The
Inspectors of Election shall determine the Interests owned by Holders, the
Interests represented at the meeting, the existence of a quorum, the
<PAGE>
authenticity, validity and effect of proxies, shall receive votes, ballots or
consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all votes
or consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Holders. If there are three or
more Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. On request
of the chairman, if any, of the meeting, or of any Holder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
Section 1.5. Records at Holder Meetings. At each meeting of
the Holders there shall be open for inspection the minutes of the last previous
meeting of Holders of the Trust and a list of the Holders of the Trust,
certified to be true and correct by the Secretary or other proper agent of the
Trust, as of the record date of the meeting. Such list of Holders shall contain
the name of each Holder in alphabetical order and the address and Interests
owned by such Holder. Holders shall have the right to inspect books and records
of the Trust during normal business hours and for any purpose not harmful to the
Trust.
ARTICLE II
Trustees
Section 2.1. Annual and Regular Meetings. The Trustees shall
hold an annual meeting for the election of officers and the transaction of other
business which may come before such meeting. Regular meetings of the Trustees
may be held without call or notice at such place or places and times as the
Trustees may by resolution provide from time to time.
Section 2.2. Special Meetings. Special Meetings of the
Trustees shall be held upon the call of the chairman, if any, the President, the
Secretary or any two Trustees, at such time, on such day and at such place, as
shall be designated in the notice of the meeting.
Section 2.3. Notice. Notice of a meeting shall be given by
mail or by telegram (which term shall include a cablegram) or delivered
personally. If notice is given by mail, it shall be mailed not later than 48
hours preceding the meeting and if given by telegram, telecopier or personally,
such notice shall be sent or delivery made not later than 24 hours preceding the
meeting. Notice by telephone shall constitute personal delivery for these
purposes. Notice of a meeting of Trustees may be waived before or after any
meeting by signed written waiver. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Trustees need be stated in the
notice or waiver of notice of such meeting, and no notice need be given of
action proposed to be taken by written consent. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting, at the
commencement of such meeting, to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
<PAGE>
Section 2.4. Chairman; Records. The Chairman, if any, shall
act as chairman at all meetings of the Trustees; in his absence the President
shall act as chairman; and, in the absence of the Chairman of the Board and the
President, the Trustees present shall elect one of their number to act as
temporary chairman. The results of all actions taken at a meeting of the
Trustees, or by written consent of the Trustees, shall be recorded by the
Secretary.
ARTICLE III
Officers
Section 3.1. Officers of the Trust. The officers of the Trust
shall consist of a Chairman, if any, a President, a Secretary, a Treasurer and
such other officers or assistant officers, including Vice Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person. The Trustees may designate a Vice President as an Executive Vice
President and may designate the order in which the other Vice Presidents may
act. The Chairman shall be a Trustee, but no other officer of the Trust,
including the President, need be a Trustee.
Section 3.2. Election and Tenure. At the initial organization
meeting and thereafter at each annual meeting of the Trustees, the Trustees
shall elect the Chairman, if any, President, Secretary, Treasurer and such other
officers as the Trustees shall deem necessary or appropriate in order to carry
out the business of the Trust. Such officers shall hold office until the next
annual meeting of the Trustees and until their successors have been duly elected
and qualified. The Trustees may fill any vacancy in office or add any additional
officers at any time.
Section 3.3. Removal of Officers. Any officer may be removed
at any time, with or without cause, by action of a majority of the Trustees.
This provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman, if any, President, or
Secretary, and such resignation shall take effect immediately, or at a later
date according to the terms of such notice in writing.
Section 3.4. Bonds and Surety. Any officer may be required by
the Trustees to be bonded for the faithful performance of his duties in such
amount and with such sureties as the Trustees may determine.
Section 3.5. Chairman, President and Vice Presidents. The
Chairman, if any, shall, if present, preside at all meetings of the Holders and
of the Trustees and shall exercise and perform such other powers and duties as
may be from time to time assigned to him by the Trustees. Subject to such
supervisory powers, if any, as may be given by the Trustee to the Chairman, if
any, President shall be the chief executive officer of the Trust and, subject to
the control of the Trustees, shall have general supervision, direction and
control of the business of the Trust and of its employees and shall exercise
such general powers
<PAGE>
of management as are usually vested in the office of President of a corporation.
In the absence of the Chairman, if any, the President shall preside at all
meetings of the Holders and, in the absence of the Chairman of the Board, the
President shall preside at all meetings of the Trustees. The President shall be,
ex officio, a member of all standing committees. Subject to direction of the
Trustees, the President shall have the power, in the name and on behalf of the
Trust, to execute any and all loan documents, contracts, agreements, deeds,
mortgages, and other instruments in writing, and to employ and discharge
employees and agents of the Trust. Unless otherwise directed by the Trustees,
the President shall have full authority and power, on behalf of all of the
Trustees, to attend and to act and to vote, on behalf of the Trust at any
meetings of business organizations in which the Trust holds an interest, or to
confer such powers upon any other persons, by executing any proxies duly
authorizing such persons. The President shall have such further authorities and
duties as the Trustees shall from time to time determine. In the absence or
disability of the President, the Vice Presidents in order of their rank or the
Vice President designated by the Trustees, shall perform all of the duties of
President, and when so acting shall have all the powers of and be subject to all
of the restrictions upon the President. Subject to the direction of the
President, each Vice President shall have the power in the name and on behalf of
the Trust to execute any and all loan documents, contracts, agreements, deeds,
mortgages and other instruments in writing, and, in addition, shall have such
other duties and powers as shall be designated from time to time by the Trustees
or by the President.
Section 3.6. Secretary. The Secretary (or any Assistant
Secretary) shall keep the minutes of all meetings of, and record all votes of,
Holders, Trustees and the Executive Committee, if any. He shall be custodian of
the seal of the Trust, if any, and he (and any other person so authorized by the
Trustees) shall affix the seal or, if permitted, a facsimile thereof, to any
instrument executed by the Trust which would be sealed by a New York corporation
executing the same or a similar instrument and shall attest the seal and the
signature or signatures of the officer or officers executing such instrument on
behalf of the Trust. The Secretary (or any Assistant Secretary) shall also
perform any other duties commonly incident to such office in a New York
corporation, and shall have such other authorities and duties as the Trustees
shall from time to time determine.
Section 3.7. Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the President all powers and duties normally incident to his office. He may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. He shall deposit all funds of the Trust as
may be ordered by the Trustees or the President. He shall keep accurate account
of the books of the Trust's transactions which shall be the property of the
Trust, and which together with all other property of the Trust in his
possession, shall be subject at all times to the inspection and control of the
Trustees. Unless the Trustees shall otherwise determine, the Treasurer shall be
the principal accounting officer of the Trust and shall also be the principal
financial officer of the Trust. He shall have such other duties and authorities
as the Trustees
<PAGE>
shall from time to time determine. Notwithstanding anything to the contrary
herein contained, the Trustees may authorize any adviser, administrator or
manager to maintain bank accounts and deposit and disburse funds on behalf of
the Trust.
Section 3.8. Other Officers and Duties. The Trustees may elect
such other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Trust. Assistant officers shall act generally in the absence of the officer whom
they assist and shall assist that officer in the duties of his office. Each
officer, employee and agent of the Trust shall have such other duties and
authority as may be conferred upon him by the Trustees or delegated to him by
the President.
ARTICLE IV
Miscellaneous
Section 4.1. Depositories. In accordance with Section 7.1 of
the Declaration, the funds of the Trust shall be deposited in such depositories
as the Trustees shall designate and shall be drawn out on checks, drafts or
other orders signed by such officer, officers, agent or agents (including any
adviser, administrator or manager), as the Trustees may from time to time
authorize.
Section 4.2. Signatures. All contracts and other instruments
shall be executed on behalf of the Trust by such officer, officers, agent or
agents, as provided in these By-Laws or as the Trustees may from time to time by
resolution provide.
Section 4.3. Seal. The seal of the Trust, if any, may be
affixed to any document, and the seal and its attestation may be lithographed,
engraved or otherwise printed on any document with the same force and effect as
if it had been imprinted and attested manually in the same manner and with the
same effect as if done by a New York corporation.
Section 4.4. Indemnification. Insofar as the conditional
advancing of indemnification monies under Section 5.3 of the Declaration of
Trust for actions based upon the Investment Company Act of 1940 may be
concerned, such payments will be made only on the following conditions: (i) the
advances must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount of the
advance which exceeds that amount to which it is ultimately determined that he
is entitled to receive from the Trust by reason of indemnification; and (iii)
(a) such promise must be secured by a surety bond, other suitable insurance or
an equivalent form of security which assures that any repayments may be obtained
by the Trust without delay or litigation, which bond, insurance or other form of
security must be provided by the recipient of the advance, or (b) a majority of
a quorum of the Trust's disinterested, non-party Trustees, or an independent
legal counsel in a written opinion, shall determine, based upon a review of
readily available facts,
<PAGE>
that the recipient of the advance ultimately will be found entitled to
indemnification.
ARTICLE V
Non-Transferability of Interests
Section 5.1. Non-Transferability of Interests. Interests shall
not be transferable. Except as otherwise provided by law, the Trust shall be
entitled to recognize the exclusive right of a person in whose name Interests
stand on the record of Holders as the owner of such Interests for all purposes,
including, without limitation, the rights to receive distributions, and to vote
as such owner, and the Trust shall not be bound to recognize any equitable or
legal claim to or interest in any such Interests on the part of any other
person.
Section 5.2. Regulations. The Trustees may make such
additional rules and regulations, not inconsistent with these By-Laws, as they
may deem expedient concerning the sale and purchase of Interests of the Trust.
Section 5.3. Distribution Disbursing Agents and the Like. The
Trustees shall have the power to employ and compensate such distribution
disbursing agents, warrant agents and agents for the reinvestment of
distributions as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustee.
ARTICLE VI
Amendment of By-Laws
Section 6.1. Amendment and Repeal of By-Laws. In accordance
with Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. Action by the
Trustees with respect to the By-Laws shall be taken by an affirmative vote of a
majority of the Trustees. The Trustees shall in no event adopt By-Laws which are
in conflict with the Declaration.
The Declaration refers to the Trustees as Trustees, but not as
individuals or personally; and no Trustee, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Trust.
BT0128
Exhibit 5
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of October 28, 1992 by and between CAPITAL
APPRECIATION PORTFOLIO, a New York trust (herein called the "Portfolio"), and
BANKERS TRUST COMPANY (herein called the "Investment Adviser").
WHEREAS, the Portfolio is registered as an open-end
diversified management investment company under the Investment Company Act of
1940;
WHEREAS, the Portfolio desires to retain the Investment
Adviser to render investment advisory and other services, and the Investment
Adviser is willing to so render such services on the terms hereinafter set
forth;
NOW, THEREFORE, this Agreement
W I T N E S S E T H:
In consideration of the promises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Portfolio hereby appoints the Investment
Adviser to act as investment adviser to the Portfolio for the period and on the
terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. MANAGEMENT. Subject to the supervision of the Board of
Trustees of the Portfolio, the Investment Adviser will provide a continuous
investment program for the Portfolio, including investment research and
management with respect to all securities, investments, cash and cash
equivalents in the Portfolio. The Investment Adviser will determine from time to
time what securities and other investments will be purchased, retained or sold
by the Portfolio. The Investment Adviser will provide the services rendered by
it hereunder in accordance with the Portfolio's investment objective(s) and
policies as stated in the Portfolio's then-current Registration Statement on
Form N-1A.
The Investment Adviser further agrees that it:
(a) will conform with all applicable Rules and
Regulations of the Securities and Exchange Commission (herein called the
"Rules") and with the Securities Act of 1933, the Securities Exchange Act of
1934, the Investment Company Act of 1940 (the "1940 Act") and the Investment
Advisers Act of 1940, all as amended, and will in addition conduct its
activities under this Agreement in accordance with regulations of the Board of
Governors of the Federal Reserve System pertaining to the investment advisory
activities of bank holding companies and their subsidiaries;
(b) will place orders pursuant to its investment
determinations for the Portfolio either directly with the issuer or with any
broker or dealer selected by it. In placing orders with brokers and dealers, the
Investment Adviser will use its reasonable best efforts to obtain the best net
price and the
<PAGE>
most favorable execution of its orders, after taking into account all factors it
deems relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. Consistent with this obligation,
the Investment Adviser may, to the extent permitted by law, purchase and sell
portfolio securities to and from brokers and dealers who provide brokerage and
research services (within the meaning of Section 28(e) of the Securities
Exchange Act of 1934) to or for the benefit of any fund and/or other accounts
over which the Investment Adviser or any of its affiliates exercises investment
discretion. Subject to the review of the Portfolio's Board of Trustees from time
to time with respect to the extent and continuation of the policy, the
Investment Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for effecting a securities
transaction which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Investment
Adviser determines in good faith that such commission was reasonable in relation
to the value of the brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Investment Adviser with respect to the accounts as to
which it exercises investment discretion; and
(c) will maintain books and records with respect to
the Portfolio's securities transactions and will render to the Portfolio's Board
of Trustees such periodic and special reports as the Board may request.
3. SERVICES NOT EXCLUSIVE. The investment management services
rendered by the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
4. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 of the Rules under the 1940 Act, the Investment Adviser hereby agrees
that all records which it maintains for the Portfolio are the property of the
Portfolio and further agrees to surrender promptly to the Portfolio any of such
records upon the Portfolio's request. The Investment Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act and to comply in full
with the requirements of Rule 204-2 under the Investment Advisers Act of 1940
pertaining to the maintenance of books and records.
5. EXPENSES. During the term of this Agreement, the Investment
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Portfolio.
In addition, if the expenses borne by the Portfolio in any
fiscal year of the Portfolio exceed the applicable expense limitations imposed
by the securities regulations of any state in which beneficial interests in the
Portfolio are registered or qualified for sale to the public, the Investment
Adviser shall reimburse the Portfolio for the excess expense to the extent
required by state law.
<PAGE>
6. COMPENSATION. For the services provided and the expenses
assumed pursuant to this Agreement, the Portfolio will pay the Investment
Adviser and the Investment Adviser will accept as full compensation therefor a
fee, computed daily and payable monthly, in an amount equal to the rate of 0.65%
of the Portfolio's average daily net assets.
7. LIMITATION OF LIABILITY OF THE INVESTMENT ADVISER;
INDEMNIFICATION. (a) The Investment Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Portfolio in
connection with the matters to which this Agreement relates, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
(b) Subject to the exceptions and limitations
contained in Section 7(c) below:
(i) the Investment Adviser (hereinafter
referred to as a "Covered Person") shall be indemnified by the Portfolio to the
fullest extent permitted by law, against liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved, as a party or otherwise, by virtue of
his being or having been the Investment Adviser of the Portfolio, and against
amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(c) No indemnification shall be provided hereunder to
a Covered Person:
(i) who shall have been adjudicated by a
court or body before which the proceeding was brought (A) to be liable to the
Portfolio or its investors by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office or (B) not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Portfolio; or
(ii) in the event of a settlement, unless
there has been a determination that such Covered Person did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office,
(a) by the court or other body approving the
settlement; or
<PAGE>
(b) by at least a majority of those Trustees who are
neither Interested Persons of the Portfolio nor are parties to the matter based
upon a review of readily available facts (as opposed to a full trial-type
inquiry); or
(c) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full trial-type
inquiry); provided, however, that any investor in the Portfolio may, by
appropriate legal proceedings, challenge any such determination by the Trustees
or by independent counsel.
(d) The rights of indemnification herein provided may
be insured against by policies maintained by the Portfolio, shall be severable,
shall not be exclusive of or affect any other rights to which any Covered Person
may now or hereafter be entitled, shall continue as to a person who has ceased
to be a Covered Person and shall inure to the benefit of the successors and
assigns of such person. Nothing contained herein shall affect any rights to
indemnification to which Portfolio personnel and any other persons, other than a
Covered Person, may be entitled by contract or otherwise under law.
(e) Expenses in connection with the preparation and
presentation of a defense to any claim, suit or proceeding of the character
described in subsection (b) of this Section 7 may be paid by the Portfolio from
time to time prior to final disposition thereof, upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by him
to the Portfolio if it is ultimately determined that he is not entitled to
indemnification under this Section 7; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking or
(ii) the Portfolio shall be insured against losses arising out of any such
advance payments, or (iii) either a majority of the Trustees who are neither
Interested Persons of the Portfolio nor parties to the matter, or independent
legal counsel in a written opinion, shall have determined, based upon a review
of readily available facts as opposed to a trial-type inquiry or full
investigation, that there is reason to believe that such Covered Person will be
entitled to indemnification under this Section 7.
8. DURATION AND TERMINATION. This Agreement shall be effective
as to the Portfolio as of the date the Portfolio commences investment operations
after this Agreement shall have been approved by the Board of Trustees of the
Portfolio and the investor(s) in the Portfolio in the manner contemplated by
Section 15 of the 1940 Act and, unless sooner terminated as provided herein,
shall continue until the second anniversary of such date. Thereafter, if not
terminated, this Agreement shall continue in effect as to the Portfolio for
successive periods of 12 months each, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Board of Trustees of the Portfolio who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Portfolio by vote of a majority of the outstanding voting securities of the
Portfolio; provided, however, that this Agreement may be terminated by the
Portfolio at any time, without the payment of any penalty, by the Board of
Trustees of the Portfolio, by vote of a majority of the outstanding voting
<PAGE>
securities of the Portfolio on 60 days' written notice to the Investment
Adviser, or by the Investment Adviser as to the Portfolio at any time, without
payment of any penalty, on 90 days' written notice to the Portfolio. This
Agreement will immediately terminate in the event of its assignment. (As used in
this Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the 1940 Act and the Rules and regulatory constructions thereunder.)
9. AMENDMENT OF THIS AGREEMENT. No material term of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no amendment of a
material term of this Agreement shall be effective until approved by vote of a
majority of the Portfolio's outstanding voting securities.
10. (a) REPRESENTATIONS AND WARRANTIES. The Investment Adviser
hereby represents and warrants as follows:
(i) The Investment Adviser is exempt from
registration under the Investment Advisers Act of 1940;
(ii) The Investment Adviser has all
requisite authority to enter into, execute, deliver and perform its obligations
under, this Agreement;
(iii) This Agreement is legal, valid and
binding, and enforceable in accordance with its terms; and
(iv) The performance by the Investment
Adviser of its obligations under this Agreement does not conflict with any law
to which it is subject.
(b) COVENANTS. The Investment Adviser hereby
covenants and agrees that, so long as this Agreement shall remain in effect,
(i) The Investment Adviser shall remain
either exempt from, or registered under, the registration provisions of the
Investment Advisers Act of 1940; and
(ii) The performance by the Investment
Adviser of its obligations under this Agreement shall not conflict with any law
to which it is then subject.
11. NOTICES. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (a) to the Investment Adviser at 280 Park Avenue, New York, New
York 10015 or (b) to the Portfolio at 6 St. James Avenue, Boston, Massachusetts
02116.
12. WAIVER. With full knowledge of the circumstances and the
effect of its action, the Investment Adviser hereby waives any and all rights
which it may acquire in the future against the property of any investor in the
Portfolio,
<PAGE>
other than beneficial interests in the Portfolio at their then net asset value,
which arise out of any action or inaction of the Portfolio under this Agreement.
13. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the laws of the State of New York, without reference to principles
of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
Attest:
CAPITAL APPRECIATION PORTFOLIO
By:
Philip W. Coolidge
President
Attest:
BANKERS TRUST COMPANY
By:
Michael Baresich
Managing Director
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Capital
Appreciation Portfolio Annual Report dated September 30, 1995 and is qualified
in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000895571
<NAME> CAPITAL APPRECIATION PORTFOLIO
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 112010157
<INVESTMENTS-AT-VALUE> 144756143
<RECEIVABLES> 5563525
<ASSETS-OTHER> 1548007
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 151867675
<PAYABLE-FOR-SECURITIES> 1901125
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78661
<TOTAL-LIABILITIES> 1979786
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 117141903
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32745986
<NET-ASSETS> 149887889
<DIVIDEND-INCOME> 108821
<INTEREST-INCOME> 347025
<OTHER-INCOME> 0
<EXPENSES-NET> 445346
<NET-INVESTMENT-INCOME> 10500
<REALIZED-GAINS-CURRENT> 11774764
<APPREC-INCREASE-CURRENT> 23909639
<NET-CHANGE-FROM-OPS> 35694903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 76253559
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 482453
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 577048
<AVERAGE-NET-ASSETS> 139363636
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
