As filed via EDGAR with the Securities and Exchange Commission on February 28,
1996.
File No. 811-8084
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
GROWTH AND INCOME PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
125 West 55th Street
New York, New York 10019
(Address of Principal Executive Office) (ZIP Code)
Registrant's Telephone Number, including Area Code: (212) 492-16000
GEORGE MARTINEZ, ESQ.
BISYS FUND SERVICES, INC.
3425 STELZER ROAD
COLUMBUS, OHIO 43219
CARL FRISCHLING, ESQ.
KRAMER, LEVIN, NAFTALIS,
NESSEN, KAMIN & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(Names and Addresses of Agents for Service)
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EXPLANATORY NOTE
This Registration Statement of Growth and Income Portfolio has been
filed by the Registrant pursuant to Section 8(b) of the Investment Company Act
of 1940, as amended (the "1940 Act"). However, beneficial interests in the
Registrant are not being registered under the Securities Act of 1933, as amended
(the "1933 Act"), since such interests will be offered solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may only
be made by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities which are
"accredited investors" as defined in Regulation D under the 1933 Act. This
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.
Growth and Income Portfolio (the "Portfolio") is a non-diversified,
open-end management investment company which was organized in the United States
as a trust under the laws of the State of New York pursuant to a Declaration of
Trust dated as of December 15, 1992. Because the Portfolio is non-diversified,
more than 5% of the Portfolio's assets may be invested in the obligations of any
single issuer, which may make the Portfolio's net asset value more susceptible
to certain risks than the net asset value of a diversified mutual fund.
Beneficial interests in the Portfolio are offered solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities which are
"accredited investors" as defined in Regulation D under the 1933 Act. This
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 Chase Manhattan Bank, N.A. ("Chase") is the Portfolio's investment
adviser (the "Adviser") , custodian (the "Custodian") and administrator (the
"Administrator"). The address of Chase is One Chase Manhattan Plaza, New York,
New York 10081. The Portfolio seeks to provide its investors with long-term
capital appreciation and to provide dividend income primarily through a broad
portfolio (i.e., at least 80% of its assets under normal circumstances) of
common stocks. The Portfolio will invest its assets in stocks of issuers
(including foreign issuers) ranging from small to medium to large
capitalizations. For the most part, the Adviser will pursue a "contrary opinion"
investment approach, selecting common stocks that are currently out of favor
with investors in the stock market. These securities are usually characterized
by a relatively low price/earnings ratio (using normalized earnings), a low
ratio of market price to book value, or underlying asset values that the Adviser
believes are not fully reflected in the current market price. The Adviser
believes that the market risk involved in this policy will be moderated somewhat
by the anticipated dividend returns on the stocks to be held by the Portfolio.
Of course, there can be no assurance that the Portfolio will achieve
its investment objectives. Prospective investors should carefully consider the
risks associated with an investment in the Portfolio. Further discussion of the
risks associated with an investment in the Portfolio appears below. Investments
in the Portfolio are subject to risk and may fluctuate in value, and are not
deposits, guaranteed by, or obligations of, Chase and are not insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
agency.
The Portfolio seeks to achieve its investment objectives by investing
primarily (i.e., at least 80% of its assets under normal circumstances) in
common stocks. The Portfolio will invest its assets in stocks of issuers
(including foreign issuers) ranging from small to medium to large
capitalizations. For the most part, the Adviser will pursue a "contrary opinion"
investment approach, selecting common stocks for the Portfolio that are
currently out of favor with investors in the stock market. These securities are
usually characterized by a relatively low price/earnings ratio (using normalized
earnings), a low ratio of
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market price to book value, or underlying asset values that the Adviser believes
are not fully reflected in the current market price. The Adviser believes that
the market risk involved in this policy will be moderated somewhat by the
anticipated dividend returns on the stocks to be held by the Portfolio. An
investment (i.e., a investor's interest) in the Portfolio will fluctuate based
on the value of the securities in the Portfolio.
The Portfolio normally will be substantially fully invested and, in
normal circumstances, invest at least 80% of its assets in common stocks.
However, the Portfolio reserves the right to invest more than 20% of its assets
in cash, cash equivalents and short-term debt securities for temporary defensive
purposes during periods that the Adviser considers to be particularly risky for
investment in common stocks.
The Portfolio may enter into transactions in stock index futures
contracts, options on stock index futures contracts, options on stock indexes
and options on equity securities, for the purpose of hedging its portfolio.
"Additional Information on Investment Policies and Techniques" and "Description
of Futures Contracts and Options Thereon" contain a more complete description of
the hedging instruments to be traded, as well as further information concerning
the investment policies and techniques of the Portfolio. In addition, Part B
includes a further discussion of futures and option contracts to be entered into
by the Portfolio. Although the Portfolio will enter into futures and option
contracts for hedging purposes only, the use of such instruments does involve
transaction costs and certain risks, which are discussed in Part B.
The investment objectives or any of the investment policies described
above or below in "Additional Information on Investment Policies and Techniques"
may be changed without the approval of the Portfolio's investors.
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND TECHNIQUES
To the extent the assets of the Portfolio are not invested in common
stocks, they will consist of or be invested in cash, cash equivalents and
short-term debt securities, such as U.S. Government securities, bank obligations
and commercial paper, as described under "Investment Objectives and Policies" in
Part B, and in repurchase agreements, as described below and in greater detail
under "Investment Objectives and Policies" in Part B.
Among the common stocks in which the Portfolio may invest are stocks of
foreign issuers, although at present the Portfolio does not intend to invest
more than 5% of its assets in such securities. These securities may represent a
greater degree of risk (e.g., risk related to exchange rate fluctuation, tax
provisions, war or expropriation) than do securities of domestic issuers.
Because the value of securities and the income derived therefrom may
fluctuate according to the earnings of the issuers and changes in economic and
money market conditions, there can be no assurance that the investment
objectives of the Portfolio will be achieved.
Repurchase Agreements. The Portfolio may, when appropriate, enter into
repurchase agreements (a purchase of and simultaneous commitment to resell a
security at an agreed-upon price and date which is usually not more than seven
days from the date of purchase) only with member banks of the Federal Reserve
System and security dealers believed creditworthy and only if fully
collateralized by U.S. Government obligations or other securities in which the
Portfolio is permitted to invest. In the event the seller fails to pay the
agreed-to sum on the agreed-upon delivery date, the underlying security could be
sold by the Portfolio, but the Portfolio might incur a loss in doing so, and in
certain cases may not be permitted to sell the security. As an operating policy,
the Portfolio, through its custodian bank, takes constructive possession of the
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collateral underlying repurchase agreements. Additionally, procedures have been
established for the Portfolio to monitor, on a daily basis, the market value of
the collateral underlying all repurchase agreements to ensure that the
collateral is at least 100% of the value of the repurchase agreements. Not more
than 10% of the total assets of the Portfolio will be invested in securities
which are subject to legal or contractual restrictions on resale, including
securities that are not readily marketable and repurchase agreements maturing in
more than seven days.
Portfolio Management and Turnover. It is not intended that the assets
of the Portfolio will be invested in securities for the purpose of short-term
profits. However, the Portfolio will dispose of portfolio securities whenever
the Adviser believes that changes are appropriate. Generally, the primary
consideration in placing portfolio securities transactions with broker-dealers
for execution is to obtain, and maintain the availability of, execution at the
most favorable prices and in the most effective manner possible. For a complete
discussion of portfolio transactions and brokerage allocation, see "Brokerage
Allocation and Other Practices" in Part B.
Portfolio Securities Lending. Although the Portfolio would not intend
to engage in such activity in the ordinary course of business, the Portfolio is
permitted to lend its securities to broker-dealers and other institutional
investors in order to generate additional income. Such loans of portfolio
securities may not exceed 30% of the value of the Portfolio's total assets. In
connection with such loans, the Portfolio will receive collateral consisting of
cash, cash equivalents, U.S. Government securities or irrevocable letters of
credit issued by financial institutions. Such collateral will be maintained at
all times in an amount equal to at least 100% of the current market value of the
securities loaned. The Portfolio can increase its income through the investment
of such collateral. The Portfolio continues to be entitled to the interest
payable or any dividend-equivalent payments received on a loaned security and,
in addition, receive interest on the amount of the loan. However, the receipt of
any dividend-equivalent payments by the Portfolio on a loaned security from the
borrower will not qualify for the dividends-received deduction. Such loans will
be terminable at any time upon specified notice. The Portfolio might experience
risk of loss if the institutions with which it has engaged in portfolio loan
transactions breach their agreements with the Portfolio. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delays in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
experience financial difficulty. Loans will be made only to firms deemed by the
Adviser to be of good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be earned from such loans justifies the risk.
Futures Contracts and Options on Futures Contracts. The Portfolio may
invest its assets in derivative and related instruments subject only to the
Portfolio's investment objective and policies and the requirement that, to avoid
leveraging the Portfolio, the Portfolio maintain segregated accounts consisting
of liquid assets, such as cash, U.S. Government securities, or other high-grade
debt obligations (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under such instruments with
respect to positions where there is no underlying portfolio asset.
The value of some derivative or related instruments in which the
Portfolio invests may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and -- like other investments of the
Portfolio - the ability of the Portfolio to successfully utilize these
instruments may depend in part upon the ability of the Adviser to forecast
interest rates and other economic factors correctly. If the Adviser incorrectly
forecasts such factors and has taken positions in derivative or related
instruments contrary to
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prevailing market trends, the Portfolio could be exposed to the risk of a loss.
The Portfolio might not employ any or all of the instruments described herein,
and no assurance can be given that any strategy used will succeed.
To the extent permitted by the investment objectives and policies of
the Portfolio, and as described more fully in Part B below, the Portfolio may:
purchase, write and exercise call and put options on securities, securities
indexes and foreign currencies (including using options in combination with
securities, other options or derivative instruments); enter into futures
contracts and options on futures contracts; employ forward currency and
interest-rate contracts; purchase and sell mortgage-backed and asset-backed
securities; and purchase and sell structured products.
Risk Factors. As explained more fully in Part B below, there are a
number of risks associated with the use of derivatives and related instruments,
including: there can be no guarantee that there will be a correlation between
price movements in a hedging vehicle and in the portfolio assets being hedged.
Incorrect correlation could result in a loss on both the hedged assets in the
Portfolio and the hedging vehicle so that the portfolio return might have been
greater had hedging not been attempted. This risk is particularly acute in the
case of "cross-hedges" between currencies. The Adviser may incorrectly forecast
interest rates, market values or other economic factors in utilizing a
derivatives strategy. In such a case, the Portfolio may have been in a better
position had it not entered into such strategy. Hedging strategies, while
reducing risk of loss, can also reduce the opportunity for gain. In other words,
hedging usually limits both potential losses as well as potential gains.
Strategies not involving hedging may increase the risk to the Portfolio. Certain
strategies, such as yield enhancement, can have speculative characteristics and
may result in more risk to the Portfolio than hedging strategies using the same
instruments. There can be no assurance that a liquid market will exist at a time
when the Portfolio seeks to close out an option, futures contract or other
derivative or related position. Many exchanges and boards of trade limit the
amount of fluctuation permitted in option or futures contract prices during a
single day, once the daily limit has been reached on particular contract, no
trades may be made that day at a price beyond that limit. In addition, certain
instruments are relatively new and without a significant trading history. As a
result, there is no assurance that an active secondary market will develop or
continue to exist. Activities of large traders in the futures and securities
markets involving arbitrage, "program trading," and other investment strategies
may cause price distortions in these markets. In certain instances, particularly
those involving over-the-counter transactions, forward contracts, foreign
exchanges or foreign boards of trade, there is a greater potential that a
counterparty or broker may default or be unable to perform on its commitments.
In the event of such a default, the Portfolio may experience a loss. In
transactions involving currencies, the value of the currency underlying an
instrument may fluctuate due to many factors, including economic conditions,
interest rates, governmental policies and market forces.
Other Information. Part B contains more detailed information about the
Portfolio, including information related to (i) the Portfolio's investment
policies and restrictions, (ii) risk factors associated with the Portfolio's
policies and investments, (iii) the Portfolio's Trustees, officers and the
administrator and the Adviser, (iv) portfolio transactions, and (v) beneficial
interests in the Portfolio, including rights and liabilities of investors.
ITEM 5. MANAGEMENT OF THE PORTFOLIO.
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The Portfolio's Board of Trustees provides broad supervision over the
affairs of the Portfolio. See "Trustees and Officers" in Item 14 of Part B for a
complete description of the Trustees of the Portfolio.
The Adviser. The Adviser manages the assets at 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. Mark Tincher, Vice President of the Adviser, is
responsible for the day-to-day management of the Portfolio. Mr. Tincher is a
member of the Chase Private Bank's in-house investment management research team,
specializing in technology and financial issues. Mr. Tincher has been with Chase
since May 1988. For its services under the Advisory Agreement, the Adviser will
receive an annual fee computed daily and paid monthly based at an annual rate
equal to 0.40% of the Portfolio's average daily net assets. The Adviser may,
from time to time, voluntarily waive all or a portion of its fees payable under
the Advisory Agreement.
The Adviser, a wholly-owned subsidiary of The Chase Manhattan
Corporation, a registered bank holding company, is a commercial bank offering a
wide range of banking and investment services to customers throughout the United
States and around the world. Its headquarters are at One Chase Manhattan Plaza,
New York, New York 10081. The Adviser, including its predecessor organizations,
has over 100 years of money management experience and renders investment
advisory services to others. Also included among the Adviser's accounts are
commingled trust funds and a broad spectrum of individual trust and investment
management portfolios. These accounts have varying investment objectives.
On August 27, 1995, The Chase Manhattan Corporation announced its entry
into an Agreement and Plan of Merger (the "Merger Agreement") with Chemical
Banking Corporation ("Chemical"), a bank holding company, pursuant to which The
Chase Manhattan Corporation will merge with and into Chemical (the "Holding
Company Merger"). Under the terms of the Merger Agreement, Chemical will be the
surviving corporation in the Holding Company Merger and will continue its
corporate existence under Delaware law under the name "The Chase Manhattan
Corporation" ("New Chase"). The board of directors of each holding company has
approved the Holding Company Merger, which will create the second largest bank
holding company in the United States based on assets. The consummation of the
Holding Company Merger is subject to certain closing conditions. On December 11,
1995, the respective shareholders of The Chase Manhattan Corporation and
Chemical voted to approve the Holding Company Merger. The Holding Company Merger
is expected to be completed on or about March 31, 1996.
Subsequent to the Holding Company Merger, it is expected that the
adviser to the Portfolio, The Chase Manhattan Bank, N.A., will be merged with
and into Chemical Bank. a New York State chartered bank ("Chemical Bank") (the
"Bank Merger" and together with the Holding Company Merger, the "Mergers"). The
surviving bank will continue operations under the name The Chase Manhattan Bank
(as used herein, the term "Chase" refers to The Chase Manhattan Bank, N.A. and
its successor in the Bank Merger, and the term "Adviser" means Chase (including
its successor in the Bank Merger) in its capacity as investment adviser to the
Portfolio). The consummation of the Bank Merger is subject to certain closing
conditions, including the receipt of certain regulatory approvals. The Bank
Merger is expected to occur in July 1996.
Chemical is a publicly owned bank holding company incorporated under
Delaware law and registered under the Federal Bank Holding Company Act of 1956,
as amended. As of December 31, 1995, through its direct or indirect
subsidiaries, Chemical managed more than $57 billion in assets, including
approximately $6.9 billion in mutual fund assets in 11 mutual fund portfolios.
Chemical Bank is a wholly owned subsidiary of Chemical and is a New York State
chartered bank.
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Certain Relationships and Activities. The Adviser and its affiliates
may have deposit, loan and other commercial banking relationships with the
issuers of securities purchased on behalf of the Portfolio, including
outstanding loans to such issuers which may be repaid in whole or in part with
the proceeds of securities so purchased. The Adviser and its affiliates deal,
trade and invest for their own accounts in U.S. Government obligations,
municipal obligations and commercial paper and are among the leading dealers of
various types of U.S. Government obligations and municipal obligations. The
Adviser will not invest the Portfolio's assets in any U.S. Government
obligations, municipal obligations or commercial paper purchased from itself or
any affiliate, although under certain circumstances such securities may be
purchased from other members of an underwriting syndicate in which the Adviser
or an affiliate is a non-principal member. This restriction may limit the amount
or type of U.S. Government obligations, municipal obligations or commercial
paper available to be purchased by the Portfolio. The Adviser has informed the
Portfolio that in making its investment decisions, it does not obtain or use
material inside information in the possession of any other division or
department of the Adviser, including the division that performs services for the
Portfolio as Custodian, or in the possession of any affiliate of the Adviser.
The Administrator. Chase serves as the Administrator pursuant to a
separate administration agreement (the "Administration Agreement"). Under the
Administration Agreement, Chase provides certain administrative services,
including, among other responsibilities, coordinating relationships with
independent contractors and agents; preparing for signature by officers and
filing of certain documents required for compliance with applicable laws and
regulations excluding those of the securities laws of the various states;
preparing financial statements; arranging for the maintenance of books and
records; and providing office facilities necessary to carry out the duties
thereunder. Chase will receive from the Portfolio a fee computed daily and paid
monthly at an annual rate equal to 0.05% of the Portfolio's average daily net
assets. Chase may, from time to time, voluntarily waive all or a portion of its
fees payable to it under the Administration Agreement.
Glass-Steagall Act. Chase has received the opinion of its legal counsel
that it and its affiliates may provide the services described in the Advisory
Agreement and the Administration Agreement, as described above, and the
Custodian Agreement with the Portfolio, as described below, without violating
the federal banking law commonly known as the Glass-Steagall Act. The Act
generally bars banks from publicly underwriting or distributing certain
securities.
The U.S. Supreme Court in its 1981 decision in Board of Governors of
the Federal Reserve System v. Investment Company Institute determined that,
consistent with the requirements of the Glass-Steagall Act, a bank may serve as
an investment adviser to a registered, closed-end investment company. Other
decisions of banking regulators have supported the position that a bank may act
as investment adviser to a registered, open-end investment company. Based on the
advice of its counsel, the Adviser believes that the U.S. Supreme Court's
decision, and these other decisions of banking regulators, permit it to serve as
investment adviser to a registered, open-end investment company.
Regarding the performance of custodial activities, the staff of the
Office of the Comptroller of the Currency, which supervises national banks, has
issued an opinion letter stating that national banks may engage in custodial
activities. Therefore, the Adviser believes, based on advice of counsel, that it
may serve as Custodian to the Portfolio and render the services described below
and as set forth in Custodian Agreement, as an appropriate, incidental national
banking function and as a proper adjunct to its serving as investment adviser
and administrator to the Portfolio.
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Industry practice and regulatory decisions also support a bank's
authority to act as administrator for a registered investment company. Chase, on
the advice of its counsel, believes that it may render the services described in
the Administration Agreement without violating the Glass-Steagall Act
or other applicable banking laws.
Possible future changes in federal law or administrative or judicial
interpretations of current or future law, however, could prevent the Adviser
from continuing to perform investment advisory, custodial or other
administrative services for the Portfolio. If that occurred, the Portfolio's
Board of Trustees promptly would seek to obtain for the Portfolio the services
of another qualified adviser, custodian or administrator, as necessary. Although
no assurances can be given, the Portfolio believes that, if necessary, the
transfer to a new adviser, custodian or administrator could be accomplished
without undue disruption to the its operations.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
The Portfolio has not retained the services of a principal underwriter
or distributor, as interests in the Portfolio are offered solely in private
placement transactions.
Expenses. The expenses of the Portfolio include the compensation of its
Trustees; registration fees; interest charges; taxes; fees and expenses of
independent auditors, of legal counsel and of any transfer agent, custodian,
sub-custodian or registrar of the Portfolio; insurance premiums; and expenses of
calculating the Portfolio's net asset value and net income.
The expenses of the Portfolio also include all fees under the
Administration Agreement; the expenses connected with the execution, recording
and settlement of security transactions; fees and expenses of the Custodian for
all services to the Portfolio, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of preparing and mailing
reports to investors and to governmental officers and commissions; expenses of
meetings of investors; and the advisory fees payable to the Adviser under the
Advisory Agreement.
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 to hold annual meetings of investors but the Portfolio will hold
special meetings of investors when in the judgment of the Trustees it is
necessary or desirable to submit matters for an investor vote. Investors have
the right to communicate with other investors to the extent provided in Section
16(c) of the Investment Company Act of 1940, as amended (the "1940 Act"), in
connection with requesting a meeting of investors for the purpose of removing
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one or more Trustees, which removal requires a two-thirds vote of the
Portfolio's beneficial interests. Investors also have under certain
circumstances the right to remove one or more Trustees without a meeting. Upon
liquidation of the Portfolio, investors would be entitled to share pro rata in
the net assets of the Portfolio available for distribution to investors.
The Portfolio does not intend to distribute to its investors its net
investment income or its net realized capital gains, if any. The end of the
Portfolio's fiscal year is October 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's taxable income, gain,
loss, deductions and credits in determining its income tax liability. The
determination of such share will be made in accordance with the 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.
Investor inquiries may be directed to the Portfolio's exclusive
placement agent, Signature Broker-Dealer Services, Inc., 6 St. James Avenue,
Boston, MA 02116 or to the Portfolio's transfer agent, DST Systems, Inc., at 21
West 10th Street, Kansas City, Missouri 64105.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "General Description of the
Registrant" above.
An investment in the Portfolio may be made in U.S. dollars without a
sales load at the net asset value next determined after an order is received in
"good order" by the Portfolio. There is no minimum initial or subsequent
investment in the Portfolio. No money may be paid to any intermediary in Hong
Kong who is not a dealer or exempt dealer.
The Portfolio reserves the right to cease accepting investments at any
time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each day the New York Stock Exchange is open for trading. At
4:00 p.m., Eastern time, on each such 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 reductions, which are to be effected as of 4:00
p.m., Eastern time, on such day, will then be effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio will then be
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of 4:00 p.m.,
Eastern time, on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the investor's investment in the Portfolio
effected as of 4:00 p.m., Eastern time, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of 4:00 p.m., Eastern time, on
such day, plus or minus, as the case may be, the amount of net additions to or
reductions in the aggregate investments in the Portfolio by all investors in the
Portfolio. The
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percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of 4:00 p.m., Eastern time, on the
following day the New York Stock Exchange is open for trading.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may reduce any portion or all of its
investment at any time without charge at the net asset value next determined
after a request in "good order" is furnished by the investor to the Portfolio.
The proceeds of a reduction will be paid in U.S. dollars by the Portfolio
normally on the next business day after the reduction is effected, but in any
event within seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange 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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PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
Page
General Information and History . . . . . . . . . . . . . . .B-1
Investment Objectives and Policies . . . . . . . . . . . . . B-1
Management of the Fund Portfolio . . . . . . . . . . . . . . B-16
Control Persons and Principal Holders of Securities . . . . .B-21
Investment Advisory and Other Services . . . . . . . . . . . B-21
Brokerage Allocation and Other Practices . . . . . . . . . . B-24
Capital Stock and Other Securities . . . . . . . . . . . . . B-26
Purchase, Redemption and Pricing of Securities . . . . . . . B-28
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . B-29
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . B-30
Calculation of Performance Data . . . . . . . . . . . . . . .B-31
Financial Statements . . . . . . . . . . . . . . . . . . . . B-31
ITEM 12. GENERAL INFORMATION AND HISTORY.
Part A contains additional information about the investment objectives
of Growth and Income Portfolio (the "Portfolio"). This Part B should only be
read in conjunction with Part A. The Portfolio is a New York trust with its
principal office in the Bahamas. Certain qualified investors may invest in the
Portfolio. The Board of Trustees of the Portfolio provides broad supervision
over the affairs of the Portfolio. The Chase Manhattan Bank, N.A. ("Chase") is
the investment adviser (the "Adviser") and administrator (the "Administrator")
for the Portfolio. The Adviser continuously manages the investments of the
Portfolio in accordance with its investment objectives and policies. The
selection of investments for the Portfolio and the way in which they are managed
depend on the conditions and trends in the economy and the financial
marketplaces. A majority of the Trustees of the Portfolio are not affiliated
with the Adviser.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
INVESTMENT OBJECTIVES
The Portfolio seeks long-term capital appreciation, with dividend
income as a secondary objective, through investments primarily in common stocks.
INVESTMENT POLICIES
Part A sets forth the various investment policies applicable to the
Portfolio. For descriptions of the ratings of short-term obligations permitted
as investments by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("Standard & Poor's"), Fitch Investors Service, Inc. ("Fitch"), Duff
& Phelps, Inc. ("Duff") and Thomson BankWatch, Inc. ("TBW"), see "Description of
Ratings" below.
U.S. GOVERNMENT SECURITIES--As indicated in Part A, and although the
Portfolio invests primarily in common stocks, it may also maintain cash reserves
and invest in a variety of short-term debt securities, including obligations
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issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, which have remaining maturities not exceeding one year.
Agencies and instrumentalities that issue or guarantee debt securities and have
been established or sponsored by the U.S. Government include the Bank for
Cooperatives, the Export-Import Bank, the Federal Farm Credit System, the
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal
Intermediate Credit Banks, the Federal Land Banks, the Federal National Mortgage
Association and the Student Loan Marketing Association.
BANK OBLIGATIONS--Investments by the Portfolio in short-term debt
securities as described above also include investments in obligations (including
certificates of deposit and bankers' acceptances) of those U.S. banks which have
total assets at the time of purchase in excess of $1 billion and the deposits of
which are insured by either the Bank Insurance Fund or the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation.
A certificate of deposit is an interest-bearing negotiable certificate
issued by a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date.
COMMERCIAL PAPER--Investments by the Portfolio in short-term debt
securities also include investments in commercial paper, which represents
short-term, unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance companies. The commercial paper purchased
for the Portfolio will consist of direct obligations of domestic issuers which,
at the time of investment, are (i) rated "P-1" by Moody's or "A-1" or better by
Standard & Poor's, (ii) issued or guaranteed as to principal and interest by
issuers or guarantors having an existing debt security rating of "Aa" or better
by Moody's or "AA" or better by Standard & Poor's, or (iii) securities which, if
not rated, are, in Chase's opinion, of an investment quality comparable to rated
commercial paper in which the Portfolio may invest. The rating "P-1" is the
highest commercial paper rating assigned by Moody's and the ratings "A-1" and
"A-1+" are the highest commercial paper ratings assigned by Standard & Poor's.
Debt securities rated "Aa" or better by Moody's or "AA" or better by Standard &
Poor's are generally regarded as high-grade obligations and such ratings
indicate that the ability to pay principal and interest is very strong.
REPURCHASE AGREEMENTS--The Portfolio may, when appropriate, enter into
repurchase agreements only with member banks of the Federal Reserve System and
securities dealers believed creditworthy, and only if fully collateralized by
U.S. Government obligations or other securities in which the Portfolio is
permitted to invest. Under the terms of a typical repurchase agreement, the
Portfolio would acquire an underlying debt instrument for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase the instrument and the Portfolio to resell the instrument at a
fixed price and time, thereby determining the yield during the Portfolio's
holding period. This procedure results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed under the Investment Company Act of 1940, as amended (the "1940
Act"), to be loans collateralized by the underlying securities. All repurchase
agreements entered into by the Portfolio will be fully collateralized at all
times during the period of the agreement in that the value of the underlying
security will be at least equal to the amount of the loan, including the accrued
interest thereon, and the Portfolio or its custodian will have possession of the
collateral, which the Board of Trustees believes will give it a valid, perfected
security interest in the collateral. Whether a repurchase agreement is the
purchase and sale of a security or a collateralized loan has not
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been conclusively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. In the event of default by the
seller under a repurchase agreement construed to be a collateralized loan, the
underlying securities would not be owned by the Portfolio, but would only
constitute collateral for the seller's obligation to pay the repurchase price.
Therefore, the Portfolio may suffer time delays and incur costs in connection
with the disposition of the collateral. The Board of Trustees believes that the
collateral underlying repurchase agreements may be more susceptible to claims of
the seller's creditors than would be the case with securities owned by the
Portfolio. The Portfolio will not be invested in a repurchase agreement maturing
in more than seven days if any such investment together with securities subject
to restrictions on transfer held by the Portfolio exceed 10% of its total net
assets. (See paragraph 5 under "Investment Restrictions" below.) Repurchase
agreements are also subject to the same risks described below with respect to
stand-by commitments.
LOANS OF PORTFOLIO SECURITIES--Certain securities dealers who make
"short sales" or who wish to obtain particular securities for short periods may
seek to borrow them from institutional investors such as the Portfolio. The
Portfolio reserves the right to seek to increase its income by lending its
portfolio securities. Under present regulatory policies, including those of the
Board of Governors of the Federal Reserve System and the Securities and Exchange
Commission (the "SEC"), such loans may be made only to member firms of the New
York Stock Exchange, and are required to be secured continuously by collateral
in cash, cash equivalents, or U.S. Government securities maintained on a current
basis in an amount at least equal to the market value of the securities loaned.
Under a loan, the Portfolio has the right to call a loan and obtain the
securities loaned at any time on five days' notice.
During the existence of a loan, the Portfolio continues to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and also receives compensation based on investment of the collateral. The
Portfolio does not, however, have the right to vote any securities having voting
rights during the existence of the loan, but can call the loan in anticipation
of an important vote to be taken among holders of the securities or of the
giving or withholding of their consent on a material matter affecting the
investment.
As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral if the borrower of the
securities experiences financial difficulty. However, the loans will be made
only to dealers deemed by the Portfolio to be of good standing, and when, in the
judgment of the Portfolio, the consideration that can be earned currently from
securities loans of this type justifies the attendant risk. In the event the
Portfolio makes securities loans, it is not intended that the value of the
securities loaned would exceed 30% of the value of the Portfolio's total assets.
NON-DIVERSIFICATION--The Portfolio has registered as a
"non-diversified" investment company. Investors in the Portfolio will "look
through" the Portfolio's portfolio to the securities held by the Portfolio for
purposes of determining diversification. The Portfolio may invest more than 5%
of its assets in the obligations of a single issuer, subject to diversification
requirements under federal tax laws. At present, these requirements do not
permit more than 25% of the value of the Portfolio's total assets to be invested
in securities (other than various securities issued or guaranteed by the United
States or its agencies or instrumentalities) of any one issuer, at the close of
any calendar quarter. Since a relatively high percentage of the assets of the
Portfolio may be invested in the obligations of a limited number of issuers, the
net asset value an investment in the Portfolio may be more susceptible to any
single economic, political or regulatory occurrence than the net asset value of
a diversified investment company.
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DESCRIPTION OF RATINGS
BOND RATINGS
Moody's--Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong positions of such issues. Bonds
which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuations of protective elements may be
of greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities. Bonds which are rated
A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future. Moody's applies numerical modifiers "1,"
"2" and "3" in each generic rating classification from Aa through B in its
corporate bond rating system. The modifier "1" indicates that the security ranks
in the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Standard & Poor's--Bonds rated AAA have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in small degree. Bonds rated A have a
strong capacity to pay interest and repay principal although they are somewhat
more susceptible to the adverse effects of change in circumstances and economic
conditions than bonds in higher rated categories.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions liable to but slight market fluctuation other than through changes
in the money rate. The prime feature of an AAA bond 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. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit
quality with negligible risk factors; only slightly more than U.S. Treasury
debt. Bonds rated Duff-2, 3 and 4 are judged by Duff to be of high credit
quality with strong protection factors. Risk is modest but may vary slightly
from time to time because of economic conditions.
Bonds rated TBW-1 are judged by TBW to be of the highest credit quality
with a very high degree of likelihood that principal and income will be paid on
a timely basis. Bonds rated TBW-2 offer a strong degree of safety regarding
repayment. The relative degree of safety, however, is not as high as TBW-1.
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COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1-Highest Quality; Prime 2-Higher
Quality; Prime 3-High Quality.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess safety characteristics. Capacity for timely payment on
issues with the designation A-2 is strong. However, the relative degree of
safety is not as high as for issues designated A-1. Issues carrying the
designation A-3 have a satisfactory capacity for timely payment. They are,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
The rating Fitch-1 (Highest Grade) is the highest commercial rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
Additional Policies Regarding Derivative and Related Transactions. As
explained more fully below, the Portfolio may employ derivative and related
instruments as tools in the management of portfolio assets. Put briefly, a
"derivative" instrument may be considered a security or other instrument which
derives its value from the value or performance of other instruments or assets,
interest or currency exchange rates, or indexes. For instance, derivatives
include futures, options, forward contracts, structured notes and various
over-the-counter instruments.
Like other investment tools or techniques, the impact of using
derivatives strategies or similar instruments depends to a great extent on how
they are used. Derivatives are generally used by portfolio managers in three
ways: First, to reduce risk by hedging (offsetting) an investment position.
Second, to substitute for another security particularly where it is quicker,
easier and less expensive to invest in derivatives. Lastly, to speculate or
enhance portfolio performance. When used prudently, derivatives can offer
several benefits, including easier and more effective hedging, lower transaction
costs, quicker investment and more profitable use of portfolio assets. However,
derivatives also have the potential to significantly magnify risks, thereby
leading to potentially greater losses for the Portfolio.
The Portfolio may invest its assets in derivative and related
instruments subject only to the Portfolio's investment objective and policies
and the
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requirement that the Portfolio maintain segregated accounts consisting of liquid
assets, such as cash, U.S. Government securities, or other high-grade debt
obligations (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under such instruments with
respect to positions where there is no underlying portfolio asset so as to avoid
leveraging the Portfolio.
The value of some derivative or similar instruments in which the
Portfolio may invest may be particularly sensitive to changes in prevailing
interest rates or other economic factors, and--like other investments of the
Portfolio --the ability of the Portfolio to successfully utilize these
instruments may depend in part upon the ability of the Adviser to forecast
interest rates and other economic factors correctly. If the Adviser incorrectly
forecasts such factors and has taken positions in derivative or similar
instruments contrary to prevailing market trends, the Portfolio could be exposed
to the risk of a loss. THE PORTFOLIO MIGHT NOT EMPLOY ANY OR ALL OF THE
STRATEGIES DESCRIBED HEREIN, AND NO ASSURANCE CAN BE GIVEN THAT ANY STRATEGY
USED WILL SUCCEED.
Set forth below is an explanation of the various derivatives strategies
and related instruments the Portfolio may employ along with risks or special
attributes associated with them. This discussion is intended to supplement the
discussion in Part A above as well as provide useful information to prospective
investors.
Derivative and Related Instruments. To the extent permitted by the
investment objectives and policies of the Portfolio, and as described more fully
below, the Portfolio may: purchase, write and exercise call and put options on
securities, securities indexes (including using options in combination with
securities, other options or derivative instruments); enter into futures
contracts and options on futures contracts; purchase and sell mortgage-backed
and asset-backed securities; and purchase and sell structured products.
Risk Factors. As explained more fully below and in the discussions of
particular strategies or instruments, there are a number of risks associated
with the use of derivatives and related instruments. There can be no guarantee
that there will be a correlation between price movements in a hedging vehicle
and in the portfolio assets being hedged. As incorrect correlation could result
in a loss on both the hedged assets in the Portfolio and the hedging vehicle so
that the portfolio return might have been greater had hedging not been
attempted. This risk is particularly acute in the case of "cross-hedges" between
currencies. The Adviser may incorrectly forecast interest rates, market values
or other economic factors in utilizing a derivatives strategy. In such a case,
the Portfolio may have been in a better position had it not entered into such
strategy. Hedging strategies, while reducing risk of loss, can also reduce the
opportunity for gain. In other words, hedging usually limits both potential
losses as well as potential gains. Strategies not involving hedging may increase
the risk to the Portfolio. Certain strategies, such as yield enhancement, can
have speculative characteristics and may result in more risk to the Portfolio
than hedging strategies using the same instruments. There can be no assurance
that a liquid market will exist at a time when the Portfolio seeks to close out
an option, futures contract or other derivative or related position. Many
exchanges and boards of trade limit the amount of fluctuation permitted in
option or futures contract prices during a single day; once the daily limit has
been reached on particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain instruments are relatively new and
without a significant trading history. As a result, there is no assurance that
an active secondary market will develop or continue to exist. Finally,
over-the-counter instruments typically do not have a liquid market. Lack of a
liquid market for any reason may prevent the Portfolio from liquidating an
unfavorable position. Activities of large traders in the futures and securities
markets involving arbitrage, "program trading," and other investment strategies
may cause price
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distortions in these markets. In certain instances, particularly those involving
over-the-counter transactions, forward contracts there is a greater potential
that a counterparty or broker may default or be unable to perform on its
commitments. In the event of such a default, the Portfolio may experience a
loss.
Specific Uses and Strategies. Set forth below are explanations of the
Portfolio's use of various strategies involving derivatives and related
instruments.
OPTIONS ON SECURITIES, SECURITIES INDEXES AND DEBT INSTRUMENTS. The
Portfolio may PURCHASE, SELL or EXERCISE call and put options on (i) securities,
(ii) securities indexes, and (iii) debt instruments.
Although in most cases these options will be exchange-traded, the
Portfolio may also purchase, sell or exercise over-the-counter options.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller. As such, over-the-counter options generally have much less market
liquidity and carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities the Portfolio intends to purchase pending its
ability to invest in such securities in an orderly manner. The Portfolio may
also use combinations of options to minimize costs, gain exposure to markets or
take advantage of price disparities or market movements. For example, the
Portfolio may sell put or call options it has previously purchased or purchase
put or call options it has previously sold. These transactions may result in a
net gain or loss depending on whether the amount realized on the sale is more or
less than the premium and other transaction costs paid on the put or call option
which is sold. The Portfolio may write a call or put option in order to earn the
related premium from such transactions. Prior to exercise or expiration, an
option may be closed out by an offsetting purchase or sale of a similar option.
In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period, when
the Portfolio writes a covered call (i.e., where the underlying securities are
held by the Portfolio) has, in return for the premium on the option, given up
the opportunity to profit from a price increase in the underlying securities
above the exercise price, but has retained the risk of loss should the price of
the underlying securities decline. The writer of an option has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price.
If a put or call option purchased by the Portfolio is not sold when it
has remaining value, and if the market price of the underlying security, in the
case of a put, remains equal to or greater than the exercise price or , in the
case of a call, remains less than or equal to the exercise price, the Portfolio
will lose its entire investment in the option. Also, where a put or call option
on a particular security is purchased to hedge against price movements in a
related security, the price of the put or call option may move more or less than
the price of the related security. There can be no assurance that a liquid
market will exist when the Portfolio seeks to close out an option position.
Furthermore, if trading restrictions or suspensions are imposed on the options
markets, the Portfolio may be unable to close out a position.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may
purchase or sell (i) interest-rate futures contracts, (ii) futures contracts on
specified instruments, and (iii) options on these futures contracts ("futures
options").
The futures contracts and futures options may be based on various
securities in which the Portfolio may invest such as foreign currencies,
certificates of deposit, Eurodollar time deposits, securities indices, economic
indices (such as the Consumer Price Indices compiled by the U.S. Department of
Labor) and other financial instruments and indices.
These instruments may be used to hedge portfolio positions and
transactions as well as to gain exposure to markets. For example, the Portfolio
may sell a futures contract--or buy a futures option--to protect against a
decline in value, or reduce the duration, of portfolio holdings. Likewise, these
instruments may be used when the Portfolio intends to acquire an instrument or
enter into a position. For example, the Portfolio may purchase a futures
contract--or buy a futures option--to gain immediate exposure in a market or
otherwise offset increases in the purchase price of securities or currencies to
be acquired in the future. Futures options may also be written to earn the
related premiums.
When writing or purchasing options, the Portfolio may simultaneously
enter into other transactions involving futures contracts or futures options in
order to minimize costs, gain exposure to markets, or take advantage of price
disparities or market movements. Such strategies may entail additional risks in
certain instances. The Portfolio may engage in cross-hedging by purchasing or
selling futures or options on a security or currency different from the security
or currency position being hedged to take advantage of relationships between the
two securities or currencies.
Investments in futures contracts and options thereon involve risks
similar to those associated with options transactions discussed above. The
Portfolio will only enter into futures contracts or options on futures contracts
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system.
FORWARD CONTRACTS. The Portfolio may use foreign currency
and interest-rate forward contracts for various purposes as
described below.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. The Portfolio may
invest in securities denominated in foreign currencies may, in addition to
buying and selling foreign currency futures contracts and options on foreign
currencies and foreign currency futures, enter into forward foreign currency
exchange contracts to reduce the risks or otherwise take a position in
anticipation of changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be a fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
By entering into a forward foreign currency contract, the Portfolio "locks in"
the exchange rate between the currency it will deliver and the currency it will
receive for the duration of the contract. As a result,the Portfolio reduces its
exposure to changes in the value of the currency it will deliver and increases
its exposure to changes in the value of the currency it will exchange into. The
effect on the value of the Portfolio is similar to selling securities
denominated in one currency and purchasing securities denominated in another.
Transactions that use two foreign currencies are sometimes referred to as
"cross- hedges."
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The Portfolio may enter into these contracts for the purpose of hedging
against foreign exchange risk arising from the Portfolio's investments or
anticipated investments in securities denominated in foreign currencies. The
Portfolio may also enter into these contracts for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another.
The Portfolio may also use forward contracts to hedge against changes
in interest rates, increase exposure to a market or otherwise take advantage of
such changes. An interest-rate forward contract involves the obligation to
purchase or sell a specific debt instrument at a fixed price at a future date.
MORTGAGE-BACKED SECURITIES. The Portfolio may purchase mortgage-backed
securities--i.e., securities representing an ownership interest in a pool of
mortgage loans issued by lenders such as mortgage bankers, commercial banks and
savings and loan associations. Mortgage loans included in the pool--but not the
security itself--may be insured by the Government National Mortgage Association
or the Federal Housing Administration or guaranteed by the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation or the Veterans
Administration. Mortgage-backed securities provide investors with payments
consisting of both interest and principal as the mortgages in the underlying
mortgage pools are paid off. ALTHOUGH PROVIDING THE POTENTIAL FOR ENHANCED
RETURNS, MORTGAGE-BACKED SECURITIES CAN ALSO BE VOLATILE AND RESULT IN
UNANTICIPATED LOSSES.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of the principal invested
far in advance of the maturity of the mortgages in the pool. THE ACTUAL YIELD OF
A MORTGAGE-BACKED SECURITY MAY BE ADVERSELY AFFECTED BY THE PREPAYMENT OF
MORTGAGES INCLUDED IN THE MORTGAGE POOL UNDERLYING THE SECURITY.
The Portfolio may also invest in securities representing interests in
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and in pools of certain other asset-backed bonds and
mortgage pass-through securities. Like a bond, interest and prepaid principal
are paid, in most cases, semi-annually. CMOs are collateralized by portfolios of
mortgage pass-through securities guaranteed by the U.S. Government, or U.S.
Government-related, entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. Monthly payment of principal received
from the pool of underlying mortgages, including prepayments, is first returned
to investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been retired.
An investor is partially protected against a sooner than desired return of
principal because of the sequential payments.
REMICs include governmental and/or private entities that issue a fixed
pool of mortgages secured by an interest in real property. REMICs are similar to
CMOs in that they issue multiple classes of securities. REMICs issued by private
entities are not U.S. Government securities and are not directly guaranteed by
any government agency. They are secured by the underlying collateral of the
private issuer.
STRUCTURED PRODUCTS. The Portfolio may purchase interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of certain debt obligations, thereby creating "structured
products." The cash flow on the underlying instruments may be apportioned among
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the newly issued structured products to create securities with different
investment characteristics such as varying maturities, payment priorities and
interest rate provisions. THE EXTENT OF THE PAYMENTS MADE WITH RESPECT TO
STRUCTURED PRODUCTS IS DEPENDENT ON THE EXTENT OF THE CASH FLOW ON THE
UNDERLYING INSTRUMENTS.
The Portfolio may also invest in other types of structured products,
including among others, spread trades and notes linked by a formula (e.g., a
multiple) to the price of an underlying instrument or currency. A spread trade
is an investment position relating to a difference in the prices or interest
rates of two securities or currencies where the value of the investment position
is determined by movements in the difference between the prices or interest
rates, as the case may be, of the respective securities or currencies.
INVESTMENTS IN STRUCTURED PRODUCTS GENERALLY ARE SUBJECT TO GREATER
VOLATILITY THAN AN INVESTMENT DIRECTLY IN THE UNDERLYING MARKET OR SECURITY. In
addition, because structured products are typically sold in private placement
transactions, there currently is no active trading market for structured
products.
Additional Restrictions on the Use of Futures and Option Contracts.
Regulations of the CFTC require that the Portfolio enter into transactions in
futures contracts and options thereon for hedging purposes only, in order to
assure that they are not deemed to be a "commodity pools" under such
regulations. In particular, CFTC regulations require that all short futures
positions be entered into for the purpose of hedging the value of securities
held in the Portfolio's portfolio, and that all long futures positions either
constitute bona fide hedging transactions, as defined in such regulations, or
have a total value not in excess of an amount determined by reference to certain
cash and securities positions maintained for the Portfolio, and accrued profits
on such positions. In addition, the Portfolio may not purchase or sell such
instruments if, immediately thereafter, the sum of the amount of initial margin
deposits on its existing futures positions and premiums paid for options on
futures contracts would exceed 5% of the market value of the Portfolio's total
assets.
When the Portfolio purchases a futures contract, an amount of cash or
cash equivalents or high quality debt securities will be deposited in a
segregated account with the Portfolio's custodian or sub-custodian so that the
amount so segregated, plus the initial deposit and variation margin held in the
account of its broker, will at all times equal the value of the futures
contract, thereby insuring that the use of such futures is unleveraged.
The Portfolio's ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that the
Portfolio derive less than 30% of its gross income from the sale or other
disposition of stock or securities held for less than three months.
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following investment restrictions which
may not be changed without approval by a "majority of the outstanding
securities" of the Portfolio which, as used herein, means the vote of the lesser
of (i) 67% or more of the total beneficial interests of the Portfolio present at
a meeting, if the holders of more than 50% of the total beneficial interests of
a Portfolio are present or represented by proxy, or (ii) more than 50% of the
total beneficial interests of the Portfolio.
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The Portfolio may not:
(1) borrow money or pledge, mortgage or hypothecate its assets, except
that, as a temporary measure for extraordinary or emergency purposes, it may
borrow in an amount not to exceed 1/3 of the current value of its net assets,
including the amount borrowed, and 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 by the Portfolio only from banks and only to accommodate
requests for withdrawals from the Portfolio while effecting an orderly
liquidation of portfolio securities), provided that collateral arrangements with
respect to the Portfolio's permissible futures and options transactions,
including initial and variation margin, are not considered to be a pledge of
assets for purposes of this restriction; the Portfolio will not purchase
investment securities if its outstanding borrowing, including repurchase
agreements, exceeds 5% of the value of the Portfolio's total assets; for
additional related restrictions, see clause (i) under the caption "State and
Federal Restrictions" hereafter;
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit may be obtained as may be necessary for the
clearance of purchases and sales of securities and except that, with respect to
the Portfolio's permissible options and futures transactions, deposits of
initial and variation margin may be made in connection with the purchase,
ownership, holding or sale of futures or options positions;
(3) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the Securities Act of
1933, as amended (the "1933 Act"), in selling a portfolio security;
(4) write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) the purchase, ownership,
holding or sale of warrants where the grantor of the warrants is the issuer of
the underlying securities, (ii) the writing, purchasing or selling of puts,
calls or combinations thereof with respect to U.S. Government securities or
(iii) with respect to the Portfolio's permissible futures and options
transactions, the writing, purchasing, ownership, holding or selling of futures
and options positions or of puts, calls or combinations thereof with respect to
futures;
(5) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (including securities that are not readily
marketable, but not including repurchase agreements maturing in not more than
seven days) if, as a result thereof, more than 10% of the Portfolio's total
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days);
(6) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business, other than (i) with respect to the Portfolio's
permissible futures and options transactions or (ii) forward purchases and sales
of foreign currencies or securities (each Portfolio reserves the freedom of
action to hold and to sell real estate acquired as a result of its ownership of
securities);
(7) purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of such issuer to be
held by the Portfolio;
(8) make short sales of securities or maintain a short position; except
that the Portfolio may only make such short sales of securities or maintain a
short position if when a short position is open the Portfolio owns an equal
amount of such securities or securities convertible into or exchangeable,
without
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payment of any further consideration, for securities of the same issue as, and
equal in amount to, the securities sold short, and unless not more than 10% of
the Portfolio's net assets (taken at market value) is held as collateral for
such sales at any one time (it is the present intention of management to make
such sales only for the purpose of deferring realization of gain or loss for
federal income tax purposes; such sales would not be made of securities subject
to outstanding options);
(9) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of the Portfolio's investment
objectives, up to 25% of the assets of the Portfolio, at market value at the
time of each investment, may be invested in any one industry, except that, with
respect to the Portfolio's permissible futures and options transactions,
positions in options and futures shall not be subject to this restriction, and
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; or
(10) 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 the Portfolio's permissible options and futures transactions,
including deposits of initial and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction.
The Portfolio is not permitted to make loans to other persons, except
(i) through the lending of its portfolio securities and provided that any such
loans not exceed 30% of the Portfolio's total assets (taken at market value),
(ii) through the use of repurchase agreements or the purchase of short-term
obligations and provided that not more than 10% of the Portfolio's total assets
will be invested in repurchase agreements maturing in more than seven days, or
(iii) by purchasing, subject to the limitation in paragraph 5 above, a portion
of an issue of debt securities of types commonly distributed privately to
financial institutions, for which purposes the purchase of short-term commercial
paper or a portion of an issue of debt securities which are part of an issue to
the public shall not be considered the making of a loan.
For purposes of the investment restrictions described above and the
state and federal restrictions described below, the issuer of a tax-exempt
security is deemed to be the entity (public or private) ultimately responsible
for the payment of the principal of and interest on the security. For purposes
of Investment Restriction No. 9, industrial development bonds, where the payment
of principal and interest is the ultimate responsibility of companies within the
same industry, are grouped together as an "industry".
In addition, the Portfolio has adopted the following operating policy
with respect to entering into repurchase agreements which is not fundamental and
which may be changed without investor approval. The Portfolio may enter into
repurchase agreements (a purchase of and a simultaneous commitment to resell a
security at an agreed-upon price on an agreed-upon date) only with member banks
of the Federal Reserve System and securities dealers believed creditworthy and
only if fully collateralized by U.S. Government obligations or other securities
in which the Portfolio is permitted to invest. If the vendor of a repurchase
agreement fails to pay the sum agreed to on the agreed-upon delivery date, the
Portfolio would have the right to sell the securities constituting the
collateral; however, the Portfolio might thereby incur a loss and in certain
cases may not be permitted to sell such securities. Moreover, as noted above in
paragraph 5, the Portfolio may not, as a matter of fundamental policy, invest
more than 10% of its total assets in repurchase agreements maturing in more than
seven days.
The Portfolio has no current intention of engaging in the following
activities in the foreseeable future: (i) writing, purchasing or selling puts,
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calls or combinations thereof with respect to U.S. Government securities; (ii)
making short sales of securities or maintaining a short position; or (iii)
purchasing voting securities of any issuer.
STATE AND FEDERAL RESTRICTIONS: In order to comply with certain federal
and state statutes and regulatory policies, as a matter of operating policy, the
Portfolio will not:
(i) sell any security which it does not own unless by virtue of its
ownership of other securities the Portfolio has at the time of sale a right to
obtain securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is conditional
the sale is made upon the same conditions,
(ii) invest for the purpose of exercising control or
management,
(iii) purchase securities issued by any registered 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 plan of merger or consolidation; provided, however, that the securities
of any registered investment company will not be purchased on behalf of the
Portfolio if such purchase at the time thereof would cause more than 5% or 10%
of the Portfolio's total assets (taken at the greater of cost or market value)
to be invested in the securities of such issuer or the securities of registered
investment companies, respectively, or would cause more than 3% of the
outstanding voting securities of any such issuer to be held by the Portfolio;
and provided, further, that securities issued by any open-end investment company
shall not be purchased on behalf of the Portfolio,
(iv) invest more than 10% of the Portfolio's total assets (taken at the
greater of cost or market value) in securities that are not readily marketable,
(v) as to 50% of the Portfolio's total assets, purchase securities of
any issuer if such purchase at the time thereof would cause the Portfolio to
hold more than 10% of any class of securities of such issuer, for which purposes
all indebtedness of an issuer shall be deemed a single class and all preferred
stock of an issuer shall be deemed a single class,
(vi) invest more than 5% of the Portfolio's assets in companies which,
including predecessors, have a record of less than three years' continuous
operation,
(vii) invest in warrants valued at the lower of cost or market, in
excess of 5% of the value of the Portfolio's net assets, and no more than 2% of
such value may be warrants which are not listed on the New York or American
Stock Exchanges, or
(viii) purchase or retain in the Portfolio's portfolio any 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 by 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.
These policies are not fundamental and may be changed by the Board of
Trustees without investor approval.
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<PAGE>
PERCENTAGE AND RATING RESTRICTIONS: If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in Part A is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of
the portfolio securities or a later change in the rating of a portfolio security
of the Portfolio will not be considered a violation of policy.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees and officers of the Portfolio and their principal
occupations for at least the past five years are set forth below. Their titles
may have varied during that period. Asterisks indicate those Trustees and
officers that are "interested persons" (as defined in the 1940 Act) of the
Portfolio. Unless otherwise indicated below, the address of each officer is 125
W. 55th Street, New York, New York 10019.
Names, Position(s) with Principal Occupations and Business Experience
the Portfolio and Address for the Past 5 Years
- ------------------------- ---------------------------------------------
Fergus Reid, III* Trustee. Chairman of the Board of Trustees of
Trustee Mutual Fund Group and Mutual Fund Trust.
202 June Road Chairman and Chief Executive Officer, Lumelite
Stamford, CT 06903 Corporation, since September 1985; Trustee,
Morgan Stanley Portfolios; from 1982 through
1984, Managing Director, Bernhard Associates
(venture capital firm). Address: 971 West Road,
New Canaan, Connecticut 06840.
Dr. Richard E. Ten Haken Trustee. Former District Superintendent of
Trustee Schools, Monroe No.2 and Orleans Counties, New
4 Barnfield Road, York; Chairman of the Finance and the Audit and
Pittsford, New York 14534 Accounting Committees, Member of the Executive
Committee; Chairman of the Board and President,
New York State Teachers' Retirement System.
Address: 4 Barnfield Road, Pittsford, New York
14534.
H. Richard Vartabedian* Trustee , President and Chairman of Growth and
Chairman Income. Consultant, Republic Bank of New York;
P.O. Box 296, Beach Road, formerly, Senior Investment Officer, Division
Hendrick's Head Executive of the Investment Management Division
Southport, ME 04576 of The Chase Manhattan Bank, N.A., 1980 through
1991. Address: P.O. Box 296, Beach Road,
Hendrick's Head, Southport, Maine 04576
Stuart W. Cragin, Jr. Trustee. Retired; formerly, President, Fairfield
Trustee Testing Laboratory, Inc. He has previously
108 Valley Road served in a variety of marketing, manufacturing
Cos Cob, CT and general management positions with Union Camp
Corp., Trinity Paper & Plastics Corp., and
Conover Industries.
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Address: 108 Valley Road, Cos Cob, Connecticut
06807.
Irving L. Thode Trustee. Retired; Vice President of Quotron
Trustee Systems. He has previously served in a number of
80 Perkins Road executive positions with Control Data Corp.,
Greenwich, CT including President of its Latin American
Operations, and General Manager of its Data
Services business. Address: 80 Perkins Road,
Greenwich, Connecticut 06830.
The Board of Trustees met seven times during the twelve months ended December
31, 1995, and each of the Trustees attended at least 75% of those meetings.
The Board of Trustees of the Trust presently has an Audit Committee. The members
of the Audit Committee are Messrs. Ten Haken (Chairman), Vartabedian Cragin,
Thode and Reid. The function of the Audit Committee is to recommend independent
auditors and monitor accounting and financial matters. The Audit Committee met
two times during the fiscal year ended October 31, 1995.
* Interested Trustees as defined under the 1940 Act.
REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS:
Each Trustee is reimbursed for expenses incurred in attending each meeting of
the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the Adviser is compensated for his or her services according to a
fee schedule which recognizes the fact that each Trustee also serves as a
Trustee of other investment companies advised by the Adviser. Each Trustee
receives a fee, allocated among all investment companies for which the Trustee
serves, which consists of an annual retainer component and a meeting fee
component. Effective August 21, 1995, each Trustee of the Vista Funds receives a
quarterly retainer of $12,000 and an additional per meeting fee of $1,500. Prior
to August 21, 1995, the quarterly retainer was $9,000 and the per-meeting fee
was $1,000. The Chairman of the Trustees and the Chairman of the Investment
Committee each receive a 50% increment over regular Trustee total compensation
for serving in such capacities for all the investment companies advised by the
Adviser.
Set forth below is information regarding compensation paid or accrued during the
fiscal year ended October 31, 1995 for each Trustee of the Portfolio:
Compen- Pension or
sation Retirement
paid by Benefits Total
Growth & Accrued Compensation
Income as Fund from "Fund
Expenses Complex"(1)
Fergus Reid, III, Trustee $ 0 0 $78,456.65
Richard E. Ten Haken, Trustee 0 0 52,304.39
H. Richard Vartabedian, Trustee $3750 0 74,804.44
Stuart W. Cragin, Jr., Trustee 0 0 52,304.39
Irving L. Thode, Trustee 0 0 52,304.39
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<PAGE>
(1) Data reflects total compensation earned during the period January 1,
1995 to December 31, 1995 for service as a Trustee to all thirty-two
(Portfolios) Funds advised by the Adviser.
VISTA FUNDS RETIREMENT PLAN FOR ELIGIBLE TRUSTEES
Effective August 21, 1995, the Trustees also instituted a Retirement Plan for
Eligible Trustees (the "Plan") pursuant to which each Trustee (who is not an
employee of the Adviser, Administrator or Distributor or any of their
affiliates) may be entitled to certain benefits upon retirement from the Board
of Trustees. Pursuant to the Plan, the normal retirement date is the date on
which the eligible Trustee has attained age 65 and has completed at least five
years of continuous service with one or more of the investment companies advised
by the Adviser (collectively, the "Covered Portfolios"). Each Eligible Trustee
is entitled to receive from the Covered Portfolios an annual benefit commencing
on the first day of the calendar quarter coincident with or following his date
of retirement equal to 10% of the highest annual compensation received from the
Covered Portfolios multiplied by the number of such Trustee's years of service
(not in excess of 10 years) completed with respect to any of the Covered
Portfolios. Such benefit is payable to each eligible Trustee in monthly
installments for the life of the Trustee.
Set forth in the table below are the estimated annual benefits payable to an
eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of December 31, 1995, the estimated credited years
of service for Messrs. Reid, Ten Haken, Vartabedian, Cragin, and Thode are 11,
11, 3, 3 and 3, respectively.
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<PAGE>
HIGHEST ANNUAL COMPENSATION PAID BY ALL VISTA FUNDS
40,000 45,000 50,000 55,000
YEARS OF
SERVICE ESTIMATED ANNUAL BENEFIT UPON RETIREMENT
10 40,000 45,000 50,000 55,000
9 36,000 40,500 45,000 49,500
8 32,000 36,000 40,000 44,000
7 28,000 31,500 35,000 38,500
6 24,000 27,000 30,000 33,000
5 20,000 22,500 25,000 27,500
Effective August 21, 1995, the Trustees instituted a Deferred Compensation Plan
for Eligible Trustees (the "Deferred Compensation Plan") pursuant to which each
Trustee (who is not an employee of the Adviser, Administrator or Distributor or
any of their affiliates) may enter into agreements with the Funds whereby
payment of the Trustees' fees are deferred until the payment date elected by the
Trustee (or the Trustee's termination of service). The deferred amounts are
deemed invested in shares of a Fund on whose Board the Trustee sits, subject to
the Trustee's election. The deferred amounts are paid out in a lump sum or over
a period of several years as elected by the Trustee at the time of deferral. If
a deferring Trustee dies prior to the distribution of amounts held in the
deferral account, the balance of the deferral account will be distributed to the
Trustee's designated beneficiary in a single lump sum payment as soon as
practicable after such deferring Trustee's death. The following Eligible
Trustees have executed a deferred compensation agreement for the 1996 calendar
year: Messrs. Ten Haken, Thode and Vartabedian.
PRINCIPAL EXECUTIVE OFFICERS:
The principal executive officers of the Trust are as follows:
H. Richard Vartabedian - President and Trustee.
Martin R. Dean - Treasurer and Assistant Secretary; Vice President, BISYS
Portfolios Group, Inc.
Ann Bergin - Secretary and Assistant Treasurer; Vice President, BISYS Funds
Group, Inc.; Secretary, Vista Broker-Dealer Services, Inc.
OWNERSHIP OF SHARES OF THE PORTFOLIOS. The Trustees and officers as a group
directly or beneficially own less than 1% of the Portfolio.
The Declaration of Trust provides that the Trust 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 Trust, unless,
as to liability to the Trust or its shareholders, 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 with respect to any matter
unless it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interest of the Trust.
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
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in wilful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
The Portfolio pays no direct remuneration to any officer of the Trust.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of January 31, 1996, Vista Growth and Income Fund, a series of Mutual
Fund Group, Blanchard Growth and Income Fund and Maxim Growth and Income Fund
(collectively, the "Controlling Funds") own substantially all of the value of
the outstanding interests in the Portfolio. Because the Controlling Funds
control the Portfolio , they could take actions without the approval of any
other investor.
The Controlling Funds have informed the Portfolio that whenever one or
more of the Controlling Funds are requested to vote on any proposal of the
Portfolio, such Fund will hold a meeting of shareholders and will cast its vote
as instructed by its shareholders. It is anticipated that other investors in the
Portfolio will follow the same or a similar practice.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
ADVISER
The Adviser 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, Chase makes investment decisions for the
Portfolio. Pursuant to the terms of the Advisory Agreement, the Adviser provides
the Portfolio with such investment advice and supervision as it deems necessary
for the proper supervision of the Portfolio's investments. The Adviser
continuously provides investment programs and determines from time to time what
securities shall be purchased, sold or exchanged and what portion of the
Portfolio's assets shall be held uninvested. The Adviser furnishes, at its own
expense, all services, facilities and personnel necessary in connection with
managing the investments and effecting portfolio transactions for the Portfolio.
The other expenses attributable to, and payable by the Portfolio, are described
under "Expenses" in Part A. The Advisory Agreement for the Portfolio will
continue in effect from year to year only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the Portfolio's outstanding voting securities and, in either case, by a majority
of the 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.
Pursuant to the terms of the Advisory Agreement, the Adviser is
permitted to render services to others. The Advisory Agreement is terminable
without penalty by the Portfolio on not more than 60 days', nor less than 30
days', written notice when authorized either by a majority vote of the
Portfolio's investors or by a vote of a majority of the Board of Trustees, or by
the Adviser on not more than 60 days', nor less than 30 days', written notice,
and will automatically terminate in the event of its "assignment" (as defined in
the 1940 Act). The Advisory Agreement provides that the Adviser shall not 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 portfolio
transactions for the Portfolio, except for wilful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties thereunder.
In the event the operating expenses of the Portfolio, including all
investment advisory, administration and sub-administration fees, but excluding
brokerage commissions and fees, taxes, interest and extraordinary expenses such
as litigation, for any fiscal year exceed the most restrictive expense
limitation applicable to the Portfolio imposed by the securities laws or
regulations thereunder of any state in which the shares of investors in the
Portfolio are qualified for sale, as such limitations may be raised or lowered
from time to
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<PAGE>
time, the Adviser shall reduce its advisory fee (which fee is described below)
to the extent of its share of such excess expenses. The amount of any such
reduction to be borne by the Adviser shall be deducted from the monthly advisory
fee otherwise payable with respect to the Portfolio during such fiscal year; and
if such amounts should exceed the monthly fee, the Adviser shall pay to the
Portfolio its share of such excess expenses no later than the last day of the
first month of the next succeeding fiscal year.
In consideration of the services provided by the Adviser pursuant to the
Advisory Agreement, the Portfolio pays an investment advisory fee computed and
paid monthly based on a rate equal to 0.40% with respect to the Portfolio
average daily net assets, on an annualized basis for the Portfolio's
then-current fiscal year. However, the Adviser may voluntarily agree to waive a
portion of the fees payable to it.
ADMINISTRATOR
See Part A for a general description of the services provided by Chase as
Administrator pursuant to its administration agreement (the "Administration
Agreement") with the Portfolio. Pursuant to the Administration Agreement, Chase
serves as administrator of the Portfolio. Chase provides certain administrative
services to the Portfolio, including, among other responsibilities, coordinating
the negotiation of contracts and fees with, and the monitoring of performance
and billing of, the Portfolio's independent contractors and agents; preparation
for signature by an officer of the Portfolio of all documents required to be
filed for compliance by the Portfolio with applicable laws and regulations
excluding those of the securities laws of various states; responding to investor
inquiries; and arranging for the maintenance of books and records of the
Portfolio and providing, at its own expense, office facilities, equipment and
personnel necessary to carry out its duties. The Administrator does not have any
responsibility or authority for the management of the Portfolio, the
determination of investment policy, or for any matter pertaining to the
placement of beneficial interests in the Portfolio.
The Administration Agreement provides that Chase may render
administrative services to others. The Administration Agreement will continue in
effect from year to year only if such continuance is specifically approved at
least annually by the Board of Trustees or by vote of a majority of the
Portfolio's outstanding voting securities and, in either case, by a majority of
the Trustees who are not parties to the Administration Agreement or "interested
persons" (as defined in the 1940 Act) of any such party. The Administration
Agreement is terminable without penalty by the Portfolio on 60 days' written
notice when authorized either by a majority vote of the Portfolio's investors or
by vote of a majority of the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Portfolios, or by the Administrator on 60 days' written notice, and will
automatically terminate in the event of its "assignment" (as defined in the 1940
Act). The Administration Agreement also provides that Chase and its personnel
shall not be liable for any error of judgment or mistake of law or for any act
or omission in the administration or management of the Portfolio, except for
wilful misfeasance, bad faith or gross negligence in the performance of its or
their duties or by reason of reckless disregard of its or their obligations and
duties under the Administration Agreement.
In addition, the Administration Agreement provides that, in the event
the operating expenses of the Portfolio, including all investment advisory,
administration and sub-administration fees, but excluding brokerage commissions
and fees, taxes, interest and extraordinary expenses such as litigation, for any
fiscal year exceed the most restrictive expense limitation applicable to the
Portfolio imposed by the securities laws or regulations thereunder of any state
in which the shares of investors in the Portfolio are qualified for sale, as
such limitations may be raised or lowered from time to time, Chase shall reduce
its administration fee (which fee is described below) to the extent of its share
of such excess expenses. The amount of any such reduction to be borne by Chase
shall be deducted from the monthly administration fee otherwise payable to
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Chase during such fiscal year; and if such amounts should exceed the monthly
fee, Chase shall pay to the Portfolio its share of such excess expenses no later
than the last day of the first month of the next succeeding fiscal year.
In consideration of the services provided by Chase pursuant to the
Administration Agreement, the Administrator receives from the Portfolio a fee
computed and paid monthly at an annual rate equal to 0.05% of the Portfolio's
average daily net assets, on an annualized basis for the Portfolio's
then-current fiscal year. Chase may voluntarily waive a portion of the fees
payable to it.
TRANSFER AGENT AND CUSTODIAN
DST Systems, Inc. ("DST") acts as the Portfolio's transfer agent (the
"Transfer Agent"). For its services as Transfer Agent, DST receives such
compensation as is from time to time agreed upon by the Portfolio and DST. DST's
address is 127 W. 10th Street, Kansas City, Missouri 64105. Pursuant to a
Custodian Agreement, Chase acts as the custodian (the "Custodian") of the
Portfolio's assets, for which Chase receives such compensation as is from time
to time agreed upon by the Portfolio and Chase. The responsibilities of the
Custodian include safeguarding and controlling the Portfolio's cash and
securities, handling the receipt and delivery of securities, determining income
and collecting interest on the Portfolio's investments, maintaining books of
original entry for Portfolio accounting and other required books and accounts,
and calculating the daily net asset value of beneficial interests in the
Portfolio. Portfolio securities and cash may be held by other sub-custodian
banks if such arrangements are reviewed and approved by the Trustees. The
investment division of Chase which serves as the Custodian does not determine
the investment policies of the Portfolio or decide which securities will be
bought or sold on behalf of the Portfolio or otherwise have access to or share
material inside information with the internal division that performs advisory
services for the Portfolio.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 153 East 53rd Street, New York, New York 10022,
independent accountants of the Portfolio, provides the Portfolio with audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
COUNSEL
Counsel to the Portfolio is Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel, 919 Third Avenue, New York, New York 10022.
HONG KONG REPRESENTATIVE
The Hong Kong Representative of the Portfolio is The Chase Manhattan Bank,
N.A.-Hong Kong branch, World Trade Center, 280 Gloucester Road, Causeway Bay,
Hong Kong. Copies of this Registration Statement, including exhibits, may be
inspected free of charge at the office of the Hong Kong Representative.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
Specific decisions to purchase or sell securities for the Portfolio are
made by a portfolio manager who is an employee of the Adviser and who is
appointed and supervised by senior officers of the Adviser. Changes in the
Portfolio's investments are reviewed by the Board of Trustees. The portfolio
manager may serve other clients of the Adviser in a similar capacity. Money
market instruments are generally purchased in principal transactions without
payment of brokerage commissions.
The frequency of portfolio transactions--the portfolio turnover
rate--will vary from year to year depending upon market conditions. Because a
high turnover rate may increase transaction costs and the possibility of taxable
short-term
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<PAGE>
gains, the Adviser will weigh the added costs of short-term investment against
anticipated gains. For the period November 29, 1993 through October 31, 1995 and
the fiscal year ended October 31, 1995 the portfolio turnover rate of the
Portfolio was 57% and 71%, respectively.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Portfolio and
other clients of the Adviser on the basis of their professional capability, the
value and quality of their brokerage services, and the level of their brokerage
commissions. Debt securities are traded principally in the over-the-counter
market through dealers acting on their own account and not as brokers. In the
case of securities traded in the over-the-counter market (where no stated
commissions are paid but the prices include a dealer's markup or markdown), the
Adviser normally seeks to deal directly with the primary market makers unless,
in its opinion, best execution is available elsewhere. In the case of securities
purchased from underwriters, the cost of such securities generally includes a
fixed underwriting commission or concession. From time to time, soliciting
dealer fees are available to the Adviser on the tender of portfolio securities
in so-called tender or exchange offers. Such soliciting dealer fees are in
effect recaptured for the Portfolio by the Adviser. At present, no other
recapture arrangements are in effect.
Under the Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause the Portfolio to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction for the Portfolio in
excess of the amount other broker-dealers would have charged for the transaction
if the Adviser determines in good faith that the greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of either a particular
transaction or the Adviser's overall responsibilities to the Portfolio or to its
clients. Not all of such services are useful or of value in advising the
Portfolio.
The term "brokerage and research services" includes advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or of purchasers or sellers of
securities, furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts, and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of
the Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Portfolio and the Adviser's other clients as part of providing advice as to
the availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other
factual information or services ("Research") to the Adviser for no consideration
other than brokerage or underwriting commissions. Securities may be bought or
sold through such broker-dealers, but at present, unless otherwise directed by
the Portfolio, a commission higher than one charged elsewhere will not be paid
to such a firm solely because it provided Research to the Adviser.
The Adviser's investment management personnel will attempt to evaluate the
quality of Research provided by brokers. Results of this effort are sometimes
used by the Adviser as a consideration in the selection of brokers to execute
portfolio transactions. However, the Adviser would be unable to quantify the
amount of commissions which are paid as a result of such Research because a
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substantial number of transactions are effected through brokers which provide
Research but which are selected principally because of their execution
capabilities.
The management fees that the Portfolio pays to the Adviser will not be
reduced as a consequence of the Adviser's receipt of brokerage and research
services. To the extent the Portfolio's portfolio transactions are used to
obtain such services, the brokerage commissions paid by the Portfolio will
exceed those that might otherwise be paid, by an amount which cannot be
presently determined. Such services would be useful and of value to the Adviser
in serving the Portfolio and other clients and, conversely, such services
obtained by the placement of brokerage business of other clients would be useful
to the Adviser in carrying out its obligations to the Portfolio. While such
services are not expected to reduce the expenses of the Adviser, the Adviser
would, through use of the services, avoid the additional expenses which would be
incurred if it should attempt to develop comparable information through its own
staff.
In certain instances, there may be securities that are suitable for the
Portfolio as well as 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
the same investment decision is made for more than one client or 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 the Portfolio or one or more other clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Portfolio is
concerned. However, it is believed that the ability of the Portfolio to
participate in volume transactions will generally produce better executions for
the Portfolio.
For the period November 29, 1993 through October 31, 1994 and the fiscal
year ended October 31, 1995 the Portfolio paid brokerage commissions of
$1,515,504 and $2,352,596, respectively.
No portfolio transactions are executed with the Adviser, or with any
affiliate of the Adviser, acting either as principal or as broker. Similarly, no
securities transactions are executed with any person or entity which directly or
indirectly controls a beneficial interest in the Portfolio equal to 20% or more
of the net asset value of the Portfolio.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share pro rata in the Portfolio's net assets available for distribution to its
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Investments in the Portfolio may not be transferred. Certificates
representing an investor's beneficial interest in the Portfolio are issued only
upon the written request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees of the Portfolio if they
choose to do so and in such event the other investors in the Portfolio would not
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be able to elect any Trustee. The Portfolio is not required to hold annual
meetings of investors but the Portfolio will hold special meetings of investors
when in the judgment of the Portfolio's Trustees it is necessary or desirable to
submit matters for an investor vote. No material amendment may be made to the
Portfolio's Declaration of Trust without the affirmative majority vote of
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 the amount of their
investment), except that if the Trustees of the Portfolio recommend such sale of
assets, the approval by vote of a majority of the investors (with the vote of
each being in proportion to the amount of its investment) will be sufficient.
The Portfolio may also be terminated (i) upon liquidation and distribution of
its assets, if approved by the vote of two-thirds of its investors (with the
vote of each being in proportion to the amount of its investment), or (ii) by
the Trustees of the Portfolio by written notice to its investors.
The Portfolio is organized as a trust under the laws of the State of New
York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater portion
of the liabilities and obligations of the Portfolio than its proportionate
beneficial interest in the Portfolio. The Declaration of Trust also provides
that the Portfolio shall maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Portfolio,
its investors, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. The Declaration of Trust provides
that the trustees and officers will be indemnified by the Portfolio against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Portfolio, unless, as to
liability to the Portfolio or its investors, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect to any
other matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Portfolio. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
The Portfolio will continue in existence until 20 years after the death of
the last survivor of certain specified individuals listed in its Declaration of
Trust unless it is terminated or dissolved earlier in accordance with the
provisions of that Declaration.
The Portfolio will furnish to each of its investors at least annually
as of the end of its fiscal year a report of operations containing a balance
sheet and a statement of income prepared in conformity with generally accepted
accounting principles and an opinion of an independent public accountant on such
financial
B-23
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statements. The Portfolio will also furnish to each of its investors at least
semiannually an interim report of operations containing an unaudited balance
sheet and an unaudited statement of income.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "Purchase of Securities" and
"Redemption or Repurchase" in Part A.
The Portfolio's portfolio securities and other assets are valued as
follows:
Equity securities are valued at the last sale price on the exchange on
which they are primarily traded or on the NASDAQ system for unlisted national
market issues, or at the last quoted bid price for securities in which there
were no sales during the day or for unlisted securities not reported on the
NASDAQ system. Bonds and other fixed income securities (other than short-term
obligations, but including listed issues) are valued on the basis of valuations
furnished by a pricing service, the use of which has been approved by the Board
of Trustees. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques that take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations which mature in 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Futures and option contracts that are traded on commodities or securities
exchanges are normally valued at the settlement price on the exchange on which
they are traded. Portfolio securities (other than short-term obligations) for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
Interest income on long-term obligations is determined on the basis of
interest accrued plus amortization of discount (generally, the difference
between issue price and stated redemption price at maturity) and premiums
(generally, the excess of purchase price over stated redemption price at
maturity). Interest income on short-term obligations is determined on the basis
of interest and discount accrued less amortization of premium.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each day that the New York Stock Exchange is open for business.
As of 4:00 p.m. (Eastern time) on each such day, the value of each investor's
interest in the Portfolio will be determined by multiplying the net asset value
of the Portfolio by the percentage representing that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or reductions
which are to be effected on that day will then be effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio will then be
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of 4:00 p.m. on such
day plus or minus, as the case may be, the amount of net additions to or
reductions in the investor's investment in the Portfolio effected on such day
and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the
amount of net additions to or reductions in the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest in the
Portfolio as of 4:00 p.m. on the following day the New York Stock Exchange is
open for trading.
The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption 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
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<PAGE>
redemption in kind). If payment is made in securities, an investor may incur
transaction expenses in converting these securities into cash.
The Portfolio will not redeem in kind except in circumstances in which the
owner of a beneficial interest in the Portfolio is permitted to redeem in kind
or unless requested by such owner.
ITEM 20. TAX STATUS.
Taxation of the Portfolio. The Portfolio is not subject to federal income
taxation. Instead, the investors in the Portfolio must take into account, in
computing their federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.
The Portfolio is not subject to any income or franchise tax in the State of New
York or the Commonwealth of Massachusetts.
Distributions received by investors in the Portfolio generally will not
result in the investor's recognizing any gain or loss for federal income tax
purposes, except that (1) gain will be recognized to the extent that any cash
distributed exceeds the investor's basis in its interest in the Portfolio prior
to the distribution, (2) income or gain may be realized if the distribution is
made in liquidation of the investor's entire interest in the Portfolio and
includes a disproportionate share of any unrealized receivables held by the
Portfolio, and (3) loss may be recognized if the distribution is made in
liquidation of the investor's entire interest in the Portfolio and consists
solely of cash and/or unrealized receivables. The investor's basis in its
interest in the Portfolio generally will equal the amount of cash and the basis
of any property which the investor invests in the Portfolio, increased by the
investor's share of income from the Portfolio, and decreased by the amount of
any cash distributions and the basis of any property distributed from the
Portfolio.
The Portfolio will not be required to pay any federal income or excise
tax.
Income received by the Portfolio from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Portfolio's assets to be invested
in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of the
value of the Portfolio's total assets at the close of its taxable year consists
of 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 shareholders of the entities which have invested in the Portfolio. Pursuant
to such election, the amount of foreign taxes paid will be included in the
income of such shareholders, and such shareholders (except tax-exempt
shareholders) may, subject to certain limitations, claim either a credit or
deduction for the taxes.
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.
Foreign Withholding Taxes. Income received by the Portfolio from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries.
Foreign Investors. The tax consequences to a foreign investor of an
investment in the Portfolio may be different from those described herein.
Foreign investors are advised to consult their own tax advisers with respect to
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the particular tax consequences to a foreign investor of an investment in the
Portfolio.
It is not expected that any Hong Kong or principal taxes will be levied on
the Portfolio's income or capital, or on an investor in the Portfolio upon a
reduction in or redemption of the beneficial interest of that investor.
ITEM 21. UNDERWRITERS.
Not applicable.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
Audited financial statements and reports thereon are incorporated herein
by reference from the Portfolio's Annual Report to Shareholders for the fiscal
year ended October 31, 1995 as filed with Securities and Exchange commission by
Mutual Fund Group via Edgar on Form N-30D on December 29, 1995, accession
number: 000095 0123-95-003915.
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<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS INCLUDED IN PART A:
Not applicable
FINANCIAL STATEMENTS INCLUDED IN PART B:
Audited financial statements and reports thereon are
incorporated herein by reference from the Portfolio's Annual
Report to Shareholders for the fiscal year ended October 31,
1995 as filed with Securities and Exchange commission by
Mutual Fund Group via Edgar on Form N-30D on December 29,
1995, accession number: 000095 0123-95-003915.
FINANCIAL STATEMENTS INCLUDED IN PART C:
None.
(b) EXHIBITS:
1 Declaration of Trust.1
2 By-Laws.1
5 Investment Advisory Agreement.2
8 Custodian Agreement.2
9 Administrative Services Agreement.2
10 Consent of Kramer, Levin, Naftalis, Nessen, Kamin
& Frankel 3
1 Filed as Exhibit to Registrant's Registration Statement on
Form N-1A filed on October 19, 1993
2 Filed as an Exhibit to Registrant's Registration Statement
on February 28, 1994.
3 Filed herewith
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
TITLE OF CLASS NUMBER OF RECORD HOLDERS
AS OF FEBRUARY 1, 1996
Beneficial Interests 3
<PAGE>
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser and administrator are insured under an errors
and omissions liability insurance policy. The Registrant and its officers are
also insured under the fidelity bond required by Rule 17g-1 under the Investment
Company Act of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Chase Manhattan Bank, N.A. (the "Adviser") is a commercial bank
providing a wide range of banking and investment services.
To the knowledge of the Registrant, none of the directors or executive
officers of the Adviser, except those described below, are or have been, at any
time during the past two years, engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain directors
and executive officers of the Adviser also hold or have held various positions
with bank and non-bank affiliates of the Adviser, including its parent, The
Chase Manhattan Corporation. Each director listed below is also a director of
The Chase Manhattan Corporation.
Principal Occupation or Other
Position with the Employment of a Substantial Nature
Name Adviser During the Past Two Years
- ----------------- ----------------- -----------------------------------
Thomas G. Labreque Chairman of the Chairman, Chief Executive Officer
Board, Chief and a Director of The Chase
Executive Officer Manhattan Corporation and a
and Director Director of AMAX, Inc.
Richard J. Boyle Vice Chairman of the Vice Chairman of the Board and a
Board and Director Director of The Chase Manhattan
Corporation and a Trustee of
Prudential Realty Trust
Robert R. Douglass Vice Chairman of the Vice Chairman of the Board and a
Board and Director Director of The Chase Manhattan
Corporation and Trustee of HRE
Properties
Joan Ganz Cooney Director Chairman of the Executive Committee
of the Board of Trustees, formerly
Chief Executive Officer, of
Children's Television Workshop and
a Director of each of Johnson &
Johnson, Metropolitan Life
Insurance Company and Xerox
Corporation
Edward S. Finkelstein Director Retired Chairman and Chief
Executive Officer and Director of
R. H. Macy & Co., Inc.; and a
Director of Time Warner Inc.
C-2
<PAGE>
Principal Occupation or Other
Position with the Employment of a Substantial Nature
Name Adviser During the Past Two Years
- ----------------- ----------------- -----------------------------------
H. Laurance Fuller Director Chairman, President, Chief
Executive Officer and Director of
Amoco Corporation and Director of
Abbott Laboratories
Howard C. Kauffman Director Retired President of Exxon
Corporation and a Director of each
of Pfizer Inc. and Ryder System,
Inc.
Paul W. MacAvoy Director Dean of the Yale School of
Organization and Management
David T. McLaughlin Director President and Chief Executive
Officer of The Aspen Institute,
Chairman of Standard Fuse
Corporation and a Director of each
of ARCO Chemical Company and
Westinghouse Electric Corporation
Edmund T. Pratt, Jr. Director Chairman Emeritus, formerly
Chairman and Chief Executive
Officer, of Pfizer Inc. and a
Director of each of Pfizer Inc.,
Celgene Corp., General Motors
Corporation and International Paper
Company
Henry B. Schacht Director Chairman and Chief Executive
Officer of Cummins Engine Company,
Inc. and a Director of each of
American Telephone and Telegraph
Company and CBS Inc.
A. Alfred Taubman Director Chairman and Director, formerly
also Chief Executive Officer, of
The Taubman Company, Inc., majority
shareholder and chairman of
Sotheby's Holdings, Inc., owner of
Woodward & Lothrop, Inc. and its
subsidiary, John Wanamaker, and
Chairman of A&W Restaurants, Inc.
and a Director of R.H. Macy & Co.,
Inc.
C-3
<PAGE>
Principal Occupation or Other
Position with the Employment of a Substantial Nature
Name Adviser During the Past Two Years
- ----------------- ----------------- -----------------------------------
Donald H. Trautlein Director Retired Chairman and Chief
Executive Officer of Bethlehem
Steel Corporation and a Director of
each of Data General Corporation
and Phoenix Re Corporation
Kay R. Whitmore Director Chairman of the Board, President
and Chief Executive Officer and
Director of Eastman Kodak Company
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
DST Systems, Inc. 21 W. 10th Street
(transfer agent) Kansas City, MO 64105
The Chase Manhattan Bank, N.A. 1211 Avenue of the Americas
(investment adviser, administrator New York, New York 10036
and custodian)
Signature Broker-Dealer Services, Inc. 6 St. James Avenue, Suite 900
(exclusive placement agent) Boston, MA 02116
ITEM 31. MANAGEMENT SERVICES.
Not applicable
ITEM 32. UNDERTAKINGS.
Not applicable
C-4
<PAGE>
SIGNATURES
Growth and Income Portfolio has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York on the 21st day of February 1996.
GROWTH AND INCOME PORTFOLIO
By /s/ H. Richard Vartabedian
H. Richard Vartabedian, Chairman
This amendment to the Registration Statement on Form N-1A of Growth and
Income Portfolio has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
/s/ H. Richard Vartabedian Chairman and Trustee February 21, 1996
- --------------------------
H. Richard Vartabedian
/s/Richard E. Ten Haken Trustee February 21, 1996
- -----------------------
Richard E. Ten Haken
/s/ Stuart W. Cragin, Jr. Trustee February 21, 1996
- -------------------------
Stuart W. Cragin, Jr.
/s/ Fergus Reid, III Trustee February 21, 1996
- --------------------
Fergus Reid, III
/s/ Irving L. Thode Trustee February 21, 1996
- --------------------
Irving L. Thode
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER
(10) Consent of Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel
C-7
Exhibit No. 10
Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
<PAGE>
KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
February 27, 1996
Growth and Income Portfolio
125 West 55th Street
New York, New York 10019
Re:Registration Statement on Form N-1A
File No. 811-8084
---------------------------------------
Gentlemen:
We hereby consent to the reference of our firm as counsel in this Registration
Statement on Form N-1A.
Very truly yours,
/s/Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel
