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1933 Act File No. 33-34079
1940 Act File No. 811-06071
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. . . . . . . . .
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Post-Effective Amendment No. 18 . . . . . . . . . . X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 23 . . . . . . . . . . . . . . . . . . X
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BT INSTITUTIONAL FUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Jay S. Neuman, Esq. Copies to: Burton M. Leibert, Esq.
Federated Investors Tower Willkie Farr & Gallagher
Pittsburgh, Pennsylvania 15222-3779 One Citicorp Center
(Name and Address of Agent for Service) 153 East 53rd Street
New York, New York 10022
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
__ on ____________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a) (1)
__ on __________pursuant to paragraph (a) (1).
___ 75 days after filing pursuant to paragraph (a)(2)
X on April 1, 1997, pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
___ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24e-2 under the Investment Company Act of
1940, and:
[X] filed the Notice required by that Rule on November 27, 1996; or
[ ] intends to file the Notice required by that Rule on or about____; or
[ ] during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
International Equity Portfolio has also executed this Registration
Statement.
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CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of the BT Institutional Funds,
relates only to International Equity Fund. Institutional Daily Assets Fund,
Institutional Cash Management Fund, Institutional Treasury Money Fund,
Institutional NY Tax Free Money Fund, Institutional Tax Free Money Fund, Equity
500 Index Fund, Institutional Cash Reserves Fund, and Institutional Liquid
Assets Fund are each a series of shares of the Registrant and, with the
exception of Institutional Daily Assets Fund, are each offered by separate
Prospectuses included in Post-Effective Amendment No. 17 to the Registrant's
Registration Statement. This Amendment does not relate to, amend or otherwise
affect any of the separate Prospectuses contained in Post-Effective Amendment
No. 17 and, therefore, pursuant to Rule 485(d) under the Securities Act of
1933, as amended (the "1933 Act"), does not affect the effectiveness of such
Post-Effective Amendment.
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
------------------
(Rule 404(c) Cross Reference)
Item 1. Cover Page. . . . . . . . . . . . . . Cover Page.
Item 2. Synopsis. . . . . . . . . . . . . . . Summary of Fund Expenses.
Item 3. Condensed Financial_
Information. . . . . . . . . . . . . Performance and Information
Reports.
Item 4. General Description of
Registrant.. . . . . . . . . . . . . The Fund; Who May Invest;
Investment Objective and
Policies; Risk Factors:
Matching the Fund to Your
Investment Needs; Special
Information Concerning
Master-Feeder Fund Structure;
Additional Information.
Item 5. Management of the Fund. . . . . . . . Management of the Trust and
Portfolio.
Item 6. Capital Stock and Other
Securities . . . . . . . . . . . . . Dividends, Distributions and
Taxes;
Item 7. Purchase of Securities Being
Offered. . . . . . . . . . . . . . . Net Asset Value; Purchase and
Redemption of Shares.
Item 8. Redemption or Repurchase. . . . . . . Purchase and Redemption of
Shares.
Item 9. Legal Proceedings . . . . . . . . . . None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page. . . . . . . . . . . . . . Cover Page.
Item 11. Table of Contents . . . . . . . . . . Table of Contents.
Item 12. General Information and
History. . . . . . . . . . . . . . . Appendix.
Item 13. Investment Objectives and
Policies . . . . . . . . . . . . . . Investment Objectives,
Policies and Restrictions.
Item 14. Management of the Fund. . . . . . . . Management of the Trust;
Trustee Compensation Table.
Item 15. Control Persons and Principal
Holders of Securities. . . . . . . . Management of the Trust and
the Portfolio.
Item 16. Investment Advisory and Other
Services . . . . . . . . . . . . . . Investment Adviser;
Administrator; Custodian and
Transfer Agent.
Item 17. Brokerage Allocation. . . . . . . . . Portfolio Transactions and
Brokerage Commissions.
Item 18. Capital Stock and Other
Securities . . . . . . . . . . . . . Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered. . . . . . . . . . . . . . . Valuation of Securities;
Redemptions and Purchases in
Kind; Organization of the
Trust.
Item 20. Tax Status. . . . . . . . . . . . . . Taxation.
Item 21. Underwriters. . . . . . . . . . . . . Not applicable.
Item 22. Calculation of Performance
Data . . . . . . . . . . . . . . . . Performance Information.
Item 23. Financial Statements. . . . . . . . . To be filed by Amendment;
Financial Statements for
International Equity
Portfolio are incorporated by
reference to the Annual
Report filed with the
Commission on November 20,
1996 (File Nos. 33-07404 and
811-04760).
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- BT INSTITUTIONAL FUNDS -
International Equity Fund
Seeks long-term capital appreciation primarily from non-U.S. equities, or other
securities with equity characteristics.
PROSPECTUS
JANUARY 3, 1997
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the International Equity
Fund (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 ("SEC"), and is incorporated herein
by reference. You may request a free copy of the SAI by calling the Fund's
Service Agent at 1-800-368-4031.
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS ("ASSETS") IN THE INTERNATIONAL EQUITY
PORTFOLIO (THE "PORTFOLIO"), A SEPARATE INVESTMENT COMPANY WITH AN IDENTICAL
INVESTMENT OBJECTIVE. THE INVESTMENT PERFORMANCE OF THE RESPECTIVE CLASS SHARES
OF THE FUND BEFORE EXPENSES WILL CORRESPOND DIRECTLY TO THE INVESTMENT
PERFORMANCE OF THE PORTFOLIO. SEE "SPECIAL INFORMATION CONCERNING MASTER-FEEDER
FUND STRUCTURE" HEREIN.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, BANKERS TRUST COMPANY ("BANKERS TRUST") OR ANY OTHER BANKING OR DEPOSITORY
INSTITUTION. SHARES ARE NOT FEDERALLY GUARANTEED OR INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION ("FDIC"), THE U.S. GOVERNMENT, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
EDGEWOOD SERVICES, INC.
Clearing Operations - P.O. Box 897 - Pittsburgh, Pennsylvania - 15230-0897
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TABLE OF CONTENTS
PAGE
The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Who May Invest . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary of Fund Expenses . . . . . . . . . . . . . . . . . . . . . 4
Investment Objective and Policies. . . . . . . . . . . . . . . . . 5
Risk Factors: Matching the Fund to Your Investment Needs . . . . . 6
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Purchase and Redemption of Shares. . . . . . . . . . . . . . . . . 10
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . 13
Performance Information and Reports. . . . . . . . . . . . . . . . 14
Management of the Trust and Portfolio. . . . . . . . . . . . . . . 15
Additional Information . . . . . . . . . . . . . . . . . . . . . . 18
2
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THE FUND
The BT Institutional Funds ("the Trust") seeks to achieve the investment
objective of the Fund by investing all the Assets of the Fund in the Portfolio.
The Fund seeks to achieve long-term capital appreciation from investments in
non-U.S. equity securities (or other securities with equity characteristics);
the production of any current income is incidental to this objective.
WHO MAY INVEST
Shares of the Fund are offered through this Prospectus to institutional
investors.
The Fund offers two classes of shares. The I class is available to shareholders
who invest at least $10 million in the Fund. Shareholders whose initial
investments equal or exceed $50 million are eligible to purchase the I(2) class
shares.
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SUMMARY OF FUND EXPENSES
The following table provides (i) a summary of expenses relating to purchases and
sales of the shares of the Fund and the annual operating expenses of the Fund
and the expenses of 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
BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND AND THE PORTFOLIO WILL
BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH THAT FUND WOULD INCUR
IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE INVESTABLE
ASSETS ("ASSETS") OF THAT FUND WERE INVESTED DIRECTLY IN THE TYPE OF SECURITIES
BEING HELD BY THE PORTFOLIO.
ANNUAL OPERATING EXPENSES
(as a percentage of the Fund's average daily net assets) I I(2)
CLASS CLASS
Investment advisory fee (after reimbursement or waiver)* 0.60% 0.60%
12b-1 fee 0.00 0.00
Other expenses 0.35% 0.10%
Total operating expenses (after reimbursement or waiver) 0.95% 0.70%
* The Fund does not directly pay an investment advisory fee; the amount shown
reflects the Fund's proportionate share of the Portfolio's investment advisory
fee.
EXPENSE TABLE EXAMPLE:
An investor 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. No
redemption fee has been included.
ONE YEAR THREE YEARS
I Class Shares $10 $30
I(2)Class Shares $7 $22
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 0.20% of average net
assets of each class 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. Bankers Trust has voluntarily agreed
to waive a portion of its investment advisory fee by the Portfolio. Without
such waiver, the Portfolio's investment advisory fee would be equal to 0.65%.
Bankers Trust as administrator may also waive or reimburse expenses payable by
the Portfolio or the Fund. Bankers Trust may terminate these voluntary waivers
and reimbursements at any time in its sole discretion without notice to
shareholders. The expense table and the example reflect a voluntary undertaking
by Bankers Trust to waive or reimburse expenses such that the total operating
expenses will not exceed 0.95% for the I class and 0.70% for the I(2) class of
the Fund's average net assets annually. In the absence of this undertaking, it
is estimated that "Total Operating Expenses" would be ___% for the I Class
Shares and ___% for I(2) Class Shares.
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%.
For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and Portfolio" herein.
The Fund is distributed by Edgewood Services, Inc. ("Edgewood") (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.
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital appreciation from
investment in non-U.S. equity securities (or other securities with equity
characteristics); the production of any current income is incidental to this
objective.
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. There can be no assurances that the investment objective of either
the Fund or the Portfolio will be achieved. The investment objective of the
Fund and the Portfolio is not a fundamental policy and may be changed upon
notice to, but without the approval of, the Fund's shareholders or the
Portfolio's investors, respectively. See "Special Information Concerning
Master-Feeder Fund Structure."
INTERNATIONAL EQUITY PORTFOLIO
Under normal circumstances, the Portfolio invests at least 65% of the value of
its total assets in the equity securities of foreign issuers, consisting of
common stock and other securities with equity characteristics. These issuers
are primarily established companies based in developed countries outside the
United States. However, the Portfolio may also invest in securities of issuers
in underdeveloped countries. Investments in these countries will be based on
what the adviser believes to be an acceptable degree of risk in anticipation of
superior returns. The Portfolio will at all times be invested in the securities
of issuers based in at least three countries other than the United States. For
further discussion of the unique risks associated with investing in foreign
securities in both developed and underdeveloped countries, see "Risk Factors:
Matching the Fund to Your Investment Needs," "Additional Information" herein and
the SAI.
The Portfolio's investments will generally be diversified among several
geographic regions and countries. Criteria for determining the appropriate
distribution of investments among various countries and regions include the
prospects for relative growth among foreign countries, expected levels of
inflation, government policies influencing business conditions, the outlook for
currency relationships and the range of alternative opportunities available to
international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Portfolio. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, managerial
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Portfolio may invest in securities of companies
having various levels of net worth, including smaller companies whose securities
may be more volatile than securities offered by larger companies with higher
levels of net worth.
In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, the Portfolio may choose
to invest only at the market level. Here, the Portfolio may seek to achieve
country exposure through use of options or futures based on an established local
index. Similarly, country exposure may also be achieved through investments in
other registered investment companies. Restrictions on both these types of
investments are fully explained herein and in the SAI.
The remainder of the Portfolio's assets will be invested in dollar and non-
dollar denominated short-term instruments. These investments are subject to the
conditions described in "Short-Term Instruments" below.
EQUITY INVESTMENTS. The Portfolio invests primarily in common stocks and other
securities with equity characteristics. For purposes of the Portfolio's policy
of investing at least 65% of the value of its total assets in the equity
securities of foreign issuers, "equity securities" are defined as common stock,
preferred stock, trust or limited partnership interests, rights and warrants,
and convertible securities (consisting of debt securities or preferred stock
that may be converted into common stock or that carry the right to purchase
common stock). The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic over-the-
counter markets, in addition to investment in restricted or unlisted securities.
With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Portfolio may be made
through investment in other investment companies that in turn are authorized to
invest in the securities of such countries. Investment in other investment
companies is limited in amount by the 1940 Act, will involve the indirect
payment of a portion of the expenses, including advisory fees, of such other
investment companies and may result in a duplication of fees and expenses.
5
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SHORT-TERM INSTRUMENTS. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its objective and
long-term investment perspective. However, the Portfolio's assets may be
invested in short-term instruments with remaining maturities of 397 days or less
to meet anticipated redemptions and expenses or for day-to-day operating
purposes and when, in Bankers Trust's opinion, it is advisable to adopt a
temporary defensive position because of unusual and adverse conditions affecting
the equity markets. In addition, when the Portfolio experiences large cash
inflows through the sale of securities and desirable equity securities that are
consistent with the Portfolio's investment objective are unavailable in
sufficient quantities or at attractive prices, the Portfolio may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated Aa or higher by Moody's Investors Service, Inc. ("Moody's") or AA or
higher by Standard & Poor's Ratings Group ("S&P") or, if unrated, of comparable
quality in the opinion of Bankers Trust; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time deposits and
bankers' acceptances; and (v) repurchase agreements. At the time the Portfolio
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding debt rated Aa or higher by
Moody's or AA or higher by S&P or outstanding commercial paper or bank
obligations rated Prime-1 by Moody's or A-1 by S&P; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instruments may be denominated in U.S. dollars or in
foreign currencies and will have been determined to be of high quality by a
nationally recognized statistical rating organization, or if unrated, by Bankers
Trust.
ADDITIONAL INVESTMENT TECHNIQUES
The Portfolio may also utilize the following investments and investment
techniques and practices: American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs"), when-issued
and delayed delivery securities, Rule 144A securities, securities lending,
foreign currency exchange transactions, options on foreign currencies, options
on stocks, options on foreign stock indices, futures contracts on foreign stock
indices and options on futures contracts. See "Additional Information" for
further information.
ADDITIONAL INVESTMENT LIMITATIONS
As a diversified fund, no more than 5% of the assets of the Portfolio may be
invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Portfolio's assets may be invested
without regard to this limitation. The Portfolio will not invest more than 25%
of its assets in the securities of issuers in any one industry. These are
fundamental investment policies of the Portfolio which may not be changed
without investor approval. No more than 15% of the Portfolio's net assets may
be invested in illiquid or not readily marketable securities (including
repurchase agreements and time deposits with remaining maturities of more than
seven calendar days). Additional investment policies of the Portfolio are
contained in the SAI.
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
By itself, the Fund does not constitute a balanced investment plan; the Fund
seeks long-term capital appreciation from investment primarily in the equity
securities (as defined above) of foreign issuers. Changes in domestic and
foreign interest rates may affect the value of the Portfolio's investments, and
rising interest rates can be expected to reduce the Fund's share value. A
description of a number of investments and investment techniques available to
the Portfolio, including foreign investments and the use of options and futures,
and certain risks associated with these investments and techniques is included
under "Additional Information." The Fund's share price and total return
fluctuate and your investment may be worth more or less than your original cost
when you redeem your shares.
6
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RISK OF INVESTING IN FOREIGN SECURITIES
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Although the Portfolio
intends to invest primarily in securities of established companies based in
developed countries, investors should realize that the value of the Portfolio's
investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. Any foreign
investments made by the Portfolio must be made in compliance with U.S. and
foreign currency restrictions and tax laws restricting the amounts and types of
foreign investments.
The Portfolio may invest in the securities of issuers based in underdeveloped
countries, including those in Eastern Europe. Investment in securities of
issuers based in underdeveloped countries entails all of the risks of investing
in securities of foreign issuers outlined in this section to a heightened
degree. These heightened risks include: (i) greater risks of expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the smaller size of the market for such securities and a low or
nonexistent volume of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict the Portfolio's
investment opportunities including restrictions on investing in issuers or
industries deemed sensitive to relevant national interests; and (iv) in the case
of Eastern Europe, the absence of developed capital market and legal structures
governing private or foreign investment and private property and the possibility
that recent favorable economic and political developments could be slowed or
reversed by unanticipated events. The Portfolio will not invest more than 5% of
the value of its total assets in securities of issuers based in Eastern Europe.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes
in exchange rates. Generally, the Portfolio's currency exchange transactions
will be conducted on a spot (i.e., cash) basis at the spot rate prevailing in
the currency exchange market. The cost of the Portfolio's currency exchange
transactions will generally be the difference between the bid and offer spot
rate of the currency being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange rates, the
Portfolio is authorized to enter into certain foreign currency exchange
transactions. See "Additional Information."
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange, Inc. (the "NYSE"). Accordingly, the
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of U.S. companies.
Moreover, the settlement periods for foreign securities, which are often longer
than those for securities of U.S. issuers, may affect portfolio liquidity. In
buying and selling securities on foreign exchanges, the Portfolio normally pays
fixed commissions that are generally higher than the negotiated commissions
charged in the United States. In addition, there is generally less government
supervision and regulation of securities exchanges, brokers and issuers in
foreign countries than in the United States.
PORTFOLIO TURNOVER
Bankers Trust intends to manage the Portfolio actively in pursuit of its
investment objective. The Portfolio does not expect to trade in securities for
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held. The Portfolio's
7
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portfolio turnover rates for the fiscal year ended September 30, 1996, and for
the period from January 1, 1995 to September 30, 1995 were 68% and 21%,
respectively.
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There is also a range of risks associated with those uses. Futures and
options are commonly used for traditional hedging purposes to attempt to protect
a fund from exposure to changing interest rates, securities prices or currency
exchange rates and for cash management purposes as a low cost method of gaining
exposure to a particular securities market without investing directly in those
securities. However, some derivatives are used for leverage, which tends to
magnify the effects of an instrument's price changes as market conditions
change. Leverage involves the use of a small amount of money to control a large
amount of financial assets and can, in some circumstances, lead to significant
losses. Bankers Trust, as the Portfolio's investment adviser (the "Adviser")
will use derivatives only in circumstances where the Adviser believes they offer
the most economic means of improving the risk/reward profile of the Portfolio.
Derivatives will not be used to increase portfolio risk above the level that
could be achieved using only traditional investment securities or to acquire
exposure to changes in the value of assets or indices that by themselves would
not be purchased for the Portfolio. The use of derivatives for non-hedging
purposes may be considered speculative. A description of the derivatives that
the Portfolio may use and some of their associated risks is found under
"Additional Information."
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE
Unlike other open-end management investment companies (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 separate registered investment company with the same investment
objective as the Fund. Therefore, an investor's interest in the Portfolio's
securities is indirect. In addition to selling a beneficial interest to the
Fund, the Portfolio may sell beneficial interests to other mutual funds,
investment vehicles 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 1-800-
368-4031.
The Master-Feeder Fund structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.
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 the Fund's 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 objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio.
Any such withdrawal could
8
<PAGE>
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 (see SAI, "Management of the Trust and the Portfolio" for
Trustees and Officers of the Trust and Portfolio) 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 herein 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 also not 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. See "Investment Objective and Policies" for a description of the
fundamental policies of the Portfolio that cannot be changed without approval by
the holders of "a majority of the outstanding voting securities" (as defined in
the 1940 Act) of 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 Portfolio" herein
and in the SAI. For descriptions of the expenses of the Portfolio, see
"Management of the Trust and Portfolio" herein.
NET ASSET VALUE
The net asset value ("NAV") per share of the Fund is calculated on each day on
which the NYSE is open (each such day being a "Valuation Day"). The NYSE is
currently open on each day, Monday through Friday, except (a) January 1st,
Presidents' Day (the third Monday in February), Good Friday, Memorial Day (the
last Monday in May), July 4th, Labor Day (the first Monday in September),
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 NAV per share of the Fund is calculated once on each Valuation Day as of the
close of regular trading on the NYSE (the "Valuation Time"), which is currently
4:00 p.m., Eastern time or in the event that the NYSE closes early, at the time
of such early closing. The NAV 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 as of the Valuation Time. The Portfolio's securities and
other assets are valued primarily on the basis of market quotations or, if
quotations are not readily available, by a method which the Portfolio's Board of
Trustees believes accurately reflects fair value.
Under procedures adopted by the Board, a NAV for a Fund later determined to have
been inaccurate for any reason will be recalculated. Purchases and redemptions
made at a NAV determined to have been inaccurate will be adjusted, although in
certain circumstances, such as where the difference between the original NAV and
the recalculated NAV divided by the recalculated is 0.005 (1/2 of 1%) or less or
shareholder transactions are otherwise insubstantially affected, further action
is not required.
9
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
The Trust accepts purchase orders for shares of the Fund at the NAV per share
of the respective class shares next determined after the order is received on
each Valuation Day. See "Net Asset Value" herein. Shares of the Fund may be
available through Investment Professionals, such as broker/dealers and
investment advisers (including service agents).
Purchase orders for shares of the Fund (including those purchased through a
Service Agent) that are transmitted to the Trust's Transfer Agent (the "Transfer
Agent"), prior to the Valuation Time on any Valuation Day will be effective at
that day's Valuation Time. The Trust and Transfer Agent reserve the right to
reject any purchase order.
Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. It is the responsibility of each Service
Agent to transmit to the Transfer Agent purchase and redemption orders and to
transmit to Bankers Trust as the Trust's custodian (the "Custodian") purchase
payments by the following business day (trade date + 1) after an order for
shares is placed. A shareholder must settle with the Service Agent for 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 held with
Bankers Trust to settle transactions with 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 Transfer Agent.
If orders are placed through an Investment Professional, it is the
responsibility of the Investment Professional to transmit the order to buy
Shares of each class to the Transfer Agent before 4:00 p.m. Eastern time.
The Transfer Agent must receive payment within one business day after an order
for Shares is placed; otherwise, the purchase order may be canceled and the
investor could be held liable for resulting fees and/or losses.
MINIMUM INVESTMENTS I I(2)
CLASS CLASS
TO OPEN AN ACCOUNT $10 MILLION $50 MILLION
TO ADD TO AN ACCOUNT $1 MILLION $5 MILLION
MINIMUM ACCOUNT BALANCE $1 MILLION $5 MILLION
IF YOU ARE NEW TO BT INSTITUTIONAL FUNDS, complete and sign an account
application and mail it along with your check to the address listed below. If
there is no account application accompanying this Prospectus, call the BT
Service Center at 1-800-368-4031.
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
IF YOU ALREADY HAVE MONEY INVESTED IN A FUND IN THE BT FAMILY OF FUNDS, you can:
- - Mail an account application with a check,
- - Wire money into your account,
- - Open an account by exchanging from another fund in the BT Family of Funds,
or
- - Contact your Service Agent or Investment Professional.
10
<PAGE>
ADDITIONAL INFORMATION ABOUT BUYING SHARES
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<S> <C> <C>
BY WIRE Call the BT Service Center at Call your Investment Professional or
1-800-368-4031 to receive wire additional investment to:
wire instructions for account
establishment.
ROUTING NO.: 021001033
ATTN: Bankers Trust/IFTC Deposit
DDA NO.: 00-226-296
FBO: (Account name)
(Account number)
CREDIT: Fund Number
BT Institutional International Equity Fund (I) - XXX
BT Institutional International Equity Fund - (I2) XXX
BY PHONE Contact your Service Agent, Contact your Service Agent,
Investment Professional, or call Investment Professional, or call
BT's Service Center at BT's Service Center at
1-800-368-4031. If you are an 1-800-368-4031. If you are an
existing Shareholder, you may existing Shareholder, you may
exchange from another BT account exchange from another BT account
with the same registration, including, with the same registration, including,
name, address, and taxpayer ID number. name, address, and taxpayer ID number.
BY MAIL Complete and sign the account Make your check payable to the complete
application. Make your check name of the Fund of your choice. Indicate
payable to the complete name of the your Fund account number on your check
Fund of your choice. Mail to the and mail to the address printed on your
appropriate address indicated on the account statement.
application.
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your Shares. Your Shares shall be sold at the
next NAV calculated after an order is received by the Transfer Agent.
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 the Valuation Time on
each Valuation Day will be effective at that day's Valuation Time and the
redemption proceeds normally will be delivered to the shareholder's account
the next day, but in any event within seven calendar days following receipt
of the request.
Service Agents may allow redemptions or exchanges 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 or exchange privilege. The Transfer Agent and the Service Agent must
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Shareholder Servicing 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
11
<PAGE>
involuntarily redeem a shareholder's account with the Fund having a balance
below the minimum, but not if an account is below the minimum due to a change in
market value. See "Minimum Investments" above for minimum balance amounts.
TO SELL SHARES IN A RETIREMENT ACCOUNT, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent or call the BT Service Center at 1-
800-368-4031.
TO SELL SHARES BY BANK WIRE you will need to sign up for these services in
advance when completing your account application.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE to protect you and Bankers
Trust from fraud. Redemption requests in writing must include a signature
guarantee if any of the following situations apply:
- - Your account registration has changed within the last 30 days,
- - The check is being mailed to a different address than the one on your
account (record address),
- - The check is being made payable to someone other than the account owner,
- - The redemption proceeds are being transferred to a BT account with a
different registration, or
- - You wish to have redemption proceeds wired to a non-predesignated bank
account.
A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
ADDITIONAL INFORMATION ABOUT SELLING SHARES
BY WIRE - You must sign up for the wire feature before using it. To verify that
it is in place, call 1-800-368-4031. Minimum wire: $1,000. Your wire redemption
request must be received by the Transfer Agent before 4:00 p.m. Eastern time for
money to be wired on the next business day.
IN WRITING - Write a signed "letter of instruction" with your name, the Fund's
name and Fund's number, your Fund account number, the dollar amount or number of
Shares to be redeemed, and mail to one of the following addresses:
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
For Trust accounts, the trustee must sign the letter indicating capacity as
trustee. If the trustee's name is not on the account registration, provide a
copy of the trust document certified within the last 60 days.
For a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.
Unless otherwise instructed, the Transfer Agent will send a check to the account
address of record. The Trust reserves the right to close investor accounts via
30 day notice in writing if the Fund account balance falls below $1 Million for
the I Class and $5 Million for the I(2) Class.
EXCHANGE PRIVILEGE
Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered in their state. The Fund reserves the right to
terminate or modify the exchange privilege in the future. To make an exchange,
follow the procedures indicated in "Purchase of Shares" and "Redemption of
Shares" herein. Before making an exchange, please note the following:
- - Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.
12
<PAGE>
- - Complete and sign an application, taking care to register your new account
in the same name, address and taxpayer identification number as your existing
account(s).
- - Each exchange represents the sale of shares of one fund and the purchase of
shares of another, which may produce a gain or loss for tax purposes. Your
Service Agent will receive a written confirmation of each exchange transaction.
TAX-SAVING RETIREMENT PLANS
Retirement plans offer significant tax savings and are available to individuals,
partnerships, small businesses, corporations, nonprofit organizations and other
institutions. Contact Bankers Trust for further information. Bankers Trust can
set up your new account in the Fund under a number of several tax-savings or
tax-deferred plans. Minimums may differ from those listed elsewhere in this
Prospectus.
- - CORPORATE PROFIT-SHARING AND MONEY-PURCHASE PLANS: defined contribution
plans available to corporations to benefit their employees by making
contributions on their behalf and in some cases permitting their employees to
make contributions.
- - 401(k) PROGRAMS: defined contribution plans available to corporations
allowing tax-deductible employer contributions and permitting employees to
contribute a percentage of their wages on a tax-deferred basis.
- - 403(b) CUSTODIAN ACCOUNTS: defined contribution plans open to employees of
most non-profit organizations and educational institutions.
- - DEFERRED BENEFIT PLANS: plan sponsors may invest all or part of their
pension assets in the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends and any net
capital gains are normally distributed in December. Unless a shareholder
instructs the Trust to pay such dividends and distributions in cash, they will
be automatically reinvested in additional respective shares of the Fund.
FEDERAL TAXES. 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 and
distributes all of its income and gains, 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.
Distributions from the Fund's income and short-term capital gains are taxed as
dividends, and long-term capital gain distributions are taxed as long-term
capital gains. The Fund's distributions are taxable when they are paid, whether
you take them in cash or reinvest them in additional shares. Distributions
declared to shareholders of record in November and December and paid in January
are taxable as if paid on December 31. The Fund will send each shareholder a tax
statement by January 31 showing the tax status of the distributions received in
the past year.
CAPITAL GAINS. You may realize a capital gain or loss when you redeem (sell) or
exchange shares. Because the tax treatment also depends on your purchase price
and your personal tax position, you should keep your regular account statements
to use in determining your tax.
"BUYING A DIVIDEND." On the ex-date for a distribution from income and/or
capital gains, the Fund's respective share value is reduced by the amount of the
distribution. If you buy shares just before the ex-date ("buying a dividend"),
you will pay the full price for the shares and then receive a portion of the
price back as a taxable distribution.
OTHER TAX INFORMATION. In addition to Federal taxes, you may be subject to state
or local taxes on your investment, depending on the laws in your area. Income
received by the Portfolio from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Investors should
consult their tax advisor for specific details on state, local or foreign taxes.
Tax
13
<PAGE>
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Portfolio's assets to be invested
in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of the value
of the Portfolio's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, it may make an election pursuant
to which certain foreign taxes paid by it would be treated as having been paid
directly by shareholders of the entities, such as the Fund, which have invested
in the Portfolio. Pursuant to such election, the amount of foreign taxes paid
will be included in the income of Fund shareholders, and Fund shareholders
(except tax-exempt shareholders) may, subject to certain limitations, claim
either a credit or deduction for the taxes. Each Fund shareholder will be
notified after the close of the Portfolio's taxable year whether the foreign
taxes paid will "pass through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion which represents income derived from sources within
each such country.
The amount of foreign taxes for which a shareholder may claim a credit in any
year will generally be subject to a separate limitation for "passive income,"
which includes, among other items of income, dividends, interest and certain
foreign currency gains. Because capital gains realized by the Portfolio on the
sale of foreign securities will be treated as U.S.-source income, the available
credit of foreign taxes paid with respect to such gains may be restricted by
this limitation.
PERFORMANCE AND INFORMATION REPORTS
The Fund's performance of the respective class shares may be used from time to
time in advertisements, shareholder reports or other communications to
shareholders or prospective shareholders. Performance information may include
the Fund's investment results and/or comparisons of its investment results to
the Morgan Stanley Capital International Gross Domestic Product ("GDP") weighted
EAFE Index, Morgan Stanley Capital International Europe, Australia, Far East
("MSCI EAFE") Index, and the Lipper International Average or other various
unmanaged indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth herein. From
time to time, fund rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc., Value Line, and Morningstar, Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" of the respective class shares refers to
the change in the value of an investment in the Fund over a stated period based
on any change in net asset value per share and including the value of any shares
purchasable with any dividends or capital gains distributed during such period.
Period total return may be annualized. An annualized total return is a
compounded total return which assumes that the period total return is generated
over a one-year period, and that all dividends and capital gain distributions
are reinvested. An annualized total return will be higher than a period total
return if the period is shorter than one year, because of the compounding
effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund's classes of shares will
vary depending upon interest rates, the current market value of the securities
held by the Portfolio and changes in each class share's expenses. In addition,
during certain periods for which total return may be provided, Bankers Trust, as
Adviser, Shareholder Servicing Agent or Administrator, or Edgewood, as
Distributor, may have voluntarily agreed to waive portions of their fees on a
month-to-month basis. Such waivers will have the effect of increasing the class
share's net income (and therefore its total return) during the period such
waivers are in effect.
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.
14
<PAGE>
MANAGEMENT OF THE TRUST AND PORTFOLIO
BOARD OF TRUSTEES
The affairs of the Trust and the Portfolio are managed under the supervision of
their respective Boards of Trustees. By virtue of the responsibilities assumed
by Bankers Trust, the administrator of the Trust and Portfolio, neither the
Trust nor the Portfolio requires employees other than its executive officers.
None of the executive officers of the Trust or the Portfolio devotes full time
to the affairs of the Trust or the Portfolio.
The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) (the "Independent Trustees") of the Trust or of the Portfolio, as the
case may be, have adopted written procedures reasonably appropriate to deal with
potential conflicts of interest, up to and including creating separate boards of
trustees, arising from the fact that several of the same individuals are
trustees of the Trust and of the Portfolio. For more information with respect to
the Trustees of both the Trust and the Portfolio, see "Management of the Trust
and Portfolio" in the SAI.
INVESTMENT ADVISER
The Trust has not retained the services of an investment adviser for the Fund
since the Trust seeks to achieve the investment objective of the Fund by
investing all the Assets of the Fund in the Portfolio. The Portfolio has
retained the services of Bankers Trust as investment adviser. Mr. Michael Levy
has been integral to the Fund's Portfolio management since joining Bankers Trust
in March, 1993 and has been the primary portfolio manager for the International
Equity Portfolio since 1995. He also heads the international equity team, which
is responsible for the day to day management of the Portfolio. Mr. Levy has been
the head of this team since joining Bankers Trust in March 1993, and is Managing
Director and International Equity Strategist of Bankers Trust. The international
equity team has provided input into the management of the Portfolio since the
Portfolio's commencement of operations. Prior to joining Bankers Trust, Mr. Levy
was an investment banker and an equity analyst with Oppenheimer & Company. He
has twenty-four years of business experience, of which fourteen years have been
in the investment industry.
Robert Reiner has been the co-manager of the Portfolio since 1995 and has been
integral to the Portfolio's management since joining Bankers Trust in 1994. As
Vice President-Global Investment Management and Bankers Trust, he has been
responsible for managing global portfolios and developing analytical and
investment tools for the group's global equity team. As a member of the
portfolio management team, he focuses primarily on Japanese and European
markets. Prior to joining Bankers Trust, he was an equity analyst and also
provided macroeconomic coverage for Scudder, Stevens and Clark. He previously
served as Senior Analyst at Sanford C. Bernstein & Co. and was instrumental in
the development of Bernstein's International Value Fund. Mr. Reiner spent more
than nine years at Standard & Poor's Corporation, where he was a member of its
international ratings group. His tenure included managing the day to day
operations of Standard & Poor's Corporation's Tokyo office for three years.
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 June 30, 1996, Bankers
Trust New York Corporation was the seventh largest bank holding company in the
United States with total assets of approximately $115 billion. Bankers Trust is
a worldwide merchant bank dedicated to servicing the needs of corporations,
governments, financial institutions and private clients through a global network
of over 120 offices in more than 40 countries. Investment management is a core
business of Bankers Trust, built on a tradition of excellence from its roots as
a trust bank founded in 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 $215 billion in assets under
management globally.
Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. In the past, these
clients have been serviced through separate account and commingled fund
structures. Bankers Trust's officers have had extensive experience in managing
investment portfolios having objectives similar to those of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of Trustees
of the Portfolio, manages the
15
<PAGE>
Portfolio in accordance with the Portfolio's investment objective and stated
investment policies, makes investment decisions for the Portfolio, places orders
to purchase and sell securities and other financial instruments on behalf of the
Portfolio and employs professional investment managers and securities analysts
who provide research services to the Portfolio. Bankers Trust may utilize the
expertise of any of its worldwide subsidiaries and affiliates to assist it in
its role as investment adviser. All orders for investment transactions on behalf
of the Portfolio are placed by Bankers Trust with broker-dealers and other
financial intermediaries that it selects, including those affiliated with
Bankers Trust. A Bankers Trust affiliate will be used in connection with a
purchase or sale of an investment for the Portfolio only if Bankers Trust
believes that the affiliate's charge for the transaction does not exceed usual
and customary levels. The Portfolio will not invest in obligations for which
Bankers Trust or any of its affiliates is the ultimate obligor or accepting
bank. The Portfolio may, however, invest in the obligations of correspondents
and customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio, computed daily and paid monthly, at the annual rate of 0.65% (before
waiver) of the average daily net assets of the Portfolio.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the Portfolio
described in this Prospectus and the SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations.
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. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee, computed daily and paid monthly, at the annual rate of ___%
for I class and ___% for I(2) class of the average daily net assets of the
respective classes.
Under an Administration and Services Agreement with the Portfolio, Bankers Trust
calculates the value of the assets of the Portfolio and generally assists the
Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay Bankers Trust a fee, computed daily and paid monthly,
at the annual rate of 0.15% 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 affiliates of Edgewood, at
Bankers Trust's expense. For more information, see the SAI.
DISTRIBUTOR
Edgewood is the principal distributor for shares of the Fund. In addition,
Edgewood and its affiliates provide the Trust with office facilities, and
currently provide administration and distribution services for other registered
investment companies. The principal business address of Edgewood and its
affiliates is Clearing Operations, P.O. Box 897, Pittsburgh, Pennsylvania
15230-0897.
Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), Edgewood may seek reimbursement in an amount
not exceeding 0.20% of the average daily net assets of each class 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 Edgewood 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 Edgewood 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 0.20% of net assets limitation. All costs and expenses
associated with preparing the Fund's Prospectuses and SAI 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 Edgewood under the Plan in any fiscal year of the Trust exceed
amounts payable under the Plan during that year, those expenses will not
be reim-
16
<PAGE>
bursed in any succeeding fiscal year. Expenses incurred in connection with
distribution activities will be identified to the particular class or to the
Fund or the 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, arranging for bank wires,
performing shareholder sub-accounting, answering client inquiries regarding the
Trust, assisting clients in changing dividend options, account designations and
addresses, providing periodic statements showing the client's account balance,
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 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 the Portfolio and
serves as the Transfer Agent for the Trust and the Portfolio under the
Administration and Services Agreement with the Trust and the Portfolio.
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 reserves the right to add additional series in the future. The Trust
also reserves the right to issue additional classes of Shares of the Fund. The
Fund currently offers two Classes of Shares. I Class and I(2) Class. Each Class
represents an identical interest in the Fund's investment portfolio. As a
result, the Classes have the same rights, privileges and preferences, except
with respect to: (1) the designation of each Class; (2) the expenses allocated
exclusively to each Class; and (3) voting right on matters exclusively affecting
a single Class. The amount of dividends payable to the I Class Shares will be
less than those payable to the I(2) Class Shares by the amount of the difference
between the expenses borne by the Shares of each Class. The Trustees of the
Trust do not anticipate that there will be any conflicts among the interests of
the holders of the different Classes and will take appropriate action if any
such conflict arises. For more information about the different Classes of Shares
of the Fund, please call 1-800-368-4031.
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
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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.
The Portfolio, in which all the Assets of the Fund will be invested, is
organized as a trust under the laws of the State of New York. The Portfolio's
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.
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 of 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.
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 Edgewood,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
The Portfolio bears its own expenses. Operating expenses for the Portfolio
generally consist of all costs not specifically borne by Bankers Trust or
Edgewood, including investment advisory and administration and services fees,
fees for necessary professional services, amortization of organizational
expenses, the costs associated with regulatory compliance and maintaining legal
existence and investor relations.
ADDITIONAL INFORMATION
AMERICAN DEPOSITARY RECEIPTS, GLOBAL DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY
RECEIPTS. ADRs, GDRs and EDRs are certificates evidencing ownership of shares of
a foreign-based issuer held in trust by a bank or similar financial institution.
Designed for use in U.S., international and European securities markets,
respectively, ADRs, GDRs and EDRs are alternatives to the purchase of the
underlying securities in their national markets and currencies. ADRs, GDRs and
EDRs are subject to the same risks as the foreign securities to which they
relate.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.
RULE 144A SECURITIES. The Portfolio may purchase securities in the United States
that are not registered for sale under Federal securities laws but which can be
resold to institutions under the SEC Rule 144A. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the Portfolio's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees of the Portfolio,
Bankers Trust determines the liquidity of restricted securities and, through
reports from Bankers Trust, the Board will monitor trading activity in
restricted securities. If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.
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SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of the total
value of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. During the term of the loan, the Portfolio continues to bear the
risk of fluctuations in the price of the loaned securities. In lending
securities to brokers, dealers and other organizations, the Portfolio is subject
to risk which, like those associated with other extensions of credit, include
delays in recovery and possible loss of rights in the collateral should the
borrower fail financially.
REPURCHASE AGREEMENTS. In a repurchase agreement the Portfolio buys a security
and simultaneously agrees to sell it back at a higher price at a future date. In
the event of the bankruptcy of the other party to either a repurchase agreement
or a securities loan, the Portfolio could experience delays in recovering either
its cash or the securities it lent. To the extent that, in the meantime, the
value of the securities repurchased had decreased or the value of the securities
lent had increased, the Portfolio could experience a loss. In all cases, Bankers
Trust must find the creditworthiness of the other party to the transaction
satisfactory. A repurchase agreement is considered a collateralized loan under
the 1940 Act.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Portfolio either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an attempt
to protect against changes in foreign currency exchange rates between the trade
and settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Portfolio
may use options on a foreign currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different, but related currency. As with other types of options, however,
the writ-
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ing of an option on a foreign currency will constitute only a partial hedge up
to the amount of the premium received, and the Portfolio could be required to
purchase or sell a foreign currency at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. In addition, the Portfolio
may purchase call options on a foreign currency when the Adviser anticipates
that the currency will appreciate in value.
There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Portfolio is unable to
effect a closing purchase transaction with respect to covered options it has
written, the Portfolio will not be able to sell the underlying currency or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Portfolio is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying currency. The Portfolio pays brokerage
commissions or spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. The Portfolio's ability
to terminate over-the-counter options ("OTC Options") will be more limited than
with exchange-traded options. It is also possible that broker-dealers
participating in OTC Options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Portfolio will
treat purchased OTC Options and assets used to cover written OTC Options as
illiquid securities. With respect to options written with primary dealers in
U.S. government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
OPTIONS ON STOCKS. The Portfolio may write and purchase put and call options on
stocks. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period. A covered call
option, which is a call option with respect to the underlying Portfolio stock,
is sold by exposing the Portfolio during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
stock or to possible continued holding of a stock which might otherwise have
been sold to protect against depreciation in the market price of the stock. A
covered put option sold by the Portfolio exposes the Portfolio during the term
of the option to a decline in price of the underlying stock. A put option sold
by the Portfolio is covered when, among other things, cash or liquid securities
are placed in a segregated account to fulfill the obligations undertaken.
To close out a position when writing covered options, the Portfolio may make a
"closing purchase transaction," which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Portfolio will realize a profit or loss
for a closing purchase transaction if the amount paid to purchase an option is
less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Portfolio may
make a "closing sale transaction," which involves liquidating the Portfolio's
position by selling the option previously purchased.
The Portfolio intends to treat OTC Options purchased and the assets used to
"cover" OTC Options written as not readily marketable and therefore subject to
the limitations described in "Investment Restrictions" in the SAI.
OPTIONS ON FOREIGN STOCK INDICES. The Portfolio may purchase and write put and
call options on foreign stock indices listed on domestic and foreign stock
exchanges. A stock index fluctuates with changes in the market values of the
stocks included in the index.
Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise,
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multiplied by (b) a fixed "index multiplier." Receipt of this cash amount will
depend upon the closing level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a put,
the exercise price of the option. The amount of cash received will be equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars or a foreign currency, as the case may be, times
a specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.
To the extent permitted by U.S. federal or state securities laws, the Portfolio
may invest in options on foreign stock indices in lieu of direct investment in
foreign securities. The Portfolio may also use foreign stock index options for
hedging purposes.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Portfolio of options on stock indices will be subject to
Bankers Trust's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
FUTURES CONTRACTS ON FOREIGN STOCK INDICES. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of foreign securities ("Futures
Contracts"). This investment technique is designed only to hedge against
anticipated future change in general market prices which otherwise might either
adversely affect the value of securities held by the Portfolio or adversely
affect the prices of securities which are intended to be purchased at a later
date for the Portfolio. A Futures Contract may also be entered into to close out
or offset an existing futures position.
In general, each transaction in Futures Contracts involves the establishment of
a position which will move in a direction opposite to that of the investment
being hedged. If these hedging transactions are successful, the futures
positions taken for the Portfolio will rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments that are being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized.
Although Futures Contracts would be entered into for hedging purposes only, such
transactions do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the foreign equity market being
hedged, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good-faith deposit against performance of obligations under
Futures Contracts written for the Portfolio. The Portfolio may not purchase or
sell a Futures Contract if immediately thereafter its margin deposits on its
outstanding Futures Contracts would exceed 5% of the market value of the
Portfolio's total assets.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may invest in options on such
futures contracts for similar purposes.
All options that the Portfolio writes will be covered under applicable
requirements of the SEC. The Portfolio will write and purchase options only to
the extent permitted by the policies of state securities authorities in states
where shares of the Fund are qualified for offer and sale.
There can be no assurance that the use of these portfolio strategies will be
successful.
ASSET COVERAGE. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment leverage, the
Portfolio will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities or by
establishing a segregated (e.g., "earmarked") account with the Portfolio's
Custodian containing high grade liquid debt securities in an amount at all times
equal to or exceeding the Portfolio's commitment with respect to these
instruments or contracts.
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BT INSTITUTIONAL FUNDS
International Equity Fund
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
P.O. Box 318, Church Street Station
New York, NY 10008
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
P.O. Box 318, Church Street Station
New York, NY 10008
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105
COUNSEL
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its SAI
or the Trust's official sales literature in connection with the offering of the
Trust'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>
BT0494 STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 2, 1997
BT INSTITUTIONAL FUNDS
INTERNATIONAL EQUITY FUND
BT Institutional Funds (the "Trust") is comprised of several funds. The shares
of the International Equity Fund are described herein.
TABLE OF CONTENTS
Investment Objectives, Policies and Restrictions . . . . . . . . . . . . . . 3
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Valuation of Securities; Redemptions and Purchases in Kind . . . . . . . . . 25
Management of the Trust and The Portfolios . . . . . . . . . . . . . . . . . 27
Organization of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . 34
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Appendix (Bond, Commercial Paper and Municipal
Obligations Ratings). . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
As described in the Prospectus, the Trust seeks to achieve the investment
objectives of the Fund by investing all the investable assets ("Assets") of the
Fund in International Equity Portfolio (the "Portfolio") a diversified open-end
management investment company having the same investment objectives as the Fund.
Since the investment characteristics of the Fund will correspond directly to the
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
Portfolio.
Each Class Shares of the Fund are sold by Edgewood Services, Inc. ("Edgewood"),
the Trust's Distributor, to clients and customers (including affiliates and
correspondents) of Bankers Trust Company ("Bankers Trust"), the Portfolio's
Adviser, and to clients and customers of other organizations.
The Trust's Prospectus dated January 2, 1997, provides the basic information
investors should know before investing, and 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 ("SAI"), 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 Fund's Prospectus. Capitalized terms not otherwise defined in this SAI have
the meanings accorded to them in the Fund's Prospectus.
<PAGE>
BANKERS TRUST COMPANY
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
EDGEWOOD SERVICES, INC.
DISTRIBUTOR
CLEARING OPERATIONS P.O. BOX 897 PITTSBURGH, PENNSYLVANIA 15230-0897
(800)545-1074
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INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objective of the Fund is described in the Fund's Prospectus.
There can, of course, be no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
The Fund seeks to achieve its investment objective by investing all of its
Assets in the Portfolio. The Trust may withdraw the Fund's 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 Fund to do so.
Since the investment characteristics of the Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of and techniques employed by the Portfolio.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the
bearer of the receipt on the date specified on the certificate. The certificate
usually can be traded in the secondary market prior to maturity. Bankers'
acceptances typically arise from short-term credit arrangements designed to
enable businesses to obtain funds to finance commercial transactions.
Generally, an acceptance is a time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to pay for specific merchandise.
The draft is then "accepted" by a bank that, in effect, unconditionally
guarantees to pay the face value of the instrument on its maturity date. The
acceptance may then be held by the accepting bank as an earning asset or it may
be sold in the secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as 270 days, most
acceptances have maturities of six months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1 to
270 days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see the Appendix.
3
<PAGE>
SHORT-TERM INSTRUMENTS. When a Portfolio experiences large cash inflows through
the sale of securities and desirable equity securities, that are consistent with
the Portfolio's investment objective, are unavailable in sufficient quantities
or at attractive prices, the Portfolio may hold short-term investments for a
limited time pending availability of such equity securities. Short-term
instruments consist of foreign and domestic: (i) short-term obligations of
sovereign governments, their agencies, instrumentalities, authorities or
political subdivisions; (ii) other short-term debt securities rated AA or higher
by S&P or Aa or higher by Moody's or, if unrated, of comparable quality in the
opinion of Bankers Trust; (iii) commercial paper; (iv) bank obligations,
including negotiable certificates of deposit, time deposits and banker's
acceptances; and (v) repurchase agreements. At the time the Portfolio invests in
commercial paper, bank obligations or repurchase agreements, the issuer of the
issuer's parent must have outstanding debt rated AA or higher by S&P or Aa or
higher by Moody's or outstanding commercial paper or bank obligations rated A-1
by S&P or Prime-1 by Moody's; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of Bankers Trust. These
instruments may be denominated in U.S dollars or in foreign currencies.
ILLIQUID SECURITIES. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a remaining maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public
offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale
4
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to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the 1933 Act of resales of certain securities to
qualified institutional buyers. The Adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this regulation and the development of automated systems
for the trading, clearance and settlement of unregistered securities of domestic
and foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.
The Adviser will monitor the liquidity of Rule 144A securities in The
Portfolio's holdings under the supervision of the Portfolio's Board of Trustees.
In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers and other potential purchasers or sellers of the
security; (3) dealer undertakings to make a market in the security and (4) the
nature of the security and of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
LENDING OF PORTFOLIO SECURITIES. The Portfolio has the authority to lend
portfolio securities to brokers, dealers and other financial organizations. The
Portfolio will not lend securities to Bankers Trust, Edgewood 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. The
Portfolio will adhere to the following conditions whenever its securities are
loaned: (i) the Portfolio must receive at least 100 percent 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.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The successful use of such instruments draws upon the Adviser's skill
and experience with respect to such instruments and usually depends on the
Adviser's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Portfolio may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.
FUTURES CONTRACTS. A Portfolio may enter into contracts for the purchase or
sale for future delivery of fixed-income securities, foreign currencies, or
contracts based on financial indices including any index of U.S. Government
Securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC"), and
must be executed through a futures commission merchant, or brokerage firm, which
is a member of the relevant contract market. Futures contracts trade on a
number of exchange markets, and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the clearing members
of the exchange. A Portfolio may enter into futures contracts which are based
on debt securities that are backed by the full faith and credit of the U.S.
Government, such as long-term U.S. Treasury Bonds, Treasury Notes, Government
National Mortgage Association modified pass-through mortgage-backed securities
and three-month U.S. Treasury Bills. A Portfolio may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
Government.
At the same time a futures contract is purchased or sold, the Portfolio must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
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Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by
buying (or selling, as the case may be) on a commodities exchange an identical
futures contract calling for delivery in the same month. Such a transaction,
which is effected through a member of an exchange, cancels the obligation to
make or take delivery of the securities. Since all transactions in the futures
market are made, offset or fulfilled through a clearinghouse associated with the
exchange on which the contracts are traded, the Portfolio will incur brokerage
fees when it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case of a
Portfolio which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currencies. For example, if interest rates were expected to increase,
the Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt security in the Portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. The Portfolio
could accomplish similar results by selling debt securities and investing in
bonds with short maturities when interest rates are expected to increase.
However, since the futures market is more liquid than the cash market, the use
of futures contracts as an investment technique allows the Portfolio to maintain
a defensive position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of
futures contracts should be similar to those of debt securities, a Portfolio
could take advantage of the anticipated rise in the value of debt securities
without actually buying them until the market had stabilized. At that time, the
futures contracts could be liquidated and the Portfolio could then buy debt
securities on the cash market. To the extent a Portfolio enters into futures
contracts for this purpose, the assets in the segregated asset account
maintained to cover the Portfolio's obligations with respect to such futures
contracts will consist of cash, cash equivalents or high quality liquid debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Portfolio with respect to
such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are
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subject to initial deposit and variation margin requirements. Rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the margin
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price distortions. Due to
the possibility of distortion, a correct forecast of general interest rate
trends by the Adviser may still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Portfolio, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, a
Portfolio's overall performance would be poorer than if it had not entered into
any such contract. For example, if a Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if a
Portfolio has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market. A Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when a Portfolio is not fully invested it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's holdings. The writing of a
put option on a futures contract constitutes a partial hedge against increasing
prices of the security or foreign
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currency which is deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price,
the Portfolio will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the
Portfolio has written is exercised, the Portfolio will incur a loss which
will be reduced by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the Portfolio's
losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on portfolio securities. For example,
a Portfolio may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk a Portfolio assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees of the Portfolio has adopted the requirement that futures
contracts and options on futures contracts be used only as a hedge and not for
speculation. In addition to this requirement, the Board of Trustees of the
Portfolio has also adopted a restriction that the Portfolio will not enter into
any futures contracts or options on futures contracts if immediately thereafter
the amount of margin deposits on all the futures contracts of the Portfolio and
premiums paid on outstanding options on futures contracts owned by the Portfolio
(other than those entered into for bona fide hedging purposes) would exceed 5%
of the market value of the total assets of the Portfolio.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, a Portfolio will have the right to sell such currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Portfolio may
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purchase call options thereon. The purchase of such options could offset, at
least partially, the effects of the adverse movements in exchange rates. As in
the case of other types of options, however, the benefit to the Portfolio
deriving from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the extent
anticipated, the Portfolio could sustain losses on transactions in foreign
currency options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, where a Portfolio anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Portfolio to hedge such
increased cost up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if rates move in
the expected direction. If this does not occur, the option may be exercised and
the Portfolio would be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium. Through the writing
of options on foreign currencies, the Portfolio also may be required to forego
all or a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
The Portfolio may write covered call options on foreign currencies. A call
option written on a foreign currency by a Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its Custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a
call on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash,
U.S. Government securities and other high quality liquid debt securities in a
segregated account with its custodian.
The Portfolio also intends to write call options on foreign currencies that are
not covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is
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not covered, but is designed to provide a hedge against a decline in the U.S.
dollar value of a security which the Portfolio owns or has the right to acquire
and which is denominated in the currency underlying the option due to an adverse
change in the exchange rate. In such circumstances, the Portfolio
collateralizes the option by maintaining in a segregated account with its
custodian, cash or U.S. Government securities or other high quality liquid debt
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES. Unlike transactions entered into by a Portfolio in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (the "OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market
in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For
example, exercise and settlement
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of such options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions or
taxes would prevent the orderly settlement of foreign currency option exercises,
or would result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. A Portfolio's ability
to terminate over-the-counter options will be more limited than with exchange-
traded options. It is also possible that broker-dealers participating in over-
the-counter options transactions will not fulfill their obligations. Until such
time as the staff of the SEC changes its position, the Portfolio will treat
purchased over-the-counter options and assets used to cover written over-the-
counter options as illiquid securities. With respect to options written with
primary dealers in U.S. Government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
OPTIONS ON SECURITIES. The Portfolio may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options") in
an attempt to increase income. However, the Portfolio may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Portfolio.
When a Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the security at the price specified in the option (the
"exercise price") by exercising the option at any time during the option period.
If the option expires unexercised, the Portfolio will realize income in an
amount equal to the premium received for writing the option. If the option is
exercised, a decision over which the Portfolio has no control, the Portfolio
must sell the security to the option holder at the exercise price. By writing a
covered call option, the Portfolio forgoes,
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in exchange for the premium less the commission ("net premium"), the opportunity
to profit during the option period from an increase in the market value of the
underlying security above the exercise price.
When a Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By
writing a covered put option, the Portfolio, in exchange for the net premium
received, accepts the risk of a decline in the market value of the underlying
security below the exercise price. The Portfolio will only write put options
involving securities for which a determination is made at the time the option is
written that the Portfolio wishes to acquire the securities at the exercise
price.
The Portfolio may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." The Portfolio will realize a profit or loss from a closing
purchase transaction if the amount paid to purchase an option is less or more,
as the case may be, than the amount received from the sale thereof. To close
out a position as a purchaser of an option, the Portfolio, may make a "closing
sale transaction" which involves liquidating the Portfolio's position by selling
the option previously purchased. Where the Portfolio cannot effect a closing
purchase transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When a Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated
on the books of the custodian for the Portfolio.
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The Portfolio may purchase call and put options on any securities in which it
may invest. The Portfolio would normally purchase a call option in anticipation
of an increase in the market value of such securities. The purchase of a call
option would entitle the Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. The
Portfolio would ordinarily have a gain if the value of the securities increased
above the exercise price sufficiently to cover the premium and would have a loss
if the value of the securities remained at or below the exercise price during
the option period.
The Portfolio would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's holdings, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's holdings. Put options also may be purchased by the Portfolio for
the purpose of affirmatively benefiting from a decline in the price of
securities which the Portfolio does not own. The Portfolio would ordinarily
recognize a gain if the value of the securities decreased below the exercise
price sufficiently to cover the premium and would recognize a loss if the value
of the securities remained at or above the exercise price. Gains and losses on
the purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying portfolio securities.
The Portfolio has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The Portfolio's activities in
options may also be restricted by the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for qualification as a regulated investment
company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from
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broker-dealers who are primary government securities dealers recognized by the
Federal Reserve Bank of New York and who agree to (and are expected to be
capable of) entering into closing transactions, although there can be no
guarantee that any such option will be liquidated at a favorable price prior to
expiration. The Adviser will monitor the creditworthiness of dealers with whom
the Portfolio enters into such options transactions under the general
supervision of the Portfolios' Trustees.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
Portfolio may also purchase and write (sell) call and put options on securities
indices. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index. Such options will be used for the purposes
described above under "Options on Securities."
The Portfolio may, to the extent allowed by Federal and state securities laws,
invest in securities indices instead of investing directly in individual foreign
securities.
Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the Portfolio
generally will only purchase or write such an option if the Adviser believes the
option can be closed out.
Use of options on securities indices also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. The Portfolio will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in a Portfolio's holdings may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indices
cannot serve as a complete hedge. Because options on securities indices require
settlement in cash, the Adviser may be forced to liquidate portfolio securities
to meet settlement obligations.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Because the Portfolio buys and
sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. A Portfolio either enters into
these transactions on a spot (I.E., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
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A forward foreign currency exchange contract is an obligation by a Portfolio to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. The Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an attempt
to protect against changes in foreign currency exchange rates between the trade
and settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, a Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward contracts. In such event the
Portfolio's ability to utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts may reduce the potential gain
from a positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Portfolio than if it had not entered into such
contracts. The use of foreign currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on a Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject a Portfolio to certain
risks.
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The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, a
Portfolio may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Portfolio's ability to
use such contract to hedge or cross-hedge its assets. Also, with regard to a
Portfolio's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time a poor correlation may exist
between movements in the exchange rates of the foreign currencies underlying a
Portfolio's cross-hedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.
RATING SERVICES
The ratings of rating services represent their opinions as to the quality of the
securities that they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings are an initial criterion for selection of portfolio
investments, Bankers Trust also makes its own evaluation of these securities,
subject to review by the Board of Trustees. After purchase by 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 Fund to
eliminate the obligation from its portfolio, but Bankers Trust will consider
such an event in its determination of whether a Fund should continue to hold the
obligation. A description of the ratings used herein and in the Funds'
Prospectuses is set forth in the Appendix to this SAI.
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INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of the Fund and
the Portfolio and may not be changed with respect to the Fund or the Portfolio
without the approval of a "majority of the outstanding voting securities" of the
Fund or the Portfolio, as the case may be. "Majority of the outstanding voting
securities" under the Investment Company Act of 1940, as amended (the
"1940 Act"), and as used in this SAI and the Prospectus, means, with respect to
the Fund (or the Portfolio), the lesser of (i) 67% or more of the outstanding
voting securities of the Fund (or of the total beneficial interests of the
Portfolio) present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund or of the total beneficial interests
of the Portfolio) are present or represented by proxy or (ii) more than 50% of
the outstanding voting securities of the Fund (or of the total beneficial
interests of the Portfolio). Whenever the Trust is requested to vote on a
fundamental policy of the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast its vote as instructed by that 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 of the Trust in the same
proportion as the Fund shareholders who do, in fact, vote.
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 objective):
(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) 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 the 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
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"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 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 30% of the Portfolio's (Fund's) net 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 (under current regulations, the
Portfolio's (Fund's) fundamental policy with respect to 20% risk
weighing for financial institutions prevent the Portfolio (Fund)
from engaging in securities lending);
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (except futures and option
contracts) in the ordinary course of business (except that the
Portfolio (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 a Portfolio's (Fund's) investment objective(s),
up to 25% of its total assets may be invested in any one industry;
and
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder, provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered to be the issuance of a senior security for purposes of
this restriction.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state and
Federal statutes and policies, the Portfolio (or the Trust, on behalf of the
Fund) will not as a matter of operating policy (except that no operating policy
shall prevent the Fund from investing all of its Assets in an open-end
investment company with substantially the same investment objective):
(i) borrow money (including through reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Portfolio's
(Fund's) total assets (taken at cost), except that
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the Portfolio (Fund) may borrow for temporary or emergency purposes
up to 1/3 of its total assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's (Fund's) total assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, and reverse repurchase agreements are not considered a
pledge of assets for purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;
(iv) sell securities it does not own (short sells) 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 that the Portfolio (Fund) contemporaneously owns or
where the Portfolio has the right to obtain securities equivalent
in kind and amount to those sold, i.e., short sales against the
box.) (The Portfolio (Fund) currently does not engage in short
selling.);
(v) invest for the purpose of exercising control or management of
another company;
(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 (1) the
Portfolio's investment adviser waives the investment advisory fee
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with respect to assets invested in other open-end investment
companies and (2) the Portfolio incurs no sales charge in
connection with the investment;
(vii) invest more than 10% of the Portfolio's (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;
(viii) invest more than 15% of the Portfolio's (Fund's) total assets
(taken at the greater of cost or market value) in (a) securities
(excluding Rule 144A securities) that are restricted as to resale
under the 1933 Act, and (b) securities that are issued by issuers
which (including predecessors) have been in operation less than
three years (other than U.S. Government securities), provided,
however, that no more than 5% of the Portfolio's (Fund's) total
assets are invested in securities issued by issuers which
(including predecessors) have been in operation less than three
years;
(ix) invest more than 15% of the Portfolio's (Fund's) net assets (taken
at the greater of cost or market value) in securities that are
illiquid or not readily marketable (excluding Rule 144A securities
deemed by the Board of Trustees of the Portfolio (Trust) to be
liquid);
(x) with respect to 75% of its assets, invest more than 5% of its total
assets in the securities (excluding U.S. Government securities) of
any one issuer;
(xi) invest in securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of
the Portfolio (Trust), or is an officer or director of the Adviser,
if after the purchase of the securities of such issuer for the
Portfolio (Fund) one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities, or both, all taken at
market value, of such issuer, and such persons owning more than 1/2
of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities, or both, all taken at market
value;
(xii) invest in warrants (other than warrants acquired by the Portfolio
(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;
(xiii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the investment practices of the Portfolio (Fund) and the
option is issued by the OCC, except for put and call options issued
by
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non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate value of the obligations underlying
the puts determined as of the date the options are sold shall not
exceed 5% of the Portfolio's (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
(xiv) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons
and: (a) the options or futures are offered through the facilities
of a national securities association or are listed on a national
securities or commodities exchange, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all such
options which are held at any time do not exceed 20% of the
Portfolio's (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 the market value of an investment, in net or total assets, or in the
change of securities rating of the investment, or any other later change.
The Fund will comply with the state securities laws and regulations of all
states in which it is registered. The Portfolio will comply with the permitted
investments and investment limitations in the securities laws and regulations of
all states in which the corresponding Fund, or any other registered investment
company investing in the Portfolio, is registered.
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PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any. Broker-
dealers may receive brokerage commissions on portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed
to any broker-dealer or futures commission merchant, including to the extent and
in the manner permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain portfolio securities on behalf of a
Portfolio are frequently placed by the Adviser with the issuer or a primary or
secondary market-maker for these securities on a net basis, without any
brokerage commission being paid by the Portfolio. Trading does, however,
involve transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Transaction costs may also
include fees paid to third parties for information as to potential purchasers or
sellers of securities. Purchases of underwritten issues may be made which will
include an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for a Portfolio taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for the
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees of the Portfolio may determine,
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the Adviser may consider sales of shares of the Trust and of other investment
company clients of Bankers Trust as a factor in the selection of broker-dealers
to execute portfolio transactions. Bankers Trust will make such allocations if
commissions are comparable to those charged by nonaffiliated, qualified broker-
dealers for similar services.
Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers and
dealers can be useful to a Portfolio and to the Adviser, it is the opinion of
the management of the Portfolio that such information is only supplementary to
the Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Portfolio, and not
all such information is used by the Adviser in connection with the Portfolio.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolio.
In certain instances there may be securities which are suitable for a Portfolio
as well as for one or more of the Adviser's other clients. Investment decisions
for a Portfolio and for the Adviser's other clients are made with a view to
achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in
the purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as a Portfolio is concerned. However, it is believed that
the ability of a Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
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For the year ended September 30, 1996, the period from January 1, 1995 through
September 30, 1995, and the year ended December 31, 1994, International Equity
Portfolio paid brokerage commissions in the amount of $603,995, $132,894, and
$110,580, respectively.
PERFORMANCE INFORMATION
STANDARD PERFORMANCE INFORMATION
From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
Total return: A Fund's average annual total return is calculated for certain
periods by determining the average annual compounded rates of return over those
periods that would cause an investment of $1,000 (made at the maximum public
offering price with all distributions reinvested) to reach the value of that
investment at the end of the periods. A Fund may also calculate total return
figures which represent aggregate performance over a period or year-by-year
performance.
COMPARISON OF FUND PERFORMANCE
Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.
In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of a Fund's
performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for a Fund's performance could include the
following:
ASIAN WALL STREET JOURNAL, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
BARRON'S, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
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BUSINESS WEEK, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CHANGING TIMES, THE KIPLINGER MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
CONSUMER DIGEST, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
FINANCIAL TIMES, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
FINANCIAL WORLD, a general business/financial magazine that includes a "Market
Watch" department reporting on activities I the mutual fund industry.
FORBES, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
FORTUNE, a national business publication that periodically rates the performance
of a variety of mutual funds.
GLOBAL INVESTOR, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
INVESTOR'S DAILY, a daily newspaper that features financial, economic and
business news.
LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, a weekly
publication of industry-wide mutual fund averages by type of fund.
MONEY, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
MORNINGSTAR, INC., a publisher of financial information and mutual fund
research.
NEW YORK TIMES, a nationally distributed newspaper which regularly covers
financial news.
PERSONAL INVESTING NEWS, a monthly news publication that often reports on
investment opportunities and market conditions.
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PERSONAL INVESTOR, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SUCCESS, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
U.S. NEWS AND WORLD REPORT, a national business weekly that periodically reports
mutual fund performance data.
VALUE LINE, a biweekly publication that reports on the largest 15,000 mutual
funds.
WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
WEISENBERGER INVESTMENT COMPANIES SERVICES, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
WORKING WOMEN, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND
Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and
money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market.
Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by The Portfolio's Board of
Trustees. It is generally agreed that securities for which market quotations
are not readily available should not be valued at the same value as that carried
by an equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
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relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date of purchase,
size of holding, discount from market value of unrestricted securities of
the same class at the time of purchase, special reports prepared by
analysts, information as to any transactions or offers with respect to the
security, existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar securities of the
issuer or comparable companies, and other relevant matters.
To the extent that a Portfolio purchases securities which are restricted as to
resale or for which current market quotations are not readily available, the
Adviser of the Portfolio will value such securities based upon all relevant
factors as outlined in FRR 1.
The Trust, on behalf of the Fund, and the Portfolio reserve the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or withdrawal by making payment in whole or in part in readily
marketable securities chosen by the Trust, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Fund shareholder in securities, an investor, including the Fund, may incur
transaction expenses in converting these securities into cash. The Trust, on
behalf of the Fund, and the Portfolio have elected, however, to be governed by
Rule 18f-1 under the 1940 Act as a result of which the Fund and the Portfolio
are obligated to redeem shares or beneficial interests, as the case may be, with
respect to any one investor during any 90-day period, solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Fund or the Portfolio, as
the case may be, at the beginning of the period.
The Portfolio has agreed to make a redemption in kind to the Fund whenever the
Fund wishes to make a redemption in kind and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of the
Portfolio and in no case will they receive a security issued by the Portfolio.
The Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the Fund is permitted to redeem in kind or
unless requested by the Fund.
Each investor in a Portfolio, including the 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
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be effected. The investor's percentage of the aggregate beneficial interests in
the Portfolio will then be recomputed as the percentage equal to the fraction
(i) the numerator of which is the value of such investor's investment in the
Portfolio as of the close of business on such day plus or minus, as the case may
be, the amount of net additions to or withdrawals from the investor's investment
in the Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount of
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as
the close of business on the following business day.
The Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Net Asset Value" as of the day the Fund receives the securities. This
may be a taxable transaction to the shareholder. (Consult your tax adviser for
future tax guidance.) Securities may be accepted in payment for shares only if
they are, in the judgment of Bankers Trust, appropriate investments for the
Portfolio. In addition, securities accepted in payment for shares must:
(i) meet the investment objective and policies of the Portfolio; (ii) be
acquired by the Fund for investment and not for resale (other than for resale to
the Portfolio); (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of the market; and (iv) if stock, have a
value which is readily ascertainable as evidenced by a listing on a stock
exchange, over-the-counter market or by readily available market quotations from
a dealer in such securities. The Fund reserves the right to accept or reject at
its own option any and all securities offered in payment for its shares.
MANAGEMENT OF THE TRUST AND THE PORTFOLIOS
The Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund or Portfolio
they represent. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund/Portfolio and review the Fund's
performance.
The Trustees and officers of the Trust and Portfolio, their age 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 P.O. Box 897,
Pittsburgh, Pennsylvania 15230-0897.
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<PAGE>
TRUSTEES OF THE TRUST
CHARLES P. BIGGAR (birthdate: October 13, 1930) -- 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.
RICHARD J. HERRING (birthdate: February 18, 1946) -- Trustee; Professor, Finance
Department, The Wharton School, University of Pennsylvania. His address is The
Wharton School, University of Pennsylvania Finance Department, 3303 Steinberg
Hal 1/Dietrich Hall, Philadelphia, Pennsylvania 19104.
BRUCE E. LANGTON (birthdate: May 10, 1931) -- 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* (birthdate: September 2, 1951) -- President and Trustee;
Chairman. Chief Executive Officer and President, Signature Financial Group, Inc.
("SFG") (since December, 1988) and Signature Broker-Dealer Services, Inc.
("Signature") (since April, 1989). His address is 6 St. James Avenue, Boston,
Massachusetts, 02116.
TRUSTEES OF THE PORTFOLIO
PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) - Trustee; Principal.
Philip Saunders Associates (Consulting); former Director of Financial Industry
Consulting, Wolf & Company; President. John Hancock Home Mortgage Corporation;
and Senior Vice President of Treasury and Financial Services. John Hancock
Mutual Life Insurance Company, Inc. His address is 445 Glen Road, Weston,
Massachusetts 02193:
CHARLES P. BIGGAR (birthdate: October 13, 1930) - 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 (birthdate: March 28, 1930) - Trustee; Retired; Director, Coutts
Group, Coutts (U.S.A.) International; Coutts Trust Holdings Ltd.; Director,
Zweig Series Trust; formerly Partner of KPMG Peat Marwick; Director, Vinters
International Company Inc.;
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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* (birthdate: September 2, 1951) - 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
RONALD M. PETNUCH (birthdate: February 27, 1960) - President and Treasurer;
Senior Vice President, Federated Services Company ("FSC") ; formerly, Director
of Proprietary Client Services, Federated Administrative Services ("FAS"),
and Associate Corporate Counsel, Federated Investors ("FI")
CHARLES L. DAVIS, JR. (birthdate: March 23, 1960) - Vice President and Assistant
Treasurer; Vice President, FAS.
JAY S. NEUMAN (birthdate: April 22, 1950) - Secretary; Corporate Counsel,
FI.
Messrs. Coolidge, Davis, Neuman and Petnuch also hold similar positions for
other investment companies for which Signature or Edgewood, respectively, 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 Portfolio. No director, officer or employee of
Edgewood or any of its affiliates will receive any compensation from the Trust
or the Portfolio for serving as an officer or Trustee of the Trust or the
Portfolio.
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<PAGE>
The following table reflects fees paid to the Trustees for the year ended
September 30, 1996.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
BENEFITS ACCRUED
COMPENSATION AGGREGATE AS PART OF TRUST ESTIMATED ANNUAL TOTAL
NAME OF PERSON, COMPENSATION OR PORTFOLIO BENEFITS UPON FROM FUND COMPLEX*
POSITION FROM TRUST EXPENSES RETIREMENT PAID TO TRUSTEES
- --------------- ------------ ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Richard J. Herring, $13,000 none none $23,000
Trustee of Trust
Bruce E. Langton, $13,000 none none $23,000
Trustee of Trust
and Portfolio
Philip W. Coolidge, none none none none
Trustee of Trust
and Portfolio
Charles P. Biggar, $10,000 none none $23,000
Trustee of Trust
and Portfolio
Philip Saunders, Jr. none none none $23,000
Trustees of Portfolio
S. Leland Dill none none none $23,000
Trustees of Portfolio
</TABLE>
* Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free
Money Portfolio, International Equity Portfolio, Utility Portfolio, Short
Intermediate US Government Securities Portfolio, Intermediate Tax Free
Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio, and
Capital Appreciation Portfolio.
Bankers Trust reimbursed the Fund and Portfolio for a portion of their Trustees
fees for the period above. See "Investment Adviser" and "Administrator" below.
INVESTMENT ADVISER
Under the terms of the Portfolio's investment advisory agreement with Bankers
Trust (the "Advisory Agreement"), Bankers Trust manages the Portfolio subject to
the supervision and direction of the Board of Trustees of the Portfolio.
Bankers Trust will: (i) act in strict conformity with The Portfolio's
Declaration of Trust, the 1940 Act and the Investment Advisers Act of 1940, as
the same may from time to time be amended; (ii) manage The Portfolio in
accordance with the Portfolio's investment objectives, restrictions and
policies; (iii) make investment decisions for the Portfolio; and (iv) place
purchase and sale orders for securities and other financial instruments on
behalf of the Portfolio.
Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The Trust and the Portfolio bear certain other
expenses incurred in their
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<PAGE>
operation, including: taxes, interest, brokerage fees and commissions, if any;
fees of Trustees of the Trust or the Portfolio who are not officers, directors
or employees of Bankers Trust, Edgewood or any of their affiliates; SEC fees and
state Blue Sky fees; 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; costs of
preparing and printing prospectuses and SAIs 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 year ended September 30, 1996, the period from January 1, 1995 to
September 30, 1995, and the year ended December 31, 1994, Bankers Trust
aggregated $759,552, $322,696, and $322,489, respectively, in compensation for
investment advisory services provided to International Equity Portfolio. During
the same periods, Bankers Trust reimbursed $229,297, $108,743, and $117,653,
respectively, to that 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
Portfolio, 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 Portfolio 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
Portfolio, 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.
The Fund's prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees. Such waivers by Bankers Trust shall stay in
effect for at least 12 months.
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<PAGE>
ADMINISTRATOR
Under the administration and services agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deem necessary for the proper
administration of the Trust or Portfolio. Bankers Trust will generally assist
in all aspects of the Fund's and Portfolio's 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), 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
Declarations of Trust, by-laws, investment objectives and policies and with
Federal and state securities laws; arrange for appropriate insurance coverage;
calculate net asset values, net income and realized capital gains or losses; and
negotiate arrangements with, and supervise and coordinate the activities of,
agents and others to supply services.
Pursuant to a sub-administration agreement (the "Sub-Administration Agreement"),
FSC performs such sub-administration duties for the Trust and the Portfolio as
from time to time may be agreed upon by Bankers Trust and FSC. The Sub-
Administration Agreement provides that FSC will receive such compensation as
from time to time may be agreed upon by FSC and Bankers Trust. All such
compensation will be paid by Bankers Trust.
For the year ended September 30, 1996, the period from January 1, 1995 to
September 30, 1995, and the year ended December 31, 1994, Bankers Trust received
$175,281, $74,468, and $74,420, respectively, in compensation for administrative
and other services provided to International Equity Portfolio.
Bankers Trust has agreed that if in any 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 a Fund, Bankers Trust will reimburse the Fund
for the excess expense to the extent required by state law. As of the date of
this SAI, 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.
34
<PAGE>
CUSTODIAN AND TRANSFER AGENT
Bankers Trust, 280 Park Avenue, New York, New York 10017, serves as Custodian
for the Trust and for the Portfolio pursuant to the administration and services
agreements. As Custodian, it holds the Fund's and the Portfolio's assets.
Bankers Trust also serves as transfer agent of the Trust and of the Portfolio
pursuant to the respective administration and services agreement. Under its
transfer agency agreement with the Trust, Bankers Trust maintains the
shareholder account records for the Fund, handles certain communications between
shareholders and the Trust and causes to be distributed any dividends and
distributions payable by the Trust. Bankers Trust may be reimbursed by the Fund
or the Portfolio 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 to the
Portfolio. 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 Portfolio contemplated by the Advisory
Agreement and other activities for the Fund and the Portfolio described in the
Prospectus and this SAI 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 and the Portfolio. 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. If the circumstances described above should change, the Boards of Trustees
would review the relationships with Bankers Trust and consider taking all
actions necessary in the circumstances.
35
<PAGE>
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 the Portfolio. Coopers
& Lybrand L.L.P., 1100 Main Street, Suite 900, Kansas City, Missouri 64105 acts
as Independent Accountants of the Trust and the Portfolio.
ORGANIZATION OF THE TRUST
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.
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the
Trust's 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 a
shareholder's 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.
Except as described below, whenever the Trust is requested to vote on a
fundamental policy of the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast its vote as instructed by 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 of the Trust in the same
proportion as the Fund shareholders who do, in fact, vote.
Except as described below, whenever the Fund is requested to vote on matters
pertaining to the Portfolio, the Fund will hold a meeting of its shareholders
and will cast its votes proportionately as instructed by Fund shareholders.
However, subject to applicable statutory and regulatory
36
<PAGE>
requirements, the Fund would not request a vote of its shareholders with respect
to (a) any proposal relating to the Portfolio, which proposal, if made with
respect to the Fund, would not require the vote of the shareholders of the Fund,
or (b) any proposal with respect to the Portfolio that is identical in all
material respects to a proposal that has previously been approved by
shareholders of the Fund. Any proposal submitted to holders in the Portfolio,
and that is not required to be voted on by shareholders of the Fund, would
nonetheless be voted on by the Trustees of the Trust.
TAXATION
TAXATION OF THE FUNDS
The Trust intends to qualify annually and to elect each Fund to be treated as a
regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must, among other things:
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of certain assets (namely, in the case of the Fund, (i) stock or
securities; (ii) options, futures, and forward contracts (other than those on
foreign currencies); and (iii) foreign currencies (including options, futures,
and forward contracts on such currencies) not directly related to the Fund's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities)) held less than three months (the "30%
Limitation"); (c) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (d) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net short-
term capital gains in excess of net long-term capital losses) and its net tax-
exempt interest income, if any, each taxable year.
As a regulated investment company, the Fund will not be subject to U.S. Federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund
37
<PAGE>
intends to distribute to its shareholders, at least annually, substantially all
of its investment company taxable income and net capital gains. Amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To prevent imposition
of the excise tax, the Fund must distribute during each calendar year an amount
equal to the sum of: (1) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year; (2) at least 98% of
its capital gains in excess of its capital losses (adjusted for certain ordinary
losses, as prescribed by the Code) for the one-year period ending on October 31
of the calendar year; and (3) any ordinary income and capital gains for previous
years that was not distributed during those years. A distribution will be
treated as paid on December 31 of the current calendar year if it is declared by
the Fund in October, November or December with a record date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, the Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.
Each Fund shareholder will also receive, if appropriate, various written notices
after the close of the Fund's prior taxable year as to the Federal income status
of his dividends and distributions which were received from the Fund during the
Fund's 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 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 the Fund. To the extent that the Fund earns taxable net
investment income, the Fund intends to designate as taxable dividends the same
percentage of each dividend as its taxable net investment income bears to its
total net investment income earned. Therefore, the percentage of each dividend
designated as taxable, if any, may vary.
INTERNATIONAL EQUITY PORTFOLIO
FOREIGN SECURITIES. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. It is impossible to determine the
effective rate of foreign tax in advance since the amount of the Portfolio's
assets to be invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of the value
of the Portfolio's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, it may make an election pursuant
to which certain foreign taxes paid by it would be treated as having been paid
directly by shareholders of the entities, such as the Fund, which have invested
in the Portfolio. Pursuant to such election, the amount of foreign taxes paid
will be included in the income of the Fund's shareholders, and such Fund
shareholders (except tax-exempt
38
<PAGE>
shareholders) may, subject to certain limitations, claim either a credit or
deduction for the taxes. Each such Fund shareholder will be notified after the
close of the Portfolio's taxable year whether the foreign taxes paid will "pass
through" for that year and, if so, such notification will designate (a) the
shareholder's portion of the foreign taxes paid to each such country and (b) the
portion which represents income derived from sources within each such country.
The amount of foreign taxes for which a shareholder may claim a credit in any
year will generally be subject to a separate limitation for "passive income,"
which includes, among other items of income, dividends, interest and certain
foreign currency gains. Because capital gains realized by the Portfolio on the
sale of foreign securities will be treated as U.S. source income, the available
credit of foreign taxes paid with respect to such gains may be restricted by
this limitation.
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends-received deduction. Shareholders
receiving distributions in the form of additional shares, rather than cash,
generally will have a cost basis in each such share equal to the net asset value
of a share of the Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. Federal tax status of distributions.
TAXATION OF THE PORTFOLIO
The Portfolio is not subject to Federal income taxation. Instead, the Fund and
other investors investing in a Portfolio must take into account, in computing
their Federal income tax liability, their share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether they have received any cash distributions from the Portfolio.
Distributions received by the Fund from the Portfolio generally will not result
in the Fund recognizing any gain or loss for Federal income tax purposes, except
that: (1) gain will be recognized to the extent that any cash distributed
exceeds the Fund's basis in its interest in the Portfolio prior to the
distribution; (2) income or gain may be realized if the distribution is made in
liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio; and
(3) loss may be recognized if the distribution is made in liquidation of the
Fund's entire interest in the Portfolio and consists solely of cash and/or
unrealized receivables. The Fund's basis in its interest in the Portfolio
generally will equal the amount of cash and the basis of any property which the
Fund invests in the Portfolio, increased by the Fund's share of income from the
Portfolio, and decreased by the amount of any cash distributions and the basis
of any property distributed from the Portfolio.
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<PAGE>
SALE OF SHARES
Any gain or loss realized by a shareholder upon the sale or other disposition of
shares of the Fund, or upon receipt of a distribution in complete liquidation of
a Fund, generally will be a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. Any loss realized on a sale or exchange will be disallowed to the
extent the shares disposed of are replaced (including shares acquired pursuant
to a dividend reinvestment plan) within a period of 61 days beginning 30 days
before and ending 30 days after disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
FOREIGN WITHHOLDING TAXES
Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain
other shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. Federal income tax liability.
FOREIGN SHAREHOLDERS
The tax consequences to a foreign shareholder of an investment in the Fund may
be different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in the Fund.
40
<PAGE>
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor any Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code. The investment by
the Fund in the Portfolio does not cause the Fund to be liable for any income or
franchise tax in the State of New York.
The Portfolio is organized as a New York trust. The Portfolio is not subject to
any income or franchise tax in the State of New York or the Commonwealth of
Massachusetts.
Fund shareholders may be subject to state and local taxes on their Fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
FINANCIAL STATEMENTS
The following financial statements for the Fund or Portfolio have been filed
with the SEC pursuant to section 30(b) of the 1940 Act and Rule 30b2-1
thereunder and are hereby incorporated herein by reference. A copy of such
financial statements will be provided, without charge, to each person receiving
this SAI.
INTERNATIONAL EQUITY PORTFOLIO:
Statement of Assets and Liabilities, September 30, 1996
Statement of Operations for the year ended September 30, 1996
Statement of Changes in Net Assets for the year ended September 30, 1996,
and for the period from January 1, 1995 to September 30, 1995
Financial Highlights: Selected ratios and supplemental data for each
period indicated
Schedule of Portfolio Investments, September 30, 1996
Notes to Financial Statements
Report of Independent Accountants
41
<PAGE>
APPENDIX
COMMERCIAL PAPER RATINGS
S&P'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
A-1
<PAGE>
FITCH INVESTORS SERVICE AND DUFF & PHELPS COMMERCIAL PAPER RATINGS
Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for timely
payment. "Fitch-2" is considered very good grade paper and reflects an
assurance of timely payment only slightly less in degree than the strongest
issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by strong fundamental protection factors, and risk
factors which are very small. Issues rated "Duff 2" have a good certainty of
timely payment, sound liquidity factors and company fundamentals, small risk
factors, and good access to capital markets.
A-2
<PAGE>
DISTRIBUTOR
EdgewoodServices, Inc. BT INSTITUTIONAL FUNDS
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
(800) 545-1074
INVESTMENT ADVISER INTERNATIONAL EQUITY FUND
Bankers Trust Company
280 Park Avenue
New York, NY 10017
TRANSFER AGENT
Bankers Trust Company
280 Park Avenue
New York, NY 10017
CUSTODIAN
Bankers Trust Company STATEMENT OF
280 Park Avenue ADDITIONAL INFORMATION
New York, NY 10017 JANUARY 2, 1997
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105
LEGAL COUNSEL
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4669
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements. To be filed by Amendment; Financial
Statements for International Equity Portfolio
are incorporated by reference to the Annual
Report filed with the Commission on November
20, 1996(File Nos. 33-07404 and 811-04760).
(b) EXHIBITS:
(1) (i) Amended and Restated Declaration of Trust of the Trust. 5
(ii) Fifth Amended and Restated Establishment and Designation of
Series of the Trust. 5
(iii) Sixth Amended and Restated Establishment and Designation of
Series of the Trust. 5
(iv) Seventh Amended and Restated Establishment and Designation
of Series of the Trust. 5
(v) Eighth Amended and Restated Establishment and Designation of
Series of the Trust. 5
(vi) Ninth Amended and Restated Establishment and Designation of
Series of the Trust. 5
(vii) Tenth Amended and Restated Establishment and Designation of
Series of the Trust. 5
(viii) Eleventh Amended and Restated Establishment and Designation
of Series of the Trust. 7
(2) By-Laws of the Trust. 5
(3) Not Applicable.
(4) Specimen stock certificates for shares of beneficial interest of the
Trust. 1
(5) Investment Advisory Agreement. 7
(6) Distribution Agreement. 5
(7) Inapplicable.
(8) See Item (9).
(9) (i) Administration and Services Agreement. 5
(ii) Schedule of fees under Administration and Service Agreement. 7
(10) Opinion of Counsel. 5
(11) Not Applicable.
(12) Not Applicable.
(13) (i) Investment representation letter of initial shareholder of the
Equity 500 Index Fund. 3
(ii) Investment representation letter of initial shareholder of the
Institutional Liquid Assets Fund. 5
(iii) Investment representation letter of initial shareholder of the
Institutional Daily Assets Fund. 7
- -----------------
<PAGE>
1. Incorporated herein by reference from Pre-Effective Amendment No. 1 to the
Registration Statement as filed with the SEC on July 20, 1990.
3. Incorporated herein by reference from Post-Effective Amendment No. 4 to the
Registration Statement as filed with the SEC on April 30, 1992.
5. Incorporated herein by reference from Post-Effective Amendment No. 15 to
the Registration Statement as filed with the SEC on July 5, 1995.
7. Incorporated herein by reference from Post-Effective Amendment No. 21 to
the Registration Statement as filed with the SEC on September 24, 1996.
(14) Not Applicable.
(15) (i) Plan of Distribution pursuant to Rule 12b-l under the
Investment Company Act of 1940, as amended (the "1940 Act").4
(ii) Schedule of fees under Plan of Distribution. 5
(iii) Placement Agent Agreement-Institutional Daily Assets Fund. 7
(16) (i) Method of computation of performance information for money
market funds. 2
(ii) Method of computation of performance information for non-money
market funds. 3
(17) Not Applicable.
(18) Not Applicable.
(19) Conformed copy of Power of Attorney of Registrant and International
Equity Portfolio. +
Item 25. Persons Controlled by or under Common Control with Registrant.
None
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
(par value $0.01 per share) as of December 31, 1996
- --------------------------- -----------------------
Institutional Cash Management Fund: 848
Institutional Treasury Money Fund: 478
Institutional Tax Free Money Fund: 0
Institutional NY Tax Free Money Fund: 0
Equity 500 Index Fund: 83
BT Institutional Capital Appreciation Fund: 0
Institutional Liquid Assets Fund: 1
Institutional Cash Reserves: 232
Institutional Daily Assets Fund: 0
International Equity Fund 0
Item 27. Indemnification.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an exhibit to the Registration Statement.
<PAGE>
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
- ---------------------
+ All exhibits have been filed electronically.
2. Incorporated herein by reference from Post-Effective Amendment No. 1 to the
Registration Statement as filed with the SEC on February 29, 1991.
3. Incorporated herein by reference from Post-Effective Amendment No. 4 to the
Registration Statement as filed with the SEC on April 30, 1992.
4. Incorporated herein by reference from Post-Effective Amendment No. 6 to the
Registration Statement as filed with the SEC on January 29, 1993.
5. Incorporated herein by reference from Post-Effective Amendment No. 15 to
the Registration Statement as filed with the SEC on July 5, 1995.
7. Incorporated herein by reference from Post-Effective Amendment No. 21 to
the Registration Statement as filed with the SEC on September 24, 1996.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
Bankers Trust serves as investment adviser to the Trust. Bankers Trust, a New
York banking corporation, is a wholly owned subsidiary of Bankers Trust New York
Corporation. Bankers Trust conducts a variety of commercial banking and trust
activities and is a major wholesale supplier of financial services to the
international institutional market.
To the knowledge of the Trust, none of the directors or officers of Bankers
Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Bankers Trust New York Corporation. Set forth below are the names and
principal businesses of the directors and officers of Bankers Trust who are
engaged in any other business, profession, vocation or employment of a
substantial nature.
NAME AND PRINCIPAL BUSINESS ADDRESS, PRINCIPAL OCCUPATION AND OTHER INFORMATION
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Retired Senior Vice President and Director, Member of
Advisory Board of International Business Machines Corporation. Director of
Bankers Trust and Bankers Trust New York Corporation. Director of FlightSafety
International, Inc. Director of Phillips Petroleum Company. Director of Roadway
Services, Inc. Director of Rohm and Hass Company.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX 75301-
0001. Chairman of the Board and Chief Executive Officer, J.C. Penney Company,
Inc. Director of Bankers Trust and Bankers Trust New York Corporation. Also a
Director of Exxon Corporation, Halliburton Company and Warner-Lambert
Corporation.
Jon M. Huntsman, Huntsman Chemical Corporation, 2000 Eagle Gate Tower, Salt Lake
City, UT 84111. Chairman and Chief Executive Officer, Huntsman Chemical
Corporation, Director of Bankers Trust and Bankers Trust New York Corporation.
Chairman of Constar Corporation, Huntsman Corporation, Huntsman Holdings
Corporation and Petrostar Corporation. President of Autostar Corporation,
Huntsman Polypropylene Corporation and Restar Corporation. Director of
Razzleberry Foods Corporation and Thiokol Corporation. General Partner of
Huntsman Group Ltd., McLeod Creek Partnership and Trustar Ltd.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP. Director of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of American Express Company, Corning Incorporated,
Dow Jones, Inc., J.C. Penney Company, Inc., RJR Nabisco Inc., Revlon Group
Incorporated, Ryder System, Inc., Sara Lee Corporation, Union Carbide
Corporation and Xerox Corporation.
<PAGE>
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10017. Chairman of the Executive Committee, Philip Morris Companies Inc.
Director of Bankers Trust and Bankers Trust New York Corporation. Director of
The News Corporation Limited.
Donald F. McCullough, Collins & Aikman Corporation, 210 Madison Avenue, New
York, NY 10016. Chairman Emeritus, Collins & Aikman Corporation. Director of
Bankers Trust and Bankers Trust New York Corporation. Director of Massachusetts
Mutual Life Insurance Co. and Melville Corporation.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Former President, Co-
Chief Executive Officer and Director of Time Warner Inc. Director of Bankers
Trust and Bankers Trust New York Corporation. Also a Director of Xerox
Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group. Director of Bankers Trust and Bankers Trust New York Corporation. Also
Director of Allied-Signal Inc., Contel Cellular, Inc., Federal Home Loan
Mortgage Corporation, GTE Corporation, Goodyear Tire & Rubber Company, Imasco
Limited, May Department Stores Company and Safeguard Scientifics, Inc. Member,
Radnor Venture Partners Advisory Board.
Didier Pineau-Valencienne, Schneider S.A., 4 Rue de Longchamp, 75116 Paris,
France. Chairman and Chief Executive Officer, Schneider S.A. Director and member
of the European Advisory Board of Bankers Trust and Director of Bankers Trust
New York Corporation. Director of AXA (France) and Equitable Life Assurance
Society of America, Arbed (Luxembourg), Banque Paribas (France), Ciments
Francais (France), Cofibel (Belgique), Compagnie Industrielle de Paris (France),
SIAPAP, Schneider USA, Sema Group PLC (Great Britain), Spie- Batignolles,
Tractebel (Belgique) and Whirlpool. Chairman and Chief Executive Officer of
Societe Parisienne d'Entreprises et de Participations.
Charles S. Sanford, Jr., Bankers Trust Company, 280 Park Avenue, New York, NY
10017. Chairman of the Board of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of Mobil Corporation and J.C. Penney Company, Inc.
Eugene B. Shanks, Jr., Bankers Trust Company, 280 Park Avenue, New York, NY
10017. President of Bankers Trust and Bankers Trust New York Corporation.
Patricia Carry Stewart, c/o Office of the Secretary, 280 Park Avenue, New York,
NY 10017. Former Vice President, The Edna McConnell Clark Foundation. Director
of Bankers Trust and Bankers Trust New York Corporation. Director, Borden Inc.,
Continental Corp. and Melville Corporation.
George J. Vojta, Bankers Trust Company, 280 Park Avenue, New York, NY 10017.
Vice Chairman of the Board of Bankers Trust and Bankers Trust New
<PAGE>
York Corporation. Director of Northwest Airlines and Private Export Funding
Corp.
Item 29. Principal Underwriters.
(a) Edgewood Services, Inc., ("Edgewood") the Distributor for shares of the
Registrant, also acts as principal underwriter for the following open-end
investment companies: FTI Funds, Excelsior Institutional Trust (formerly, UST
Master Funds, Inc.), Excelsior Tax-Exempt Funds, Inc. (formerly, UST Master Tax-
Exempt Funds, Inc.), Excelsior Institutional Trust, Marketvest Funds, Marketvest
Funds, Inc., BT Advisor Funds, BT Investment Funds, and BT Pyramid Mutual Funds.
<TABLE>
<CAPTION>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Douglas L. Hein Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Newton Heston, III Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas J. Ward Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not Applicable.
ITEM 30. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
<PAGE>
Registrant: Federated Investor Tower,
Pittsburgh, PA 15222-3779.
Bankers Trust Company: 280 Park Avenue, New York, NY
10017.
Investors Fiduciary Trust Company: 127 West 10th Street, Kansas City,
MO 64105.
Edgewood Services, Inc.: Clearing Operations, P.O. Box 897,
Pittsburgh, PA 15230-0897.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant hereby undertakes to file a post-effective amendment, using
financial statements on behalf of International Equity Fund which need not be
certified, within four to six months from the effective date of this Post
Effective Amendment No.18.
Registrant hereby undertakes to comply with the provisions of Section 16(c)
of the 1940 Act with respect to the removal of Trustees and the calling of
special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, the Registrant, BT INSTITUTIONAL FUNDS, has
duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Pittsburgh
and the Commonwealth of Pennsylvania on the 3rd day of January, 1997.
BT INSTITUTIONAL FUNDS
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
January 3, 1997
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ------ -----
<S> <C> <C>
By: /s/ Jay S. Neuman Attorney in Fact January 3, 1997
Jay S. Neuman For the Persons
SECRETARY Listed Below
/s/RONALD M. PETNUCH* President and Treasurer
Ronald M. Petnuch (Chief Executive Officer,
Principal Financial and Accounting
Officer)
/s/PHILIP W. COOLIDGE* Trustee
Philip W. Coolidge
/s/CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/RICHARD J. HERRING* Trustee
Richard J. Herring
/s/BRUCE E. LANGTON* Trustee
Bruce E. Langton
</TABLE>
* By Power of Attorney
<PAGE>
SIGNATURES
BT INTERNATIONAL EQUITY PORTFOLIO has duly caused this Post-Effective
amendment No. 18 to the Registration Statement on Form N-1A of BT Institutional
Funds to be signed on its behalf by the undersigned, thereto authorized in the
City of Pittsburgh and the Commonwealth of Pennsylvania on the 3rd day of
January, 1997.
BT INTERNATIONAL EQUITY PORTFOLIO
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
January 3, 1997
This Post-Effective amendment No. 18 to the Registration Statement has been
signed below by the following persons in the capacity and on the date indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
By: /s/ Jay S. Neuman Attorney in Fact January 3, 1997
Jay S. Neuman For the Persons
SECRETARY Listed Below
/s/RONALD M. PETNUCH* President and Treasurer
Ronald M. Petnuch (Chief Executive Officer,
Principal Financial and Accounting
Officer)
/s/PHILIP W. COOLIDGE* Trustee
Philip W. Coolidge
/s/CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/S. LELAND DILL* Trustee
S. Leland Dill
/s/PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
</TABLE>
* By Power of Attorney
<PAGE>
POWER OF ATTORNEY
The undersigned Trustees and officers, as indicated respectively below, of
BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, The
Leadership Trust, and BT Advisor Funds (each, a "Trust") and, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, International Equity Portfolio, Utility Portfolio, Short/Intermediate
U.S. Government Securities Portfolio, Equity 500 Index Portfolio, Asset
Management Portfolio, Capital Appreciation Portfolio, Intermediate Tax Free
Portfolio, and BT Investment Portfolios (each, a "Portfolio Trust") each hereby
constitutes and appoints the Secretary and each Assistant Secretary of each
Trust and each Portfolio Trust and the Deputy General Counsel of Federated
Investors, each of them with full powers of substitution, as his true and lawful
attorney-in-fact and agent to execute in his name and on his behalf in any and
all capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, and all other documents, filed by a Trust or a Portfolio
Trust with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940, as amended, and (as applicable) the Securities
Act of 1933, as amended, and any and all instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Trust or
Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has,
and may exercise, all of the powers hereby conferred. The undersigned each
hereby revokes any Powers of Attorney previously granted with respect to any
Trust or Portfolio Trust concerning the filings and actions described herein.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of
the 30th day of September, 1996.
SIGNATURES TITLE
- ---------- -----
/s/Ronald M. Petnuch President and Treasurer (Chief Executive Officer,
- --------------------------- Principal Financial and Accounting Officer)
Ronald M. Petnuch of each Trust and Portfolio Trust
/s/Philip W. Coolidge Trustee of each Trust and
- --------------------------- Portfolio Trust
Philip W. Coolidge
/s/Charles P. Biggar Trustee of each Portfolio Trust
- --------------------------- and BT Institutional Funds
Charles P. Biggar
<PAGE>
SIGNATURES TITLE
- --------- ------
/s/S. Leland Dill Trustee of each Portfolio Trust
- -------------------------- and BT Investment Funds
S. Leland Dill
/s/Philip Saunders, Jr. Trustee of each Portfolio Trust
- --------------------------- and BT Investment Funds
Philip Saunders, Jr.
/s/Richard J. Herring Trustee of BT Institutional Funds
- -------------------------- and BT Advisor Funds
Richard J. Herring
/s/Bruce E. Langton Trustee of BT Institutional Funds
- --------------------------- and BT Advisor Funds
Bruce E. Langton
2
