1933 Act File No. 33-34079
1940 Act File No. 811-6071
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. .................................
Post-Effective Amendment No. 20 ................. X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 25................................................ 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).
X 75 days after filing pursuant to paragraph (a)(2) on pursuant to paragraph
(a)(2) of Rule 485.
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 February 28, 1997; 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.
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of BT INSTITUTIONAL FUNDS,
which is comprised of thirteen funds, relates only to International Small
Company Equity Fund, and is compromised of the following.
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...................Financial Highlights; Performance
Information and Reports.
Item 4. General Description of
Registrant....................The Fund; Who May Want to Invest;
Investment Objective and Policies; Risk
Factors: Matching the Fund to Your
Investment Needs; 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.
<PAGE>
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 Organization of the Trusts.
Item 13. Investment Objectives and
Policies........................Investment Objectives, Policies and
Restrictions.
Item 14. Management of the Fund Management of the Trusts and Portfolio.
Item 15. Control Persons and Principal
Holders of Securities..........Management of the Trusts and Portfolio.
Item 16. Investment Advisory and Other
Services Investment Adviser; Administrator.
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.
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.
INFORMATION HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION
STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to completion, dated September 9, 1997
o BT INSTITUTIONAL FUNDS o
International Small Company Equity Fund
Seeks long-term capital appreciation from companies outside of the U.S. with
market valuations generally below $1 billion in "free float" assets.
PROSPECTUS
___________, 1997
BT Institutional Funds (the "Trust") is an open-end management investment
company (mutual fund) which consists of a number of separate investment series.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the BT Institutional Funds'
International Small Company Equity Fund (the "Fund") that you should know and to
which you can refer 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 Small
Company Equity Portfolio (the "Portfolio"), a separate investment company with
an identical investment objective. The investment performance of the Fund will
correspond directly to the investment performance of the Portfolio. See "Special
Information Concerning Master-Feeder Fund Structure" herein.
Bankers Trust Company ("Bankers Trust") is the investment adviser (the
"Adviser") of the Portfolio. Shares of the Fund are not deposits or obligations
of, or guaranteed or endorsed by, Bankers Trust or any other banking or
depository institution. Shares are not federally insured by the Federal Deposit
Insurance Corporation, the U.S. government, the Federal Reserve Board or any
other agency and are subject to investment risk, including the possible loss of
the principal amount invested.
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Edgewood Services, Inc.
Clearing Operations o P.O. Box 897 o Pittsburgh, Pennsylvania o 15230-0897
<PAGE>
TABLE OF CONTENTS PAGE
The Fund 1
Who May Invest 1
Investment Principles and Risks 2
Summary Of Fund Expenses 2
Investment Objective And Policies 3
Risk Factors: Matching The Fund To Your Investment Needs 5
Securities And Investment Practices 9
Performance Information And Reports 16
Management Of The Trust And Portfolio 17
Net Asset Value 20
Purchase And Redemption Of Shares 21
Dividends, Distributions And Taxes 26
Organization of the Trust 27
<PAGE>
34
THE FUND
The Fund's investment objective is long-term capital appreciation. The Fund will
pursue this objective by investing primarily in the equity securities of
companies domiciled in, or doing business in Canada, Japan, United Kingdom,
Germany, France, Switzerland, Netherlands, Sweden, Hong Kong, Italy, Norway,
Denmark, Spain, and other countries outside of the U.S., with market valuations
at the time of investment generally below $1 billion in "free float" assets.
Free Float assets represent the portion of uncommitted company stock that is
freely traded and accessible to investors (e.g. the company may have a market
capitalization of greater than $1 billion, but a portion of the company's shares
are not tradable because of a strategic holding by a holding company or
significant family ownership). However, the investment does not need to be sold
if the free floating market capitalization increases to more than $1 billion
after purchase.
Generally, the Fund will focus its investments in companies with market
capitalization around $500 million. The Adviser will seek to identify and invest
in low capitalization equities that will grow substantially over 3 to 5 years
and to provide returns in excess of the Salomon Brothers Extended Market Index
of the World ex-U.S. (Total). See "Risk Factors: Matching the Fund to Your
Investment Needs" herein.
WHO MAY INVEST
The Fund is designed for investors who are willing to accept short-term foreign
stock market fluctuations in pursuit of potentially higher long-term returns.
The Fund invests for growth and does not pursue income. The Trust seeks to
achieve the investment objective of the Fund by investing all the Assets of the
Fund in the Portfolio.
In addition, the Fund may also be appropriate for investors who want to pursue
their investment goals in markets outside of the United States. By including
international investments in your portfolio, you can achieve a higher level of
diversification and also participate in opportunities around the world.
A minimum investment of at least $5 million in the Fund is required.
The Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision. When investors sell their Fund shares ("Shares"), they may be worth
more or less than what they originally paid for them.
<PAGE>
INVESTMENT PRINCIPLES AND RISKS
The value of the Portfolio's investments varies, based on many factors. Stock
values fluctuate, sometimes dramatically, in response to the activities of
individual companies and general market and economic conditions. Historically,
small-capitalization stocks have been more volatile in price than
larger-capitalization stocks. Over time, however, stocks have shown greater
long-term growth potential than other types of securities.
Because many foreign investments are denominated in foreign currencies, changes
in the value of these currencies can significantly affect the Fund's share
price. General economic factors in the various world markets can also impact the
value of an investor's investment, especially for securities in emerging
markets. Many investments in emerging markets can be considered speculative, and
therefore may offer higher total return potential, but significantly greater
risk.
Bankers Trust may use various investment techniques to hedge the Portfolio's
risks, but there is no guarantee that these strategies will always provide the
results anticipated. When an investor sells their Shares, they may be worth more
or less than what they originally paid for them. See "Risk Factors: Matching the
Fund to Your Investment Needs" herein for more information.
SUMMARY OF FUND EXPENSES
Annual Operating Expenses are paid out of the assets of the Portfolio and Fund.
The Portfolio pays an investment advisory fee and an administrative services fee
to Bankers Trust. The Fund incurs expenses such as maintaining shareholder
records and furnishing shareholder statements. The Fund must provide financial
reports.
The following table provides: (i) a summary of estimated expenses relating to
purchases and sales of 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 Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be less
than or approximately equal to the expenses which the Fund would incur if the
Trust retained the services of an investment adviser and the Assets of the Fund
were invested directly in the type of securities being held by the Portfolio.
Annual Operating Expenses
(as a percentage of the average daily net assets of the Fund)
Investment advisory fee (after reimbursements or waivers) 1.00%
12b-1 fees None
Other expenses (after reimbursements or waivers) 0.20%
Total operating expenses (after reimbursements or waivers) 1.20%
Examples
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of the time period:
1 year 3 years
$12 $38
The expense table and the examples above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. Bankers
Trust has voluntarily agreed to waive a portion of its investment advisory fee
with respect to the Portfolio. Without such waiver, the Portfolio's investment
advisory fee would be equal to 1.10%. The expense table and example reflect a
voluntary undertaking by Bankers Trust to waive or reimburse expenses such that
the total aggregate operating expenses of the Fund for the fiscal year will not
exceed 1.20%. In the absence of this undertaking, "Total Operating Expenses"
would have been 1.45%. 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 the example assumes a 5% annual return, actual
performance will vary and may result in a return greater or less than 5%.
For more information about the Fund's and the Portfolio's expenses see
"Management of the Trust and the Portfolio" herein.
The Fund is distributed by Edgewood Services, Inc. ("Edgewood" or the
"Distributor") to investors including 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. The Service Agent has agreed to
transmit to shareholders who are its customers appropriate disclosures of any
fees that it may charge them directly.
FUND FINANCIAL HIGHLIGHTS
The Fund will have a fiscal year end of September 30.
As this is the Fund's first fiscal year, financial information with respect to
the Fund is not available at this time.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long term capital appreciation. The Fund will
pursue this objective by investing primarily in the equity securities of
companies in Canada, Japan, United Kingdom, Germany, France, Switzerland,
Netherlands, Sweden, Hong Kong, Italy, Norway, Denmark, Spain, and other
countries outside of the U.S., with market valuations generally below $1 billion
in "free float" assets. Free Float assets represent the portion of uncommitted
company stock that is freely traded and accessible to investors (e.g. the
company may have a market capitalization of greater than $1 billion, but a
portion of the company's shares are not tradable because of a strategic holding
by a holding company or significant family ownership). However, the investment
does not need to be sold if the free floating market capitalization increases to
more than $1 billion after purchase.
Generally, the Fund will focus its investments in companies with market
capitalization around $500 million. The Adviser will seek to identify and invest
in low capitalization equities that will grow substantially over 3 to 5 years
and to provide returns in excess of the Salomon Brothers Extended Market Index
of the World ex-U.S. (Total). See "Risk Factors: Matching the Fund to Your
Investment Needs" herein. It is expected under normal conditions that at least
65% of the Portfolio's assets will be invested in the equity securities of
smaller companies based in at least three countries other that the United
States.
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. 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. Additional information
about the investment policies of the Portfolio appears in "Risk Factors:
Matching the Fund to Your Investment Needs" herein, and in the SAI. 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" herein.
The Portfolio's investment methodology is one which first involves focusing on
those industries internationally which exhibit the best long term investment
opportunities. The Adviser uses its large, proprietary database to identify the
universe of companies within each particular industry worldwide.
The next step is to select individual stocks. The Portfolio will be managed
using a disciplined, value-oriented investment philosophy that stresses the
inherent value of the companies under examination. The aim is to determine which
stocks have a strengthening competitive position, offer good total returns with
what the Adviser believes is relatively little financial or other risk, and have
a sound historical management strategy. It is the Adviser's experience that
often the real basis of a business is quite different from that perceived by the
market: a misconception that usually results in its shares trading below its
true business value. The exploitation of this "perception/reality" gap is a
hallmark of the investment style that has been adopted for the Portfolio, and a
potential source of value for its investors.
This type of investment approach means trying to find companies that are
mispriced by the market for reasons of neglect, fashion or misconception. These
opportunities arise out of legislative changes, industrial restructuring and
technological advances for example. As a result, Bankers Trust as investment
adviser, and the sub-investment adviser, attach great importance to analyzing
trends and accessing possible breaks with traditional price patterns. At the
company level, the emphasis is placed on assessing the inherent "business
value," of the firm. While this often varies from the stock market's valuation,
the Adviser and sub-investment adviser believe a company's stock price tends to
gravitate to its "business value" over time. This individual company selection
involves a high level of company visits to arrive at the Portfolio's long term
holdings.
The Adviser uses asset allocation, country selection, and currency selection
primarily as risk management tools. That is, the Adviser seeks to identify and
underweight or eliminate those markets that the Adviser's research shows as
offering poor return opportunities or relatively high risks, and concentrate the
Portfolio in those markets where the risk / return profile is more favorable.
The Adviser's macro research is coordinated around the consistent analysis of
five key investment indicators. These indicators capture the essential risk /
return characteristics of each market. They include, earnings, liquidity,
politics, supply and demand, and valuation.
In 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, to the extent available and consistent
with applicable regulations, the Portfolio may seek to achieve country exposure
through the use of options on futures based on an established local index or
through investment in other registered investment companies, as described under
"Securities and Investment Practices" herein.
The Portfolio invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets
and may invest in restricted unlisted securities.
Other Investments and Investment Techniques. The Portfolio may also utilize the
following investments and investment techniques and practices: short-term
instruments, foreign currency exchange transactions, options on foreign
currencies, American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), and European Depositary Receipts ("EDRs"), options on stocks, options
on foreign stock indices, futures contracts on foreign stock indices, options on
futures contracts, Rule 144A securities, when-issued and delayed delivery
securities, securities lending and repurchase agreements. See "Securities and
Investment Practices" and "Risk Factors: Matching the Fund to Your Investment
Needs" herein and in the SAI for further information.
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
The following pages contain more detailed information about types of instruments
in which the Portfolio may invest and strategies Bankers Trust may employ in
pursuit of the Portfolio's investment objective. A summary of risks and
restrictions associated with these instrument types and investment practices is
included as well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Portfolio achieve its goal. Holdings and recent investment strategies
are described in the financial reports of the Fund and the Portfolio, which are
sent to Fund Shareholders twice a year. For a free SAI or financial report, call
an Investment Professional.
Risks 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. Investors should realize
that the value of the Portfolio's foreign 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
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.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, 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. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Portfolio is also authorized to enter into
certain foreign currency exchange transactions. Furthermore, 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. The settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. Finally, there may be less
government supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States.
Risks of Investing in Emerging Markets
The risks involved when investing in emerging markets are of a nature generally
not encountered when investing in securities traded on major international
markets.
The world's industrialized markets generally include but are not limited to the
following: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, the Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and
the United States; the world's emerging markets generally include but are not
limited to the following: Argentina, Bolivia, Brazil, Bulgaria, Chile, China,
Colombia, Costa Rica, the Czech Republic, Ecuador, Egypt, Greece, Hungary,
India, Indonesia, Israel, the Ivory Coast, Jordan, Malaysia, Mexico, Morocco,
Nicaragua, Nigeria, Pakistan, Peru, the Philippines, Poland, Portugal, Romania,
Russia, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela, Vietnam and Zimbabwe.
Investment in securities of issuers based in underdeveloped emerging markets
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; (iv) accounting, auditing and financial reporting standards
applicable can be less demanding than the levels acceptable in the United States
which can result in incomplete company information; and (v) in the case of
Eastern Europe and in China and other Asian countries, the absence of developed
capital markets 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.
Although external debt in most emerging markets is generally falling, it remains
at high levels. This acts as a depressant on economic growth and limits access
to global savings. As a result, many emerging markets are reliant on foreign
capital inflows for fund development. During periods of uncertainty, foreign
capital may be withdrawn from these economies, causing financial market
weakness.
Also investments in certain countries require government approval which may
restrict the size and nature of investments. These restrictions may limit the
Portfolio's access to certain emerging markets. Additionally, the Adviser may be
required to obtain government consent to redeem the Portfolio's capital and
profits. Therefore, the Portfolio could encounter delays or refusals to grant
permission for money to be removed from the country. This could impact the
amount of cash available to meet shareholder redemptions.
In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the Portfolio to make intended security purchases due to settlement
problems could cause the Portfolio to miss attractive investment opportunities.
Inability to dispose of a security due to settlement problems could result
either in losses to the Portfolio due to subsequent declines in the value of the
security or, if the Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser.
It should be noted that developments affecting investments cannot always be
foreseen. Therefore, a shareholder may find it difficult to protect their
investments against risk.
Further information about the foreign markets in which the Portfolio may invest,
including a further discussion of related risks and special considerations, is
contained in the SAI.
Risks of Investing in Small-Capitalization Stocks
Historically, small-capitalization stocks have been more volatile in price than
the larger-capitalization stocks, such as those included in the S&P 500. Among
the reasons for the greater price volatility of these securities are the less
certain growth prospects of smaller firms, the lower degree of liquidity in the
markets for such stocks, and the greater sensitivity of small-size companies to
changing economic conditions. In addition to exhibiting greater volatility,
small-size company stocks may fluctuate independently of larger company stocks.
Small-size company stocks may decline in price as large company stocks rise or
rise in prices as large company stocks decline.
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
objectives 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 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, as the Administrator, at (800)
368-4031.
The master-feeder structure is relatively complex, 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 Fund shareholders not voting will be voted by the
Trustees or officers of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote. Certain changes in the Portfolio's
investment objectives, policies or restrictions may require the Fund to withdraw
its interest in the Portfolio. Any such withdrawal could result in a
distribution "in kind" of portfolio securities (as opposed to a cash
distribution from the Portfolio). If securities are distributed, the Fund could
incur brokerage, tax or other charges in converting the securities to cash. In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding the
above, there are other means for meeting redemption requests, such as borrowing.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the Assets of the Fund in another pooled investment entity
having the same investment objectives 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 "Risk Factors and Certain Securities and Investment Practices" in
the SAI for a description of the fundamental policies of the Portfolio that
cannot be changed without approval by "the vote 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" and "Risk Factors: Matching
the Fund to Your Investment Needs" herein and in the SAI. For descriptions of
the management of the Trust and the Portfolio, see "Management of the Trust and
the Portfolio" herein and in the SAI. For descriptions of the expenses of the
Portfolio, see "Summary of Fund Expenses" herein and "Management of the Trust
and the Portfolio" herein and in the SAI.
SECURITIES AND INVESTMENT PRACTICES
Equity Securities. As used herein, "equity securities" are defined as common
stock, preferred stock, trust or limited partnership interests, rights and
warrants to subscribe to or purchase such securities, sponsored or unsponsored
ADRs, EDRs, GDRs, 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. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. Debt securities, loans, and other direct debt
have varying degrees of quality and varying levels of sensitivity to changes in
interest rates. Longer-term bonds are generally more sensitive to interest rate
changes than short-term bonds.
Lower-quality foreign government securities are often considered to be
speculative and involve greater risk of default or price changes, or they may
already be in default. These risks are in addition to the general risks
associated with foreign securities.
Convertible Securities. A convertible security is a bond or preferred stock
which may be converted at a stated price within a specific period of time into a
specified number of shares of common stock of the same or different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure, but usually are subordinated to non-convertible debt securities.
While providing a fixed income stream--generally higher in yield than in the
income derived from a common stock but lower than that afforded by a
non-convertible debt security--a convertible security also affords an investor
the opportunity, through its conversion feature, to participate in the capital
appreciation of common stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
Preferred Stock. Preferred stock has a preference in liquidation (and, generally
dividends) over common stock but is subordinated in liquidation to debt. As a
general rule the market value of preferred stocks with fixed dividend rates and
no conversion rights varies inversely with interest rates and perceived credit
risk, with the price determined by the dividend rate. Some preferred stocks are
convertible into other securities, for example common stock, at a fixed price
and ratio or upon the occurrence of certain events. The market price of
convertible preferred stocks generally reflects an element of conversion value.
Because many preferred stocks lack a fixed maturity date, these securities
generally fluctuate substantially in value when interest rates change; such
fluctuations often exceed those of long-term bonds of the same issuer. Some
preferred stocks pay an adjustable dividend that may be based on an index,
formula, auction procedure or other dividend rate reset mechanism. In the
absence of credit deterioration, adjustable rate preferred stocks tend to have
more stable market values than fixed rate preferred stocks.
All preferred stocks are also subject to the same types of credit risks of the
issuer as corporate bonds. In addition, because preferred stock is junior to
debt securities and other obligations of an issuer, deterioration in the credit
rating of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar yield characteristics.
Preferred stocks may be rated by Standard & Poor's ("S&P") and Moody's Investors
Service ("Moody's") although there is no minimum rating which a preferred stock
must have (and a preferred stock may not be rated) to be an eligible investment
for the Portfolio. Bankers Trust expects, however, that generally the preferred
stocks in which the Portfolio invests will be rated at least CCC by S&P or Caa
by Moody's or, if unrated, of comparable quality in the opinion of Bankers
Trust. Preferred stocks rated CCC by S&P are regarded as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations and represent the highest degree of speculation among securities
rated between BB and CCC; preferred stocks rated Caa by Moody's are likely to be
in arrears on dividend payments. Moody's rating with respect to preferred stocks
does not purport to indicate the future status of payments of dividends.
Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.
U.S. Government Securities. U.S. government securities are high-quality debt
securities issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Farm Credit Banks or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money from
the U.S. Treasury under certain circumstances. However, securities issued by
other agencies or instrumentalities are supported only by the credit of the
entity that issued them.
ADRs, GDRs and EDRs. 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. 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. See "Risk Factors and Certain Securities and Investment Practices--Risks
of Investing in Foreign Securities" herein.
Sovereign and Supranational Debt Obligations. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a high degree of risk, and may be in default
or present the risk of default. The issuer of the obligation or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
Rule 144A Securities. Rule 144A Securities are securities in the United States
that are not registered for sale under federal securities laws but which can be
resold to institutions under SEC Rule 144A. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the 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.
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.
Repurchase Agreements. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back at a higher price at a
future date. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent.
Investment Companies. 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 registered investment companies that in
turn are authorized to invest in the securities of such countries. Investments
in other investment companies may also be made for other purposes, such as noted
below under "Short-Term Instruments," and are is limited in amount by the 1940
Act (except the Portfolio may exceed the applicable percentage limits to the
extent permitted by an exemptive order of the SEC), 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.
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 high
quality short-term investments with remaining maturities of 397 days or less, or
in money market mutual funds, to meet anticipated redemptions and expenses 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 respective markets.
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 financial organizations, the Portfolio
is subject to risks, which like those associated with other extensions of
credit, include delays in recovery and possible loss of rights in the collateral
should the borrower fail financially.
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 are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and 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 will
use derivatives only in circumstances where they offer the most efficient means
of improving the risk/reward profile of the Portfolio and when consistent with
the Portfolio's investment objective and policies. The use of derivatives for
non-hedging purposes may be considered speculative.
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.
Forward Foreign Currency Exchange Contract. 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 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 writing 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. In some circumstances,
the Portfolio's ability to terminate over-the-counter options ("OTC Options")
may 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. Provided that a dealer or institutional trading market in such
securities exists, these restricted securities are not covered by 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. 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.
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. The portfolio may also purchase and write OTC Options on foreign
stock indices. These OTC Options would be subject to the same liquidity and
credit risks noted above with respect to OTC Options on foreign currencies. A
stock index fluctuates with changes in the market values of the stocks included
in the index.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties" and
individually referred to as a "Counterparty") through direct bilateral agreement
with the Counterparty. In contrast to exchange listed options, which generally
have standardized terms and performance mechanics, all of the terms of an OTC
Option, including such terms as method of settlement, term exercise price,
premium, guaranties and security, are set by negotiation of the parties.
Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC Option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC Option
it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Thus, Bankers Trust must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC Option will be met.
Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars 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, for other than bona fide hedging transactions,
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.
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, entering
into an off-setting transaction, or by segregating with the Portfolio's
custodian or futures commission merchant liquid securities in an amount at all
times equal to or exceeding the Portfolio's commitment with respect to these
instruments or contracts.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance 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 Salomon Brothers Extended
Market Index of the World ex-US (Total), or to various other unmanaged indices
or results of other mutual funs or investment or savings vehicles. From time to
time, Fund rankings may be quoted from various sources, such as Lipper
Analytical Services, Inc., Value Line, and Morningstar, Inc.
Mutual fund performance is commonly measured as total return and/or yield. The
Fund's performance is affected by its expenses.
Explanation of Terms
Total Return is the change in value of an investment in the Fund over a given
period, assuming reinvestment of any dividends and capital gains. A cumulative
total return reflects actual performance over a stated period of time. An
average annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if performance
had been constant over the entire period. Average annual total return
calculations smooth out variations in performance; they are not the same as
actual year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for the rest of
the year.
Yield refers to the income generated by an investment in the Fund over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all stock and bond funds. Because
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders. This difference may be significant for the
Fund investing in the Portfolio whose investments are denominated in foreign
currencies.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Portfolio
and changes in the expenses of the Fund or Portfolio. In addition, during
certain periods for which total return may be provided, Bankers Trust may have
voluntarily agreed to waive portions of their fees, or reimburse certain
operating expenses of the Fund or Portfolio, on a month-to-month basis. Such
waivers will have the effect of increasing the Fund's net income (and therefore
its yield and total return) during the period such waivers are in effect.
Total returns and yields are based on past results and are not an indication of
future performance.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
Board of Trustees
The Trust and the Portfolio are each governed by a Board of Trustees which is
responsible for protecting the interests of investors. A majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust or the Portfolio, as the case may be, have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that some of the same individuals are Trustees of the Trust and the
Portfolio, up to and including creating separate boards of trustees. See
"Management of the Trust and the Portfolio" in the SAI for more information with
respect to the Trustees and officers of the Trust and the Portfolio.
Investment Adviser
The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
Assets of the Fund in the Portfolio. The Portfolio has retained the services of
Bankers Trust as Adviser.
Bankers Trust Company and Its Affiliates
Bankers Trust Company, a New York banking corporation with principal offices at
130 Liberty Street (One Bankers Trust Plaza), New York, New York 10006, 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 market.
As of June 30, 1997, Bankers Trust New York Corporation was the seventh largest
bank holding company in the United States with total assets of approximately
$129 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 80 offices in more than 50 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
$240 billion in assets under management globally.
Bankers Trust, subject to the supervision and direction of the Board of Trustees
of the Portfolio, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its world wide
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.
The Investment Advisory Agreement provides for the Portfolio to pay Bankers
Trust a fee, accrued daily and paid monthly, equal on an annual basis to 1.10%
of the average daily net assets of the Portfolio for its then-current fiscal
year.
The investment advisory fee of the Portfolio is higher than that of most funds,
but not necessarily higher than that of a typical international small company
fund, due to the greater complexity, expense and commitment of resources
involved in international investing.
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.
Sub-Investment Adviser
Bankers Trust has entered into a sub-investment advisory agreement (the
"Sub-Advisory Agreement") with BT Fund Managers International Limited ("BT Fund
Managers International"), a wholly owned registered investment advisory
subsidiary of Bankers Trust Australia Limited ("BTAL"). BTAL is a wholly owned
subsidiary of Bankers Trust New York Corporation. Under the Sub-Advisory
Agreement, Bankers Trust may receive investment advice and research services
with respect to companies in which the Portfolio may invest and may grant BT
Fund Managers International investment management authority as well as the
authority to buy and sell securities if Bankers Trust believes it would be
beneficial to the Portfolio. Under the Sub-Advisory Agreement, BT Fund Managers
International receives a fee from Bankers Trust for providing investment advice
and research services, accrued daily and paid monthly, at the annual rate of
1.10% of the average daily assets of the Portfolio.
Portfolio Managers
Monik Kotecha, Vice President, BT Fund Managers International and Vice
President, BTAL, MSc (City University Business School), BSc(Hons) (University
College Cardiff) Joint Honours in Law and accountancy. Mr. Kotecha joined
Bankers Trust in February 1994 and was head of the European Equities group. In
December 1996 he was appointed Head of Global Small Cap Equities.
Prior to joining Bankers Trust, Mr. Kotecha was employed as a investment analyst
with the Abu Dhabi Investment Authority in London, where he was responsible for
company analysis and stock selection in the European markets. Mr. Kotecha had
specific responsibility for the sectors of Shipping/Transport, Hotels/Leisure,
Media/Agencies, Brewers/Distillers and Dutch/Danish Banks. Mr. Kotecha has been
responsible for the day-to-day management of the Portfolio since its inception.
Philip Wensley, Investment Analyst, BT Fund Managers International and
Investment Analyst, BTAL, MComm (Hons) (Canterbury). Mr. Wensley joined Bankers
Trust in March 1995. He was responsible for the management of asset allocation
overlay portfolios, dealing, and maintenance and also was involved in the
development and research of the asset allocation overlay services. Mr. Wensley
is a Registered Representative of the Sydney Futures Exchange.
Mr. Wensley was also involved in quantitative and risk analysis, client
investment and strategy analysis. He co-authored the Bankers Trust's strategy
document entitled, "Portfolio Construction and Asset Management into the 21st
Century," and was instrumental in the quantitative analysis. Currently, he is an
analyst in the Global Small Cap Group.
Prior to joining Bankers Trust, Mr. Wensley completed a Masters of Commerce
degree with Honors in Accountancy and Finance at Canterbury University in New
Zealand. Awarded University of Canterbury Masters Scholarship in 1993.
Bankers Trust investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
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
Fund. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee, accrued daily and paid monthly equal on an annual basis to
0.10% of the average daily net assets of the Fund for its then-current fiscal
year.
Under an Administration and Services Agreement with the Portfolio, Bankers Trust
calculates the value of the assets of the Portfolio and generally assists the
respective Board of Trustees 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, accrued daily and paid monthly, equal on
an annual basis to 0.15% of the Portfolio's average daily net assets for its
then-current fiscal year. Under the 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 Services, Inc. is the principal distributor for the 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.
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. 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 (the "Transfer
Agent") for the Trust and the Portfolio under the Administration and Services
Agreement with the Trust and the Portfolio.
NET ASSET VALUE
The net asset value ("NAV") per Share of the Fund is calculated on each day on
which the New York Stock Exchange, Inc. (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, Martin Luther King Day, 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 the 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 NAV is 0.005%
( 1/2 of 1%) or less or shareholder transactions are otherwise insubstantially
affected, further action is not required.
<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
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 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
To Open an Account $5,000,000
To Add to an Account $100,000
Minimum Balance $500,000
The Fund and its service providers reserve the right to, from time to time in
their discretion, waive or reduce the investment minimums.
<PAGE>
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:
o Mail an account application with a check,
o Wire money into your account,
o Open an account by exchanging from another fund in the BT Family of Funds, or
o Contact your Service Agent or Investment Professional.
Additional Information About Buying Shares
To Open an Account To Add to an Account
By Wire Call the BT Service Center at 1-800-368-4031 to Call
your Investment Professional or wire receive wire
instructions for account establishment additional investment
to:
Routing No.: 021001033
Attn: Bankers Trust/IFTC Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Fund Number
International Small Company Equity Fund - xxx
Specify
the
complete
name of
the
Fund,
your
account
number
and
your
name.
<PAGE>
By Phone Contact your Service Agent, Investment Contact your Service Agent,
Investment Professional, or call BT's Service Center at Professional, or
call BT's Service Center at 1-800-368-4031. If you are an existing
1-800-368-4031. If you are an existing shareholder, shareholder, you may
exchange from another BT you may exchange from another BT account with the
account with the same registration, including, same registration,
including, name, address, and name, address, and taxpayer ID number.
taxpayer ID number.
By Mail Complete and sign the account application. Make Make
your check payable to the complete name of the your check
payable to the complete name of the Fund of your choice.
Indicate your Fund account Fund of your choice. Mail to the
appropriate number on your check and mail to the address
address indicated on the application. printed on your
account statement.
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 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:
o Your account registration has changed within the last 30 days,
o The check is being mailed to a different address than the one on your account
(record address), o The check is being made payable to someone other than the
account owner, o The redemption proceeds are being transferred to a BT account
with a different registration, or o 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 the Fund
minimums.
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 "How to Buy Shares" and "How to Sell Shares"
herein. Before making an exchange, please note the following:
o Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.
o 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).
o 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.
Note that exchanges out of the Fund may be limited to four per calendar year and
that they may have tax consequences for you.
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.
o Individual Retirement Accounts (IRAs): personal savings plans that offer
tax advantages for individuals to set aside money for retirement and allow
new contributions of $2,000 per tax year.
o Rollover IRAs: tax-deferred retirement accounts that retain the special tax
advantages of lump sum distributions from qualified retirement plans and
transferred IRA accounts.
o Simplified Employee Pension Plans (SEP): a relatively easy and inexpensive
alternative to retirement planning for sole proprietors, partnerships and
corporations. Under a SEP, employers make tax-deductible contributions to
their own and to eligible employees' IRA accounts. Employee contributions
are available through a "Salary Deferral" SEP for businesses with fewer
than 25 eligible employees.
o Keogh Plans: defined contribution plans available to individuals with
self-employed income and nonincorporated businesses such as sole
proprietors, professionals and partnerships. Contributions are
tax-deductible to the employer and earnings are tax-sheltered until
distribution.
o 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.
o 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.
o 403(b) Custodian Accounts: defined contribution plans open to employees of
most non-profit organizations and educational institutions.
o Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The Fund distributes substantially all of its net investment income and capital
gains to shareholders each year. The Fund distributes capital gains annually.
Income dividends are distributed annually. Unless a Shareholder instructs the
Trust to pay such dividends and distributions in cash, they will be
automatically reinvested in additional Shares of the Fund.
Federal Taxes. The Fund intends to qualify 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.
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 capital gain 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 on the past year.
Interest on indebtedness incurred or continued by a shareholder (whether a
corporation or an individual) to purchase or carry Shares of these Fund is not
deductible. The U.S. Department of the Treasury has been given authority to
issue regulations which would disallow the interest deduction if incurred to
purchase or carry Shares of the Fund owned by the taxpayer's spouse, minor child
or entity controlled by the taxpayer. Entities or persons who are "substantial
users" (or related persons) of facilities financed by tax-exempt bonds should
consult their tax advisers before purchasing Shares of the Fund.
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 capital gains, the
Fund's 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. You may be subject to state or local taxes on your
investment, depending on the laws in your area. You should consult with your own
tax adviser concerning the application of federal, state and local taxes to your
distributions from the Fund.
ORGANIZATION OF THE TRUST
The Trust was organized on March 26, 1990 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of separate series, par value $0.001 per share.
The shares of the other series of the Trust are offered through separate
prospectuses. No series of shares has any preference over any other series.
The Trust is an entity commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a business trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of the Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote. Shareholders of
the Fund are not entitled to vote on Trust matters that do not affect the Fund.
There normally will be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees. Any
Trustee may be removed from office upon the vote of shareholders holding at
least two-thirds of the Trust's outstanding shares at a meeting called for that
purpose. The Trustees are required to call such a meeting upon the written
request of shareholders holding at least 10% of the Trust's outstanding shares.
The Portfolio is a subtrust (or "series") of BT Investment Portfolios, an
open-end management investment company. BT Investment Portfolios was organized
as a master trust fund under the laws of the State of New York. BT Investment
Portfolios' Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Trust believe that nether the
Fund nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio. The interests in BT Investment Portfolios are
divided into separate series, such as the Portfolio. No series of BT Investment
Portfolios has any preference over any other series.
Each series in the Trust will not be involved in any vote involving a Portfolio
in which it does not invest is Assets. Shareholders of all the series of the
Trust will, however, vote together to elect Trustees of the Trust and for
certain other matters. Under certain circumstances, the shareholders of one or
more series could control the outcome of these votes.
The series of the BT Investment Portfolios will vote separately or together in
the same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of BT Investment Portfolios could control the
outcome of these votes.
The Trust and BT Investment Portfolios reserve the right to add additional
series in the future. The Trust also reserves the right to issue more than one
class of Shares in the Fund.
Expenses of the Fund
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.
<PAGE>
37
<PAGE>
BT INSTITUTIONAL FUNDS
International Small Company Equity Fund
Investment Adviser of the Portfolio and Administrator
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Distributor
EDGEWOOD SERVICES, INC.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Independent Accountants
COOPERS & LYBRAND L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105-2175
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, the SAIs
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 a 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.
Cusip #
INSTSMCOMP(9/97)
INFORMATION HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION
STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to completion, dated September 9, 1997
STATEMENT OF
ADDITIONAL INFORMATION
_____________, 1997
BT Investment Funds
International Small Company Equity Fund
BT Institutional Funds
International Small Company Equity Fund
BT Investment Funds and BT Institutional Funds (each a "Trust" and
collectively, the "Trusts") are separate open-end management investment
companies that offer investors a selection of investment portfolios, each having
distinct investment objectives and policies. This Statement of Additional
Information ("SAI") relates to the BT Investment Funds' International Small
Company Equity Fund and BT Institutional Funds' International Small Company
Equity Fund (each a "Fund" and collectively the "Funds").
As described in the Funds' Prospectuses, each Trust seeks to achieve
the investment objective of the Fund by investing all the investable assets
("Assets") of the Funds in the International Small Company Equity Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objectives as the Funds. The Portfolio is a series of the BT
Investment Portfolios.
Since the investment characteristics of the Funds will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio. Shares of the Funds are
sold by Edgewood Services, Inc. ("Edgewood"), the Trusts' Distributor, to
clients and customers (including affiliates and correspondents) of Bankers Trust
Company ("Bankers Trust"), the Portfolio's investment adviser ("Adviser"), and
to clients and customers of other organizations.
Each Fund's Prospectus is dated ____________, 1997. Each Prospectus
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 SAI, which is not a Prospectus,
is intended to provide additional information regarding the activities and
operations of the Trusts and should be read in conjunction with a Fund's
Prospectus. This SAI is not an offer of any Fund for which an investor has not
received a prospectus. Capitalized terms not otherwise defined in this SAI have
the meanings accorded to them in each Fund's Prospectus.
BANKERS TRUST COMPANY
Investment Adviser of each Portfolio and Administrator
EDGEWOOD SERVICES, INC.
Distributor
Clearing Operations Pittsburgh, Pennsylvania 15230-0897 (800) 730-1313
P.O. Box 897
<PAGE>
TABLE OF CONTENTS
Investment Objectives, Policies and Restrictions.......................1
Performance Information..................................... 20
Valuation of Securities; Redemptions and Purchases in Kind..23
Management of the Trusts and Portfolio......................25
Organization of the Trusts..................................... 30
Taxation................................................................. 31
<PAGE>
46
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives
The investment objective of each Fund is described in each Fund's
Prospectus. There can, of course, be no assurance that either Fund will achieve
its investment objective.
Investment Policies
The Funds seek to achieve their investment objective by investing all
of their respective Assets in the Portfolio. A Trust may withdraw a 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 each 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.
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 (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. 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).
Futures Contracts and Options on Futures Contracts.
General. The successful use of such instruments draws upon the
Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures contracts and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.
Futures Contracts. The Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed-income securities, foreign
currencies, or contracts based on financial indices including any index of U.S.
government securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange. The Portfolio may enter into futures
contracts which are based on debt securities that are backed by the full faith
and credit of the U.S. government, such as long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association ("GNMA") modified
pass-through mortgage-backed securities and three-month U.S. Treasury Bills. The
Portfolio may also enter into futures contracts which are based on bonds issued
by entities other than the U.S. government.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of the 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, the Portfolio could
take advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent the Portfolio enters into futures contracts
for this purpose, the assets in the segregated asset account maintained to cover
the Portfolio's obligations with respect to such futures contracts will consist
of cash, cash equivalents or high quality liquid debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such futures
contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the Portfolio, if the Adviser's
investment judgment about the general direction of interest rates is incorrect,
the Portfolio's overall performance would be poorer than if it had not entered
into any such contract. For example, if the Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market.
The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
Options on Futures Contracts. The Portfolio 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 the Portfolio is not fully invested it
may purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Portfolio may purchase a put option on a futures contract to hedge
its portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on
a futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees of the Portfolio has adopted a further
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 net assets of the Portfolio.
Options on Foreign Currencies. The Portfolio may purchase and write
options on foreign currencies for hedging purposes in a manner similar to that
in which futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, the Portfolio will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on the Portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, where the Portfolio anticipates a
decline in the dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the options will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
The Portfolio intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the Portfolio is
"covered" if the Portfolio owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its Custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call option is also covered if the
Portfolio has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Portfolio in liquid securities in a segregated account with its custodian.
The Portfolio also intends to write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in the U.S. dollar value of a security which
the Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate. In
such circumstances, the Portfolio collateralizes the option by maintaining in a
segregated account with its custodian, cash or U.S. government securities or
other high quality liquid debt securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars marked to market daily.
Additional Risks of Options on Futures Contracts, Forward Contracts and
Options on Foreign Currencies. Unlike transactions entered into by the Portfolio
in futures contracts, options on foreign currencies and forward contracts are
not traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. The
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
Options on Securities. The Portfolio may write (sell) covered call and
put options to a limited extent on its portfolio securities ("covered options")
in an attempt to increase income. However, the Portfolio may forgo the benefits
of appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Portfolio.
When the Portfolio writes a covered call option, it gives the purchaser
of the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price.
When the Portfolio writes a covered put option, it gives the purchaser
of the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. The Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.
The Portfolio may terminate its obligation as the writer of a call or
put option by purchasing an option with the same exercise price and expiration
date as the option previously written. This transaction is called a "closing
purchase transaction." The Portfolio will realize a profit or loss for a closing
purchase transaction if the amount paid to purchase an option is less or more,
as the case may be, than the amount received from the sale thereof. To close out
a position as a purchaser of an option, the Portfolio, may make a "closing sale
transaction" which involves liquidating the Portfolio's position by selling the
option previously purchased. Where the Portfolio cannot effect a closing
purchase transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on any securities in
which it may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The purchase
of a call option would entitle the Portfolio, in exchange for the premium paid,
to purchase a security at a specified price during the option period. The
Portfolio would ordinarily have a gain if the value of the securities increased
above the exercise price sufficiently to cover the premium and would have a loss
if the value of the securities remained at or below the exercise price during
the option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's 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 broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with whom the Portfolio enters into such options
transactions under the general supervision of the Portfolio's Trustees.
Options on Securities Indices. In addition to options on securities,
the Portfolio may also purchase and write (sell) call and put options on
securities indices. Such options give the holder the right to receive a cash
settlement during the term of the option based upon the difference between the
exercise price and the value of the index. Such options will be used for the
purposes described above under "Options on Securities."
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 the 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 may
buy and sell securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Portfolio either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. The Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event
the Portfolio's ability to utilize forward contracts in the manner set forth in
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 the Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject the Portfolio to certain
risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Portfolio may not always be able to enter into foreign currency
forward contracts at attractive prices and this will limit the Portfolio's
ability to use such contract to hedge or cross-hedge its assets. Also, with
regard to the Portfolio's use of cross-hedges, there can be no assurance that
historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying the Portfolio's cross-hedges and the movements in the exchange rates
of the foreign currencies in which the Portfolio's assets that are the subject
of such cross-hedges are denominated.
Short-Term Instruments. 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, which are unavailable in
sufficient quantities or at attractive prices, the Portfolio may invest in
short-term instruments for a limited time pending availability of such portfolio
securities. Short-term instruments consist of foreign or 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 Standard & Poor's Rating Group ("S&P") or
Aa or higher by Moody's Investors Services, Inc. ("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.
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, the Portfolio can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. government obligations are used
as collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. The Portfolio
will adhere to the following conditions whenever its securities are loaned: (i)
the Portfolio must receive at least 100 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.
Foreign Securities: Special Considerations Concerning Eastern Europe.
The Portfolio may invest in foreign securities issued by Eastern European
countries. Investments in companies domiciled in Eastern European countries may
be subject to potentially greater risks than those of other foreign issuers.
These risks include: (i) potentially less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the low volume of trading, which result in less liquidity and in greater price
volatility; (iii) certain national policies which may restrict the Portfolio's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries, or in
the Commonwealth of Independent States (consisting of the Republics of the
former Union of Soviet Socialist Republics).
The economic situation remains difficult for Eastern European countries
in transition from central planning, following what has already been a sizable
decline in output. The contraction now appears to be bottoming out in parts of
Eastern Europe. Following three successive years of output declines, there are
preliminary indications of a turnaround in the former Czech and Slovak Federal
Republic, Hungary and Poland; growth in private sector activity and strong
exports now appear to have contained the fall in output. A number of their
governments, including those of Hungary and Poland, are currently implementing
or considering reforms directed at political and economic liberalization,
including efforts to foster multi-party political systems, decentralize economic
planning, and a move toward free-market economies. But key aspects of the reform
and stabilization efforts have not yet been fully implemented, and there remain
risks of policy slippage. At present, no Eastern European country has a
developed stock market, but Poland, Hungary and the Czech Republic have small
securities markets in operation.
In many other countries of the region, output losses have been even
larger. These declines reflect the adjustment difficulties during the early
stages of the transition, high rates of inflation, the compression of imports,
disruption in trade among the countries of the former Soviet Union, and
uncertainties about the reform process itself. Large-scale subsidies are
delaying industrial restructuring and are exacerbating the fiscal situation. A
reversal of these adverse factors is not anticipated in the near term, and
output is expected to decline further in most of these countries. In the Russian
Federation and most other countries of the former Soviet Union, economic
conditions are of particular concern because of economic instability due to
political unrest and armed conflicts in many regions. Further, no accounting
standards exist in Eastern European countries. Although certain Eastern European
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to each Fund's
shareholders.
Foreign Securities: Special Considerations Concerning Latin America.
Investing in securities of Latin American issuers may entail risks relating to
the potential political and economic instability of certain Latin American
countries and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of expropriation, nationalization or other confiscation
by any country, the Fund could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The economies of Latin American countries may be predominantly based in
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Securities of issuers located in Latin America may have limited
marketability and may be subject to more abrupt or erratic price movements.
The Portfolio invests in securities denominated in currencies of Latin
American countries. Accordingly, changes in the value of these currencies
against the U.S. dollar will result in corresponding changes in the U.S. dollar
value of the Portfolio's assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Portfolio's securities are denominated may have a
detrimental impact on the Fund's net asset value.
The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have a
debilitating effect on an economy. Furthermore, certain Latin American countries
may impose withholding taxes on dividends payable to the Portfolio at a higher
rate than those imposed by other foreign countries. This may reduce the Fund's
investment income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, including the Portfolio, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt may be collected in whole or in part.
Foreign Securities: Special Considerations Concerning the Pacific
Basin. Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
European countries. Such instability may result from (i) authoritarian
governments or military involvement in political and economic decision-making;
(ii) popular unrest associated with demands for improved political, economic and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection.
The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
The securities markets in Asia are substantially smaller, less liquid
and more volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by the Portfolio. Similarly, volume and liquidity in
the bond markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect the Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. Accordingly, during periods
of rising securities prices in the more illiquid Asian securities markets, the
Portfolio's ability to participate fully in such price increases may be limited
by its investment policy of investing not more than 15% of its net assets in
illiquid securities. Conversely, the Portfolio's inability to dispose fully and
promptly of positions in declining markets will cause the Portfolio's net asset
value to decline as the value of the unsold positions is marked to lower prices.
In addition, the Asian securities markets are susceptible to being influenced by
large investors trading significant blocks of securities.
Many stock markets are undergoing a period of growth and change which may
result in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.
The Portfolio invests in securities denominated in currencies of Asian
countries. Accordingly, changes in the value of these currencies against the
U.S. dollar will result in corresponding changes in the U.S. dollar value of the
Portfolio's assets denominated in those currencies.
Foreign Securities: Special Considerations Concerning China and China
Region. China's economic reform plan was designed to bring in foreign investment
capital and technological skills. The result has been a move towards a more
mixed economy away from the previous centrally planned economy. The process of
devolving responsibility for all aspects of enterprise to local management and
authorities continues, even though the system of socialism with Chinese
characteristics involves considerable influence by the central government on
production and marketing.
In order to attract foreign investment, China has since 1978 designated
certain areas of the country where overseas investors can receive special
investment incentives and tax concessions. There are five Special Economic Zones
(Shenzhen, Shantou and Zhuhai in Guangdong Province, Xiamen in Fujian Province
and Hainan Island, which itself is a province). Fourteen coastal cities have
been designated as "open cities" and certain Open Economic Zones have been
established in coastal areas. Shanghai has established the Pudong New Area.
Twenty-seven High and New Technology Industrial Development Zones have been
approved where preferential treatment is given to enterprises which are
confirmed as technology intensive.
China has had for many centuries a well deserved reputation for being
closed to foreigners, with trade with the outside world being carried on under
terms of extreme restriction and under central control. Such conditions were
maintained in the first thirty years of the Communist regime which began in
1949; however, there have been several stages of evolution, from the institution
of an industrialization program in the 1950s to a modernization policy
commencing in 1978 which combined economic development with the beginnings of
opening the country.
The securities markets in the China region are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. A high proportion of the shares of many Chinese issuers may be held by a
limited number of persons and financial institutions, which may limit the number
of shares available for investment by the Portfolio. Similarly, volume and
liquidity in the bond markets in China are less than in the United States and,
at times, price volatility can be greater than in the United States. A limited
number of issuers in Chinese securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of securities markets in China may also affect the
Portfolio's ability to acquire or dispose of securities at the price and time it
wishes to do so. Accordingly, during periods of rising securities prices in the
more illiquid Chinese securities markets, the Portfolio's ability to participate
fully in such price increases may be limited by its investment policy of
investing not more than 15% of its net assets in illiquid securities.
Conversely, the Portfolio's inability to dispose fully and promptly of positions
in declining markets will cause the Portfolio's net asset value to decline as
the value of the unsold positions is marked to lower prices. In addition, the
Chinese securities markets are susceptible to being influenced by large
investors trading significant blocks of securities.
The Chinese, Hong Kong and Taiwan stock markets are undergoing a period
of growth and change which may result in trading volatility and difficulties in
the settlement and recording of transactions, and in interpreting and applying
the relevant law and regulations.
China governmental actions can have a significant effect on the
economic conditions in China, which could adversely affect the value and
liquidity of the Portfolio's investments. Although the Chinese government has
recently begun to institute economic reform policies, there can be no assurances
that it will continue to pursue such policies or, if it does, that such policies
will succeed.
The securities industry in China is not well developed. China has no
securities laws of nationwide applicability. The municipal securities
regulations adopted by Shanghai and Shenzhen municipalities are very new, as are
their respective securities exchanges and other self-regulatory organizations.
In addition, Chinese stockbrokers and other intermediaries may not perform as
well as their counterparts in the United States and other more developed
securities markets. The prices at which the Portfolio may acquire investments
may be affected by trading by persons with material non-public information and
by securities transactions by brokers in anticipation of transactions by the
Portfolio in particular securities.
China does not have a comprehensive system of laws, although
substantial changes have occurred in this regard in recent years. The corporate
form of organization has only recently been permitted in China and national
regulations governing corporations were introduced only in May 1992. Prior to
the introduction of such regulations, Shanghai had adopted a set of corporate
regulations applicable to corporations located or listed in Shanghai, and the
relationship between the two sets of regulations is not clear. Consequently,
until a firmer legal basis is provided, even such fundamental corporate law
tenets as the limited liability status of Chinese issuers and their authority to
issue shares remain open to question. Laws regarding fiduciary duties of
officers and directors and the protection of shareholders are not well
developed. China's judiciary is relatively inexperienced in enforcing the laws
that exist, leading to a higher than usual degree of uncertainty as to the
outcome of any litigation. Even where adequate law exists in China, it may be
impossible to obtain swift and equitable enforcement of such law, or to obtain
enforcement of the judgment by a court of another jurisdiction. The bankruptcy
laws pertaining to state enterprises have rarely been used and are untried in
regard to an enterprise with foreign shareholders, and there can be no assurance
that such shareholders, including the Portfolio, would be able to realize the
value of the assets of the enterprise or receive payment in convertible
currency. As the Chinese legal system develops, the promulgation of new laws,
changes to existing laws and the preemption of local laws by national laws may
adversely affect foreign investors, including the Portfolio. The uncertainties
faced by foreign investors in China are exacerbated by the fact that many laws,
regulations and decrees of China are not publicly available, but merely
circulated internally.
There are currently two officially recognized securities exchanges in
China -- The Shanghai Securities Exchange which opened in December 1990 and The
Shenzhen Stock Exchange which opened in July 1991. Shares traded on these
Exchanges are two types -- "A" shares which can be traded only by Chinese
investors and "B" shares which can be traded only by individuals and
corporations not resident in China.
In Shanghai, all "B" shares are denominated in Chinese renminbi
("RMB"), but all transactions in "B" shares must be settled in U.S. dollars, and
all distributions made on "B" shares are payable in U.S. dollars, the exchange
rate being the weighted average exchange rate for the U.S. dollar as published
by the Shanghai Foreign Exchange Adjustment Centre.
In Shenzhen, the purchase and sale prices for "B" shares are quoted in
Hong Kong dollars. Dividends and other lawful revenue derived from "B" shares
are calculated in RMB but payable in Hong Kong dollars, the rate of exchange
being the average rate published by Shenzhen Foreign Exchange Adjustment Centre.
There are no foreign exchange restrictions on the repatriation of gains
made on or income derived from "B" shares, subject to the payment of taxes
imposed by China thereon.
Company law relating to companies limited by shares and regulations
regarding the issuing of shares by equity joint ventures have not yet been
developed on a national basis. The Shenzhen municipality issued regulations in
1992 relating to joint stock companies, and the Shanghai municipality has a
draft joint stock company law under review. Regulations governing the trading of
securities on both the Shenzhen and the Shanghai stock exchanges have been
issued by each municipality; there is no national securities legislation as yet.
Economies of countries in the China region may differ favorably or
unfavorably from the U.S. economy in such respects as rate of growth of gross
domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As an export-driven economy,
the economy of China is affected by developments in the economies of its
principal trading partners. Revocation by the United States of China's "Most
Favored Nation" trading status, which the U.S. President and Congress reconsider
annually, would adversely affect the trade and economic development of China and
Hong Kong. Hong Kong and Taiwan have limited natural resources, resulting in
dependence on foreign sources for certain raw materials and economic
vulnerability to global fluctuations of price and supply.
Rating Services
The ratings of rating services represent their opinions as to the
quality of the securities that they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings are an initial criterion for selection of
portfolio investments, Bankers Trust also makes its own evaluation of these
securities, subject to review by the Board of Trustees. After purchase by the
Portfolio, an obligation may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither event would
require the Portfolio to eliminate the obligation from its portfolio, but
Bankers Trust will consider such an event in its determination of whether the
Portfolio should continue to hold the obligation. A description of the ratings
is included in each Fund's Prospectus.
<PAGE>
Investment Restrictions
The following investment restrictions are "fundamental policies" of
each Fund and the Portfolio and may not be changed with respect to each Fund or
the Portfolio without the approval of a "majority of the outstanding voting
securities" of the Funds 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 Prospectuses, means,
with respect to the Funds (or the Portfolio), the lesser of (i) 67% or more of
the outstanding voting securities of each 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 each 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 each Fund (or of the
total beneficial interests of the Portfolio). Whenever the Trusts are requested
to vote on a fundamental policy of the Portfolio, each Trust will hold a meeting
of the corresponding Fund's shareholders and will cast its vote as instructed by
that Fund's shareholders. Fund shareholders who do not vote will not affect a
Trust's votes at the Portfolio meeting. The percentage of each Trust's votes
representing Fund shareholders not voting will be voted by the Trustees of a
Trust in the same proportion as the respective Fund's shareholders who do, in
fact, vote.
As a matter of fundamental policy, no Portfolio (or Fund) may (except that
no investment restriction of a Fund shall prevent a Fund from investing all of
its Assets in an open-end investment company with substantially the same
investment objectives):
(1) borrow money (including through reverse repurchase agreements or
dollar roll transactions) in excess of 5% of the Portfolio's total
assets (taken at cost), except that the Portfolio may borrow for
temporary or emergency purposes up to 1/3 of its total assets. The
Portfolio may pledge, mortgage or hypothecate not more than 1/3 of
such assets to secure such borrowings 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;
(2) underwrite securities issued by other persons except insofar as
the Portfolio (Trusts or the Funds) 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 (Funds') portfolio securities and provided that any
such loans not exceed 30% of the Portfolio's (Funds') total assets
(taken at market value); (b) through the use of repurchase
agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types
distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (except futures and option
contracts) in the ordinary course of business (except that the
Portfolio (Trusts) may hold and sell, for the Portfolio's (Funds')
portfolio, real estate acquired as a result of the Portfolio's
(Funds') ownership of securities);
(5) concentrate its investments in any particular industry (excluding
U.S. government securities), but if it is deemed appropriate for
the achievement of the Portfolio's (Funds') 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.
(7) with respect to 75% of the Portfolio's (Funds') total assets,
purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio (Funds) to hold more than 10% of
any class of securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a single class,
except that futures or option contracts shall not be subject to
this restriction;
(8) with respect to 75% of the Portfolio's (Funds') total assets,
invest more than 5% of its total assets in the securities (other
than cash; cash items; securities issued or guaranteed by the
government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by such
US government securities; and securities of other investment
companies) of any one issuer.
Additional Restrictions. The following are non-fundamental policies. In
order to comply with certain statutes and policies, the Portfolio (or a Trust,
on behalf of a Fund) will not as a matter of operating policy (except that no
operating policy shall prevent a Fund from investing all of its Assets in an
open-end investment company with substantially the same investment objectives):
(i) 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;
(ii) sell securities it does not own (short sales) such that
the dollar amount of such short sales at any one time exceeds
25% of the net equity of the Portfolio (Funds), and the value
of securities of any one issuer in which the Portfolio (Funds)
is short exceeds the lesser of 2.0% of the value of the
Portfolio's (Funds') 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 (Funds) 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 (Funds) currently do not engage in short
selling);
(iii)invest for the purpose of exercising control or management
of another company;
(iv) purchase securities issued by any investment company
(except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation); if such
purchase at the time thereof would cause: (a) more than 10% of
the Portfolio's (Funds') total assets (taken at the greater of
cost or market value) (except the Portfolio may exceed the
applicable percentage limits to the extent permitted by an
exemptive order of the SEC) to be invested in the securities
of such issuers; (b) more than 5% of the Portfolio's (Funds')
total assets (taken at the greater of cost or market value)
(except the Portfolio may exceed the applicable percentage
limits to the extent permitted by an exemptive order of the
SEC) 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 (Funds);
(v) invest more than 15% of the Portfolio's (Funds') 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);
(vi) write puts and calls on securities unless each of the
following conditions are met: (a) the security underlying the
put or call is within the investment policies of the Portfolio
(Funds) and the option is issued by the OCC, except for put
and call options issued by non-U.S. entities or listed on
non-U.S. securities or commodities exchanges; (b) the
aggregate value of the obligations underlying the puts
determined as of the date the options are sold shall not
exceed 5% of the Portfolio's (Funds') net assets; (c) the
securities subject to the exercise of the call written by the
Portfolio (Funds) must be owned by the Portfolio (Funds) at
the time the call is sold and must continue to be owned by the
Portfolio (Funds) until the call has been exercised, has
lapsed, or the Portfolio (Funds) has purchased a closing call,
and such purchase has been confirmed, thereby extinguishing
the Portfolio's (Funds') obligation to deliver securities
pursuant to the call it has sold; and (d) at the time a put is
written, the Portfolio (Funds) 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 (Funds) 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 (Funds) has purchased
a closing put, which is a put of the same series as the one
previously written); and
(vii) 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 (Funds') 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 (Funds') net 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.
Each Fund will comply with the state securities laws and regulations of
all states in which it is registered.
<PAGE>
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 the Portfolio are frequently placed by the Adviser with the issuer
or a primary or secondary market-maker for these securities on a net basis,
without any brokerage commission being paid by the Portfolio. Trading does,
however, involve transaction costs. Transactions with dealers serving as
market-makers reflect the spread between the bid and asked prices. Transaction
costs may also include fees paid to third parties for information as to
potential purchasers or sellers of securities. Purchases of underwritten issues
may be made which will include an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and skill
required of the executing broker-dealer through familiarity with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Portfolio with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Portfolio may determine, 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 the Portfolio and to the Adviser, it is the
opinion of the management of the Portfolio that such information is only
supplementary to the Adviser's own research effort, since the information must
still be analyzed, weighed and reviewed by the Adviser's staff. Such information
may be useful to the Adviser in providing services to clients other than the
Portfolio, and not all such information is used by the Adviser in connection
with the Portfolio. Conversely, such information provided to the Adviser by
brokers and dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to the
Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio is concerned. However, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
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:
Yield: Yields for a Fund used in advertising are computed by dividing
the Fund's interest and dividend income for a given 30-day or one-month
period, net of expenses, by the average number of shares entitled to
receive distributions during the period, dividing this figure by the
Fund's net asset value per share at the end of the period, and
annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purpose
of yield quotations in accordance with standardized methods applicable
to all stock and bond mutual funds. Dividends from equity investments
are treated as if they were accrued on a daily basis, solely for the
purpose of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation.
Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding assumed in yield calculations, the yield quoted for a Fund
may differ from the rate of distributions of the Fund paid over the
same period or the rate of income reported in the Fund's financial
statements.
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.
Performance Results: Any total return quotation provided for a Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and public offering price
of shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the corresponding Portfolio, but
also on changes in the current value of such securities and on changes
in the expenses of the Fund and the corresponding Portfolio. These
factors and possible differences in the methods used to calculate total
return should be considered when comparing the total return of a Fund
to total returns published for other investment companies or other
investment vehicles. Total return reflects the performance of both
principal and income.
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 information
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.
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 in 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.
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.
ValueLine, 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.
Economic and Market Information
Advertising and sales literature of a Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.
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. Such market valuations may
represent the last quoted price on the securities major trading exchange or may
be determined through use of matrix pricing. In matrix pricing, pricing services
may use various pricing models, involving comparable securities, historic
relative price movements, economic factors and dealer quotations.
Over-the-counter securities will normally be valued at the bid price. 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
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Portfolio purchases securities which are restricted
as to resale or for which current market quotations are not readily available,
the Adviser of the Portfolio will value such securities based upon all relevant
factors as outlined in FRR 1.
The Trusts, on behalf of each respective 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 a 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, the shareholder may incur transaction expenses in converting these
securities into cash. The Trusts, on behalf of each respective Fund, and the
Portfolio have elected, however, to be governed by Rule 18f-1 under the 1940 Act
as a result of which each 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
corresponding Funds whenever a 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 Trusts that the
Portfolio will not redeem in kind except in circumstances in which a Fund is
permitted to redeem in kind or unless requested by a Fund.
Each investor in the Portfolio, including the corresponding Fund, may
add to or reduce its investment in the Portfolio on each day the Portfolio
determines its net asset value. At the close of each such business day, the
value of each investor's beneficial interest in the Portfolio will be determined
by multiplying the net asset value of the Portfolio by the percentage effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals which are to be
effected as of the close of business on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of business on such day plus or minus, as the case may be, the
amount of net additions to or withdrawals from the investor's investment in the
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount of
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as
the close of business on the following business day.
Each 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 Funds' portfolio. In addition, securities accepted in
payment for shares must: (i) meet the investment objective and policies of the
acquiring Fund's portfolio; (ii) be acquired by the applicable Fund for
investment and not for resale (other than for resale to the Fund's 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. Each Fund reserves the right to accept or reject at its own option
any and all securities offered in payment for its shares.
<PAGE>
MANAGEMENT OF THE TRUSTS AND THE PORTFOLIO
Each Board of Trustees is composed of persons experienced in financial
matters who meet throughout the year to oversee the activities of the Funds or
Portfolio they represent. In addition, the Trustees review contractual
arrangements with companies that provide services to the Funds/Portfolio and
review the Funds' performance.
The Trustees and officers of the Trusts and BT Investment Portfolios,
their birthdate and their principal occupations during the past five years are
set forth below. Their titles may have varied during that period. Unless
otherwise indicated, the address of each officer is Clearing Operations, P.O.
Box 897, Pittsburgh, Pennsylvania 05230-0897.
Trustees of BT Investment Funds
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.; General Partner of Pemco (an investment
company registered under the 1940 Act). His address is 5070 North Ocean Drive,
Singer Island, Florida 33404.
KELVIN J. LANCASTER (birthdate: December 10, 1924) -- Trustee; Professor,
Department of Economics, Columbia University. His address is 35 Claremont
Avenue, New York, New York 10027.
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.
Trustees of BT Institutional Funds
RICHARD J. HERRING (birthdate: February 18, 1946) -- Trustee; Vice Dean and
Director, Wharton Undergraduate Division, Professor, Finance Department, The
Wharton School, University of Pennsylvania. His address is 3255 Roberts Road,
Bryn Mawr, Pennsylvania 19010.
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.
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.
<PAGE>
Trustees of BT Investment Portfolios
CHARLES P. BIGGAR (birthdate: October 14, 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.; General Partner of Pemco (an investment
company registered under the 1940 Act). His address is 5070 North Ocean Drive,
Singer Island, Florida 33404.
PHILIP SAUNDERS, JR. (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.
Officers of the Trusts and BT Investment Portfolios
Unless otherwise specified, each officer listed below holds the same
position with the Trusts and the BT Investment Portfolios.
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. Petnuch, Davis, and Neuman also hold similar positions for
other investment companies for which Edgewood, 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 a Trust or the Portfolio. No director, officer or employee of
Edgewood or any of its affiliates will receive any compensation from a Trust or
the Portfolio for serving as an officer or Trustee of the Trusts or the
Portfolio.
<PAGE>
The following table reflects fees paid from the Trusts and Fund Complex to
the Trustees of the Trusts and Portfolio for the period ended March 31, 1997 and
fiscal year ended December 31, 1996, respectively.
Trustee Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Aggregate
Compensation from Aggregate Compensation Aggregate Total Compensation
Name of Person & BT Investment from BT Institutional Compensation from BT from Fund Complex**
Position Funds* Funds+ Investment Paid to Trustees+++
Portfolios++
- ----------------------- -------------------- ------------------------ ----------------------- -----------------------
S. Leland Dill,
Trustee of BT $15,000 $625 $15,200 $28,750
Investment Funds
and Portfolio
Richard J. Herring,
Trustee of BT None $12,800 $1,350 $27,500
Institutional Funds
Bruce E. Langton,
Trustee of BT None $12,800 $1,350 $27,500
Institutional Funds
Kelvin J. Lancaster,
Trustee of BT $14,000 None $625 $26,250
Investment Funds
Philip Saunders, Jr,
Trustee of BT $15,000 $625 $15,200 $28,750
Investment Funds
and Portfolio
Philip W.
Coolidge,*** $705 $140 $1,350 $1,250
Trustee of each Trust
and Portfolio
Charles P. Biggar,
Trustee of BT $2,500 $12,350 $16,000 $28,750
Institutional Funds
and Portfolio
</TABLE>
* The aggregate compensation is provided for the BT Investment Funds which is
comprised of 17 funds. Information is furnished for the fiscal year ended
March 31, 1997.
+ The aggregate compensation is provided for the BT Institutional Funds which
is comprised of 11 funds. Information is furnished for the fiscal year
ended December 31, 1996.
++ The compensation is provided for the fiscal year ended March 31, 1997.
** Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Mutual 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.
+++ The compensation is provided for the calendar year ended December 31, 1996.
*** Mr. Coolidge resigned as a Trustee of the Trust and Portfolio Trust
effective August 11, 1997.
As of July 31, 1997, the Trustees and Officers of the Trust and the
Portfolio owned in the aggregate less than 1% of the shares of any Fund or the
Trust (all series taken together).
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 each Advisory Agreement. The Trusts and the Portfolio bear
certain other expenses incurred in their operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Trusts 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 qualification
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 statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trusts or the
Portfolio; and any extraordinary 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 the 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.
Each 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.
Sub-Investment Adviser
Bankers Trust has entered into a sub-investment advisory agreement (the
"Sub-Advisory Agreement") with BT Fund Managers International Limited ("BT Fund
Managers International") a wholly owned subsidiary of Bankers Trust Australia
Limited ("BTAL") in Sydney. BTAL is a wholly owned subsidiary of Bankers Trust
New York Corporation. Under the Sub-Advisory Agreement, Bankers Trust may
receive investment advice and research services with respect to companies in
which the Portfolio may invest and may grant BT Fund Managers International
investment management authority as well as the authority to buy and sell
securities if Bankers Trust believes it would be beneficial to the Portfolio.
BTAL, which was granted a banking license in 1986, is the parent of
Bankers Trust Australia Group which has offices is Sydney, Melbourne, Perth,
Brisbane, Adelaide, London and Hong Kong. A representative office of Bankers
Trust Company was opened in Australia in 1966 and Australian merchant banking
operations commenced in 1969. A related organization, Bankers Trust New Zealand
Limited, was established in 1986. Although BTAL has not previously served as
investment adviser for a registered investment company, BTAL provides investment
services for a range of clients.
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 Trusts and the Portfolio reasonably deem necessary for
the proper administration of the Trusts or the Portfolio. Bankers Trust will
generally assist in all aspects of the Funds' 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 Trusts 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.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Avenue (One Bankers Trust Plaza), New York,
New York 10006, serves as Custodian for the Trusts and for the Portfolio
pursuant to the administration and services agreements. As Custodian, it holds
the Funds' and the Portfolio's assets. Bankers Trust also serves as transfer
agent of the Trusts and of the Portfolio pursuant to the respective
administration and services agreement. Under its transfer agency agreement with
the Trusts, Bankers Trust maintains the shareholder account records for each
Fund, handles certain communications between shareholders and the Trusts and
causes to be distributed any dividends and distributions payable by the Trust.
Bankers Trust may be reimbursed by the Funds 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
Each Trust and Bankers Trust have agreed that the Trusts may use "BT"
as part of their names for so long as Bankers Trust serves as investment adviser
to the Portfolio. The Trusts have 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 Trusts may be required, on 60 days' notice from Bankers Trust at
any time, to abandon use of the acronym "BT" as part of their 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 Trusts, their 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 Agreements and other activities for the Trusts and the Portfolio
described in the Prospectuses 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 Trusts 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.
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 Trusts and the Portfolio.
Coopers & Lybrand L.L.P., 1100 Main Street, Suite 900, Kansas City, Missouri
64105 acts as Independent Accountants of the Trusts and the Portfolio.
ORGANIZATION OF THE TRUSTS
BT Institutional Funds was organized on March 26, 1990. BT Investment
Funds was organized on July 21, 1986, under the name BT Tax-Free Investment
Trust, and assumed its current name on May 16, 1988. The shares of each series
participate equally in the earnings, dividends and assets of the particular
series. The Trusts may create and issue additional series of shares. Each
Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in series. Each share represents an equal
proportionate interest in a series with each other share. Shares when issued are
fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held.
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of Trustees
can elect all Trustees. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Fund, except
with respect to the election of Trustees and the ratification of the selection
of independent accountants.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, each 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.
Whenever a Trust is requested to vote on matters pertaining to a
Portfolio, the Trust will vote its shares without a meeting of shareholders of
the respective Fund if the proposal is one, which if made with respect to the
Fund, would not require the vote of shareholders of the Fund as long as such
action is permissible under applicable statutory and regulatory requirements.
For all other matters requiring a vote, a Trust will hold a meeting of
shareholders of its respective Fund and, at the meeting of the investors in the
Portfolio, the Trust will cast all of its votes in the same proportion as votes
in all its shares at the Portfolio meeting, other investors with a greater pro
rata ownership of the Portfolio could have effective voting control of the
operations of the Portfolio.
TAXATION
Taxation of the Funds
The Trusts intend to qualify annually and to elect each Fund to be
treated as a regulated investment company under the Code.
As a regulated investment company, each 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 Funds intend to
distribute to their shareholders, at least annually, substantially all of their
investment company taxable income and net capital gains, and therefore do not
anticipate incurring federal income tax liability.
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.
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
corresponding 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
corresponding Fund's shareholders, and such Fund shareholders (except tax-exempt
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.
Taxation of the Portfolio
The Portfolio is not subject to federal income taxation. Instead, the
Funds and other investors investing in the Portfolio must take into account, in
computing their federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.
Distributions received by a 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 a 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 a 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 a
Fund's entire interest in the Portfolio and consists solely of cash and/or
unrealized receivables. A 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.
Other Taxation
The Trusts are organized as a Massachusetts business trusts and, under
current law, neither the Trusts nor any Fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Funds
continue to qualify as regulated investment companies under Subchapter M of the
Code. The investment by each 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.
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
______________, 1997
BT Investment Funds
International Small Company Equity Fund
BT Institutional Funds
International Small Company Equity Fund
Investment Adviser of the Portfolio and Administrator
BANKERS TRUST COMPANY
Distributor
EDGEWOOD SERVICES, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
Independent Accountants COOPERS & LYBRAND L.L.P.
Counsel
WILLKIE FARR & GALLAGHER
-------------------
No person has been authorized to give any information or to make any
representations other than those contained in the Trusts' Prospectuses, its SAI
or the Trusts' official sales literature in connection with the offering of the
Trusts' shares and, if given or made, such other information or representations
must not be relied on as having been authorized by the Trust. Neither the
Prospectuses nor this Statement of Additional Information constitutes an offer
in any state in which, or to any person to whom, such offer may not lawfully be
made.
--------------------
CUSIPS
PART C...OTHER INFORMATION
Item 24..Financial Statements and Exhibits.
(a) To be filed by Amendment.
(b) Exhibits:
(1) (i) Conformed copy of 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) Copy of By-Laws of the Trust; 5.
(3) Not Applicable.
(4) Copy of Specimen stock certificates for shares of beneficial interest of
the Trust; 1.
(5) Conformed copy of Investment Advisory Agreement; 7.
(6) Conformed copy of Distributor's Contract; 9.
(i) Conformed copy of Exclusive Placement Agent Agreement -
Institutional Daily Assets Fund; 9.
(7) Not applicable.
(8) (i) Conformed Copy of Custodian Agreement of Registrant; +
(ii) Amendment #1 to Exhibit A of Custodian Agreement; +
(9) (i) Administration and Services Agreement; 5.
(ii) Schedule of Fees under Administration and Service
Agreement; 7.
(iii) Exhibit D to the Administration and Services Agreement; +
(10) Not Applicable.
(11) Not Applicable
(12) Not Applicable.
- --------------------
+ All exhibits have been filed electronically.
1. Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form N-1A ("Registration Statement") as
filed with the Securities and Exchange Commission ("Commission") on July 20,
1990.
3. Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement as filed with the Commission on April 30, 1992.
5. Incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement as filed with the Commission on July 5, 1995.
7. Incorporated by reference to Amendment No. 21 to the Registration
Statement as filed with the Commission on September 24, 1996.
9. Incorporated by reference to Post-Effective Amendment No. 19 to the
Registration Statement as filed with the Commission on March 17, 1997.
<PAGE>
(13) (i) Conformed copy of investment representation letter of initial
shareholder of the Equity 500 Index Fund; 3.
(ii) Conformed copy of investment representation letter of initial
shareholder of the Institutional Liquid Assets
Fund; 5.
(iii) Conformed copy of investment representation letter of initial
shareholder of the Institutional Daily Assets
Fund; 7.
(14) Not Applicable.
(15) (i) Conformed copy of Plan of Distribution; 9.
(ii) Copy of Schedule A under the Plan of Distribution; +
(16) (i) Copy of method of computation of performance information for
money market funds; 2.
(ii) Copy of method of computation of performance information for
non-money market funds; 3.
(17) Not Applicable
(18) Copy of Multiple Class Expense Allocation Plan Adopted Pursuant to Rule
18f-3.; +
(19) Conformed copy of Power of Attorney of Registrant; +
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
as of September 8, 1997
Institutional Cash Management Fund: 728
Institutional Treasury Money Fund: 614
Institutional Tax Free Money Fund: 0
Institutional NY Tax Free Money Fund: 0
Institutional Equity 500 Index Fund: 195
BT Institutional Capital Appreciation Fund: 0
Institutional Liquid Assets Fund: 3
Institutional Cash Reserves: 268
Institutional Daily Assets Fund: 1
International Equity Fund
Class I 4
Class II 1
Global Emerging Markets Equity Fund 0
International Small Company Equity Fund 0
Item 27. Indemnification; 8
- --------------------
+ All exhibits have been filed electronically.
2. Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement as filed with the Commission on February 29,
1991.
3. Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement as filed with the Commission on April 30, 1992.
7. Incorporated by reference to Amendment No. 21 to the Registration
Statement as filed with the Commission on September 24, 1996.
8. Incorporated by reference to Post-Effective Amendment No. 17 to the
Registration Statement as filed with the Commission on April 30, 1996.
9. Incorporated by reference to Post-Effective Amendment No. 19 to the
Registration Statement as filed with the Commission on March 17, 1997
<PAGE>
Item 28. Business and Other Connections of Investment Adviser:
Bankers Trust serves as investment adviser to the Fund's Portfolio. Bankers
Trust, a New York banking corporation, is a wholly owned subsidiary of Bankers
Trust New York Corporation. Bankers Trust conducts a variety of commercial
banking and trust activities and is a major wholesale supplier of financial
services to the international institutional market. To the knowledge of the
Trust, none of the directors or officers of Bankers Trust, except those set
forth below, is or has been at anytime during the past two fiscal years 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 or during the past two fiscal years have been engaged in
any other business, profession, vocation or employment of a substantial nature.
These persons may be contacted c/o Bankers Trust Company, 130 Liberty Street,
New York, New York 10006.
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Director, Bankers Trust Company; Retired senior vice
president and Director, International Business machines Corporation; Director,
Computer Task Group; Director, Phillips Petroleum Company; Director, Caliber
Systems, Inc. (formerly, Roadway Services Inc.); Director, Rohm and Haas
Company; Director, TIG Holdings; Chairman emeritus of Amherst College; and
Chairman of the Colonial Willimsburg Foundation.
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Vice chairman and chief financial officer, Bankers Trust Company and
Bankers Trust New York Corporation; Beneficial owner, general partner, Daniel
Brothers, Daniel Lingo & Assoc., Daniel Pelt & Assoc.; Beneficial owner, Rhea C.
Daniel Trust.
Philip A. Griffiths, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Director, Institute for Advanced Study; Director, Bankers Trust
Company; Chairman, Committee on Science, Engineering and Public Policy of the
National Academies of Sciences and Engineering & the Institute of Medicine; and
Chairman and member, Nominations Committee and Committee on Science and
Engineering Indicators, National Science Board; Trustee, North Carolina School
of Science and Mathematics and the Woodward Academy.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers
Trust Company; Director, Exxon Corporation; Director, Halliburton Company;
Director, Warner-Lambert Corporation; Director, The Williams Companies, Inc.;
and Director, National Retail Federation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Senior Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP; Director, Bankers Trust Company; Director, American Express
Company; Director, Dow-Jones, Inc.; Director, J.C. Penney Company, Inc.;
Director, Revlon Group Incorporated; Director, Ryder System, Inc.; Director,
Sara Lee Corporation; Director, Union Carbide Corporation; Director, Xerox
Corporation; Trustee, Brookings Institution; Trustee, The Ford Foundation; and
Trustee, Howard University.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief Information
Officer and Executive Vice President, Bankers Trust New York Corporation; Senior
Managing Director, Bankers Trust Company.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10006. Retired Chairman and Chief Executive Officer, Philip Morris Companies
Inc.; Director, Bankers Trust Company; Director, The News Corporation Limited;
Director, Sola International Inc.; and Chairman, WWP Group pic.
Frank N. Newman, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Chairman of the Board, Chief Executive Officer and President, Bankers
Trust New York Corporation and Bankers Trust Company; Director, Bankers Trust
Company; Director, Dow-Jones, Inc.; and Director, Carnegie Hall.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Director, Bankers Trust
Company; Director, Boston Scientific Corporation; and Director, 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, Bankers Trust Company; Director, Allied-Signal Inc.; Director,
Federal Home Loan Mortgage Corporation; Director, GTE Corporation; Director, The
May Department Stores Company; Director, Safeguard Scientifics, Inc.; and
Trustee, University of Pennsylvania.
Donald L. Staheli, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Chairman of the Board and Chief Executive Officer, Continental Grain
Company; Director, Bankers Trust Company; Director, ContiFinancial Corporation;
Director, Prudential Life Insurance Company of America; Director, Fresenius
Medical Care, A.g.; Director, America-China Society; Director, National
Committee on United States-China Relations; Director, New York City Partnership;
Chairman, U.S.-China Business Council; Chairman, Council on Foreign Relations;
Chairman, National Advisor Council of Brigham Young University's Marriott School
of Management; Vice Chairman, The Points of Light Foundation; and Trustee,
American Graduate School of International Management.
Patricia Carry Stewart, c/o Office of the Secretary, 130 Liberty Street, New
York, NY 10006. Director, Bankers Trust Company; Director, CVS Corporation;
Director, Community Foundation for Palm Beach and Martin Counties; Trustee
Emerita, Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty Street, New York, NY 10006.
Vice Chairman, Bankers Trust New York Corporation and Bankers Trust Company;
Director, bankers Trust Company; Director; Alicorp S.A.; Director; Northwest
Airlines; Director, Private Export Funding Corp.; Director, New York State
Banking Board; Director, St. Lukes-Roosevelt Hospital Center; Partner, New York
City Partnership; and Chairman, Wharton Financial Services Center.
Paul A. Volcker, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Director, Bankers Trust Company; Director, American Stock Exchange;
Director, Nestle S.A.; Director, Prudential Insurance Company; Director, UAL
Corporation; Chairman, Group of 30; North American Chairman, Trilateral
Commission; Co-Chairman, Bretton Woods Committee; Co-Chairman, U.S./Hong Kong
Economic Cooperation Committee; Director, American Council on Germany; Director,
Aspen Institute; Director, Council on Foreign Relations; Director, The Japan
Society; and Trustee, The American Assembly.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New York
10006. Senior Managing Director and General Counsel of Bankers Trust New York
Corporation and Bankers Trust Company; Director, 1136 Tenants Corporation; and
Director, ABA Securities Association.
<PAGE>
Item 29. Principal Underwriters:
(a) Edgewood Services, Inc. the Distributor for shares of the Registrant,
acts as principal underwriter for the following open-end investment
companies, including the Registrant: BT Advisor Funds, BT Pyramid
Mutual Funds, BT Investment Funds, BT Institutional Funds, Excelsior
Institutional Trust (formerly, UST Master Funds, Inc.), Excelsior
Tax-Exempt Funds, Inc. (formerly, UST Master Tax-Exempt Funds, Inc.),
Excelsior Institutional Trust, FTI Funds, FundManager Portfolios,
Marketvest Funds, Marketvest Funds, Inc. and Old Westbury Funds, Inc.
(b)
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Lawrence Caracciolo Director, President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Arthur L. Cherry Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
J. Christopher Donahue Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Sholes Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ronald M. Petnuch Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Schmitt 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, Assistant 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
(c) Not Applicable.
</TABLE>
<PAGE>
ITEM 30. Location of Accounts and Records:
BT INSTITUTIONAL FUNDS: Federated Investor Tower
("Registrant") Pittsburgh, PA 15222-3779
BANKERS TRUST COMPANY: 130 Liberty Street
("Adviser, Custodian and New York, NY 10006
Administrator")
INVESTORS FIDUCIARY TRUST COMPANY: 127 West 10th Street
("Transfer Agent and Dividend Kansas City, MO 64105
Disbursing Agent")
EDGEWOOD SERVICES, INC.: Clearing Operations
("Distributor") 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 Post-Effective Amendment No. 18.
Registrant hereby undertakes to file a post-effective amendment,
using financial statements on behalf of International Small
Company Equity Fund which need not be certified, within four to
six months from the effective date of Post-Effective Amendment No.
20.
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 9th of September, 1997.
BT INSTITUTIONAL FUNDS
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
September 9, 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:
NAME TITLE DATE
By: /s/ Jay S. Neuman Attorney in Fact September 9, 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/CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/RICHARD J. HERRING* Trustee
Richard J. Herring
/s/BRUCE E. LANGTON* Trustee
Bruce E. Langton
* By Power of Attorney
1
Exhibit 8(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
BANKERS TRUST COMPANY
One Bankers Trust Plaza, New York, New York 10006
Mailing Address:
P.O. Box 318, Church Street Station
New York, New York 10008
Mutual Fund/Business Trust/Series
CUSTODIAN AGREEMENT
AGREEMENT dated as of September 10, 1996 between BANKERS TRUST COMPANY (the
"Custodian") and BT INSTITUTIONAL FUNDS (the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined)(all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
non-cash investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instructions to settle Securities transactions in any
country shall be deemed to authorize the holding of such Securities and Cash in
that country.
3. Custody Account. The Custodian agrees to establish and maintain one
or more custody accounts on its books in the name of a Portfolio (each, an
"Account") for any and all Property from time to time received and accepted by
the Custodian or any Subcustodian for the Account of such Portfolio. Upon
delivery by the Customer to the Custodian of any Property belonging to a
Portfolio, the Customer shall, by Instructions (as hereinafter defined in
Section 14), specifically indicate which Portfolio such Property belongs or if
such Property belongs to more than one Portfolio shall allocate such Property to
the appropriate Portfolio. The Custodian shall allocate such Property to the
Accounts in accordance with the Instructions; provided that the Custodian shall
have the right, in its sole discretion, to refuse to accept any Property that is
not in proper form for deposit for any reason. The Customer on behalf of each
Portfolio, acknowledges its responsibility as a principal for all of its
obligations to the Custodian arising under or in connection with this Agreement,
warrants its authority to deposit in the appropriate Account any Property
received therefor by the Custodian or a Subcustodian and to give, and authorize
others to give, instructions relative thereto. The Custodian may deliver
securities of the same class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for the
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the appropriate
Account;
(b) present for payment all Securities held in an Account which
are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment
upon presentation to the extent that the Custodian or
Subcustodian is actually aware of such opportunities and hold
the cash received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
an Account, endeavor to receive Instructions, provided that if
such Instructions are not received in time for the Custodian
to take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for an Account and such rights
entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for the Custodian to take timely
action or if actual notice of such actions was received too
late to seek Instructions, sell in the discretion of the
Custodian (which sale the Customer hereby authorizes the
Custodian to make) such rights entitlement or fractional
interest and credit the Account with the net proceeds of such
sale;
(e) execute in the Customer's name for an Account, whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of income
from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in such Account by any
governmental authority. In the event there is insufficient
Cash available in such Account to pay such taxes and levies,
the Custodian shall notify the Customer of the amount of the
shortfall and the Customer, at its option, may deposit
additional Cash in such Account or take steps to have
sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the
payment of any such taxes to cooperate with the Custodian in
furnishing information, executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or any
Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody accounts
which have been established by the Custodian with (a) one of its U.S. branches
or another U.S. bank or trust company or branch thereof located in the U.S.
which is itself qualified under the Investment Company Act of 1940, as amended
("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"), or a
U.S. securities depository or clearing agent or system in which the Custodian or
a U.S. Subcustodian participates (individually, a "U.S. Securities System") or
(b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S. Subcustodian";
U.S. Subcustodians and non-U.S. Subcustodians, collectively, "Subcustodians"),
or a non-U.S. depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S. Securities System";
U.S. Securities System and non-U.S. Securities System, collectively, "Securities
System"), provided that in each case in which a U.S. Subcustodian or U.S.
Securities System is employed, each such Sub-Custodian or Securities System
shall have been approved by Instructions; provided further that in each case in
which a non-U.S. Subcustodian or non-U.S. Securities System is employed, (a)
such Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities and
Exchange Commission ("SEC") exempting such agent or the subcustody arrangements
thereto from all or part of the provisions of Rule 17f-5 and (b) the agreement
between the Custodian and such non-U.S. Subcustodian has been approved by
Instructions; it being understood that the Custodian shall have no liability or
responsibility for determining whether the approval by the Customer of any
Subcustodian or Securities System has been proper under the 1940 Act or any rule
or regulations thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S. Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer, if in the normal course of its custodian
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S.
bank or an eligible foreign custodian each within the meaning of Rule 17f-5 or
has ceased to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account which
is maintained by the Custodian in the custody of a Subcustodian
employed pursuant to Section 4: -------------------
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the Securities are not
subject to any right, charge, security interest, lien or claim of
any kind in favor of such Subcustodian or its creditors except a
claim for payment in accordance with such agreement for their
safe custody or administration and expenses related thereto,
(iii) beneficial ownership of such Securities be freely
transferable without the payment of money or value other than for
safe custody or administration and expenses related thereto, (iv)
adequate records will be maintained identifying the Property held
pursuant to such Agreement as belonging to the Custodian, on
behalf of its customers and (v) to the extent permitted by
applicable law, officers of or auditors employed by, or other
representatives of or designated by, the Custodian, including the
independent public accountants of or designated by, the Customer
be given access to the books and records of such Subcustodian
relating to its actions under its agreement pertaining to any
Property by it thereunder or confirmation of or pertinent
information contained in such books and records be furnished to
such persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the
Account(s) which are maintained by the Custodian or any
Subcustodian in the custody of a Securities System employed
pursuant ------------------------ to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by its
agreement with the Custodian to, identify on its books such
Property as being held for the account of the Custodian or
Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of the
Custodian or a Subcustodian will be subject only to the
instructions of the Custodian or such Subcustodian, as the case
may be.
(c) Property deposited with a Securities System will be maintained in
an account holding only assets for customers of the Custodian or
Subcustodian, as the case may be, unless precluded by applicable
law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U. S. bank or trust
company which is itself qualified under the 1940 Act to act as
custodian, as its agent to carry out such of the provisions of
this Agreement as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
8. Records, Ownership of Property, Statements, Opinions of
Independent Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or other
property, and whether held by the Custodian or a Subcustodian or in a Securities
System as authorized herein, shall be clearly recorded on the Custodian's books
as belonging to the appropriate Account and not for the Custodian's own
interest. The Custodian shall keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions for each Account.
All accounts, books and records of the Custodian relating thereto shall be open
to inspection and audit at all reasonable times during normal business hours by
any person designated by the Customer. All such accounts shall be maintained and
preserved in the form reasonably requested by the Customer. The Custodian will
supply to the Customer from time to time, as mutually agreed upon, a statement
in respect to any Property in an Account held by the Custodian or by a
Subcustodian. In the absence of the filing in writing with the Custodian by the
Customer of exceptions or objections to any such statement within sixty (60)
days of the mailing thereof, the Customer shall be deemed to have approved such
statement and in such case or upon written approval of the Customer of any such
statement, such statement shall be presumed to be for all purposes correct with
respect to all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Cash and
Securities, including Cash and Securities deposited and/or maintained in a
securities system or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required by the Customer and
as may reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on hard copy various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such service shall include
market values in Securities in an Account, the Customer hereby acknowledges that
the Custodian now obtains and may in the future obtain information on such
values from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in the Account
which are held by the Custodian or any Subcustodian may be held by such entity
in the name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by a Subcustodian or which are
eligible for deposit in a Securities System as provided above may be maintained
in the Subcustodian or the Securities System in an account for the Customer's or
Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of security in
any manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for an Account and delivery of Securities
out of such Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. Provided
that the Custodian effects transactions in accordance with the customary or
established securities trading or securities processing practice or procedures
in the applicable jurisdiction or market, it shall not be responsible for any
loss arising therefrom. Subject to the exercise of reasonable care, the
Custodian may elect to effect transactions otherwise in a jurisdiction or
market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined in
the Investment Manager User Guide provided to the Customer by the Custodian, the
Custodian may, at its sole option, reverse such credits or debits to the
appropriate Account in the event that the transaction does not settle, or the
income is not received in a timely manner, and the Customer agrees to hold the
Custodian harmless from any losses which may result therefrom.
Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with Instructions to settle the
purchase of any Securities for an Account unless there is sufficient Cash in
such Account at the time or to settle the sale of any Securities in such Account
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such securities exceeds the amount of Cash in an
Account at the time of settlement of such purchase, the Custodian may, in its
sole discretion, but in no way shall have any obligation to, permit an overdraft
in such Account in the amount of the difference solely for the purpose of
facilitating the settlement of such purchase of securities for prompt delivery
to such Account. The Customer agrees to immediately repay the amount of any such
overdraft in the ordinary course of business and further agrees to indemnify and
hold the Custodian harmless from and against any and all losses, costs,
including, without limitation the cost of funds, and expenses incurred in
connection with such overdraft. The Customer agrees that it will not use the
Account to facilitate the purchase of securities without sufficient funds in the
Account (which funds shall not include the proceeds of the sale of the purchased
securities).
13. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 14 and only for the ---------------------- purposes listed
below.
(a) In connection with the purchase or sale of Securities at prices
as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts
borrowed.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the
Custodian, a Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, on behalf of a Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission and of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section
20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
14. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 21 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose name and (if applicable) signature and
office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the Custodian or other electronic instruction
system acceptable to the Custodian, or (iii) a telephonic or oral communication
by one or more persons as the Customer shall have from time to time authorized
to give the particular class of Instructions in question and whose name has been
filed with the Custodian; or (iv) upon receipt of such other form of
instructions as the Customer may from time to time authorize in writing and
which the Custodian has agreed in writing to accept. Instructions in the form of
oral communications shall be confirmed by the Customer by tested telex or
writing in the manner set forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken by the Custodian in
reasonable reliance upon such oral instructions prior to the Custodian's receipt
of such confirmation. Instructions may relate to specific transactions or to
types or classes of transactions, and may be in the form of standing
instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
15. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. Where, under applicable law,
regulation, or practice (in order to facilitate the settlement of transactions
related thereto), or where the Customer otherwise elects, Securities are held in
a Securities System in a particular market, the Custodian shall only be
responsible or liable for losses arising from employment of such Securities
System caused by the Custodian's own failure to exercise reasonable care. Where
the Custodian otherwise elects to employ a Securities System for holding
Securities in a particular market, the Custodian shall be liable to the Customer
for any act or omission of any Securities System to the same extent as if the
Custodian committed such act itself. In the event of any loss to the Customer by
reason of the failure of the Custodian or a Subcustodian to utilize reasonable
care, the Custodian shall be liable to the Customer to the extent of the
Customer's actual damages at the time such loss was discovered without reference
to any special conditions or circumstances. In no event shall the Custodian be
liable for any consequential or special damages. The Custodian shall be entitled
to rely, and may act, on advice of counsel (who may be counsel for the Customer)
on all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
16. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or Portfolio pursuant to any contract or any law or
regulation. The provisions of this Section shall survive termination of this
Agreement.
17. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit C. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expense related thereto, which may be imposed, or assessed with respect to
any Property in the Account and also agrees to hold the Custodian, its
Subcustodians, and their respective nominees harmless from any liability as a
record holder of Property in the Account. The Custodian is authorized to charge
the applicable Account for such items and the Custodian shall have a lien on the
Property in the applicable Account for any amount payable to the Custodian under
this Agreement, including but not limited to amounts payable pursuant to the
last paragraph of Section 12 and pursuant to indemnities granted by the Customer
under this Agreement. The provisions of this Section shall survive the
termination of this Agreement.
18. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not be
affected by any other term of this Agreement.
19. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
20. Termination. (a) Terminaton of Entire Agreement. This Agreement may
be terminated by the Customer or the Custodian by ninety (90) days' written
notice to the other; provided that notice by the Customer shall specify the
names of the persons to whom the Customer shall deliver the Securities in each
Account and to whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall, within ninety (90)
days following the giving of such notice, deliver to the Custodian a written
notice specifying the names of the persons to whom the Custodian shall deliver
the Securities in each Account and to whom the Cash in such Account shall be
paid. In either case, the Custodian shall deliver such Securities and Cash to
the persons so specified, after deducting therefrom any amounts which the
Custodian determines to be owed to it under Sections 12, 17, and 23. In
addition, the Custodian may in its discretion withhold from such delivery such
Cash and Securities as may be necessary to settle transactions pending at the
time of such delivery. The Customer grants to the Custodian a lien and right of
setoff against the Account and all Property held therein from time to time in
the full amount of the foregoing obligations. If within ninety (90) days
following the giving of a notice of termination by the Custodian, the Custodian
does not receive from the Customer a written notice specifying the names of the
persons to whom the Custodian shall deliver the Securities in each Account and
to whom the Cash in such Account shall be paid, the Custodian, at its election,
may deliver such Securities and pay such Cash to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or may continue to hold such Securities and Cash
until a written notice as aforesaid is delivered to the Custodian, provided that
the Custodian's obligations shall be limited to safekeeping.
(b) Termination as to One or More Portfolios. This Agreement may be
terminated by the Customer or the Custodian as to one or more Portfolios (but
less than all of the Portfolios) by delivery of an amended Exhibit A deleting
such Portfolios, in which case termination as to such deleted Portfolios shall
take effect ninety (90) days after the date of such delivery, or such earlier
time as mutually agreed. The execution and delivery of an amended Exhibit A
which deletes one or more Portfolios shall constitute a termination of this
Agreement only with respect to such deleted Portfolio(s), shall be governed by
the preceding provisions of Section 20 as to the identification of a successor
custodian and the delivery of Cash and Securities of the Portfolio(s) so deleted
to such successor custodian, and shall not affect the obligations of the
Custodian and the Customer hereunder with respect to the other Portfolios set
forth in Exhibit A, as amended from time to time.
21. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered to sent by telex,
cable, facsimile or other means of electronic communication agreed upon by the
parties hereto addressed, if to the Customer, to:
BT Institutional Funds
c/o Bankers Trust Company
4 Albany Street, 2nd Floor
New York, NY 10006
Attention: William O'Dell
Phone: (212) 250-2838
Fax: (212) 250-4462
if to the Custodian, to:
Bankers Trust Company
16 Wall Street, 4th Floor
New York, NY 10005
Attention: Vince Fiordimondo
Phone: (212) 618-3602
Fax: (212) 618-3823
or in either case to such other address as shall have been furnished to the
receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received, or, in the case of a telex, when sent to the proper
number and acknowledged by a proper answerback.
22. Several Obligations of the Portfolios. The respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts. No Portfolio
shall be liable for the obligations or liabilities of any other Portfolio. No
shareholder, trustee, director, officer, employee or agent of any Portfolio
shall be subject to claims against or obligations of any other Portfolio to any
extent whatsoever, but the Portfolio only shall be liable.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations; provided that,
if there is more than one Account and the obligations secured pursuant to this
Section can be allocated to a specific Account or the Portfolio related to such
Account, such security interest and right of setoff will be limited to Property
held for that Account only and its related Portfolio. Should the Customer fail
to pay promptly any amounts owed hereunder, Custodian shall be entitled to use
available Cash in the Account or such applicable Account, as the case may be,
and to dispose of Securities in the applicable Account as is necessary. In any
such case and without limiting the foregoing, Custodian shall be entitled to
take such other action(s) or exercise such other options, powers and rights as
Custodian now or hereafter has as a secured creditor under the New York Uniform
Commercial Code or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the terms of this Agreement
do not violate any obligation by which the Customer is bound,
whether arising by contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon
the Customer and each Portfolio in accordance with its terms;
and (iii) the Customer will deliver to the Custodian such
evidence of such authorization as the Custodian may reasonably
require, whether by way of a certified resolution or
otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) its employment as Custodian and the terms of this Agreement do
not violate any obligation by which the Custodian is bound,
whether arising by contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by appropriate action and
when executed and delivered will be binding upon the Custodian in
accordance with its terms;
(iii)the Custodian will deliver to the Customer such evidence of such
authorization as the Customer may reasonably require, whether by
way of a certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a) of the
1940 Act and warrants that it will remain so qualified or upon
ceasing to be so qualified shall promptly notify the Customer in
writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be
assignable by either party, but shall bind the successors
---------------------------------------- in interest of the
Customer and the Custodian.
26. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 21 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian, provided that the Customer may refer in
its prospectus and other documents to the Custodian in the manner set forth in
Exhibit E attached to this contract. Customer shall not distribute or permit the
distribution of such materials if Custodian reasonably objects in writing within
ten (10) business days of receipt thereof (or such other time as may be mutually
agreed) after receipt thereof. The provisions of this Section shall survive the
termination of this Agreement.
27. Representative Capacity and Binding Obligation. A copy of the
Declaration of Trust of the Customer is on file with The Secretary of the
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
not executed on behalf of the Trustees of the Customer as individuals, and the
obligations of this Agreement are not binding upon any of the Trustees, officers
or shareholders of the Customer individually but are biding only upon the assets
and property of the Portfolios.
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of the
Customer arising out of this Agreement.
28. Affiliation Between Custodian and Adviser and Customer. It is
understood that the trustees, officers, employees, agents and shareholders of
the Customer, and the officers, directors, employees, agents and shareholders of
Bankers Trust Company ("Adviser"), the investment adviser to a corresponding
series listed on Appendix A hereto as "Investment Portfolio" in which the
applicable Portfolio invests all of its net investable assets, are or may be
interested in Custodian as directors, officers, employees, agents, stockholders,
or otherwise, and that the directors, officers, employees, agents or
stockholders of Custodian may be interested in the Customer as trustees,
officers, employees, agents, shareholders, or otherwise, or in Adviser as
officers, directors, employees, agents, shareholders or otherwise.
(i) No trustee, officer, employee or agent of the Customer, and no
officer, director, employee or agent of the Adviser acting pursuant to
any provision of the Investment Advisory Agreement (the "Advisory
Agreement") between the Customer and Adviser, shall have physical
access to the assets of the Customer held by Custodian or be authorized
or permitted to withdraw any investments of the Customer, nor shall
Custodian deliver any assets of the Customer to any such person. No
officer, director, employee or agent of Custodian who holds any similar
position with the Customer or who performs duties under the Advisory
Agreement shall have access to the assets of the Trust.
(ii) Subject to Section 14 hereof, nothing in this Section 28 shall
prohibit any officer, employee or agent of the Customer, or any
officer, employee or agent of the Adviser, from giving Instructions to
Custodian as long as no such Instruction results in delivery or of
access to assets of the Customer prohibited by subclause (i) of this
Section 28.
29. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
30. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more ------------ counterparts have been signed and
delivered by each of the parties hereto.
31. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation.
32. Severability. If any provision of this Agreement is determined to be
invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision ------------ of this Agreement.
33. Headings. The heading of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
BT INSTITUTIONAL FUNDS
By: /s/ Thomas M. Lenz
Name: Thomas M. Lenz
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ John P. Zori
Name: John P. Zori
Title: Vice President
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of September 10, 1996 between Bankers
Trust Company and BT Institutional Funds.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS clause of
the above-referred to Custodian Agreement. Terms used herein as defined terms
unless otherwise defined shall have the meanings ascribed to them in the
above-referred to Custodian Agreement.
Institutional Daily Assets Fund
Dated as of: September 10, 1996 BT INSTITUTIONAL FUNDS
By: /s/ Thomas M. Lenz
Name: Thomas M. Lenz
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ John P. Zori
Name: John P. Zori
Title: Vice President
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of September 10, 1996 between Bankers Trust
Company and BT Institutional Funds
PROXY SERVICE
The following is a description of the Proxy Service referred to in Section
10 of the above referred to Custodian Agreement. Terms used herein as defined
terms shall have the meanings ascribed to them therein unless otherwise defined
below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in Argentina, Australia, Austria, Canada, Denmark, Finland,
France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Japan, Korea,
Malaysia, Mexico, Netherlands, New Zealand, Pakistan, Poland, Singapore, South
Africa, Spain, Sri Lanka, Sweden, United Kingdom, United States, and Venezuela.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security
is held, the Custodian will as soon as practicable after
receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished, the
local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agenda,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or directions (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
second paragraph hereof. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit B will be deemed to be automatically
amended to include or delete such countries as the case may be.
Dated as of: September 10, 1996 BT INSTITUTIONAL FUNDS
By: /s/ Thomas M. Lenz
Name: Thomas M. Lenz
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ John P. Zori
Name: John P. Zori
Title: Vice President
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of September 10, 1996 between Bankers
Trust Company and BT Institutional Funds.
CUSTODY FEE SCHEDULE
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of September 10, 1996 between Bankers
Trust Company and BT Institutional Funds.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in the Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Customer will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Customer of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
<PAGE>
Dated as of: September 10, 1996 BT INSTITUTIONAL FUNDS
By: /s/ Thomas M. Lenz
Name: Thomas M. Lenz
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ John P. Zori
Name: John P. Zori
Title: Vice President
<PAGE>
EXHIBIT E
To Custodian Agreement dated as of September 10, 1996 between Bankers
Trust Company and BT Institutional Funds.
APPROVED REFERENCE TO CUSTODIAN
"Bankers Trust acts as Custodian of the assets of the Trust and the
Portfolio..."
Exhibit 8(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Amendment #1 to Exhibit A
Exhibit A to Custodian Agreement dated as of July 1, 1996 between Bankers Trust
Company and BT Institutional Funds is hereby amended by adding the following to
the List of Portfolios:
The following is a list of Portfolios The following is a list of Investment
referred to in the first WHEREAS Portfolios referred to in Section 28
clause of the Agreement. of the Agreement.
International Equity Fund International Equity Portfolio
Dated as of March 26, 1997 BT INSTITUTIONAL FUNDS
By:/s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
BANKERS TRUST COMPANY
By:/s/ Richard M. Quintal
Name: Richard M. Quintal
Title: Managing Director
Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
BT INSTITUTIONAL FUNDS
EXHIBIT D
TO THE
ADMINISTRATION AND SERVICES AGREEMENT
MADE AS OF OCTOBER 28, 1992
BETWEEN
BT INSTITUTIONAL FUNDS AND BANKERS TRUST COMPANY
AS REVISED: MARCH 26, 1997
Fund Fee
Institutional Cash Management Fund...........................0.05%
Institutional Treasury Money Fund............................0.05%
Institutional Tax Free Money Fund............................0.05%
Institutional NY Tax Free Money Fund.........................0.05%
Institutional Liquid Assets Fund.............................0.05%
Equity 500 Index Fund........................................0.05%
100% Treasury Fund...........................................0.05%
Institutional Cash Reserves..................................0.05%
BT Institutional Capital Appreciation Fund...................0.20%
Institutional Daily Assets Fund..............................0.02%
International Equity Fund
Class I.............................................0.40%
Class II............................................0.15%
4
Exhibit 15(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
SCHEDULE A
BT INSTITUTIONAL FUNDS
SCHEDULE OF FEES UNDER THE PLAN OF DISTRIBUTION
As Last Amended: May 20, 1997
Institutional Treasury Money Fund 0.10%
Institutional Tax Free Money Fund 0.10%
Institutional NY Tax Free Money Fund 0.10%
Institutional Liquid Assets Fund 0.10%
Equity 500 Index Fund 0.10%
100% Treasury Fund 0.10%
Institutional Cash Reserves 0.10%
BT Institutional Capital Appreciation Fund 0.10%
International Equity Fund
Class I 0.20%
Class II 0.20%
3
Exhibit 18 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
BT INSTITUTIONAL FUNDS
Multiple Class Expense Allocation Plan Adopted Pursuant to Rule 18f-3
WHEREAS, BT Institutional Funds, a Massachusetts business trust (the
"Trust"), engages in business as an open-end management investment company and
is registered as such under the Investment Company Act of 1940, as amended (the
"Act"); and
WHEREAS, the Trust is authorized to (i) issue shares of beneficial
interest ("Shares") in separate series, with the Shares of each such series
representing the interests in a separate portfolio of securities and other
assets, and (ii) divide the Shares within each such series into two or more
Classes; and
WHEREAS, the Trust has established the following series as of the date
hereof:
Institutional Cash Management Fund, Institutional Treasury Money Fund,
Institutional Tax Free Money Fund, Institutional NY Tax Free Money Fund, Equity
500 Index Fund, 100% Treasury Fund, BT Institutional Capital Appreciation Fund,
Institutional Liquid Assets Fund, Institutional Cash Reserves, Institutional
Daily Assets Fund, and International Equity Fund
(such series being referred to collectively herein as the "Initial Series," such
series, together with all other series subsequently established by the Trust and
made subject to this Plan, being referred to herein individually as a "Series"
and collectively as the "Series"); and
WHEREAS, Shares of the International Equity Fund series of the Trust
have been divided into two Classes, such Classes having been established and
designated as
Class I shares and Class II shares (each a "Class," such Classes together with
all other Classes subsequently established by the Trust and made subject to this
Plan, being referred to herein individually as a "Class" and collectively as the
"Classes"); and
WHEREAS, the Board of Trustees as a whole, and the Trustees who are not
Interested Persons (as defined in the Act) of the Trust (the "Qualified
Trustees"), having determined in the exercise of their reasonable business
judgment that this Plan is in the best interest of each Class of each Initial
Series, each Initial Series as a whole, and the Trust as a whole, have
accordingly approved this Plan.
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with
Rule 18f-3 under the Act, on the following terms and conditions:
1. Class Differences. Each Class of Shares of an Initial Series shall
represent interests in the same portfolio of investments of such Initial Series
and shall be identical in all respects, except that each Class shall differ with
respect to: (i) arrangements for shareholder services or the distribution of
Shares, or both, and the allocation of expenses, as provided for in Section 2 of
this Plan; (ii) the exclusive right of a Class to vote on certain matters
relating to the Plan of Distribution adopted by the Trust pursuant to Rule 12b-1
under the Act with respect to such Class, if any, (iii) such differences
relating, to purchase minimums, sales charges, eligible investors, conversion
features and exchange privileges as may be set forth in the prospectuses and
statements of additional information of the Initial Series, as the same may be
amended or supplemented from time to time (the "Prospectuses" and "SAIs,"
respectively); and (iv) the designation of each Class of Shares.
2. Allocation of Expenses.
(a) Class Expenses. Expenses relating to different
arrangements for shareholder services or the distribution of Shares, or both,
shall be allocated to and paid by that Class. A Class may pay a different share
of other expenses, not including advisory or custodial fees or other expenses
related to the management of a Series' assets, if such expenses are actually
incurred in a different amount by that Class, or if the Class receives services
of a different kind or to a different degree than other Classes. For example,
expenses incurred in connection with any meeting of shareholders of a particular
Class, and litigation expenses incurred with respect to matters affecting only a
particular Class shall be allocated to that Class.
(b) Other Allocations. All other expenses of a Series shall be
allocated to each Class on the basis of the net asset value of that Class in
relation to the net asset value of the Series. Notwithstanding the foregoing,
the distributor or adviser of a Series may waive or reimburse the expenses of a
specific Class or Classes to the extent permitted under Rule 18f-3 under the
Act.
3. Term and Termination.
(a) Initial Series. This Plan shall become effective with
respect to each Class of an Initial Series as of the later of (i) the date on
which a Registration Statement with respect to the Class I Shares and Class II
Shares of such Initial Series becomes effective under the Securities Act of
1933, as amended, or (ii) the date on which each such Class of each Initial
Series commences offering its Shares to the public, and shall continue in effect
with respect to such Class of Shares (subject to Section 3(c) hereof) until
terminated in accordance with the provisions of Section 3(c) hereof.
(b) Additional Series or Classes. This Plan shall become
effective with respect to any Class of an Initial Series other than the Class I
Shares and the Class II Shares and with respect to each additional Series or
Class thereof established by the Trust after the date hereof and made subject to
this Plan, upon commencement of the initial public offering thereof, provided
that the Plan has previously been approved with respect to such additional
Series or Class by votes of a majority of both (i) the Board of Trustees of the
Trust and (ii) the Qualified Trustees, and shall continue in effect with respect
to each such additional Series or Class (subject to Section 3(c) hereof) until
terminated in accordance with the provisions of Section 3(c) hereof. An addendum
hereto setting forth any specific and different terms of such additional Series
or Classes shall be attached to this Plan.
(c) Termination. This Plan may be terminated at any time with
respect to the Trust or any Series or Class thereof, as the case may be, by vote
of a majority of both the Trustees of the Trust and the Qualified Trustees. The
Plan may remain in effect with respect to a Series or Class thereof even if it
has been terminated in accordance with this Section 3(c) with respect to one or
more other Series or Classes of the Trust.
4. Amendments. Any material amendment to this Plan shall require the
affirmative vote of a majority of both the Trustees of the Trust and the
Qualified Trustees.
Dated: March 26, 1997.
2
Exhibit 19 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
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,
Ronald M. Petnuch Principal Financial and Accounting Officer)
of each Trust and Portfolio Trust
/s/ Charles P. Biggar Trustee of each Portfolio Trust
Charles P. Biggar and BT Institutional Funds
/s/ Richard J. Herring Trustee of BT Institutional Funds
Richard J. Herring and BT Advisor Funds
/s/ Bruce E. Langton Trustee of BT Institutional Funds
Bruce E. Langton and BT Advisor Funds
