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BT INSTITUTIONAL
PROSPECTUS: July 12, 1995, as amended September 18, 1995
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information (SAI) with the same date has been filed
with the Securities and Exchange Commission, and is incorporated herein by
reference. You may request a free copy of the Statement by calling the Fund's
Service Agent at 1-800-422-6577.
UNLIKE MOST OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN THE LIQUID ASSETS
PORTFOLIO (THE "PORTFOLIO") WHICH IS A SEPARATE FUND WITH AN IDENTICAL
INVESTMENT OBJECTIVE. SEE "SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND
STRUCTURE" ON PAGE 10.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BANKERS TRUST COMPANY AND THE SHARES ARE NOT FEDERALLY GUARANTEED OR INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE U.S. GOVERNMENT, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. THE FUND INTENDS TO MAINTAIN A CONSTANT $1.00
PER SHARE NET ASSET VALUE, ALTHOUGH THERE CAN BE NO ASSURANCE THAT IT WILL BE
ABLE TO DO SO.
INSTITUTIONAL
LIQUID ASSETS
FUND
Seeks a high level of current income to the extent consistent with liquidity and
the preservation of capital.
BANKERS TRUST COMPANY
Investment Adviser of the
Portfolio and Administrator
SIGNATURE BROKER-
DEALER SERVICES, INC.
Distributor
6 St. James Avenue
Boston, Massachusetts 02116
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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Page
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Summary of Fund Expenses 3
Investment Objective and Policies 4
Risk Factors; Matching the Fund to Your Investment Needs 9
Net Asset Value 11
Purchase and Redemption of Shares 12
Dividends, Distributions and Taxes 14
Performance Information and Reports 15
Management of the Trust and BT Investment Portfolios 16
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SUMMARY OF FUND EXPENSES
The following table provides (i) a summary of expenses relating to purchases
and sales of shares of Institutional Liquid Assets Fund (the "Fund"), and the
aggregate annual operating expenses of the Fund and the Liquid Assets
Portfolio (the "Portfolio"), as a percentage of average net assets of the Fund
and (ii) an example illustrating the dollar cost of such expenses on a $1,000
investment in the Fund. THE TRUSTEES OF THE BT INSTITUTIONAL FUNDS (THE
"TRUST") BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND AND THE
PORTFOLIO WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH THE
FUND WOULD INCUR IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER
AND THE INVESTABLE ASSETS ("ASSETS") OF THE FUND WERE INVESTED DIRECTLY IN THE
TYPE OF SECURITIES BEING HELD BY THE PORTFOLIO.
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Annual Operating Expenses
(as a percentage of the average daily net assets of the Fund)
..............................................................................
Investment advisory fee 0.15%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.01
..............................................................................
Total operating expenses (after reimbursements or waivers) 0.16%
..............................................................................
Example 1 year 3 years
..............................................................................
You would pay the following expenses on a
$1,000 investment, assuming: (1) 5% annual
return and (2)redemption at the end of
each time period $2 $5
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The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. While
reimbursement of distribution expenses in amounts up to 0.10% of average net
assets are authorized to be made pursuant to the Plan of Distribution under Rule
12b-1 of the Investment Company Act of 1940, as amended (the "1940 Act"), it is
not expected that any payments will actually be made under that plan in the
foreseeable future. The expense table and the example reflect a voluntary
undertaking by Bankers Trust or Signature Broker-Dealer Services, Inc.
("Signature") to waive or reimburse expenses such that the total operating
expenses will not exceed 0.16% of the Fund's average net assets annually. In
addition, until the granting by the Securities and Exchange Commission ("SEC")
of an application for an exemptive order filed by the Fund and Bankers Trust
(see "Risk Factors -- Matching the Fund to Your Investment Needs"), Bankers
Trust or Signature also has agreed to waive or reimburse all of the Fund's and
Portfolio's operating expenses. In the absence of these undertakings, assuming
total assets of $1 billion in the Fund and $1.01 billion in the Portfolio, it is
estimated that the total operating expenses would be equal to approximately
0.30% of the Fund's average net assets annually. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. Moreover, while each example assumes a 5%
annual return, actual performance will vary and may result in a return greater
or less than 5%.
The Fund is sold by Signature as the Trust's distributor (the "Distributor") to
customers of Bankers Trust or to customers of another bank or a dealer or other
institution that has a sub-shareholder servicing agreement with Bankers Trust
(along with Bankers Trust, a "Service Agent"). Some Service Agents may impose
certain conditions on their customers in addition to or different from those
imposed by the Fund and may charge their customers a direct fee for their
services. Each Service Agent has agreed to transmit to shareholders who are its
customers appropriate disclosures of any fees that it may charge them directly.
For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and BT Investment Portfolios" herein.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks a high level of current income consistent with liquidity and the
preservation of capital through investment in high quality money market
instruments.
The Trust seeks to achieve the investment objective of the Fund by investing all
the Assets of the Fund in the Portfolio, which has the same investment objective
as the Fund. The Portfolio is a series of BT Investment Portfolios (the
"Portfolio Trust"), an open-end management investment company. There can be no
assurance that the investment objective of either the Fund or the Portfolio will
be achieved. The Fund's investment objective is not a fundamental policy and may
be changed upon 30 days written notice to, but without the approval of, the
Fund's shareholders. The investment objective of the Portfolio is a fundamental
policy which may only be changed by a majority vote of the investors in the
Portfolio. See "Special Information Concerning Master-Feeder Fund Structure" on
page 10.
Since the investment characteristics of the Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
and investment policies of the Portfolio. Additional information about the
investment policies of the Portfolio appears in the Statement of Additional
Information of the Fund.
LIQUID ASSETS PORTFOLIO
The Portfolio will attempt to achieve its investment objective by investing in
the following money market instruments:
Bank Obligations. The Portfolio may invest in U.S. dollar-denominated fixed rate
or variable rate obligations of U.S. or foreign banks which are rated in the
highest short term rating category by any two nationally recognized statistical
rating organizations ("NRSROs") (or one NRSRO if that NRSRO is the only such
NRSRO which rates such obligations) or, if not so rated, are believed by Bankers
Trust, acting under the supervision of the Board of Trustees of the Portfolio
Trust, to be of comparable quality. Bank obligations in which the Portfolio
invests include certificates of deposit, bankers' acceptances, time deposits and
other U.S. dollar-denominated instruments issued or supported by the credit of
U.S. or foreign banks. If Bankers Trust, acting under the supervision of the
Board of Trustees of the Portfolio Trust, deems the instruments to present
minimal credit risk, the Portfolio may invest in obligations of foreign banks or
foreign branches and subsidiaries of U.S. and foreign banks. Investments in
these obligations may entail risks that are different from those of investments
in obligations of U.S. domestic banks because of differences in political,
regulatory and economic systems and conditions. These risks include future
political and economic developments, currency blockage, the possible imposition
of withholding taxes on interest payments, differing reserve requirements,
reporting and recordkeeping requirements and accounting standards, possible
seizure or nationalization of deposits, difficulty or inability of pursuing
legal remedies and obtaining judgments in foreign courts, possible establishment
of exchange controls or the adoption of other foreign governmental restrictions
that might affect adversely the payment of principal and interest on bank
obligations. Under normal market conditions, the Portfolio will invest more than
25% of its assets in the foreign and domestic bank obligations described above.
The Portfolio's concentration of its investments in bank obligations will cause
the Portfolio to be subject to the risks peculiar to the domestic and foreign
banking industries to a greater extent than if its investments were not so
concentrated.
Commercial Paper. The Portfolio may invest in fixed rate or variable rate
commercial paper, including variable rate master demand notes, issued by U.S. or
foreign corporations. Commercial paper when purchased by the Portfolio must be
rated in the highest short term rating category by any two NRSROs (or one NRSRO
if that NRSRO is the only such NRSRO which rates such security) or, if not so
rated, must be believed by Bankers Trust, acting under the supervision of the
Board of Trustees of the Portfolio Trust, to be of comparable quality. Any
commercial paper issued by a foreign corporation and purchased by the Portfolio
must be U.S. dollar-denominated and must not be subject to foreign withholding
tax at the time of purchase. Investing in foreign commercial paper generally
involves risks similar to those described above relating to obligations of
foreign banks or foreign branches and subsidiaries of U.S. and foreign banks.
Variable rate master demand notes are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Because variable rate master demand notes are direct lending
arrangements between the Portfolio and the issuer, they are not normally traded.
Although no active secondary market may exist for these notes, the Portfolio
will purchase only those notes under which it may demand and receive payment of
principal and accrued interest daily or may resell the note to a third party.
While the notes are not typically rated by credit rating agencies, issuers of
variable rate master demand notes must satisfy Bankers Trust, acting under the
supervision of the Board of Trustees of the Portfolio Trust, that the same
criteria as set forth above for issuers of commercial paper are met. In the
event an issuer of a variable rate master demand note defaulted on its payment
obligation, the Portfolio might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default.
U.S. Government Obligations. The Portfolio may invest in obligations issued or
guaranteed by the U.S. Treasury or by agencies or instrumentalities of the U.S.
Government ("U.S. Government Obligations"). Obligations of certain agencies and
instrumentalities of the U.S. Government, such as short-term obligations of the
Government National Mortgage Association, are supported by the "full faith and
credit" of the U.S. Government; others, such as those of the Export-Import Bank
of the U.S., are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law.
Other Debt Obligations. The Portfolio may invest in deposits, bonds, notes and
debentures of issuers that at the time of purchase have outstanding short term
obligations meeting the above short term rating requirements, or if there are no
such short term ratings, are determined by Bankers Trust to be of comparable
quality and are rated in the top two highest long term rating categories by two
NRSROs (or one NRSRO if that NRSRO is the only such NRSRO which rates the
security).
The Portfolio may also invest in securities generally referred to as asset-
backed securities, which directly or indirectly represent a participation
interest in, or are secured by and payable from, a stream of payments generated
by particular assets such as motor vehicle or credit card receivables.
Asset-backed securities provide periodic payments that generally consist of both
interest and principal payments. Consequently, the life of an asset-backed
security varies with the prepayment and loss experience of the underlying
assets.
Repurchase Agreements. The Portfolio may engage in repurchase agreement
transactions with banks and governmental securities dealers approved by the
Board of Trustees of the Portfolio. Under the terms of a typical repurchase
agreement, the Portfolio would acquire U.S. Government Obligations of any
remaining maturity for a relatively short period (usually not more than one
week), subject to an obligation of the seller to repurchase, and the Portfolio
to resell, the obligation at an agreed price and time, thereby determining the
yield during the Portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Portfolio's
holding period. The value of the underlying securities will be at least equal at
all times to the total amount of the repurchase obligations, including interest.
The Portfolio bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Portfolio is delayed in
or prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which the Portfolio seeks to assert these
rights. Bankers Trust, acting under the supervision of the Board of Trustees of
the Portfolio Trust, reviews the creditworthiness of those banks and dealers
with which the Portfolio enters into repurchase agreements and monitors on an
ongoing basis the value of the securities subject to repurchase agreements to
ensure that it is maintained at the required level.
Securities Lending. The Portfolio is permitted to lend up to 20% of the total
value of its securities to brokers, dealers and other financial organizations.
These loans must be secured continuously by cash or equivalent collateral or by
a letter of credit at least equal to 100% of the current market value of the
securities loaned plus accrued income. By lending its securities, the Portfolio
can increase its income by continuing to receive income on the loaned securities
as well as by the opportunity to receive interest on the collateral. Any gain or
loss in the market price of the borrowed securities which occurs during the term
of the loan inures to the Portfolio and its investors. There may be risks of
delay in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially.
Reverse Repurchase Agreements. The Portfolio may enter into reverse repurchase
agreements. In a reverse repurchase agreement the Portfolio agrees to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed date and price. At the time the
Portfolio enters into a reverse repurchase agreement it will place in a
segregated custodial account cash, U.S. Government Obligations or other high
grade, liquid debt instruments having a value equal to the repurchase price,
including accrued interest. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Portfolio may decline below the
repurchase price of the securities. Reverse repurchase agreements are considered
to be borrowings by the Portfolio for purposes of the limitations described in
"Additional Investment Limitations" below and in the Trust's Statement of
Additional Information.
When-Issued and Delayed-Delivery Securities. To secure prices deemed
advantageous at a particular time, the Portfolio may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Portfolio will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Portfolio
may include securities purchased on a "when, as and if issued" basis under which
the issuance of the securities depends on the occurrence of a subsequent event.
Securities purchased on a when-issued or delayed-delivery basis may expose the
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
Upon purchasing a security on a when-issued or delayed-delivery basis, the
Portfolio will maintain a segregated account at the Portfolio's custodian
containing cash, U.S. Government Obligations or other high grade liquid debt
instruments in an amount at least equal to the when-issued or delayed-delivery
commitment.
Illiquid Securities. The Portfolio may not invest more than 10% of its net
assets in securities which are illiquid or otherwise not readily marketable. If
a security becomes illiquid after purchase by the Portfolio, the Portfolio will
normally sell the security unless to do so would not be in the best interests of
shareholders.
PORTFOLIO QUALITY AND MATURITY
The Portfolio will maintain a dollar-weighted average maturity of 90 days or
less. All securities in which the Portfolio invests will have or be deemed to
have remaining maturities of 397 days or less on the date of their purchase,
will be denominated in U.S. dollars and will have been granted the required
ratings established herein by two NRSROs (or one NRSRO if that NRSRO is the only
such NRSRO which provides such ratings), or if not so rated, are believed by
Bankers Trust, under the supervision of the Portfolio Trust's Board of Trustees,
to be of comparable quality. Currently, there are six rating agencies which have
been designated by the SEC as an NRSRO. These organizations and their highest
short term rating category (which also may be modified by a "+") are: Duff and
Phelps, Inc., D-1; Fitch Investors Services, LP, F-1; Moody's Investors Service
Inc., Prime-1; Standard & Poor's Corp., A-1; IBCA Limited and IBCA Inc., A-1;
Thomson Bank Watch, Inc., TBW-1. A description of all short and long term
ratings is provided in the Appendix to the Statement of Additional Information.
Bankers Trust, acting under the supervision of and procedures adopted by the
Board of Trustees of the Portfolio Trust, will also determine that all
securities purchased by the Portfolio present minimal credit risks. Bankers
Trust will cause the Portfolio to dispose of any security as soon as practicable
if the security is no longer of the requisite quality, unless such action would
not be in the best interest of the Portfolio.
ADDITIONAL INVESTMENT LIMITATIONS
The Fund has the same investment restrictions as the Portfolio, except that the
Fund may invest all of its Assets in another open-end investment company with
substantially the same investment objectives, such as the Portfolio. The
Portfolio may not invest more than 25% of its total assets in the securities of
issuers in any single industry (excluding U.S. Government Obligations and
repurchase agreements), except that, under normal market conditions, more than
25% of the total assets of the Portfolio will be invested in foreign and
domestic bank obligations. As an operating policy, the Portfolio may not invest
more than 5% of its total assets in the obligations of any one issuer except for
U.S. Government Obligations and repurchase agreements, which may be purchased
without limitation. The Portfolio is also authorized to borrow, including
entering into reverse repurchase transactions, in an amount up to 10% of its
total assets for temporary purposes, but not for leverage, and to pledge its
assets to the same extent in connection with these borrowings. At the time of an
investment, the Portfolio's aggregate holdings of repurchase agreements having a
remaining maturity of more than seven calendar days (or which may not be
terminated within seven calendar days upon notice by the Portfolio), time
deposits having a remaining maturity of more than seven calendar days and other
illiquid securities will not exceed 10% of the Portfolio's net assets. If
changes in the liquidity of certain securities cause the Portfolio to exceed
such 10% limit, the Portfolio will take steps to bring the aggregate amount of
its illiquid securities back below 10% of its net assets as soon as practicable,
unless such action would not be in the best interest of the Portfolio. The
Fund's and the Portfolio's limitations on investment in a single industry and on
borrowing may not be changed without the approval of the shareholders of the
Fund or the investors in the Portfolio, as the case may be. All other investment
policies and limitations described in this prospectus may be changed by a vote
of the Trustees of the Trust or the Portfolio Trust, as applicable. The
Statement of Additional Information contains further information on the Fund's
and the Portfolio's investment restrictions.
RISK FACTORS; MATCHING THE FUND TO YOUR INVESTMENT NEEDS
The Fund is designed as a cash management vehicle for institutional investors
seeking high current income approximating money market rates while remaining
conveniently liquid with a stable share price. The Portfolio follows practices
which enable the Fund to attempt to maintain a $1.00 share price: limiting
average dollar-weighted maturity of the securities held by the Portfolio to 90
days or less; buying securities with remaining maturities of 397 days or less as
determined under Rule 2a-7 under the 1940 Act; and buying only high quality
securities with minimal credit risks. Of course, the Fund cannot guarantee a
$1.00 share price, but these practices help to minimize any price fluctuations
that might result from rising or declining interest rates. While the Portfolio
invests in high quality money market securities, you should be aware that your
investment is not without risk. All money market instruments, including U.S.
Government Obligations, can change in value when interest rates or an issuer's
creditworthiness changes.
It is expected that the majority of investors in the Fund will issue standing
orders, effective in the late afternoon of each day on which the Fund is open
(each such day, a "Valuation Day"), to "sweep" into the Fund cash balances
remaining in accounts at Bankers Trust. Because the Fund may receive significant
purchase orders late in a Valuation Day, the Portfolio may be unable to take
advantage of suitable investment opportunities on that date. To assist the
Portfolio in remaining fully invested, the Portfolio intends to request that the
SEC grant it an order permitting the Portfolio and Bankers Trust jointly to
enter into repurchase agreements and other investments with non-affiliated
banks, broker-dealers or other issuers with respect to amounts estimated to be
received on any day through the operation of the sweep program. Such investments
will be apportioned between the Portfolio and Bankers Trust in such a manner as
to maximize the investment of cash by the Portfolio. While in the past the SEC
has granted orders permitting similar sweep programs, there is no assurance that
it will continue to do so.
Until such an order is granted, the Portfolio will be unable to engage in such
transactions with Bankers Trust and may have significant uninvested cash
balances at the end of each Valuation Day. Accordingly, Bankers Trust or
Signature has agreed to waive or reimburse the Fund and the Portfolio for all
operating expenses until the order is granted. It is expected that these waivers
and reimbursements will be sufficient to offset the impact of the uninvested
cash; however it is possible that they may be insufficient to do so.
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE Unlike most other
mutual funds which directly acquire and manage their own portfolio securities,
the Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio, a series of a separate registered investment company
with the same investment objective as the Fund. Therefore, an investor's
interest in the Portfolio's securities is indirect, like investments in other
investment companies and pooled investment vehicles. In addition to selling a
beneficial interest to the Fund, the Portfolio may sell beneficial interests to
other mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to sell their shares at the same public offering
price as the Fund due to variations in sales commissions and other operating
expenses. Therefore, investors in the Fund should be aware that these
differences may result in differences in returns experienced by investors in the
different funds that invest in the Portfolio. Such differences in returns are
also present in other mutual fund structures. Information concerning other
holders of interests in the Portfolio is available from Bankers Trust at (800)
422-6577.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Except as permitted by the SEC, whenever the Trust is requested to
vote on matters pertaining to the Portfolio, the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes in the same proportion
as the votes of the Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
Trust's votes representing Fund shareholders not voting will be voted by the
Trustees or officers of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote. Certain changes in the Portfolio's
investment objective, policies or restrictions may require the Fund to withdraw
its interest in the Portfolio. Any such withdrawal could result in a
distribution "in kind" of portfolio securities (as opposed to a cash
distribution from the Portfolio). If securities are distributed, the Fund could
incur brokerage, tax or other charges in converting the securities to cash. In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding the
above, there are other means for meeting redemption requests, such as borrowing.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the Assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to but without the approval of the Fund's shareholders. If there is
a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of the Portfolio is a fundamental
policy. Shareholders of the Fund will receive 30 days prior written notice with
respect to any change in the investment objective of the Fund or the Portfolio.
For descriptions of the investment objective, policies and restrictions of the
Portfolio, see "Investment Objective and Policies." For descriptions of the
management of the Portfolio, see "Management of the Trust and BT Investment
Portfolios" herein and "Management of the Trust and Portfolios" in the Statement
of Additional Information. For descriptions of the expenses of the Portfolio,
see "Management of the Trust and BT Investment Portfolios" herein.
NET ASSET VALUE
The net asset value per share of the Fund is calculated on each Valuation Day,
currently each Monday through Friday, except (a) January 1st, Martin Luther
King, Jr.'s Birthday (the third Monday in January), Presidents' Day (the third
Monday in February), Memorial Day (the last Monday in May), July 4th, Labor Day
(the first Monday in September), Columbus Day (the second Monday in October),
Veteran's Day (November 11th), Thanksgiving Day (the last Thursday in November)
and December 25th; and (b) the preceding Friday or the subsequent Monday when
one of the calendar determined holidays falls on a Saturday or Sunday,
respectively.
The net asset value per share of the Fund is calculated on each Valuation Day as
of the close of regular trading on the New York Stock Exchange Inc. (the "NYSE")
(currently 4:00 p.m., New York time). The net asset value per share of the Fund
is computed by dividing the value of the Fund's assets (i.e., the value of its
investment in the Portfolio and other assets), less all liabilities, by the
total number of its shares outstanding. The Fund's net asset value per share
will normally be $1.00.
The assets of the Portfolio are valued by using the amortized cost method of
valuation. This method involves valuing each security held by the Portfolio at
its cost at the time of its purchase and thereafter assuming a constant
amortization to maturity of any discount or premium. Accordingly, immaterial
fluctuations in the market value of the securities held by the Portfolio will
not be reflected in the Fund's net asset value. The Board of Trustees of the
Portfolio Trust will monitor the valuation of assets by this method and will
make such changes as it deems necessary to assure that the assets are valued
fairly and in good faith by the Portfolio.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
The Trust accepts purchase orders for shares of the Fund at the net asset value
per share of the Fund next determined on each Valuation Day. See "Net Asset
Value" above. There is no sales charge on the purchase of shares, but costs of
distributing shares of the Fund may be reimbursed from its assets, as described
herein. The minimum initial investment in the Fund is $10 million. The
subsequent minimum investment in the Fund is $500,000. Service Agents may impose
initial and subsequent investment minimums that differ from these amounts.
Shares of the Fund may be purchased in only those states where they may be
lawfully sold.
Purchase orders for shares of the Fund will receive, on any Valuation Day, the
net asset value next determined following receipt by the Service Agent and
transmission to Bankers Trust, as the Trust's transfer agent (the "Transfer
Agent") of such order. If the purchase order is received by the Service Agent
and transmitted to the Transfer Agent prior to 4:00 p.m. (New York time) and if
payment in the form of federal funds is received on that day by Bankers Trust,
as the Trust's custodian (the "Custodian"), the shareholder will receive the
dividend declared on that day. If the purchase order is received by the Service
Agent and transmitted to the Transfer Agent after 4:00 p.m. (New York time), the
shareholder will receive the dividend declared on the following day even if the
Custodian receives federal funds on that day. The Trust and Signature reserve
the right to reject any purchase order.
Shares must be purchased in accordance with procedures established by the
Transfer Agent and Service Agents, including Bankers Trust, in connection with
customers' accounts. It is the responsibility of each Service Agent to transmit
to the Transfer Agent purchase and redemption orders and to transmit to the
Custodian purchase payments on behalf of its customers in a timely manner, and a
shareholder must settle with the Service Agent his or her entitlement to an
effective purchase or redemption order as of a particular time. Because Bankers
Trust is the Custodian and Transfer Agent of the Trust, funds may be transferred
directly from or to a customer's account with Bankers Trust to or from the Fund
without incurring the additional costs or delays associated with the wiring of
federal funds.
Certificates for shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or the Transfer Agent.
REDEMPTION OF SHARES
Shareholders may redeem shares at the net asset value per share next determined
on each Valuation Day. Redemption requests should be transmitted by customers in
accordance with procedures established by the Transfer Agent and the
shareholder's Service Agent. Redemption requests for shares of the Fund received
by the Service Agent and transmitted to the Transfer Agent prior to 4:00 p.m.
(New York time) on each Valuation Day will be redeemed at the net asset value
per share next determined and the redemption proceeds normally will be delivered
to the shareholder's account with the Service Agent on that day; no dividend
will be paid on the day of redemption. Redemption requests received by the
Service Agent and transmitted to the Transfer Agent after 4:00 p.m. (New York
time) on each Valuation Day will be redeemed at the net asset value per share
next determined and redemption proceeds normally will be delivered to the
shareholder's account with the Service Agent the following day; shares redeemed
in this manner will receive the dividend declared on the day of the redemption.
Payments for redemptions will in any event be made within seven calendar days
following receipt of the request.
Service Agents may allow redemptions by telephone and may disclaim liability for
following instructions communicated by telephone that the Service Agent
reasonably believes to be genuine. The Service Agent must provide the investor
with an opportunity to choose whether or not to utilize the telephone redemption
privilege. The Service Agent must employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Service Agent does
not do so, it may be liable for any losses due to unauthorized or fraudulent
instructions. Such procedures may include, among others, requiring some form of
personal identification prior to acting upon instructions received by telephone,
providing written confirmation of such transactions and/or tape recording of
telephone instructions.
Redemption orders are processed without charge by the Trust. A Service Agent may
on at least 30 days' notice involuntarily redeem a shareholder's account with
the Fund having a current value of less than $100,000.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Portfolio determines its net income and realized capital gains, if any, on
each Valuation Day and allocates all such income and gain pro rata among the
Fund and the other investors in the Portfolio at the time of such determination.
The Fund declares dividends from its net income (i.e., the Fund's pro rata share
of the net income of the Portfolio) on each Valuation Day and pays dividends for
the preceding month within the first five Valuation Days of each month. The Fund
reserves the right to include realized short-term gains, if any, in such daily
dividends. Distributions of the Fund's pro rata share of the Portfolio's net
realized long-term capital gains, if any, and any undistributed net realized
short-term capital gains are normally declared and paid annually at the end of
the fiscal year in which they were earned to the extent they are not offset by
any capital loss carryforwards. Since the Fund is subject to a 4% nondeductible
excise tax on certain undistributed amounts of ordinary income and capital
gains, the Fund expects to make such other distributions as are necessary to
avoid the application of this tax. Unless a shareholder instructs the Fund to
pay dividends or capital gains distributions in cash, dividends and
distributions will automatically be reinvested at net asset value in additional
shares of the Fund.
The Trust intends to qualify the Fund as a regulated investment company, as
defined in the Internal Revenue Code of 1986, as amended (the "Code"). Provided
the Fund meets the requirements imposed by the Code, the Fund will not pay any
Federal income or excise taxes. The Portfolio will also not be required to pay
any Federal income or excise taxes. Dividends paid by the Fund from its taxable
net investment income and distributions by the Fund of its net realized
short-term capital gains are taxable to shareholders as ordinary income, whether
received in cash or reinvested in additional shares of the Fund. The Trust does
not expect that the Fund will realize long-term capital gains and thus does not
contemplate paying distributions taxable to shareholders as long-term capital
gains. The Fund's dividends and distributions will not qualify for the
dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions, if any, are mailed annually. Each shareholder will also receive,
if appropriate, various written notices after the end of the Fund's prior
taxable year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during that year. Shareholders
should consult their tax advisers to assess the consequences of investing in the
Fund under state and local laws and to determine whether dividends paid by the
Fund that represent interest derived from U.S. Government Obligations are exempt
from any applicable state or local income taxes.
PERFORMANCE INFORMATION AND REPORTS
From time to time, the Trust may advertise "current yield" and/or "effective
yield" for the Fund. All yield figures are based on historical earnings and are
not intended to indicate future performance. The "current yield" of the Fund
refers to the income generated by an investment in the Fund over a seven-day
period (which period will be stated in the advertisement). This income is then
"annualized;'" that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "current yield" because of the compounding effect of this assumed
reinvestment. The Trust may include this information in sales material and
advertisements for the Fund.
Yield is a function of the quality, composition and maturity of the securities
held by the Portfolio and operating expenses of the Fund and the Portfolio. In
particular, the Fund's yield will rise and fall with short-term interest rates,
which can change frequently and sharply. In periods of rising interest rates,
the yield of the Fund will tend to be somewhat lower than prevailing market
rates, and in periods of declining interest rates, the yield will tend to be
somewhat higher. In addition, when interest rates are rising, the inflow of net
new money to the Fund from the continuous sale of its shares will likely be
invested by the Portfolio in instruments producing higher yields than the
balance of the Portfolio's securities, thereby increasing the current yield of
the Fund. In periods of falling interest rates, the opposite can be expected to
occur. Accordingly, yields will fluctuate and do not necessarily indicate future
results. While yield information may be useful in reviewing the performance of
the Fund, it may not provide a basis for comparison with bank deposits, other
fixed rate investments, or other investment companies that may use a different
method of calculating yield. Any fees charged by Service Agents for processing
purchase and/or redemption transactions will effectively reduce the yield for
those shareholders.
From time to time, advertisements or reports to shareholders may compare the
yield of the Fund to that of other mutual funds with similar investment
objectives or to that of a particular index. The yield of the Fund might be
compared with, for example, the IBC/Donoghue's Taxable First Tier Institutional
Only Money Fund Average, which is an average compiled by IBC/ Donoghue's Money
Fund Report, a widely recognized, independent publication that monitors the
performance of money market mutual funds. Similarly, the yield of the Fund might
be compared with rankings prepared by Micropal Limited and/or Lipper Analytical
Services, Inc., which are widely recognized, independent services that monitor
the investment performance of mutual funds. The yield of the Fund might also be
compared with the average yield reported by the Bank Rate Monitor for money
market deposit accounts offered by the 50 leading banks and thrift institutions
in the top five standard metropolitan areas. Shareholders may make inquiries
regarding the Fund, including current yield quotations and performance
information, by contacting any Service Agent.
Shareholders will receive financial reports semi-annually that include the
Portfolio's financial statements, including a listing of investment securities
held by the Portfolio at those dates. Annual reports are audited by independent
accountants.
<PAGE>
MANAGEMENT OF THE TRUST AND BT INVESTMENT PORTFOLIOS
BOARD OF TRUSTEES
The affairs of the Trust and BT Investment Portfolios are managed under the
supervision of their respective Board of Trustees. By virtue of the
responsibilities assumed by Bankers Trust, the administrator of the Trust and BT
Investment Portfolios, neither the Trust nor BT Investment Portfolios require
employees other than its executive officers. None of the executive officers of
the Trust or BT Investment Portfolios devotes full time to the affairs of the
Trust or BT Investment Portfolios.
The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) (the "Independent Trustees") of the Trust are not the same as the
Independent Trustees of the Portfolio. For more information with respect to the
Trustees of both the Trust and BT Investment Portfolios, see "Management of the
Trust and Portfolios" in the Statement of Additional Information.
INVESTMENT ADVISER
The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
Assets of the Fund in the Portfolio. BT Investment Portfolios has retained the
services of Bankers Trust, as investment adviser.
Bankers Trust, a New York banking corporation with principal offices at 280 Park
Avenue, New York, New York 10017, is a wholly-owned subsidiary of Bankers Trust
New York Corporation. Bankers Trust conducts a variety of general banking and
trust activities and is a major wholesale supplier of financial services to the
international and domestic institutional markets. As of December 31, 1994,
Bankers Trust New York Corporation was the seventh largest bank holding company
in the United States with total assets of approximately $97 billion. Bankers
Trust is a worldwide merchant bank dedicated to servicing the needs of
corporations, governments, financial institutions and private clients through a
global network of 129 offices in 38 countries. Investment management is a core
business of Bankers Trust, built on a tradition of excellence from its roots as
a trust bank founded in 1903. The scope of Bankers Trust's investment management
capability is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. Bankers Trust is one of the nation's largest and most
experienced investment managers, with approximately $185 billion in assets under
management. Of that total, approximately $47 billion are in cash assets alone.
This makes Bankers Trust one of the nation's leading managers of cash funds.
Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. In the past, these
clients have been serviced through separate account and commingled fund
structures. Bankers Trust's officers have had extensive experience in managing
investment portfolios having objectives similar to those of the Portfolio.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the
Portfolios described in this Prospectus and the Statement of Additional
Information without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. State laws on this issue may differ from the
interpretations of relevant Federal law and banks and financial institutions may
be required to register as dealers pursuant to state securities law.
Bankers Trust, subject to the supervision and direction of the Board of Trustees
of BT Investment Portfolios, manages the Portfolio in accordance with the
Portfolio's investment objective and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who provide
research services to the Portfolio. All orders for investment transactions on
behalf of the Portfolio are placed by Bankers Trust with broker-dealers and
other financial intermediaries that it selects, including those affiliated with
Bankers Trust. A Bankers Trust affiliate will be used in connection with a
purchase or sale of an investment for the Portfolio only if Bankers Trust
believes that the affiliate's charge for the transaction does not exceed usual
and customary levels. The Portfolio will not invest in obligations for which
Bankers Trust or any of its affiliates is the ultimate obligor or accepting
bank. The Portfolio may, however, invest in the obligations of correspondents
and customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio, computed daily and paid monthly, at the annual rate of 0.15% (before
waiver) of the average daily net assets of the Portfolio.
ADMINISTRATOR
Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. Under its Administration and Services Agreement with the Trust, Bankers
Trust receives a fee, computed daily and paid monthly, at the annual rate of
0.05% (before waiver) of the average daily net assets of the Fund.
Under an Administration and Services Agreement with BT Investment Portfolios,
Bankers Trust calculates the value of the assets of the Portfolio and generally
assists the Board of Trustees of BT Investment Portfolios in all aspects of the
administration and operation of BT Investment Portfolios. Under its
Administration and Services Agreement with the Portfolio Trust, Bankers Trust
receives a fee, computed daily and paid monthly, at the annual rate of 0.05%
(before waiver) of the average daily net assets of the Portfolio. Under each
Administration and Services Agreement, Bankers Trust may delegate one or more of
its responsibilities to others, including Signature, at Bankers Trust's expense.
For more information, see the Statement of Additional Information.
DISTRIBUTOR
Under its Distribution Agreement with the Trust, Signature, as Distributor,
serves as the Trust's principal underwriter on a best efforts basis. In
addition, Signature provides the Trust with office facilities. Signature is a
wholly-owned subsidiary of Signature Financial Group, Inc. ("SFG"). SFG and its
affiliates currently provide administration and distribution services for other
registered investment companies. The principal business address of SFG and
Signature is 6 St. James Avenue, Boston, Massachusetts 02116.
Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), Signature may seek reimbursement in an amount
not exceeding 0.10% of the Fund's average daily net assets annually for expenses
incurred in connection with any activities primarily intended to result in the
sale of the Fund's shares, including, but not limited to: compensation to and
expenses (including overhead and telephone expenses) of account executives or
other employees of Signature who, as their primary activity, engage in or
support the distribution of shares; printing of prospectuses, statements of
additional information and reports for other than existing Fund shareholders in
amounts in excess of that typically used in connection with the distribution of
shares of the Fund; costs of placing advertising in various media; services of
parties other than Signature or its affiliates in formulating sales literature;
and typesetting, printing and distribution of sales literature. All costs and
expenses in connection with implementing and operating the Plan will be paid by
the Fund, subject to the 0.10% of net assets limitation. All costs and expenses
associated with preparing the prospectuses and statements of additional
information and in connection with printing them for and distributing them to
existing shareholders and regulatory authorities, which costs and expenses would
not be considered distribution expenses for purposes of the Plan, will also be
paid by the Fund. To the extent expenses of Signature under the Plan in any
fiscal year of the Trust exceed amounts payable under the Plan during that year,
those expenses will not be reimbursed in any succeeding fiscal year. Expenses
incurred in connection with distribution activities will be identified to the
Fund or other series of the Trust involved, although it is anticipated that some
activities may be conducted on a Trust-wide basis, with the result that those
activities will not be identifiable to any particular series. In the latter
case, expenses will be allocated among the series of the Trust on the basis of
their relative net assets. It is not expected that any payments will be made
under the Plan in the foreseeable future.
SERVICE AGENT
All shareholders must be represented by a Service Agent. Bankers Trust acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agents, including
broker-dealers, will be paid by Bankers Trust from its fees.The services
provided by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, performing
shareholder sub-accounting, answering client inquiries regarding the Trust,
investing client cash account balances automatically in Fund shares and
processing redemption transactions at the request of clients, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the Service Agent, transmitting proxy statements, periodic
reports, updated prospectuses and other communications to shareholders and, with
respect to meetings of shareholders, collecting, tabulating and forwarding to
the Trust executed proxies, arranging for bank wires and obtaining such other
information and performing such other services as the Administrator or the
Service Agent's clients may reasonably request and agree upon with the Service
Agent. Service Agents may separately charge their clients additional fees only
to cover provision of additional or more comprehensive services not already
provided under the Administration and Services Agreement with Bankers Trust, or
of the type or scope not generally offered by a mutual fund, such as cash
management services or enhanced retirement or trust reporting. In addition,
investors may be charged a transaction fee if they effect transactions in Fund
shares through a broker or agent. Each Service Agent has agreed to transmit to
shareholders, who are its customers, appropriate disclosures of any fees that it
may charge them directly.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as Custodian of the assets of the Trust and BT Investment
Portfolios and serves as the Transfer Agent for the Trust and BT Investment
Portfolios under the respective Administration and Services Agreement with the
Trust and BT Investment Portfolios.
ORGANIZATION OF THE TRUST
The Trust was organized on March 26, 1990 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of separate series, par value $0.001 per share.
The shares of the other series of the Trust are offered through separate
prospectuses. No series of shares has any preference over any other series.
The Trust is an entity commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of the Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote. Shareholders of
the Fund are not entitled to vote on Trust matters that do not affect the Fund.
There normally will be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees. Any
Trustee may be removed from office upon the vote of shareholders holding at
least two-thirds of the Trust's outstanding shares at a meeting called for that
purpose. The Trustees are required to call such a meeting upon the written
request of shareholders holding at least 10% of the Trust's outstanding shares.
Liquid Assets Portfolio is a subtrust (or "series") of BT Investment Portfolios,
an open-end management investment company. BT Investment Portfolios was
organized as a master trust fund under the laws of the State of New York. BT
Investment Portfolios' Declaration of Trust provides that the Fund and other
entities investing in the Portfolio (e.g., other 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 the Fund
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. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund's investing in the Portfolio. The interest in BT
Investment Portfolios are divided into separate series, such as the Portfolio.
No series of BT Investment Portfolios has any preference over any other series.
Each series in the Trust will not be involved in any vote involving a Portfolio
in which it does not invest its Assets. Shareholders of all the series of the
Trust will, however, vote together to elect Trustees of the Trust and for
certain other matters. Under certain circumstances, the shareholders of one or
more series could control the outcome of these votes.
The series of the BT Investment Portfolios will vote separately or together in
the same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of BT Investment Portfolios could control the
outcome of these votes.
EXPENSES OF THE TRUST
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Signature,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses, the costs of regulatory
compliance and costs associated with maintaining legal existence and shareholder
relations. Bankers Trust and Signature have agreed to reimburse the Fund to the
extent required by applicable state law for certain expenses that are described
in the Statement of Additional Information. The Portfolio bears its own
expenses. Operating expenses for the Portfolio generally consist of all costs
not specifically borne by Bankers Trust or Signature, including investment
advisory and administration and services fees, fees for necessary professional
services, amortization of organizational expenses, and the costs associated with
regulatory compliance and maintaining legal existence and investor relations.
<PAGE>
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
DISTRIBUTOR
SIGNATURE BROKER-DEALER SERVICES, INC.
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
COUNSEL
WILLKIE FARR & GALLAGHER
.............
No person has been authorized to give any information or to make any
representations other than those contained in the Fund's Prospectuses, its
Statement of Additional Information or the Fund's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
.............
<PAGE>
BT INSTITUTIONAL
July 12, 1995,
As amended September 18, 1995
INSTITUTIONAL CASH MANAGEMENT FUND
INSTITUTIONAL CASH RESERVES
INSTITUTIONAL LIQUID ASSETS FUND
INSTITUTIONAL TREASURY MONEY FUND
INSTITUTIONAL TAX FREE MONEY FUND
INSTITUTIONAL NY TAX FREE MONEY FUND
STATEMENT OF ADDITIONAL INFORMATION
BT Institutional Funds (the "Trust") is an open-end management
investment company that offers investors a selection of investment portfolios,
each having distinct investment objectives and policies. This Statement of
Additional Information relates to the following investment portfolios (each a
"Fund" and, collectively, the "Funds"), each of which seeks a high level of
current income consistent with liquidity and the preservation of capital.
INSTITUTIONAL CASH MANAGEMENT FUND--a diversified investment portfolio
that seeks a high level of current income through investment in a
Portfolio of high quality money market instruments.
INSTITUTIONAL CASH RESERVES--a diversified investment portfolio that
seeks a high level of current income through investment in a Portfolio
of high quality money market instruments.
INSTITUTIONAL LIQUID ASSETS FUND--a diversified investment portfolio
that seeks a high level of current income through investment in a
Portfolio of high quality money market instruments.
INSTITUTIONAL TREASURY MONEY FUND--a diversified investment portfolio
that seeks a high level of current income through investment in a
Portfolio of direct obligations of the U.S. Treasury and repurchase
agreements in respect of those obligations.
INSTITUTIONAL TAX FREE MONEY FUND--a diversified investment portfolio
that seeks a high level of current income exempt from Federal income
taxes through investment in a Portfolio primarily of obligations issued
by states and their authorities, agencies, instrumentalities and
political subdivisions.
INSTITUTIONAL NY TAX FREE MONEY FUND--a nondiversified investment
portfolio that seeks a high level of current income exempt from
Federal, New York State and New York City income taxes through
investment in a Portfolio primarily of obligations of the State of New
York and its authorities, agencies, instrumentalities and political
subdivisions.
As described in the Prospectuses, the Trust seeks to achieve the
investment objectives of each Fund by investing all the investable assets of the
Fund in a diversified (or nondiversified, in the case of Institutional NY Tax
Free Money Fund) open-end management investment company having the same
investment objectives as such Fund. These investment companies are,
respectively, Cash Management Portfolio, Cash Management Portfolio, BT
Investment Portfolios -- Liquid Assets Portfolio ("Liquid Assets Portfolio"),
Treasury Money Portfolio, Tax Free Money Portfolio, and NY Tax Free Money
Portfolio (collectively, the "Portfolios").
Since the investment characteristics of each Fund will correspond
directly to those of the respective Portfolio in which the Fund invests all of
its assets, the following is a discussion of the various investments of and
techniques employed by the Portfolios.
Shares of the Funds are sold by Signature Broker-Dealer Services, Inc.
("Signature"), the Trust's Distributor, to clients and customers (including
affiliates and correspondents) of Bankers Trust Company ("Bankers Trust"), the
Portfolios' Adviser, and to clients and customers of other organizations.
The Trust's prospectuses, which may be amended from time to time (each,
a "Prospectus"), with respect to Institutional Cash Management Fund,
Institutional Treasury Fund, Institutional Tax Free Money Fund, Institutional NY
Tax Free Money Fund and Institutional Cash Reserves are dated April 28, 1995.
The Trust's Prospectus, which may be amended from time to time, with respect to
Institutional Liquid Assets Fund is dated July 12, 1995, as amended September
18, 1995. The Prospectuses provide the basic information investors should know
before investing, may be obtained without charge by calling the Trust at the
telephone number listed below or by contacting any Service Agent. This Statement
of Additional Information, which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of the Trust and
should be read in conjunction with the Prospectuses. Capitalized terms not
otherwise defined in this Statement of Additional Information have the meanings
accorded to them in the Trust's Prospectuses.
BANKERS TRUST COMPANY
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
SIGNATURE BROKER-DEALER SERVICES, INC.
DISTRIBUTOR
6 St. James Avenue Boston, Massachusetts 02116 (800) 422-6577
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's Prospectus discusses the investment objective of the Fund
and the policies to be employed to achieve those objectives by its corresponding
Portfolio. This section contains supplemental information concerning the types
of securities and other instruments in which the Portfolio may invest, the
investment policies and portfolio strategies that the Portfolio may utilize and
certain risks attendant to those investments, policies and strategies.
Bank Obligations
For purposes of the Portfolios' investment policies with respect to
bank obligations, the assets of a bank will be deemed to include the assets of
its domestic and foreign branches. Obligations of foreign branches of U.S. banks
and foreign banks may be general obligations of the parent bank in addition to
the issuing bank or may be limited by the terms of a specific obligation and by
government regulation. If Bankers Trust, acting under the supervision of the
Board of Trustees, deems the instruments to present minimal credit risk, each
Portfolio other than Treasury Money Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks which include banks located in
the United Kingdom, Grand Cayman Island, Nassau, Japan and Canada. Investments
in these obligations may entail risks that are different from those of
investments in obligations of U.S. domestic banks because of differences in
political, regulatory and economic systems and conditions. These risks include
future political and economic developments, currency blockage, the possible
imposition of withholding taxes on interest payments, possible seizure or
nationalization of foreign deposits, difficulty or inability of pursuing legal
remedies and obtaining judgments in foreign courts, possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
that might affect adversely the payment of principal and interest on bank
obligations. Foreign branches of U.S. banks and foreign banks may also be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards that those applicable to
domestic branches of U.S. banks.
Commercial Paper
Commercial paper obligations in which the Portfolios may invest are
short-term, unsecured negotiable promissory notes of U.S. or foreign
corporations that at the time of purchase meet the rating criteria described in
the Prospectuses. Investments in foreign commercial paper generally involve
risks similar to those described above relating to obligations of foreign banks
or foreign branches of U.S. banks.
U.S. Government Obligations
The Portfolios may invest in direct obligations issued by the U.S.
Treasury or, in the case of the Portfolios other than Treasury Money Portfolio,
in obligations issued or guaranteed by the U.S. Treasury or by agencies or
instrumentalities of the U.S. Government ("U.S. Government Obligations").
Certain short-term U.S. Government Obligations, such as those issued by the
Government National Mortgage Association ("GNMA"), are supported by the "full
faith and credit" of the U.S. Government; others, such as those of the Export-
Import Bank of the U.S., are supported by the right of the issuer to borrow from
the U.S. Treasury; others, such as those of the Federal National Mortgage
Association are solely the obligations of the issuing entity but are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported by the credit of the instrumentality. No assurance
can be given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
Examples of the types of U.S. Government Obligations that the
Portfolios may hold include, in addition to those described above and direct
U.S. Treasury obligations, the obligations of the Federal Housing
Administration, Farmers Home Administration, Small Business Administration,
General Services Administration, Central Bank for Cooperatives, Federal Farm
Credit Banks, Federal Farm Credit Banks Funding Corp., Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Federal Land Banks and Maritime Administration.
<PAGE>
Lending of Portfolio Securities
The Portfolios, other than Tax Free Money Portfolio and NY Tax Free
Money Portfolio, have the authority to lend portfolio securities to brokers,
dealers and other financial organizations. The Portfolios will not lend
securities to Bankers Trust, Signature or their affiliates. By lending its
securities, a Portfolio can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term securities or obtaining yield in the form of interest
paid by the borrower when U.S. Government Obligations are used as collateral.
There may be risks of delay in receiving additional collateral or risks of delay
in recovery of the securities or even loss of rights in the collateral should
the borrower of the securities fail financially. Each Portfolio will adhere to
the following conditions whenever its securities are loaned: (i) the Portfolio
must receive at least 100% cash collateral or equivalent securities from the
borrower; (ii) the borrower must increase this collateral whenever the market
value of the securities including accrued interest rises above the level of the
collateral; (iii) the Portfolio must be able to terminate the loan at any time;
(iv) the Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must terminate
the loan and regain the right to vote the securities.
Reverse Repurchase Agreements
The Portfolios may borrow funds for temporary or emergency purposes,
such as meeting larger than anticipated redemption requests, and not for
leverage, by among other things, agreeing to sell portfolio securities to
financial institutions such as banks and broker-dealers and to repurchase them
at a mutually agreed date and price (a "reverse repurchase agreement"). At the
time a Portfolio enters into a reverse repurchase agreement it will place in a
segregated custodial account cash, U.S. Government Obligations or high-grade
debt obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Portfolio may decline below the repurchase price of
those securities. Reverse repurchase agreements are considered to be borrowings
by a Portfolio.
Participation Interests
Tax Free Money Portfolio and NY Tax Free Money Portfolio may purchase
from financial institutions participation interests in Municipal Obligations. A
participation interest gives the Portfolio an undivided interest in the
Municipal Obligation in the proportion that the Portfolio's participation
interest bears to the total principal amount of the Municipal Obligation. These
instruments may be variable rate or fixed rate with remaining maturities of one
year or less. If the participation interest is unrated or has been given a
rating below that which otherwise is permissible for purchase by the Portfolio,
the participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank that the Portfolio's Board of Trustees has determined meets
the prescribed quality standards for the Portfolio, or the payment obligation
otherwise will be collateralized by U.S. Government securities or other
securities deemed appropriate by the Portfolio's Board of Trustees, or, in the
case of an unrated participation interest that is not backed or collateralized
as described above, but that otherwise meets the Trustees' procedures and
standards for creditworthiness and high quality, the underlying Municipal
Obligation must be a permissible investment for the Portfolio. For certain
participation interests, the Portfolio will have the right to demand payment, on
seven days' notice, for all or any part of the Portfolio's participation
interest in the Municipal Obligation, plus accrued interest. As to these
instruments, each Portfolio intends to exercise its right to demand payment from
the issuer of the demand feature only upon a default under the terms of the
Municipal Obligation, as needed to provide liquidity to meet redemptions or to
maintain a high quality investment portfolio. In the event an issuer of a demand
feature defaulted on its payment obligation, the Portfolio might be unable to
dispose of the participation interest because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default.
Neither Portfolio currently intends to invest more that 5% of its total
assets in participation interests.
Standby Commitments
Tax Free Money Portfolio and NY Tax Free Money Portfolio each may
acquire standby commitments or "puts" solely to facilitate portfolio liquidity;
neither Portfolio intends to exercise its rights thereunder for trading
purposes. The maturity of a Municipal Obligation is not to be considered
shortened by any standby commitment to which the obligation is subject. Thus,
standby commitments do not affect the dollar-weighted average maturity of a
Portfolio.
When Municipal Obligations are subject to puts separate from the
underlying securities, no value is assigned to the put. Because of the
difficulty of evaluating the likelihood of exercise or the potential benefit of
a put, the Board of Trustees has determined that puts shall have a fair market
value of zero, regardless of whether any direct or indirect consideration was
paid.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, each Portfolio's policy is to
enter into put transactions only with put writers who are approved by Bankers
Trust. It is the Portfolios' general policy to enter into put transactions only
with those put writers which are determined to present minimal credit risks. In
connection with this determination, the Board of Trustees will review regularly
Bankers Trust's list of approved put writers, taking into consideration, among
other things, the ratings, if available, of their equity and debt securities,
their reputation in the municipal securities markets, their net worth, their
efficiency in consummating transactions and any collateral arrangements, such as
letters of credit securing the puts written by them. Commercial banks normally
will be members of the Federal Reserve System, and other dealers will be members
of the National Association of Securities Dealers, Inc. or members of a national
securities exchange. Other put writers will have outstanding debt rated Aa or
better by Moody's Investors Service, Inc. ("Moody's") or AA or better by
Standard & Poor's Corporation ("S&P"), or will be of comparable quality in
Bankers Trust's opinion, or such put writers' obligations will be collateralized
and of comparable quality in Bankers Trust's opinion. The Board of Trustees has
directed Bankers Trust not to enter into put transactions with any put writer
that, in the judgment of Bankers Trust using the above-described criteria, or
becomes a recognizable credit risk. Neither Portfolio is able to predict whether
all or any portion of any loss sustained could subsequently be recovered from a
put writer in the event that a put writer should default on its obligation to
repurchase an underlying security.
Neither Portfolio currently intends to invest more than 5% of its net
assets in standby commitments.
Municipal Obligations
The two principal classifications of Municipal Obligations are "notes"
and "bonds."
Municipal Notes. Municipal notes generally fund short-term capital
needs and have maturities of one year or less. Tax Free Money Portfolio and NY
Tax Free Money Portfolio may invest in municipal notes, which include:
Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenue, such as income, sales, use and
business taxes, and are payable from these specific future taxes.
Revenue Anticipation Notes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue sharing programs.
Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds provide funds for the repayment of these notes.
Miscellaneous, Temporary and Anticipatory Instruments. These
instruments may include notes issued to obtain interim financing pending
entering into alternate financial arrangements, such as receipt of anticipated
Federal, state or other grants or aid, passage of increased legislative
authority to issue longer-term instruments or obtaining other refinancing.
Construction Loan Notes. Construction loan notes are sold to provide
construction financing. Permanent financing, the proceeds of which are applied
to the payment of construction loan notes, is sometimes provided by a commitment
of the GNMA to purchase the loan, accompanied by a commitment by the Federal
Housing Administration to insure mortgage advances thereunder. In other
instances, permanent financing is provided by commitments of banks to purchase
the loan. A Portfolio will only purchase construction loan notes that are
subject to permanent GNMA or bank purchase commitments.
Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a
short-term obligation with a stated maturity of 365 days or less. It is issued
by agencies of state and local governments to finance seasonal working capital
needs or as short-term financing in anticipation of longer-term financing.
Municipal Bonds. Municipal bonds generally fund longer-term capital
needs than municipal notes and have maturities exceeding one year when issued.
Tax Free Money Portfolio and NY Tax Free Money Portfolio may invest in municipal
bonds, but only to the extent that their remaining maturities are determined not
to exceed one year under rules promulgated under the Investment Company Act of
1940, as amended (the "1940 Act"). Municipal bonds include:
General Obligation Bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind general obligation bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
Revenue Bonds. The principal security for a revenue bond is generally
the net revenues derived from a particular facility, group of facilities or, in
some cases, the proceeds of a special excise tax or other specific revenue
source. Revenue bonds are issued to finance a wide variety of capital projects,
including electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund that may be used
to make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security, including partially or fully
insured mortgages, rent subsidized and/or collateralized mortgages, certificates
of deposit and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
Private Activity Bonds. Private activity bonds, which are considered
Municipal Obligations if the interest paid thereon is excluded from gross income
for Federal income tax purposes and is not a specific tax preference item for
Federal individual and corporate alternative minimum tax purposes, are issued by
or on behalf of public authorities to raise money to finance various privately
operated facilities such as manufacturing facilities, certain hospital and
university facilities and housing projects. These bonds are also used to finance
public facilities such as airports, mass transit systems and ports. The payment
of the principal and interest on these bonds is dependent solely on the ability
of the facility's user to meet its financial obligations and generally the
pledge, if any, of real and personal property so financed as security for
payment.
Special Considerations Relating to New York Municipal Obligations
Some of the significant financial considerations relating to the Fund's
investment in New York Municipal Obligations are summarized below. This summary
information is not intended to be a complete description and is principally
derived from official statements relating to issues of New York Municipal
Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
State Economy. New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State has a declining
proportion of its workforce engaged in manufacturing, and an increasing
proportion engaged in service industries. New York City (the "City"), which is
the most populous city in the State and nation and is the center of the nation's
largest metropolitan area, accounts for a large portion of the State's
population and personal income.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic position. The recession has
been more severe in the State, owing to a significant retrenchment in the
financial services industry, cutbacks in defense spending, and an overbuilt real
estate market. There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1994-95 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national rate in
the second half of 1981 and remained lower until 1991. It stood at 7.7% in 1993.
The total employment growth rate in the State has been below the national
average since 1984 and is expected to slow to less than 0.5% in 1995. State per
capita personal income remains above the national average. State per capita
income for 1993 was $24,623, which is 18.3% above the 1993 national average of
$20,817. During the past ten years, total personal income in the State rose
slightly faster than the national average only in 1986 through 1989.
State Budget. The State Constitution requires the Governor to submit to
the Legislature a balanced Executive Budget which contains a complete plan of
expenditures for the ensuing fiscal year and all moneys and revenues estimated
to be available therefor, accompanied by bills containing all proposed appro-
priations or reappropriations and any new or modified revenue measures to be
enacted in connection with the Executive Budget. The entire plan constitutes the
proposed State financial plan for that fiscal year. The Governor is required to
submit to the Legislature quarterly budget updates which include a revised
cash-basis state financial plan, and an explanation of any changes from the
previous state financial plan.
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
financial plan for the 1994-95 fiscal year was formulated on June 16, 1994 and
is based upon the State's budget as enacted by the Legislature and signed into
law by the Governor (the "1994-95 State Financial Plan"). This delay in the
enactment of the State's 1994-95 fiscal year budget may reduce the effectiveness
of several of the actions proposed.
The State issued its third quarterly update to the cash basis 1994-95
State Financial Plan on February 1, 1995. The update projects a potential
deficit of $259 million for the 1994-95 fiscal year. The Governor has proposed
to close this deficit through a hiring freeze, a review of pending contracts and
spending cuts in certain programs that were started or expanded in the 1994-95
budget.
The 1994-95 State Financial Plan is based on a number of assumptions
and projections. Because it is not possible to predict accurately the occurrence
of all factors that may affect the 1994-95 State Financial Plan, actual results
may differ and have differed materially in recent years, from projections made
at the outset of a fiscal year. There can be no assurance that the State will
not face substantial potential budget gaps in future years resulting from a
significant disparity between tax revenues projected from a lower recurring
receipts base and the spending required to maintain State programs at current
levels. To address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years.
On February 1, 1995, the Governor presented his 1995-96 Executive
Budget (the "Executive Budget") to the Legislature, as required by the State
Constitution. It proposes actual reductions in the year-over-year dollar levels
of State spending from the General Fund with a proposed cut of 3.4%. Proposed
spending on State operations is projected to drop even more sharply, by 7.7%.
There can be no assurance that the Legislature will enact the proposed Executive
Budget into law, or that actual results will not differ materially and adversely
from the projections set forth above. In addition, there is no assurance that
the tax and spending cuts proposed in the Executive Budget will be enacted, or
if enacted, will be upheld in the face of potential legal challenges. The
comptroller has indicated his intention to challenge the proposed use of certain
pension reserves in the Executive Budget.
Recent Financial Results. The General Fund is the general operating
fund of the State and is used to account for all financial transactions, except
those required to be accounted for in another fund. It is the State's largest
fund and receives almost all State taxes and other resources not dedicated to
particular purposes. In the State's 1994-95 fiscal year, the General Fund is
expected to account for approximately 52% of total governmental-fund receipts
and 51% of total governmental-fund disbursements.
The General Fund is projected to be balanced on a cash basis for the
1994-95 fiscal year. Total receipts are projected to be $34.321 billion, an
increase of $2.092 billion over total receipts in the prior fiscal year. Total
General Fund disbursements are projected to be $34.248 billion, an increase of
$2.351 billion over the total amount disbursed and transferred in the prior
fiscal year.
The State's financial position on a GAAP (generally accepted accounting
principles) basis as of March 31, 1993 included an 1991-92 accumulated deficit
in its combined governmental funds of $681 million. Liabilities totalled $12.864
billion and assets of $12.183 billion were available to liquidate these
liabilities.
The State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of tax
and revenue anticipation notes. The national recession and then the lingering
economic slowdown in the New York and regional economy, resulted in repeated
shortfall in receipts and three budget deficits. For its 1992-93 and 1993-94
fiscal years, however, the State recorded balanced budgets on a cash basis, with
substantial fund balances in each year.
Debt Limits and Outstanding Debt. There are a number of methods by
which the State of New York may incur debt. Under the State Constitution, the
State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State. The total amount of long-term State general obligation
debt authorized but not issued as of December 31, 1993 was approximately $2.273
billion.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition of equipment,
and expect to meet their debt service requirements through the receipt of rental
or other contractual payments made by the State. Although these financing
arrangements involve a contractual agreement by the State to make payments to a
public authority, municipality or other entity, the State's obligation to make
such payments is generally expressly made subject to appropriation by the
Legislature and the actual availability of money to the State for making the
payments. The State has also entered into a contractual-obligation financing
arrangement with the Local Government Assistance Corporation ("LGAC") in an
effort to restructure the way the State makes certain local aid payments.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through New York State's annual seasonal borrowing. The legislation empowered
LGAC to issue its bonds and notes in an amount not in excess of $4.7 billion
(exclusive of certain refunding bonds) plus certain other amounts. Over a period
of years, the issuance of these long-term obligations, which are to be amortized
over no more than 30 years, was expected to eliminate the need for continued
short-term seasonal borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales and use tax to pay debt service on
these bonds. The legislation also imposed a cap on the annual seasonal borrowing
of the State at $4.7 billion, less net proceeds of bonds issued by LGAC and
bonds issued to provide for capitalized interest, except in cases where the
Governor and the legislative leaders have certified the need for additional
borrowing and provided a schedule for reducing it to the cap. If borrowing above
the cap is thus permitted in any fiscal year, it is required by law to be
reduced to the cap by the fourth fiscal year after the limit was first exceeded.
As of December 1994, LGAC had issued bonds to provide net proceeds of $3.856
billion and has been authorized to issue its bonds to provide net proceeds of up
to an additional $315 million during the State's 1994-95 fiscal year. The impact
of this borrowing, together with the availability of certain cash reserves, is
that, for the first time in nearly 35 years, the 1994-95 State Financial Plan
includes no short-term seasonal borrowing.
In April 1993, legislation was enacted proposing significant
constitutional changes to the long-term financing practices of the State and the
Authorities.
The Legislature passed a proposed constitutional amendment that would
permit the State, within a formula-based cap, to issue revenue bonds, which
would be debt of the State secured solely by a pledge of certain State tax
receipts (including those allocated to State funds dedicated for transportation
purposes), and not by the full faith and credit of the State. In addition, the
proposed amendment would require that State debt be incurred only for capital
projects included in a multi-year capital financing plan and would prohibit,
after its effective date, lease-purchase and contractual-obligation financing
mechanisms for State facilities. Public hearings were held on the proposed
constitutional amendment during 1993. Following these hearings, in February
1994, the Governor and the State Comptroller recommended a revised
constitutional amendment which would further tighten the ban on lease-purchase
and contractual-obligation financing, incorporate existing lease-purchase and
contractual-obligation debt under the proposed revenue bond cap while
simultaneously reducing the size of the cap. After considering these
recommendations, the Legislature passed a revised constitutional amendment which
tightens the ban, and provides for a phase-in to a lower cap. Before the
approved constitutional amendment or any revised amendment enacted in 1994 can
be presented to the voters for their consideration, it must be passed by a
separately elected legislature. The amendment must therefore be passed by the
newly elected Legislature in 1995 prior to presentation to the voters at the
earliest in November 1995. The amendment could not become effective before
January 1, 1996.
On January 13, 1992, Standard & Poor's Corporation ("Standard &
Poor's") reduced its ratings on the State's general obligation bonds from A to
A- and, in addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. Standard & Poor's also
continued its negative rating outlook assessment on State general obligation
debt. On April 26, 1993, Standard & Poor's revised the rating outlook assessment
to stable. On February 14, 1994, Standard & Poor's raised its outlook to
positive and, on February 28, 1994, confirmed its A- rating. On January 6, 1992,
Moody's Investors Service, Inc. ("Moody's") reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness.
The State anticipates that its capital programs will be financed, in
part, by State and public authorities borrowings in 1994-95. The State expects
to issue $374 million in general obligation bonds (including $140 million for
purposes of redeeming outstanding bond anticipation notes) and $140 million in
general obligation commercial paper. The Legislature has also authorized the
issuance of up to $69 million in certificates of participation during the
State's 1994-95 fiscal year for equipment purchases. The projection of the State
regarding its borrowings for the 1994-95 fiscal year may change if circumstances
require.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes and on tax and revenue anticipation
notes were $782.5 million for the 1993-94 fiscal year, and are estimated to be
$786.3 million for the 1994-95 fiscal year. These figures do not include
interest payable on State General Obligation Refunding Bonds issued in July 1992
("Refunding Bonds") to the extent that such interest was paid from an escrow
fund established with the proceeds of such Refunding Bonds. Principal and
interest payments on fixed rate and variable rate bonds issued by LGAC were
$239.4 million for the 1993-94 fiscal year, and are estimated to be $289.9
million for 1994-95. State lease-purchase rental and contractual obligation
payments for 1993-94, including State installment payments relating to
certificates of participation, were $1.258 billion and are estimated to be
$1.495 billion in 1994-95.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
Litigation. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) contamination in the Love
Canal area of Niagara Falls; (4) action against New York State and New York City
officials alleging inadequate shelter allowances to maintain proper housing; (5)
challenges to the practice of reimbursing certain Office of Mental Health
patient care expenses from the client's Social Security benefits; (6) alleged
responsibility of New York State officials to assist in remedying racial
segregation in the City of Yonkers; (7) action in which the State is a third
party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (8) challenges by commercial insurers, employee welfare
benefit plans, and health maintenance organizations to Section 2807-c of the
Public Health Law, which imposes 13%, 11% and 9% surcharges on inpatient
hospital bills and a bad debt and charity care allowance on all hospital bills
and hospital bills paid by such entities; (9) challenge by a long distance
carrier to the constitutionality of Tax Law ss.186-a(2-a) which restricted
certain deduction of local access service fees, (10) challenges to certain
aspects of petroleum business taxes, and (11) action alleging damages resulting
from the failure by the State's Department of Environmental Conservation to
timely provide certain data.
A number of cases have also been instituted against the State
challenging the constitutionality of various public authority financing
programs.
In a proceeding commenced on August 6, 1991 (Schulz, et al. v. State of
New York, et al., Supreme Court, Albany County), petitioners challenge the
constitutionality of two bonding programs of the New York State Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991. In addition,
petitioners challenge the fiscal year 1991-92 judiciary budget as having been
enacted in violation of Sections 1 and 2 of Article VII of the State
Constitution. The defendants' motion to dismiss the action on procedural grounds
was denied by order of the Supreme Court dated January 2, 1992. By order dated
November 5, 1992, the Appellate Division, Third Department, reversed the order
of the Supreme Court and granted defendants' motion to dismiss on grounds of
standing and mootness. By order dated September 16, 1993, on motion to
reconsider, the Appellate Division, Third Department, ruled that plaintiffs have
standing to challenge the bonding program authorized by Chapter 166 of the laws
of 1991. The proceeding is presently pending in Supreme Court, Albany County.
In Schulz, et al. v. State of New York, et al., commenced May 24, 1993,
Supreme Court, Albany County, petitioners challenge, among other things, the
constitutionality of, and seek to enjoin, certain highway, bridge and mass
transportation bonding programs of the New York State Thruway Authority and the
Metropolitan Transportation Authority authorized by Chapter 56 of the Laws of
1993. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Sections 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
July 27, 1993, the Supreme Court granted defendants' motions for summary
judgment, dismissed the complaint, and vacated the temporary restraining order
previously issued. By decision dated October 21, 1993, the Appellate Division,
Third Department, affirmed the judgment of the Supreme Court. On June 30, 1994,
the Court of Appeals unanimously affirmed the rulings of the trail court and the
Appellate Division in favor of the State.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the State's
Comptroller has developed a plan to restore the State's retirement systems to
prior funding levels. Such funding is expected to exceed prior levels by $30
million in fiscal 1994-95, $63 million in fiscal 1995-96, $116 million in fiscal
1996-97, $193 million in fiscal 1997-98, peaking at $241 million in fiscal
1998-99. Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State is required to make
aggregate payments of $351.4 million, of which $90.3 million have been made.
Annual payments to the various parties will continue through the State's 2002-03
fiscal year in amounts which will not exceed $48.4 million in any fiscal year
subsequent to the State's 1994-95 fiscal year.
The legal proceedings noted above involve State finances, State
programs and miscellaneous tort, real property and contract claims in which the
State is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State in the
1994-95 fiscal year or thereafter. Adverse developments in these proceedings or
the initiation of new proceedings could affect the ability of the State to
maintain a balanced 1994-95 State Financial Plan. An adverse decision in any of
these proceedings could exceed the amount of the 1994-95 State Financial Plan
reserve for the payment of judgments and, therefore, could affect the ability of
the State to maintain a balanced 1994-95 State Financial Plan. In its audited
financial statements for the fiscal year ended March 31, 1994, the State
reported its estimated liability for awarded and anticipated unfavorable
judgments to be $675 million.
Although other litigation is pending against New York State, except as
described above, no current litigation involves New York State's authority, as a
matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
Authorities. The fiscal stability of New York State is related, in
part, to the fiscal stability of its Authorities, which generally have
responsibility for financing, constructing and operating revenue-producing
public benefit facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default on
their respective obligations, particularly with respect to debt that are
State-supported or State-related. As of September 30, 1993, date of the latest
data available, there were 18 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 18 Authorities was $63.5 billion. As of March 31, 1994, aggregate public
authority debt outstanding as State-supported debt was $21.1 billion and as
State-related debt was $29.4 billion.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the 18 Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the State of
New York may also be impacted by the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City's independently
audited operating results for each of its 1981 through 1993 fiscal years, which
end on June 30, show a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1993 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979.
In 1975, Standard & Poor's suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from Standard & Poor's. On July 2, 1985,
Standard & Poor's revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On July 2, 1993, Standard & Poor's reconfirmed its A-
rating of City bonds, continued its negative rating outlook assessment and
stated that maintenance of such rating depended upon the City's making further
progress towards reducing budget gaps in the outlying years. Moody's ratings of
City bonds were revised in November 1981 from B (in effect since 1977) to Ba1,
in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and again in
February 1991 to Baa1. On January 17, 1995, Standard and Poor's placed the
City's general obligation bonds on its CreditWatch list which may portend a
rating downgrade from the agency in the upcoming months.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. MAC is
authorized to issue bonds and notes payable from certain stock transfer tax
revenues, from the City's portion of the State sales tax derived in the City and
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt. As
of December 31, 1993, MAC had outstanding an aggregate of approximately $5.204
billion of its bonds. MAC bonds and notes constitute general obligations of MAC
and do not constitute an enforceable obligation or debt of either the State or
the City. Under its enabling legislation, MAC's authority to issue bonds and
notes (other than refunding bonds and notes) expired on December 31, 1984.
Legislation has been passed by the legislature which would, under certain
conditions, permit MAC to issue up to $1.465 billion of additional bonds, which
are not subject to a moral obligation provision.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
The staffs of OSDC and the Control Board issued periodic reports on the
City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the financial plan, as modified, by the City and its Covered Organizations
(i.e., those which receive or may receive monies from the City directly,
indirectly or contingently). OSDC staff reports issued during the mid-1980's
noted that the City's budgets benefited from a rapid rise in the City's economy,
which boosted the City's collection of property, business and income taxes.
These resources were used to increase the City's workforce and the scope of
discretionary and mandated City services. Subsequent OSDC staff reports examined
the 1987 stock market crash and the 1989-92 recession, which affected the City's
region more severely than the nation, and attributed an erosion of City revenues
and increasing strain on City expenditures to that recession. According to a
recent OSDC staff report, the City's economy is now slowly recovering, but the
scope of that recovery is uncertain and unlikely, in the foreseeable future, to
match the expansion of the mid-1980's. Also, staff reports of OSDC and the
Control Board have indicated that the City's recent balanced budgets have been
accomplished, in part, through the use of non-recurring resources, tax increases
and additional State assistance; that the City has not yet brought its long-term
expenditures in line with recurring revenues; and that the City is therefore
likely to continue to face future projected budget gaps requiring the City to
increase revenues and/or reduce expenditures. According to the most recent staff
reports of OSDC and the Control Board, during the four-year period covered by
the current financial plan, the City is relying on obtaining substantial
resources from initiatives needing approval and cooperation of its municipal
labor unions, Covered Organizations and City Council, as well as the state and
federal governments, among others.
On February 14, 1995, the Mayor released the preliminary budget for the
City's 1996 fiscal year, which addresses a projected $2.7 billion budget gap.
Most of the gap-closing initiatives may be implemented only with the
cooperation of the City's municipal unions, or the State or Federal governments.
Although the City has balanced its budget since 1981, estimates of the
City's revenues and expenditures, which are based on numerous assumptions, are
subject to various uncertainties. If expected federal or State aid is not forth-
coming, if unforeseen developments in the economy significantly reduce revenues
derived from economically sensitive taxes or necessitate increased expenditures
for public assistance, if the City should negotiate wage increases for its
employees greater than the amounts provided for in the City's financial plan or
if other uncertainties materialize that reduce expected revenues or increase
projected expenditures, then, to avoid operating deficits, the City may be
required to implement additional actions, including increases in taxes and
reductions in essential City services. The City might also seek additional
assistance from New York State.
The City requires certain amounts of financing for seasonal and capital
spending purposes. The City has issued $1.75 billion of notes for seasonal
financing purposes during fiscal year 1994. The City's capital financing program
projects long-term financing requirements of approximately $17 billion for the
City's fiscal years 1995 through 1998. The major capital requirements include
expenditures for the City's water supply and sewage disposal systems, roads,
bridges, mass transit, schools, hospitals and housing. In addition to financing
for new purposes, the City and the New York City Municipal Water Finance
Authority have issued refunding bonds totalling $1.8 billion in fiscal year
1994.
Certain localities, in addition to the City, could have financial
problems leading to requests for additional New York State assistance during the
State's 1994-95 fiscal year and thereafter. The potential impact on the State of
such requests by localities is not included in the projections of the State's
receipts and disbursements in the State's 1994-95 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the Legislature to assist Yonkers could result in allocation of New
York State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1992, the total indebtedness of all
localities in New York State was approximately $35.2 billion, of which $19.5
billion was debt of New York City (excluding $5.9 billion in MAC debt); a small
portion (approximately $71.6 million) of the $35.2 billion of indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling New York State legislation. State law requires the Comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Seventeen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1992.
From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If New York State, New York City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. The longer-range
problems of declining urban population, increasing expenditures and other
economic trends could adversely affect localities and require increasing New
York State assistance in the future.
RATING SERVICES
Ratings represent the opinions of rating services as to the quality of
the Municipal Obligations and other securities that they undertake to rate. It
should be emphasized, however, that ratings are relative and subjective and are
not absolute standards of quality. Although these ratings are an initial
criterion for selection of portfolio investments, Bankers Trust also makes its
own evaluation of these securities, subject to review by the Board of Trustees.
After purchase by a Portfolio, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Portfolio. Neither
event would require a Portfolio to eliminate the obligation from its portfolio,
but Bankers Trust will consider such an event in its determination of whether a
Portfolio should continue to hold the obligation. A description of the ratings
used herein and in the Prospectus is set forth in the Appendix to this Statement
of Additional Information.
THE FOLLOWING FUNDAMENTAL INVESTMENT RESTRICTIONS AND NON-FUNDAMENTAL
INVESTMENT OPERATING POLICIES HAVE BEEN ADOPTED BY THE TRUST, WITH RESPECT TO
THE RESPECTIVE FUND, AND BY EACH RESPECTIVE PORTFOLIO BECAUSE OF REQUIREMENTS OF
FEDERAL OR STATE SECURITIES LAWS OR REGULATIONS. UNLESS AN INVESTMENT INSTRUMENT
OR TECHNIQUE IS DESCRIBED IN THE RESPECTIVE PROSPECTUS OR ELSEWHERE HEREIN, THE
RESPECTIVE FUND AND THE CORRESPONDING PORTFOLIO MAY NOT INVEST IN THAT
INVESTMENT INSTRUMENT OR ENGAGE IN THAT INVESTMENT TECHNIQUE.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Trust with
respect to each of the Funds and by the Portfolios as fundamental policies.
Under the 1940 Act, a "fundamental" policy may not be changed without the vote
of a majority of the outstanding voting securities of the Fund or Portfolio,
respectively, to which it relates, which is defined in the 1940 Act as the
lesser of (a) 67% or more of the shares present at a shareholder meeting if the
holders of more than 50% of the outstanding shares are present or represented by
proxy, or (b) more than 50% of the outstanding shares. The percentage
limitations contained in the restrictions listed below apply at the time of the
purchase of the securities. Whenever a Fund is requested to vote on a change in
the investment restrictions of a Portfolio, the Trust will hold a meeting of
Fund shareholders and will cast its votes as instructed by the shareholders.
Fund shareholders who do not vote will not affect the Trust's votes at the
Portfolio meeting. The percentage of the Trust's votes representing Fund
shareholders not voting will be voted by the Trustees of the Trust in the same
proportion as the Fund shareholders who do, in fact, vote.
Each Portfolio (Fund) except Liquid Assets Portfolio (Fund)
Under investment policies adopted by the Trust, on behalf of each Fund,
and by the Portfolios, each Fund and each Portfolio may not:
1. Borrow money, except for temporary or emergency (not
leveraging) purposes in an amount not exceeding 5% of the value of the
Fund's or the Portfolio's total assets (including the amount borrowed),
as the case may be, calculated in each case at the lower of cost or
market.
2. Pledge, hypothecate, mortgage or otherwise encumber more
than 5% of the total assets of the Fund or the Portfolio, as the case
may be, and only to secure borrowings for temporary or emergency
purposes.
3. Invest more than 5% of the total assets of the Fund or the
Portfolio, as the case may be, in any one issuer (other than U.S.
Government Obligations) or purchase more than 10% of any class of
securities of any one issuer; provided, however, that (i) up to 25% of
the assets of Institutional Cash Management Fund, Institutional Cash
Reserves, Institutional Treasury Money Fund and Institutional Tax Free
Money Fund (and Cash Management Portfolio, Treasury Money Portfolio and
Tax Free Money Portfolio), and all of the assets of Institutional NY
Tax Free Money Fund (and NY Tax Free Money Portfolio), may be invested
without regard to this restriction, and (ii) this restriction shall not
preclude the purchase by Institutional Tax Free Money Fund (or Tax Free
Money Portfolio) of issues guaranteed by the U.S. Government, its
agencies or instrumentalities or backed by letters of credit or
guarantees of one or more commercial banks or other financial
institutions, even though any one such commercial bank or financial
institution provides a letter of credit or guarantee with respect to
securities which in the aggregate represent more than 5%, but not more
than 10%, of the total assets of the Fund or the Portfolio, as the case
may be; provided, however, that nothing in this investment restriction
shall prevent the Trust from investing all or part of a Fund's assets
in an open-end management investment company with substantially the
same investment objectives as such Fund.
4. Invest more than 25% of the total assets of the Fund or the
Portfolio, as the case may be, in the securities of issuers in any
single industry; provided that: (i) this limitation shall not apply to
the purchase of U.S. Government Obligations; (ii) under normal market
conditions more than 25% of the total assets of Institutional Cash
Management Fund and Institutional Cash Reserves (and Cash Management
Portfolio) will be invested in obligations of foreign and U.S. Banks;
and (iii) with respect to Institutional Tax Free Money Fund and
Institutional NY Tax Free Money Fund (or Tax Free Money Portfolio or NY
Tax Free Money Portfolio), this limitation shall not apply to the
purchase of Municipal Obligations or letters of credit or guarantees of
banks that support Municipal Obligations; provided, however, that
nothing in this investment restriction shall prevent the Trust from
investing all or part of a Fund's Assets in an open-end management
investment company with substantially the same investment objectives as
such Fund.
5. Make short sales of securities, maintain a short position
or purchase any securities on margin, except for such short-term
credits as are necessary for the clearance of transactions.
6. Underwrite the securities issued by others (except to the
extent the Fund or Portfolio may be deemed to be an underwriter under
the Federal securities laws in connection with the disposition of its
portfolio securities) or knowingly purchase restricted securities,
except that Institutional Tax Free Money Fund and Institutional NY Tax
Free Money Fund (and Tax Free Money Portfolio and NY Tax Free Money
Portfolio) each may bid, separately or as part of a group, for the
purchase of Municipal Obligations directly from an issuer for its own
portfolio in order to take advantage of any lower purchase price
available. To the extent these securities are illiquid, they will be
subject to the Fund's or the Portfolio's 10% limitation on investments
in illiquid securities; provided, however, that nothing in this
investment restriction shall prevent the Trust from investing all or
part of a Fund's Assets in an open-end management investment company
with substantially the same investment objectives as such Fund.
7. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil, gas or mineral
interests, but this shall not prevent the Fund or the Portfolio from
investing in obligations secured by real estate or interests therein.
8. Make loans to others, except through the purchase of
qualified debt obligations, the entry into repurchase agreements and,
with respect to Institutional Cash Management Fund, Institutional Cash
Reserves, and Institutional Treasury Money Fund (and Cash Management
Portfolio and Treasury Money Portfolio), the lending of portfolio
securities.
9. Invest more than an aggregate of 10% of the net assets of
the Fund or the Portfolio's, respectively, (taken, in each case, at
current value) in (i) securities that cannot be readily resold to the
public because of legal or contractual restrictions or because there
are no market quotations readily available or (ii) other "illiquid"
securities (including time deposits and repurchase agreements maturing
in more than seven calendar days); provided, however, that nothing in
this investment restriction shall prevent the Trust from investing all
or part of a Fund's assets in an open-end management investment company
with substantially the same investment objectives as such Fund.
10. Purchase more than 10% of the voting securities of any
issuer or invest in companies for the purpose of exercising control or
management; provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all or part of a
Fund's Assets in an open-end management investment company with
substantially the same investment objectives as such Fund.
11. Purchase securities of other investment companies, except
to the extent permitted under the 1940 Act or in connection with a
merger, consolidation, reorganization, acquisition of assets or an
offer of exchange; provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all or part of a
Fund's Assets in an open-end management investment company with
substantially the same investment objectives as such Fund.
12. Issue any senior securities, except insofar as it may be
deemed to have issued a senior security by reason of (i) entering into
a repurchase agreement or (ii) borrowing in accordance with terms
described in the Prospectus and this Statement of Additional
Information.
13. Purchase or retain the securities of any issuer if any of
the officers or trustees of the Fund or the Portfolio or its investment
adviser owns individually more than 1/2 of 1% of the securities of such
issuer, and together such officers and directors own more than 5% of
the securities of such issuer.
14. Invest in warrants, except that the Fund or the Portfolio
may invest in warrants if, as a result, the investments (valued in each
case at the lower of cost or market) would not exceed 5% of the value
of the net assets of the Fund or the Portfolio, as the case may be, of
which not more than 2% of the net assets of the Fund or the Portfolio,
as the case may be, may be invested in warrants not listed on a
recognized domestic stock exchange. Warrants acquired by the Fund or
the Portfolio as part of a unit or attached to securities at the time
of acquisition are not subject to this limitation.
15. As to Institutional Tax Free Money Fund and Institutional
NY Tax Free Money Fund (or Tax Free Money Portfolio and NY Tax Free
Money Portfolio), neither Fund (or Portfolio as the case may be) will
invest less than 80% of its net assets in Municipal Obligations under
normal market conditions; provided, however, that nothing in this
restriction shall prevent the Trust from investing all or part of a
Fund's Assets in an open-end management investment company with
substantially the same investment objectives as such Fund.
Liquid Assets Portfolio (Fund)
As a matter of fundamental policy, the Portfolio (or Fund) may not
(except that no investment restriction of the Fund shall prevent the Fund from
investing all of its Assets in an open-end investment company with substantially
the same investment objectives):
1. Borrow money or mortgage or hypothecate assets of the
Portfolio (Fund), except that in an amount not to exceed 1/3 of the
current value of the Portfolio's (Fund's) net assets, it may borrow
money as a temporary measure for extraordinary or emergency purposes
and enter into reverse repurchase agreements or dollar roll
transactions, and except that it may pledge, mortgage or hypothecate
not more than 1/3 of such assets to secure such borrowings (it is
intended that money would be borrowed only from banks and only either
to accommodate requests for the withdrawal of beneficial interests
(redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or
other similar situations) or reverse repurchase agreements, provided
that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely
for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "State and Federal
Restrictions" below. (As an operating policy, the Portfolio may not
engage in dollar roll transactions);
2. Underwrite securities issued by other persons except
insofar as the Portfolio (Trust or the Fund) may technically be deemed
an underwriter under the Securities Act of 1933, as amended (the "1933
Act"), in selling a portfolio security;
3. Make loans to other persons except (a) through the lending
of the Portfolio's (Fund's) portfolio securities and provided that any
such loans not exceed 20% of the Portfolio's (Fund's) total assets
(taken at market value), (b) through the use of repurchase agreements
or the purchase of short-term obligations or (c) by purchasing a
portion of an issue of debt securities of types distributed publicly or
privately;
4. Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (except futures and option contracts) in the
ordinary course of business (the Portfolio (Trust) may hold and sell,
for the Portfolio's (Fund's) portfolio, real estate acquired as a
result of the Portfolio's (Fund's) ownership of securities);
5. Concentrate its investments in any particular industry
(excluding U.S. Government securities), but if it is deemed appropriate
for the achievement of the Portfolio's (Fund's) investment objective,
up to 25% of its total assets may be invested in any one industry; and
6. Issue any senior security (as that term is defined in the
1940 Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder, provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered to
be the issuance of a senior security for purposes of this restriction.
State and Federal Restrictions. In order to comply with certain state
and Federal statutes and policies each Portfolio (or Trust, on behalf of the
Fund) will not as a matter of operating policy (except that no operating policy
shall prevent a Fund from investing all of its Assets in an open-end investment
company with substantially the same investment objectives):
(i) borrow money (including through reverse repurchase agreements) for
any purpose in excess of 10% of the Portfolio's (Fund's) total
assets (taken at cost);
(ii) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a
duration of over seven calendar days, if as a result thereof, more
than 10% of the market value of the Portfolio's (Fund's) net assets
would be in investments that are illiquid;
(iii) invest more than 15% of the Portfolio's (Fund's) total assets
(taken at the greater of cost or market value) in (a) securities
(including Rule 144A securities) that are restricted as to resale
under the 1933 Act, and (b) securities that are issued by issuers
which (including predecessors) have been in operation less than
three years (other than U.S. Government securities), provided,
however, that no more than 5% of the Portfolio's (Fund's) total
assets are invested in securities issued by issuers which
(including predecessors) have been in operation less than three
years;
(iv) invest in warrants (other than warrants acquired by the Portfolio
(Fund) as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of
cost or market) would exceed 5% of the value of the Portfolio's
(Fund's) net assets or if, as a result, more than 2% of the
Portfolio's (Fund's) net assets would be invested in warrants not
listed on a recognized United States or foreign stock exchange, to
the extent permitted by applicable state securities laws;
(v) invest in any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of
the Portfolio (Trust), or is an officer of the Adviser, if after
the Portfolio's (Fund's) purchase of the securities of such issuer,
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;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities of any investment
company will not be purchased for the Portfolio (Fund) if such
purchase at the time thereof would cause: (a) more than 10% of the
Portfolio's (Fund's) total assets (taken at the greater of cost or
market value) to be invested in the securities of such issuers; (b)
more than 5% of the Portfolio's (Fund's) total assets (taken at the
greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Portfolio (Fund);
provided further that, except in the case of a merger or
consolidation, the Portfolio (Fund) shall not purchase any
securities of any open-end investment company unless the Portfolio
(Fund) (1) waives the investment advisory fee with respect to
assets invested in other open-end investment companies and (2)
incurs no sales charge in connection with the investment;
(vii) sell securities it does not own such that the dollar amount of such
short sales at any one time exceeds 25% of the net equity of the
Portfolio (Fund), and the value of securities of any one issuer in
which the Portfolio (Fund) is short exceeds the lesser of 2.0% of
the value of the Portfolio's (Fund's) net assets or 2.0% of the
securities of any class of any U.S. issuer and, provided that short
sales may be made only in those securities which are fully listed
on a national securities exchange or a foreign exchange (This
provision does not include the sale of securities of the Portfolio
(Fund) contemporaneously owns or has the right to obtain securities
equivalent in kind and amount to those sold, i.e., short sales
against the box.);
(viii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;
(ix) The Portfolio (Fund) will not make investments in oil, gas, and
other mineral leases and the Portfolio (Fund) will not purchase or
sell real property (including limited partnership interests, but
excluding readily marketable interests in real estate investment
trusts or readily marketable securities of companies which invest
in real estate), except that nothing in this restriction shall
prohibit the Portfolio (Fund) from owning and selling real estate
acquired as a result of the Portfolio's (Fund's) ownership of
securities or from owning real estate used principally for its own
office space;
(x) if the Portfolio (Fund) is a "diversified" fund with respect to 75%
of its assets, invest more than 5% of its total assets in the
securities (excluding U.S. Government securities) of any one
issuer;
(xi) invest for the purpose of exercising control or management;
(xii) invest more than 10% of the Portfolio's (Fund's) total assets
(taken at the greater of cost or market value) in securities
(excluding Rule 144A securities) that are restricted as to resale
under the 1933 Act;
(xiii) with respect to 75% of the Portfolio's (Fund's) total assets,
purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio (Fund) to hold more than 10% of
any class of securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a single class, except
that futures or option contracts shall not be subject to this
restriction;
(xiv) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the investment policies of the Portfolio (Fund) and the
option is issued by the Options Clearing Corporation, except for
put and call options issued by non-U.S. entities or listed on
non-U.S. securities or commodities exchanges; (b) the aggregate
value of the obligations underlying the puts determined as of the
date the options are sold shall not exceed 50% of the Portfolio's
(Fund's) net assets; (c) the securities subject to the exercise of
the call written by the Portfolio (Fund) must be owned by the
Portfolio (Fund) at the time the call is sold and must continue to
be owned by the Portfolio (Fund) until the call has been exercised,
has lapsed, or the Portfolio (Fund) has purchased a closing call,
and such purchase has been confirmed, thereby extinguishing the
Portfolio's (Fund's) obligation to deliver securities pursuant to
the call it has sold; and (d) at the time a put is written, the
Portfolio (Fund) establishes a segregated account with its
custodian consisting of cash or short-term U.S. Government
securities equal in value to the amount the Portfolio (Fund) will
be obligated to pay upon exercise of the put (this account must be
maintained until the put is exercised, has expired, or the
Portfolio (Fund) has purchased a closing put, which is a put of the
same series as the one previously written); and
(xv) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons
and: (a) the options or futures are offered through the facilities
of a national securities association or are listed on a national
securities or commodities exchange, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all such
options which are held at any time do not exceed 20% of the
Portfolio's (Fund's) total net assets; and (c) the aggregate margin
deposits required on all such futures or options thereon held at
any time do not exceed 5% of the Portfolio's (Fund's) total assets.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
Each Fund will comply with the state securities laws and regulations of
all states in which it is registered. Each Portfolio will comply with the
permitted investments and investment limitations in the securities laws and
regulations of all states in which the Fund, or any other registered investment
company investing in the Portfolio, is registered.
For purposes of diversification under the 1940 Act, identification of
the "issuer" of a Municipal Obligation depends on the terms and conditions of
the obligation. If the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of the
government creating the subdivision, and the obligation is backed only by the
assets and revenues of the subdivision, the subdivision will be regarded as the
sole issuer. Similarly, if a private activity bond is backed only by the assets
and revenues of the nongovernmental user, the nongovernmental user will be
deemed to be the sole issuer. If in either case the creating government or
another entity guarantees an obligation or issues a letter of credit to secure
the obligation, the guarantee or letter of credit will be considered a separate
security issued by the government or entity and would be separately valued.
PORTFOLIO TURNOVER
Each Portfolio may attempt to increase yields by trading to take
advantage of short-term market variations, which results in higher portfolio
turnover. However, this policy does not result in higher brokerage commissions
to the Portfolios as the purchases and sales of portfolio securities are usually
effected as principal transactions. The Portfolios' turnover rates are not
expected to have a material effect on their income and have been and are
expected to be zero for regulatory reporting purposes.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities and other financial instruments
for a Portfolio are made by Bankers Trust, which also is responsible for placing
these transactions, subject to the overall review of the Board of Trustees.
Although investment requirements for each Portfolio are reviewed independently
from those of the other accounts managed by Bankers Trust and those of the other
Portfolios, investments of the type the Portfolios may make may also be made by
these other accounts or Portfolios. When a Portfolio and one or more other
Portfolios or accounts managed by Bankers Trust are prepared to invest in, or
desire to dispose of, the same security or other financial instrument, available
investments or opportunities for sales will be allocated in a manner believed by
Bankers Trust to be equitable to each. In some cases, this procedure may affect
adversely the price paid or received by a Portfolio or the size of the position
obtained or disposed of by a Portfolio.
Purchases and sales of securities on behalf of the Portfolios usually
are principal transactions. These securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities. The
cost of securities purchased from underwriters includes an underwriting
commission or concession and the prices at which securities are purchased from
and sold to dealers include a dealer's mark-up or mark-down. U.S. Government
Obligations are generally purchased from underwriters or dealers, although
certain newly issued U.S. Government Obligations may be purchased directly from
the U.S. Treasury or from the issuing agency or instrumentality.
Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere and principal transactions are not entered
into with persons affiliated with the Portfolios except pursuant to exemptive
rules or orders adopted by the Securities and Exchange Commission (the "SEC").
Under rules adopted by the SEC, broker-dealers may not execute transactions on
the floor of any national securities exchange for the accounts of affiliated
persons, but may effect transactions by transmitting orders for execution.
In selecting brokers or dealers to execute portfolio transactions on
behalf of a Portfolio, Bankers Trust seeks the best overall terms available. In
assessing the best overall terms available for any transaction, Bankers Trust
will consider the factors it deems relevant, including the breadth of the market
in the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, Bankers Trust is authorized, in selecting parties to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage, but not research, services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Portfolio involved, the other Portfolios and/or other accounts over which
Bankers Trust or its affiliates exercise investment discretion. Bankers Trust's
fees under its agreements with the Portfolios are not reduced by reason of its
receiving brokerage services.
NET ASSET VALUE
The Prospectuses discuss the time(s) at which the net asset values of
the Funds are determined for purposes of sales and redemptions. The net asset
value of a Fund's investment in a Portfolio is equal to the Fund's pro rata
share of the total investment of the Fund and of the other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities. The
following is a description of the procedures used by the Portfolios in valuing
their assets.
The valuation of each Portfolio's securities is based on their
amortized cost, which does not take into account unrealized capital gains or
losses. Amortized cost valuation involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, generally without regard to the impact of fluctuating interest rates
on the market value of the instrument. Although this method provides certainty
in valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Portfolio would receive if
it sold the instrument.
The Portfolios' use of the amortized cost method of valuing their
securities is permitted by a rule adopted by the SEC. Under this rule, the
Portfolios must maintain a dollar-weighted average portfolio maturity of 90 days
or less, purchase only instruments having remaining maturities of two years or
less and invest only in securities determined by or under the supervision of the
Board of Trustees to be of high quality with minimal credit risks.
Pursuant to the rule, the Board of Trustees of each Portfolio also has
established procedures designed to allow investors in the Portfolio, such as the
Trust, to stabilize, to the extent reasonably possible, the investors' price per
share as computed for the purpose of sales and redemptions at $1.00. These
procedures include review of each Portfolio's holdings by the Portfolio's Board
of Trustees, at such intervals as it deems appropriate, to determine whether the
value of the Portfolio's assets calculated by using available market quotations
or market equivalents deviates from such valuation based on amortized cost.
The rule also provides that the extent of any deviation between the
value of each Portfolio's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be examined by the
Portfolio's Board of Trustees. In the event the Portfolio's Board of Trustees
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, pursuant to the rule, the
respective Portfolio's Board of Trustees must cause the Portfolio to take such
corrective action as such Board of Trustees regards as necessary and
appropriate, including: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital gains;
redeeming shares in kind; or valuing the Portfolio's assets by using available
market quotations.
Each investor in a Portfolio, including the corresponding Fund, may add
to or reduce its investment in the Portfolio on each day the Portfolio
determines its net asset value. At the close of each such business day, the
value of each investor's beneficial interest in the Portfolio will be determined
by multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected as of the close of business on that day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of business on such day plus or minus, as the case may be, the
amount of net additions to or withdrawals from the investor's investment in the
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount of
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as of
the close of the following business day.
PURCHASE AND REDEMPTION INFORMATION
The Trust may suspend the right of redemption or postpone the date of
payment for shares during any period when: (a) trading on the NYSE is restricted
by applicable rules and regulations of the SEC; (b) the NYSE is closed for other
than customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as determined by the SEC.
Under the terms of a Distribution Agreement, Signature acts as
distributor on a "best efforts" basis to solicit orders for the sale of shares
of the Funds and will undertake such advertising and promotion as it believes
reasonable in connection with soliciting orders. In addition to Signature's
duties as distributor, Signature may, in its discretion, perform additional
functions in connection with transactions in the shares of the Funds. Pursuant
to the terms of the Trust's Distribution Plan (the "Plan"), pursuant to Rule
12b-1 under the 1940 Act, Signature may seek reimbursement in an amount not
exceeding 0.10% of the Trust's net assets annually for expenses incurred in
connection with any activities primarily intended to result in the sale of the
Funds' shares, which are described in the Prospectuses.
The Plan provides that it will continue in effect from year to year
only if its continuance is approved annually by the Trust's Board of Trustees,
including a majority of the Trustees who are not "interested persons," as
defined by the 1940 Act, of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related
thereto (the "Qualified Trustees"). The Plan may not be amended to increase
materially the amount to be spent for the services provided by Signature without
shareholder approval and all material amendments of the Plan must also be
approved by the Trustees in the manner described above. The Plan may be
terminated with respect to a Fund at any time by majority vote of the Qualified
Trustees or a majority of the shares of the Fund outstanding. Pursuant to the
Plan, Signature will provide to the Board of Trustees periodic reports of any
amounts expended under the Plan and the purpose for which expenditures were
made.
Signature did not seek reimbursement under the Plan during the Trust's
fiscal years ended December 31, 1992 1993 and 1994.
MANAGEMENT OF THE TRUST AND PORTFOLIOS
The Trustees and officers of the Trust and the Portfolios and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate those Trustees who
are "interested persons" (as defined in the 1940 Act) of the Trust. Unless
otherwise indicated, the address of each Trustee and officer is 6 St.
James Avenue, Boston, Massachusetts 02116.
TRUSTEES OF THE TRUST
RICHARD J. HERRING -- Trustee; Professor, Finance Department, The
Wharton School, University of Pennsylvania. His address is The Wharton
School, University of Pennsylvania Finance Department, 3303 Steinberg
Hall/Dietrich Hall, Philadelphia, Pennsylvania 19104.
BRUCE E. LANGTON -- Trustee; Retired; Director, Adela Investment Co.
and University Patents, Inc.; formerly Assistant Treasurer of IBM Corporation
(until 1986). His address is 99 Jordan Lane, Stamford, Connecticut 06903.
PHILIP W. COOLIDGE* -- President and Trustee; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc. ("SFG") (since
December, 1988) and Signature (since April, 1989).
TRUSTEES OF THE PORTFOLIOS
CHARLES P. BIGGAR -- Trustee; Retired; Director of Chase/NBW Bank
Advisory Board; Director, Batemen, Eichler, Hill Richards Inc.; formerly Vice
President of International Business Machines and President of the National
Services and the Field Engineering Divisions of IBM. His address is 12 Hitching
Post Lane, Chappaqua, New York 10514.
S. LELAND DILL -- Trustee; Retired; Director, Coutts & Co. Trust
Holdings Limited and Coutts & Co. (U.S.A.) International; Director, Zweig
Cash Fund and Zweig Series Trust; formerly Partner of KPMG Peat Marwick;
Director, Vinters International Company Inc.; General Partner of Pemco (an
investment company registered under the 1940 Act). His address is 5070 North
Ocean Drive, Singer Island, Florida 33404.
PHILIP W. COOLIDGE* -- Trustee and President of each Portfolio;
Chairman, Chief Executive Officer and President, SFG (since December, 1988) and
Signature (since April, 1989).
OFFICERS OF THE TRUST AND THE PORTFOLIOS
Unless otherwise specified, each officer listed below holds the same
position with the Trust and each Portfolio.
JAMES B. CRAVER -- Treasurer and Secretary; Senior Vice President, SFG
(since January, 1991); Secretary, Signature (since February, 1991); Partner,
Baker & Hostetler (prior to January, 1991).
DAVID G. DANIELSON -- Assistant Treasurer; Assistant Manager, SFG
(since May, 1991); Graduate Student, Northeastern University (from April, 1990
to March, 1991); Tax Accountant and Systems Analyst, Putnam Companies (prior to
March, 1990).
JAMES S. LELKO, JR. -- Assistant Treasurer; Assistant Manager, SFG
(since January 1993); Senior Tax Compliance Accountant, Putnam Investments
(prior to December 1992).
BARBARA M. O'DETTE -- Assistant Treasurer; Assistant Treasurer, SFG
(since December, 1988); Assistant Treasurer, Signature (since April, 1989).
DANIEL E. SHEA -- Assistant Treasurer; Assistant Manager, SFG (since
November 1993); Supervisor and Senior Technical Advisor, Putnam Investments
(prior to November 1993).
LINDA T. GIBSON -- Assistant Secretary of the Trust; Legal Counsel and
Assistant Secretary, SFG (since May, 1992); Assistant Secretary, Signature
(since October, 1992); student, Boston University School of Law (September, 1989
to May, 1992); Product Manager, SFG (prior to September, 1989).
THOMAS M. LENZ -- Assistant Secretary; Vice President and Associate
General Counsel, SFG (since November, 1989); Assistant Secretary, Signature
(since February, 1991); Attorney, Ropes & Gray (prior to November, 1989).
MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and Assistant
Secretary, SFG (since December, 1988); Assistant Secretary, Signature (since
April, 1989).
ANDRES E. SALDANA -- Assistant Secretary of the Trust; Legal Counsel,
SFG (since November, 1992); Assistant Secretary, Signature (since September
1993); Attorney, Ropes & Gray (September, 1990 to November, 1992); law student,
Yale Law School (prior to May, 1990).
Messrs. Coolidge, Craver, Danielson, Lelko, Lenz, Saldana and Shea and
Mss. Gibson, Mugler and O'Dette also hold similar positions for other
investment companies for which Signature or an affiliate serves as the
principal underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust or the Portfolios. No director, officer or employee of
Signature or any of its affiliates will receive any compensation from the Trust
or any Portfolio for serving as an officer or Trustee of the Trust or the
Portfolios. The Trust pays each Trustee who is not a director, officer or
employee of the Adviser, the Distributor, the Administrator or any of their
affiliates an annual fee of $10,000, respectively, per annum plus $500,
respectively, per meeting attended and reimburses them for travel and
out-of-pocket expenses. The Portfolios and International Equity, Utility, Equity
500 Index, Short/Intermediate U.S. Government Securities, Intermediate Tax Free,
Capital Appreciation, Asset Management and BT Investment Portfolios (together
with the Trust, the "Fund Complex") pay each Trustee who is not a director,
officer or employee of the Adviser, the Distributor, the Administrator or any of
their affiliates a combined annual fee of $10,000, respectively, per annum plus
$500, respectively, per meeting attended and reimburses them for travel and out-
of-pocket expenses.
For the year ended December 31, 1994, Institutional Cash Management
Fund, Institutional Treasury Money Fund and Institutional Cash Reserves accrued
Trustees fees equal to $12,130, $4,555 and $6,079, respectively. For the same
period, Cash Management Portfolio, Treasury Money Portfolio, Liquid Assets
Portfolio, Tax Free Money Portfolio and NY Tax Free Money Portfolio accrued
Trustees fees equal to $8,870, $4,167, $1,130, $1,581 and $1,471, respectively.
As of the year ended December 31, 1994, Institutional Tax Free Money Fund,
Institutional NY Tax Free Money Fund and Institutional Liquid Assets Fund had
not commenced investment operations and, therefore, accrued no Trustees fees.
Bankers Trust reimbursed the Funds and Portfolios for a portion of
their Trustees fees for the period above. See "Investment Adviser" and
"Administrator" below.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Accrued
Compensation as Part of Trust Estimated Annual Total Compensation
NAME OF PERSON, from Trust or Portfolios Benefits upon from Fund Complex
POSITION or Portfolios Expenses Retirement Paid to Trustees
<S> <C> <C> <C> <C>
Richard J. Herring, $12,000 none none $12,000
Trustee of Trust
Bruce E. Langton, $12,000 none none $12,000
Trustee of Trust
Philip W. Coolidge, none none none none
Trustee of Trust
and Portfolios
Charles P. Biggar, $12,000 none none $12,000
Trustee of Portfolios
S. Leland Dill, $12,000 none none $12,000
Trustee of Portfolios
</TABLE>
As of March 31, 1995, the Trustees and officers of the Trust and the
Trustees of each Portfolio, owned in the aggregate less than 1% of the shares of
any Fund or of the Trust (all series taken together). As of April 18, 1995,
Bankers Trust on behalf of its customers is the record owner of the 27.74% and
39.78% of the outstanding shares of Institutional Cash Reserves and
Institutional Treasury Money Fund, respectively. As of the same date, the
following owned, of record or beneficially, the following percentages of the
outstanding shares of Institutional Cash Management Fund: Interco Incorporated,
101 South Hanley Roar, St. Louis, MO 63105 (6.24%); and Fannie Mae Collateral
Account, 3920 Wisconsin Avenue N.W., Washington, D.C., 20016 (9.86%). As of the
same date, the following owned, of record or beneficially, the following
percentages of the outstanding shares of Institutional Cash Reserves: General
Electric Captial Corp., 507 Lexington Avenue, New York, NY 10022 (12.31%).
Shareholders owning 25% or more of the outstanding shares of a Fund may take
actions without the approval of any other investor in that Fund.
INVESTMENT ADVISER
Under the terms of an Advisory Agreement between each Portfolio and
Bankers Trust, Bankers Trust manages each Portfolio subject to the supervision
and direction of the Board of Trustees of the Portfolio. Bankers Trust will: (i)
act in strict conformity with each Portfolio's Declaration of Trust, the 1940
Act and the Investment Advisors Act of 1940, as the same may from time to time
be amended; (ii) manage each Portfolio in accordance with the Portfolio's and/or
Fund's investment objectives, restrictions and policies, as stated herein and in
the Prospectus; (iii) make investment decisions for each Portfolio; and (iv)
place purchase and sale orders for securities and other financial instruments on
behalf of each Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. Each Portfolio bears certain other
expenses incurred in its operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Portfolio who are not officers,
directors or employees of Bankers Trust, Signature or any of their affiliates;
SEC fees and state Blue Sky qualification fees, if any; charges of custodians
and transfer and dividend disbursing agents; certain insurance premiums; outside
auditing and legal expenses; costs of maintenance of corporate existence; costs
attributable to investor services, including, without limitation, telephone and
personnel expenses; and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and meetings of shareholders,
officers and Trustees of the Trust or the Portfolio; and any extraordinary
expenses.
For the years ended December 31, 1994, 1993 and 1992, Bankers Trust
accrued $3,807,085, $2,687,216 and $1,865,067, respectively, in compensation for
investment advisory services provided to Cash Management Portfolio. During the
same periods, Bankers Trust reimbursed $537,651, $54,176, and $55,943,
respectively, to Cash Management Portfolio to cover expenses.
For the year ended December 31, 1994 and the period June 7, 1993
(commencement of operations) through December 31, 1993, Bankers Trust accrued
$22,347 and $7,355, respectively, in compensation for investment advisory
services provided to Liquid Assets Portfolio. During the same period, Bankers
Trust reimbursed $44,908 and $27,897, respectively, to Liquid Assets Portfolio
to cover expenses.
For the years ended December 31, 1994, 1993 and 1992, Bankers Trust
accrued $1,176,759, $1,676,140 and $1,339,284, respectively, in compensation for
investment advisory services provided to Treasury Money Portfolio. During the
same periods, Bankers Trust reimbursed $65,359, $55,599 and $50,963,
respectively, to Treasury Money Portfolio to cover expenses.
For the years ended December 31, 1994, 1993 and 1992, Bankers Trust
accrued $182,954, $232,055 and $235,472, respectively, in compensation for
investment advisory services provided to Tax Free Money Portfolio. During the
same periods, Bankers Trust reimbursed $33,719, $35,603 and $32,946,
respectively, to Tax Free Money Portfolio to cover expenses.
For the years ended December 31, 1994, 1993 and 1992, Bankers Trust
accrued $140,928, $160,781 and $154,237, respectively, in compensation for
investment advisory services provided to NY Tax Free Money Portfolio. During the
same periods, Bankers Trust reimbursed $30,759, $35,080 and $30,345,
respectively, to NY Tax Free Money Portfolio to cover expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Portfolios, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust has informed the Portfolios that, in making its investment decisions, it
does not obtain or use material inside information in its possession or in the
possession of any of its affiliates. In making investment recommendations for
the Portfolios, Bankers Trust will not inquire or take into consideration
whether an issuer of securities proposed for purchase or sale by a Portfolio is
a customer of Bankers Trust, its parent or its subsidiaries or affiliates and,
in dealing with its customers, Bankers Trust, its parent, subsidiaries, and
affiliates will not inquire or take into consideration whether securities of
such customers are held by any fund managed by Bankers Trust or any such
affiliate.
ADMINISTRATOR
Under the administration and services agreements, Bankers Trust is
obligated on a continuous basis to provide such administrative services as the
respective Board of Trustees of the Trust and each Portfolio reasonably deems
necessary for the proper administration of the Trust and each Portfolio. Bankers
Trust will generally assist in all aspects of the Funds' and Portfolios'
operations; supply and maintain office facilities (which may be in Bankers
Trust's own offices), statistical and research data, data processing services,
clerical, accounting, bookkeeping and recordkeeping services (including without
limitation the maintenance of such books and records as are required under the
1940 Act and the rules thereunder, except as maintained by other agents of the
Trust or the Portfolios), internal auditing, executive and administrative
services, and stationery and office supplies; prepare reports to shareholders or
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC and various state Blue
Sky authorities; supply supporting documentation for meetings of the Board of
Trustees; provide monitoring reports and assistance regarding compliance with
the Trust's and each Portfolio's Declaration of Trust, by-laws, investment
objectives and policies and with Federal and state securities laws; arrange for
appropriate insurance coverage; calculate the net asset value, net income and
realized capital gains or losses of the Trust; and negotiate arrangements with,
and supervise and coordinate the activities of, agents and others retained to
supply services.
Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement") Signature performs such sub-administration duties for the Trust and
each Portfolio as from time to time may be agreed upon by Bankers Trust and
Signature. The Sub-Administration Agreement provides that Signature will receive
such compensation as from time to time may be agreed upon by Signature and
Bankers Trust. All such compensation will be paid by Bankers Trust.
Bankers Trust has agreed that if in any fiscal year the aggregate
expenses of any Fund and its respective Portfolio (including fees pursuant to
the Advisory Agreement, but excluding interest, taxes, brokerage and, if
permitted by the relevant state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over the Fund,
Bankers Trust will reimburse the Fund for the excess expense to the extent
required by state law. As of the date of this Statement of Additional
Information, the most restrictive annual expense limitation applicable to any
Fund is 2.5% of the Fund's first $30 million of average annual net assets, 2.0%
of the next $70 million of average annual net assets and 1.5% of the remaining
average annual net assets.
For the years ended December 31, 1994, 1993 and 1992, Bankers Trust
accrued $429,664, $839,392 and $553,604, respectively, in compensation for
administrative and other services provided to Institutional Cash Management Fund
and $74,378, $73,396 and $74,373, respectively, in compensation for such
services provided to Institutional Treasury Money Fund.
During the same periods, Bankers Trust reimbursed $59,280, $230,842 and
$387,197, respectively, to Institutional Cash Management Fund to cover expenses
and $46,491, $43,167 and $49,229, respectively, to Institutional Treasury Money
Fund to cover expenses.
For the period January 25, 1994 (commencement of operations) to
December 31, 1994, Bankers Trust accrued $414,739 in compensation for
administrative and other services provided to Institutional Cash Reserves.
During the same period, Bankers Trust reimbursed $452,281 to Institutional Cash
Reserves to cover expenses.
As of the year ended December 31, 1994, Institutional Tax Free Money
Fund and Institutional NY Tax Free Money Fund have not commenced investment
operations and, therefore, paid no administrative services fees.
For the years ended December 31, 1994, 1993 and 1992, Bankers Trust
accrued compensation of $1,269,028, $895,738 and $808,250, respectively, for
administrative and other services to Cash Management Portfolio.
For the year ended December 31, 1994 and the period June 7, 1993
(commencement of operations) through December 31, 1993, Bankers Trust accrued
$7,449 and $2,452, respectively, for administrative and other services to Liquid
Assets Portfolio.
For the years ended December 31, 1994, 1993 and 1992, Bankers Trust
accrued compensation of $392,252, $558,713 and $559,293, respectively, for
administrative and other services for Treasury Money Portfolio.
For the years ended December 31, 1994, 1993 and 1992, Bankers Trust
accrued $60,985, $77,352 and $104,385, respectively, for administrative and
other services to Tax Free Money Portfolio.
For the years ended December 31, 1994, 1993 and 1992, Bankers Trust
accrued $46,976, $53,594 and $69,867, respectively, for administrative and other
services to NY Tax Free Money Portfolio.
<PAGE>
CUSTODIAN AND TRANSFER AGENT
Bankers Trust, 280 Park Avenue, New York, New York 10017, serves as
custodian and transfer agent for the Trust and as custodian for each Portfolio
pursuant to the administration and services agreements discussed above. As
custodian, Bankers Trust holds the Funds' and each Portfolio's assets. For such
services, Bankers Trust receives monthly fees from each Fund and Portfolio,
which are included in the administrative services fees discussed above. As
transfer agent for the Trust, Bankers Trust maintains the shareholder account
records for each Fund, handles certain communications between shareholders and
the Trust and causes to be distributed any dividends and distributions payable
by the Trust. Bankers Trust is also reimbursed by the Funds for its
out-of-pocket expenses. Bankers Trust will comply with the self-custodian
provisions of Rule 17f-2 under the 1940 Act.
USE OF NAME
The Trust and Bankers Trust have agreed that the Trust may use "BT" as
part of its name for so long as Bankers Trust serves as investment adviser. The
Trust has acknowledged that the term "BT" is used by and is a property right of
certain subsidiaries of Bankers Trust and that those subsidiaries and/or Bankers
Trust may at any time permit others to use that term.
The Trust may be required, on 60 days' notice from Bankers Trust at any
time, to abandon use of the acronym "BT" as part of its name. If this were to
occur, the Trustees would select an appropriate new name for the Trust, but
there would be no other material effect on the Trust, its shareholders or
activities.
BANKING REGULATORY MATTERS
Bankers Trust has been advised by its counsel that in its opinion
Bankers Trust may perform the services for the Portfolios contemplated by the
Advisory Agreements and other activities for the Trust and the Portfolios
described in the Prospectuses and this Statement of Additional Information
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. However, counsel has pointed out that future changes in either
Federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as future judicial or administrative
decisions or interpretations of present and future statutes and regulations,
might prevent Bankers Trust from continuing to perform those services for the
Trust or the Portfolios. If the circumstances described above should change, the
Trust's Board of Trustees would review the Trust's relationship with Bankers
Trust and consider taking all actions necessary in the circumstances. In
addition, state securities law on this issue may differ from interpretations of
Federal law as expressed herein and banks and financial institutions may be
required to register as dealer pursuant to state law.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022-4669, serves as Counsel to the Trust and from time to
time provides certain legal services to Bankers Trust. Coopers & Lybrand L.L.P.,
1100 Main Street, Suite 900, Kansas City, Missouri 64105 has been
selected as Independent Accountants for the Trust.
ORGANIZATION OF THE TRUST AND PORTFOLIOS
The Trust was organized on March 15, 1990 as a series Trust. The shares
of each series participate equally in the earnings, dividends and assets of the
particular series. The Trust may create and issue additional series of shares.
The Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in a series. Each share represents an equal
proportionate interest in a series with each other share.
Shares when issued are fully paid and non-assessable, except as set forth
below. Shareholders are entitled to one vote for each share held.
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
The Trust is not required to hold annual meetings of shareholders but
will hold special meetings of shareholders when in the judgement of the Trustees
it is necessary or desirable to submit matters for a shareholder vote.
Shareholders have under certain circumstances the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Trustees without a meeting. Upon liquidation
of a Fund, shareholders of that Fund would be entitled to share pro rata in the
net assets of the Fund available for distribution to shareholders.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration of Trust provides for indemnification from the
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of shareholders
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
a possibility that the Trust believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying the liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in a manner so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Trust.
Whenever the Trust is requested to vote on a matter pertaining to a
Portfolio, the Trust will vote its shares without a meeting of shareholders of
the respective Fund if the proposal is one, if which made with respect to a
Fund, would not require the vote of shareholders of that Fund as long as such
action is permissible under applicable statutory and regulatory requirements.
For all other matters requiring a vote, the Trust will hold a meeting of
shareholders of the respective Funds and, at the meeting of investors in a
Portfolio, the Trust will cast all of its votes in the same proportion as the
votes all its shares at the Portfolio meeting, other investors with a greater
pro rata ownership of the Portfolio could have effective voting control of the
operations of the Portfolio.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisers
with specific reference to their own tax situations.
As described above and in the Funds' Prospectus: (i) Institutional Cash
Management Fund, Institutional Treasury Money Fund and Institutional Cash
Reserve are designed to provide investors with current income; (ii)
Institutional Tax Free Money Fund is designed to provide investors with current
income excluded from gross income for Federal income tax purposes and (iii)
Institutional NY Tax Free Money Fund is designed to provide investors with
current income excluded from gross income for Federal income tax purposes and
exempt from New York State and New York City personal income taxes. The Funds
are not intended to constitute balanced investment programs and are not designed
for investors seeking capital gains, maximum income or maximum tax-exempt income
irrespective of fluctuations in principal. Investment in Institutional Tax Free
Money Fund or Institutional NY Tax Free Money Fund would not be suitable for
tax-exempt institutions, qualified retirement plans, H.R. 10 plans and
individual retirement accounts since such investors would not gain any
additional tax benefit from the receipt of tax-exempt income.
Each Fund intends to qualify as a separate regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"). Provided that
each Fund (a) is a regulated investment company and (b) distributes to its
shareholders at least 90% of the sum of its taxable net investment income
(including, for this purpose, short-term capital gains) and its tax-exempt
interest income (reduced by certain expenses), each Fund will not be liable for
Federal income taxes to the extent its taxable net investment income and its net
realized long- and short-term capital gains, if any, are distributed to its
shareholders. Although the Trust expects the Funds to be relieved of all or
substantially all Federal income taxes, depending upon the extent of their
activities in states and localities in which their offices are maintained, in
which their agents or independent contractors are located or in which they are
otherwise deemed to be conducting business, that portion of a Fund's income
which is treated as earned in any such state or locality could be subject to
state and local tax. Any such taxes paid by a Fund would reduce the amount of
income and gains available for distribution to its shareholders.
While each Fund does not expect to realize net long-term capital gains,
any such gains realized will be distributed annually as described in the Funds'
Prospectus. Such distributions ("capital gain dividends"), if any, will be
taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares, and will be designated as capital gain
dividends in a written notice mailed by the Fund to shareholders after the close
of the Fund's prior taxable year.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income or fails to certify
that he or she has provided a correct taxpayer identification number and that he
or she is not subject to "backup withholding," then the shareholder may be
subject to a 31% backup withholding tax with respect to (i) any taxable
dividends and distributions and (ii) the proceeds of any redemptions of Fund
shares. An individual's taxpayer identification number is his or her social
security number. The 31% backup withholding tax is not an additional tax and may
be credited against a taxpayer's regular Federal income tax liability.
Because Institutional Tax Free Money Fund and Institutional NY Tax Free
Money Fund will distribute exempt-interest dividends, all or a portion of any
interest on indebtedness incurred by a shareholder to purchase or carry shares
of these Funds will not be deductible for Federal income and New York State and
New York City personal income tax purposes. In addition, the Code may require a
shareholder of these Funds, if he receives exempt-interest dividends, to treat
as taxable income a portion of certain otherwise nontaxable social security and
railroad retirement benefit payments. Furthermore, that portion of any
exempt-interest dividend paid by one of these Funds which represents income from
private activity bonds held by the Fund may not retain its tax-exempt status in
the hands of a shareholder who is a "substantial user" of a facility financed by
such bonds, or a "related person" thereof. Moreover, as noted in the
Prospectuses for these Funds, (i) some or all of a Fund's dividends and
distributions may be specific preference items, or a component of an adjustment
item, for purposes of the Federal individual and corporate alternative minimum
taxes and (ii) the receipt of a Fund's dividends and distributions may affect a
corporate shareholder's Federal "environmental" tax liability. In addition, the
receipt of Fund dividends and distributions may affect a foreign corporate
shareholder's Federal "branch profits" tax liability and a Subchapter S
corporate shareholder's Federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisers as to whether they are (i)
"substantial users" with respect to a facility or "related" to such users within
the meaning of the Code and (ii) subject to a Federal alternative minimum tax,
the Federal "environmental" tax, the Federal "branch profits" tax or the Federal
"excess net passive income" tax.
On April 6, 1995, the House of Representatives passed H.R. 1215, which
would, among other things, alter the corporate alternative minimum tax by
repealing the preference relating to tax-exempt interest on private activity
bonds for interest accruing after December 31, 1995 and would otherwise repeal
the corporate alternative minimum tax for taxable years beginning after December
31, 2000. There can be no assurance that this proposed legislation will be
enacted or, if enacted, will include the provisions described herein.
Each Institutional Tax Free Money Fund shareholder will receive after
the close of the calendar year an annual statement as to the Federal income tax
status of his dividends and distributions from the Fund for the prior calendar
year. Each Institutional NY Tax Free Money Fund shareholder will receive after
the close of the calendar year an annual statement as to the Federal income and
New York State and City personal income tax status of his dividends and
distributions from the Fund for the prior calendar year. These statements will
also designate the amount of exempt-interest dividends that is a specific
preference item for purposes of the Federal individual and corporate alternative
minimum taxes. Each shareholder will also receive, if appropriate, various
written notices after the close of the Funds' prior taxable year as to the
federal income status of his dividends and distributions which were received
from the Funds during the Funds' prior taxable year. Shareholders should consult
their tax advisers as to any state and local taxes that may apply to these
dividends and distributions. The dollar amount of dividends excluded from
Federal income taxation or exempt from New York State and City personal income
taxation, and the dollar amount subject to such income taxation, if any, will
vary for each shareholder depending upon the size and duration of each
shareholder's investment in a Fund. To the extent that the Funds earn taxable
net investment income, each of the Funds intends to designate as taxable
dividends the same percentage of each day's dividend as its taxable net
investment income bears to its total net investment income earned on that day.
Therefore, the percentage of each day's dividend designated as taxable, if any,
may vary from day to day.
PERFORMANCE INFORMATION
From time to time a Fund may quote its performance in terms of "current
yield," "effective yield" or "tax equivalent yield" in reports or other
communications to shareholders or in advertising material.
The effective yield is an annualized yield based on a compounding of
the unannualized base period return. These yields are each computed in
accordance with a standard method prescribed by the rules of the SEC, by first
determining the "net change in account value" for a hypothetical account having
a share balance of one share at the beginning of a seven-day period (the
"beginning account value"). The net change in account value equals the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares. The
unannualized "base period return" equals the net change in account value divided
by the beginning account value. Realized gains or losses or changes in
unrealized appreciation or depreciation are not taken into account in
determining the net change in account value. The tax equivalent yields of
Institutional Tax Free Money Fund and Institutional NY Tax Free Money Fund are
computed by dividing the portion of a Fund's yield which is tax exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the Fund's yield that is not tax exempt.
The yields are then calculated as follows:
Base Period Return = Net Change in Account Value
Beginning Account Value
Current Yield = Base Period Return x 365/7
Effective Yield = [(1 + Base Period Return)365/7] - 1
Tax Equivalent Yield = Current Yield
(1 - Tax Rate)
The following table sets forth various measures of the performance for
the indicated Funds for the seven days ended December 31, 1994. (As of the date
hereof, Institutional Tax Free Money Fund, Institutional NY Money Fund and
Institutional Liquid Assets Fund had not commenced investment operations.)
Institutional Institutional Institutional
Cash Management Fund Treasury Money Fund Cash Reserves
Current Yield 5.61% 5.27% 5.65%
Effective Yield 5.77% 5.40% 5.81%
FINANCIAL STATEMENTS
The following financial statements are incorporated herein by reference
from the respective annual report dated December 31, 1994 and semi-annual report
dated June 30, 1995, as previously filed with the SEC pursuant to Section 30(b)
of the 1940 Act and Rule 30b2-1 thereunder. A copy of such reports will be
provided, without charge, to each person receiving this Statement of Additional
Information.
FOR LIQUID ASSETS PORTFOLIO:
Statement of Assets and Liabilities, December 31, 1994
Statement of Operations for the year ended December 31, 1994
Statement of Changes in Net Assets for the year ended December 31, 1994
and for the period June 7, 1993 to December 31, 1993
Financial Highlights: Selected ratios and supplemental data for each of
the periods indicated
Schedule of Portfolio Investments, December 31, 1994
Notes to Financial Statements
Report of Independent Accountants
Statement of Assets and Liabilities, June 30, 1995 (unaudited)
Statement of Operations for the six months ended June 30, 1995
(unaudited)
Statement of Changes in Net Assets for the six months ended June 30,
1995 (unaudited) and the for the year ended December 31, 1994
Financial Highlights: Selected Ratios and Supplemental Data for each
of the periods indicated
Schedule of Portfolio Investments, June 30, 1995 (unaudited)
Notes to Financial Statements (unaudited)
FOR INSTITUTIONAL CASH MANAGEMENT FUND AND INSTITUTIONAL TREASURY MONEY
FUND:
Statement of Assets and Liabilities, December 31, 1994
Statement of Operations for the year ended December 31, 1994
Statement of Changes in Net Assets for the years ended December 31,
1994 and 1993
Financial Highlights: Supplemental data for each of the periods
indicated Notes to Financial Statements
Report of Independent Accountants
Statement of Assets and Liabilities, June 30, 1995 (unaudited)
Statement of Operations for the six months ended June 30, 1995
(unaudited)
Statement of Changes in Net Assets for the six months ended June 30,
1995 (unaudited) and the for the year ended December 31, 1994
Financial Highlights: Selected Ratios and Supplemental Data for each of
the periods indicated
Notes to Financial Statements (unaudited)
FOR INSTITUTIONAL CASH RESERVES:
Statement of Assets and Liabilities, December 31, 1994
Statement of Operations for the period January 25, 1994 (commencement
of operations to December 31, 1994
Statement of Changes in Net Assets for the period January 25, 1994
(commencement of operations) to December 31, 1994
Financial Highlights: Supplemental data for the period indicated
Notes to Financial Statements
Report of Independent Accountants
Statement of Assets and Liabilities, June 30, 1995 (unaudited)
Statement of Operations for the six months ended June 30, 1995
(unaudited)
Statement of Changes in Net Assets for the six months ended June 30,
1995 (unaudited) and the for the year ended December 31, 1994
Financial Highlights: Selected Ratios and Supplemental Data for each of
the periods indicated
Notes to Financial Statements (unaudited)
FOR TAX FREE MONEY PORTFOLIO AND NY TAX FREE MONEY PORTFOLIO:
Statement of Assets and Liabilities, December 31, 1994 Statement of
operations for the year ended December 31, 1994
Statement of Changes in Net Assets for the years ended December 31,
1994 and 1993
Financial Highlights: Selected ratios and supplemental data for each of
the periods indicated
Schedule of Portfolio Investments, December 31, 1994
Notes to Financial Statements Report of Independent Accountants
Statement of Assets and Liabilities, June 30, 1995 (unaudited)
Statement of Operations for the six months ended June 30, 1995
(unaudited)
Statement of Changes in Net Assets for the six months ended June 30,
1995 (unaudited) and the for the year ended December 31, 1994
Financial Highlights: Selected Ratios and Supplemental Data for each of
the periods indicated
Schedule of Portfolio Investments, June 30, 1995 (unaudited)
Notes to Financial Statements (unaudited)
<PAGE>
BT INSTITUTIONAL FUNDS
INSTITUTIONAL LIQUID ASSETS FUND
STATEMENT OF ASSETS AND LIABILITIES
June 26, 1995
ASSETS:
Cash ....................................................... $ 10
Deferred organization expenses ............................. 10,000
-------
Total assets ........................................ 10,010
LIABILITIES:
Accrued organization expenses .............................. 10,000
-------
Net assets .......................................... $ 10
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE OF
BENEFICIAL INTEREST ($10 / 10 SHARES OUTSTANDING) ................. $1.00
=====
NOTES:
(1) BT Institutional Funds, a Massachusetts business trust (the "Trust"),
established and designated the Institutional Liquid Assets Fund (the
"Fund") as a separate series on May 3, 1995 which has been inactive
since that date, except for matters relating to the Fund's
establishment and designation and the registration under the Securities
Act of 1933 of the Fund's shares of beneficial interest ("Shares") and
the sale on June 21, 1995 of an aggregate of 10 Shares ("Initial
Shares") of the Fund to Signature Financial Group, Inc. ("SFG"). The
Fund is one of ten investment funds of the Trust.
(2) Organization expenses of the Fund are being deferred and will be
amortized on a straight line basis over a period not to exceed five
years that commences on the effective date of the Trust's Registration
Statement on Form N-1A with respect to the Fund. The amount paid by the
Trust on any redemption by SFG or any other then-current holder of the
Initial Shares will be reduced by a portion of any unamortized
organization expenses of the Fund, determined by the proportion of the
number of the Initial Shares redeemed to the number of Initial Shares
then outstanding after taking into account any prior redemptions of the
Initial Shares.
(3) The Trust has entered into i) an Administration and Services Agreement
with Bankers Trust Company under which Bankers Trust Company provides
administration, custody, transfer agency and shareholder services to
the Trust and ii) a Distribution Agreement with Signature Broker-Dealer
Services, Inc.
<PAGE>
COOPERS COOPERS & LYBRAND L.L.P.
& LYBRAND
a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
BT Institutional Funds:
We have audited the accompanying statement of assets and liabilities of the
Institutional Liquid Assets Fund (one of the funds comprising BT Institutional
Funds) as of June 26, 1995. This financial statement is the responsibility of
the Fund's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Institutional Liquid Assets
Fund of BT Institutional Funds as of June 26, 1995, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Kansas City, Missouri
June 27, 1995
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Description of S&P's corporate bond ratings:
AAA--Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major categories,
except in the AAA rating category.
Description of Moody's corporate bond ratings:
Aaa--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 exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. 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.
Description of Fitch Investors Service's corporate bond ratings:
AAA--Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, and liable to but slight market fluctuation other than through
changes in the money rate. The factor last named is of importance varying with
the length of maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public utility fields,
though some industrial obligations have this rating. The prime feature of an AAA
rating is showing of earnings several times or many times interest requirements
with such stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may enter in, such
as a wide margin of protection through collateral security or direct lien on
specific property as in the case of high class equipment certificates or bonds
that are first mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors, while guarantee or
assumption by parties other than the original debtor may also influence the
rating.
AA--Securities in this group are of safety virtually beyond question,
and as a class are readily salable while many are highly active. Their merits
are not greatly unlike those of the AAA class, but a security so rated may be of
junior though strong lien - in many cases directly following an AAA security -
or the margin of safety is less strikingly broad. The issue may be the
obligation of a small company, strongly secured but influenced as to ratings by
the lesser financial power of the enterprise and more local type of market.
Description of Duff & Phelps' corporate bond ratings:
AAA--Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury Funds.
AA+, AA, AA--High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
Description of S&P's municipal bond ratings:
AAA--Prime--These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds--In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds--Debt service coverage has been, and is expected to
remain, substantial; stability of the pledged revenues is also exceptionally
strong due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds and debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA--High Grade--The investment characteristics of bonds in this group
are only slightly less marked than those of the prime quality issues. Bonds
rated AA have the second strongest capacity for payment of debt service.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA rating category.
Description of Moody's municipal bond ratings:
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt 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 position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
Moody's may apply the numerical modifier in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
within its generic rating classification possesses the strongest investment
attributes.
Description of S&P's municipal note ratings:
Municipal notes with maturities of three years or less are usually
given note ratings (designated SP-1 or SP-2) to distinguish more clearly the
credit quality of notes as compared to bonds. Notes rated SP-1 have a very
strong or strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are given the designation of
SP-1+. Notes rated SP-2 have a satisfactory capacity to pay principal and
interest.
Description of Moody's municipal note ratings:
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and long-
term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG-2/VMIG-2 are of high
quality, with ample margins of protection, although not as large as the
preceding group.
Description of S&P commercial paper ratings:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Description of Moody's commercial paper ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
Description of Fitch Investors Service's commercial paper ratings:
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issue.
Description of Duff & Phelps' commercial paper ratings:
Duff 1+--Highest certainty of timely payment. Short term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk free U.S. Treasury short
term obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Description of IBCA's Long-Term Ratings:
AAA--Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly.
AA--Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business economic or financial conditions may increase
investment risk albeit not very significantly.
A--Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB--Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
BB--Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest exists, but
is susceptible over time to adverse changes in business, economic or financial
conditions.
B--Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse changes in
business, economic or financial conditions.
CCC--Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on favourable
business, economic or financial conditions.
CC--Obligations which are highly speculative or which have a high risk
of default.
C--Obligations which are currently in default.
Notes: "+" or "-" may be appended to a rating to denote relative
status within major rating categories.
Ratings of BB and below are assigned where it is considered that
speculative characteristics are present.
Description of IBCA's Short-Term Ratings:
A1+--Obligations supported by the highest capacity for timely
repayment.
A1--Obligations supported by a strong capacity for timely repayment.
A2--Obligations supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
A3--Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business, economic
or financial conditions than for obligations in higher categories.
B--Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
C--Obligations for which there is an inadequate capacity to ensure
timely repayment.
D--Obligations which have a high risk of default or which are currently
in default.
Description of Thomson Bank Watch Short-Term Ratings:
TBW-1--The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2--The second-highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1".
TBW-3--The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4--The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
Description of Thomson BankWatch Long-Term Ratings:
AAA--The highest category; indicates that the ability to repay
principal and interest on a timely basis is extremely high.
AA--The second-highest category; indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
A--The third-highest category; indicates the ability to repay principal
and interest is strong. Issues rated "a" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB--The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings.
Non-Investment Grade
(Issues regarded as having speculative characteristics in the likelihood of
timely repayment of principal and interest.)
BB--While not investment grade, the "BB" rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations.
B--Issues rated "B" show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse development
could well negatively affect the payment of interest and principal on a timely
basis.
CCC--Issues rated "CCC" clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances.
CC--"CC" is applied to issues that are subordinate to other obligations
rated "CCC" and are afforded less protection in the event of bankruptcy or
reorganization.
D--Default
These long-term debt ratings can also be applied to local currency
debt. In such cases the ratings defined above will be preceded by the
designation "local currency".
RATINGS IN THE LONG-TERM DEBT CATEGORIES MAY INCLUDE A PLUS (+) OR
MINUS (-) DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE
ISSUE IS PLACED.
<PAGE>
CONTENTS
Investment Objectives and Policies...................................... 3
Net Asset Value......................................................... 28
Purchase and Redemption Information..................................... 29
Management of the Trust and Portfolios.................................. 30
Organization of the Trust and Portfolios................................ 38
Taxes................................................................... 39
Performance Information................................................. 41
Financial Statements.................................................... 42
Appendix: Description of Securities Ratings............................ A-1
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
DISTRIBUTOR
SIGNATURE BROKER-DEALER SERVICES, INC.
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
COUNSEL
WILLKIE FARR & GALLAGHER
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No person has been authorized to give any information or to make any
representations other than those contained in the Fund's Prospectus, its
Statement of Additional Information or the Fund's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
--------------------
