1940 Act File No. 811-6697
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 5 ............................... X
SHORT/INTERMEDIATE U.S. GOVERNMENT SECURITIES PORTFOLIO
(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
Explanatory Note
This Amendment to the Registrant's Registration Statement on Form N-1A
(the `Registration Statement'') has been filed by the Registrant pursuant
to Section 8(b) of the Investment Company Act of 1940. However, beneficial
interests in the Registrant are not being registered under the Securities
Act of 1933 (the "1933 Act"), because such interests will be issued solely
in private placement transactions that do not involve any "public offering"
within the meaning of Section 4(2) of the 1933 Act. Investments in the
Registrant may only be made by investment companies, insurance company
separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. The Registration Statement does
not constitute an offer to sell, or the solicitation of an offer to buy,
any beneficial interests in the Registrant.
SHORT/INTERMEDIATE U.S. GOVERNMENT SECURITIES PORTFOLIO
PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
Short/Intermediate U.S. Government Securities Portfolio (the "Portfolio")
is a no-load, diversified, open-end management investment company which was
organized as a trust under the laws of the State of New York on December
11, 1991. Beneficial interests in the Portfolio are issued solely in
private placement transactions that do not involve any "public offering"
within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). Investments in the Portfolio may only be made by
investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933
Act. This Registration Statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of
the 1933 Act.
The investment objective of the Portfolio is a high level of current income
consistent with the preservation of capital by investing only in U.S.
government securities with short or intermediate maturities and repurchase
agreements with respect thereto. Investments in the Portfolio are neither
insured nor guaranteed by the U.S. government.
Additional information about the investment policies of the Portfolio
appears in Part B. There can be no assurance that the investment objective
of the Portfolio will be achieved.
The Portfolio intends to invest only in those assets (including assets
subject to repurchase agreements) which will permit investments in the
Portfolio to be assigned a 20% risk weighting in the calculation of risk-
based capital under regulations of the Office of the Comptroller of the
Currency (the "OCC"), the Federal Deposit Insurance Corporation (the
"FDIC") and the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board").
U.S. GOVERNMENT SECURITIES. The Portfolio seeks to achieve its objective by
investing 100% of its assets in U.S. Government Securities, including
repurchase agreements secured by U.S. Government Securities.
In selecting securities for the Portfolio, Bankers Trust Company ("Bankers
Trust"), as the Portfolio's investment adviser (the "Adviser"), attempts to
maintain the Portfolio's overall sensitivity to interest rates in a range
similar to that of short-term to intermediate-term government bonds and
notes with weighted average maturities of two to five years. Because the
Portfolio may invest in mortgage securities whose prices are less sensitive
to interest rates than their relatively long maturities would suggest, the
Portfolio's dollar-weighted average maturity may be longer than five years
from time to time, but will not exceed seven years under normal conditions.
The Portfolio may hold individual securities with remaining maturities of
more than seven years as long as the Portfolio's dollar-weighted average
maturity remains within the above limit. The remaining maturities of
individual securities, excluding mortgage securities, will normally not
exceed ten years.
"U.S. Government Securities" as used herein means securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities.
U.S. Government Securities have varying degrees of government backing. They
may be backed by the credit of the government as a whole or only by the
issuing agency. Securities issued by certain agencies are supported only by
the credit of the agency that issued them, and not by the U.S. government.
Securities issued by the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association are supported by the agency's right
to borrow money from the U.S. Treasury under certain circumstances. There
is no assurance that the U.S. government will support the obligations of
its agencies or instrumentalities if it is not required to do so by law.
U.S. Treasury bonds, notes and bills, and some agency securities, such as
those issued by the Government National Mortgage Association, are backed by
the full faith and credit of the U.S. government as to payment of principal
and interest and are the highest quality government securities. For
additional information on U.S. Government Securities, see below.
The Portfolio may invest a portion of its assets in short-term U.S.
Government Securities with remaining maturities of one year or less and
repurchase agreements relating thereto. When Bankers Trust believes market
conditions warrant a temporary defensive position, the Portfolio may invest
up to 100% of its assets in these instruments.
REPURCHASE AGREEMENTS. In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price. The
Portfolio will only enter into repurchase agreements with respect to
obligations backed by the full faith and credit of the U.S. government. The
Portfolio shall always receive U.S. Government Securities as collateral
with a market value equal to 102% of the purchase price plus accrued
interest. In the event of the bankruptcy of the other party to a repurchase
agreement, the Portfolio could experience delays in recovering its cash. To
the extent that, in the meantime, the value of the securities repurchased
had decreased or the value of the securities lent had increased, the
Portfolio could experience a loss. In all cases, Bankers Trust must find
the creditworthiness of the other party to the transaction satisfactory. A
repurchase agreement is considered a collateralized loan under the
Investment Company Act of 1940 (the "1940 Act").
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take place as long as a month or more
after the date of the purchase commitment. The value of these securities is
subject to market fluctuation during this period and no income accrues to
the Portfolio until settlement takes place. The Portfolio maintains with
the Custodian a segregated account containing high grade liquid securities
in an amount at least equal to these commitments. When entering into a
when-issued or delayed delivery transaction, the Portfolio will rely on the
other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged.
RULE 144A SECURITIES. The Portfolio may purchase securities in the United
States that are not registered for sale under Federal securities laws but
which can be resold to institutions under the Securities and Exchange
Commission's ("SEC") Rule 144A. Provided that a dealer or institutional
trading market in such securities exists, these restricted securities are
treated as exempt from the Portfolio's 15% limit on illiquid securities.
Under the supervision of the Board of Trustees of the Portfolio, Bankers
Trust determines the liquidity of restricted securities and, through
reports from Bankers Trust, the Board will monitor trading activity in
restricted securities. Because Rule 144A is relatively new, it is not
possible to predict how these markets will develop. If institutional
trading in restricted securities were to decline, the liquidity of the
Portfolio could be adversely affected.
SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of the
total value of its securities. These loans must be secured continuously by
cash or equivalent collateral or by a letter of credit at least equal to
the market value of the securities loaned plus accrued income. By lending
its securities, the Portfolio can increase its income by continuing to
receive income on the loaned securities as well as by the opportunity to
receive interest on the collateral. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to
the Portfolio and its investors. In lending securities to brokers, dealers
and other organizations, the Portfolio is subject to risk which, like those
associated with other extensions of credit, include delays in recovery and
possible loss of rights in the collateral should the borrower fail
financially.
MORTGAGE-BACKED SECURITIES. The Portfolio may purchase mortgage-backed
securities issued by the U.S. government and its agencies and
instrumentalities. Mortgage-backed securities include mortgage pass-through
securities, mortgage-backed bonds and mortgage pay-through securities. A
mortgage pass-through security is a pro rata interest in a pool of
mortgages where the cash flow generated from the mortgage collateral is
passed through to the security holder. Mortgage-backed bonds are general
obligations of their issuers, payable out of the issuers' general funds and
additionally secured by a first lien on a pool of mortgages. Mortgage pay-
through securities exhibit characteristics of both pass-throughs and
mortgage-backed bonds. Mortgage-backed securities also include other debt
obligations secured by mortgages on commercial real estate or residential
properties. Other types of mortgage-backed securities will likely be
developed in the future, and the Portfolio may invest in them if Bankers
Trust determines they are consistent with the Portfolio's investment
objective and policies.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Portfolio may purchase
CMOs issued by the U.S. government and its agencies and instrumentalities.
CMOs are pay-through securities collateralized by mortgages or mortgage-
backed securities. CMOs are issued in classes and series that have
different maturities and often are retired in sequence.
ZERO COUPON BONDS. These bonds can be issued directly by Federal agencies
and instrumentalities. Such issues of zero coupon bonds are originated in
the form of a zero coupon bond and are not created by stripping an
outstanding bond.
Zero coupon bonds do not make regular interest payments. Instead they are
sold at a deep discount from their face value. Because a zero coupon bond
does not pay current income, its price can be very volatile when interest
rates change. In calculating its net income, the Portfolio takes into
account as income a portion of the difference between a zero coupon bond's
purchase price and its face value.
OPTIONS AND FUTURES CONTRACTS. The Portfolio may buy and sell options and
futures contracts to manage its exposure to changing interest rates and
security prices. Some options and futures strategies, including selling
futures, buying puts, and writing calls, hedge the Portfolio's investments
against price fluctuations. Other strategies, including buying futures,
writing puts and buying calls, tend to increase market exposure. The
Portfolio may invest in options (including over-the-counter options) and
futures contracts with respect to any type of security which the Portfolio
could hold directly or indexes composed only of such securities.
Options and futures can be volatile investments, and involve certain risks.
If Bankers Trust applies a hedge at an inappropriate time or judges
interest rates incorrectly, options and futures strategies may lower the
Portfolio's return. The costs of hedging are not reflected in the
Portfolio's yield but are reflected in the Portfolio's total return. The
Portfolio could also experience losses if its options and futures positions
were poorly correlated with its other investments, or if it could not close
out its positions because of an illiquid secondary market.
ASSET COVERAGE. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities are not
used to achieve investment leverage, the Portfolio will cover such
transactions, as required under applicable interpretations of the SEC,
either by owning the underlying securities or by establishing a segregated
account with the Portfolio's custodian containing high grade liquid debt
securities in an amount at all times equal to or exceeding the Portfolio's
commitment with respect to these instruments or contracts.
INVESTMENT BY BANKS. It is a fundamental policy of the Portfolio to invest
only in those assets (including assets subject to repurchase agreements)
which would be assigned a 20% risk weighting in the calculation of risk-
based capital credit under the regulations of the Federal Reserve Board,
the OCC and the FDIC if held directly by a financial institution subject to
any of such regulations. Before investing in the Portfolio, investors
should review these regulations, the types of investments the Portfolio
proposes to make and, where appropriate, consult legal counsel for
additional guidance.
ADDITIONAL INVESTMENT LIMITATIONS. No more than 5% of the assets of the
Portfolio may be invested in the securities of one issuer (other than U.S.
Government Securities). The Portfolio will not invest more than 25% of its
assets in the securities of issuers in any one industry. These are
fundamental investment policies of the Portfolio which may not be changed
without investor approval. No more than 15% of the Portfolio's net assets
may be invested in illiquid or not readily marketable securities (including
repurchase agreements with remaining maturities of more than seven calendar
days). Additional investment policies of the Portfolio are contained in
Part B.
The investment objective of the Portfolio is also not a fundamental
policy and may be changed upon 30 days' prior written notice but without
the approval of the Portfolio's shareholders. If there is a change in the
Portfolio's investment, objective, the Portfolio's shareholders should
consider whether the Portfolio remains an appropriate investment in light
of their then-current needs.
RISK FACTORS. Because the Portfolio invests in high quality instruments
with short to intermediate maturities, its share price should be more
stable than that of a long-term bond fund, although it may be less stable
than that of a short-term bond fund. Generally, short to intermediate-term
instruments are less sensitive to interest rate fluctuations or changes in
an issuer's credit standing than longer-term bonds. At the same time, the
Portfolio may not offer the same yield or growth potential as a long-term
bond fund. The Portfolio should provide higher yields than mutual funds
that maintain shorter average maturities, but will not provide the same
stability of principal. Bond funds generally offer greater price stability
than stock funds, although the potential rewards of bonds are not as
great.
An investor's beneficial interest in the Portfolio will tend to decrease
when interest rates rise, and increase when interest rates fall. While U.S.
government securities generally are of high quality, government securities
that are not backed by the full faith and credit of the United States may
be affected by changes in the creditworthiness of the agency that issued
them. Many securities can provide higher yields than U.S. government
securities, although they may not provide the same high quality.
Some types of U.S. Government Securities carry certain risks. For example,
mortgage-backed securities are subject to certain prepayment risks, while
zero coupon bonds may require the Portfolio to accrue income for which it
has received no actual cash. For additional information about these types
of U.S. government securities, see above.
PORTFOLIO TURNOVER. Bankers Trust may engage in short-term trading when
it believes it is consistent with the Portfolio's investment objective.
Also, a security may be sold and another of comparable quality
simultaneously purchased to take advantage of what Bankers Trust believes
to be a temporary disparity in the normal yield relationship between the
two securities. The frequency of portfolio transactions--the Portfolio's
turnover rate--will vary from year to year depending on market conditions.
Because a high turnover rate increases transaction costs and may increase
taxable capital gains, Bankers Trust carefully weighs the anticipated
benefits of short-term investment against these consequences. The
Portfolio's portfolio turnover rates for the period from January 1, 1996 to
September 30, 1996, and for the fiscal year ended December 31, 1995 were
314% and 246%, respectively. On February 9, 1996, the Board of Trustees
approved the change of fiscal year end from December 31 to September
30.
DERIVATIVES. The Portfolios 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 for cash management purposes as a low cost method of
gaining exposure to a particular securities market without investing
directly in those securities. However, some derivatives are used for
leverage, which tends to magnify the effects of an instrument's price
changes as market conditions change. Leverage involves the use of a small
amount of money to control a large amount of financial assets and can, in
some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where the Adviser believes they offer the
most economic means of improving the risk/reward profile of the Portfolio.
Derivatives will not be used to increase portfolio risk above the level
that could be achieved using traditional investment securities or to
acquire exposure to changes in the value of assets or indices that by
themselves would not be purchased for the Portfolio. The use of derivatives
for non-hedging purposes may be considered speculative. A description of
the derivatives that the Portfolio may use and some of their associated
risks is found above.
ITEM 5. MANAGEMENT OF THE TRUST.
The affairs of the Portfolio are managed under the supervision of its Board
of Trustees. by virtue of the responsibilities assumed by Bankers Trust, as
the administrator of the Portfolio, the Portfolio does not require
employees other than its executive officers. None of the executive officers
of the Portfolio devotes full time to the affairs of the Portfolio.
The Portfolio has retained the services of Bankers Trust, as investment
adviser. Mr. Louis M. Hudson, Vice President, is responsible for the day to
day management of the Portfolio. Mr. Hudson has been employed by Bankers
Trust since 1961 and has managed the Portfolio's assets since February,
1994.
Bankers Trust, a New York banking corporation with principal offices at
280 Park Avenue, New York, New York 10017, is a wholly owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of
general banking and trust activities and is a major wholesale supplier of
financial services to the international and domestic institutional market.
As of June 30, 1996, Bankers Trust New York Corporation was the seventh
largest bank holding company in the United States with total assets of
approximately $115 billion. Bankers Trust is a worldwide merchant bank
dedicated to servicing the needs of corporations, governments, financial
institutions and private clients through a global network of over 120
offices in more than 40 countries. Investment management is a core business
of Bankers Trust, built on a tradition of excellence from its roots as a
trust bank founded in 1930. The scope of Bankers Trust's investment
management capability is unique due to its leadership positions in both
active and passive quantitative management and its presence in major equity
and fixed income markets around the world. Bankers Trust has assets under
management globally of approximately $215 billion. Of that total,
approximately $69 billion are in actively managed fixed-income funds. This
makes Bankers Trust one of the nation's leading managers of fixed income
funds.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled
fund structures. Now, the BT Family of Funds brings Bankers Trust's
extensive investment management expertise--once available to only the
largest institutions in the U.S.--to individual investors. Bankers Trust's
officers have had extensive experience in managing investment portfolios
having objectives similar to those of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment
decisions for the Portfolio, places orders to purchase and sell securities
and other financial instruments on behalf of the Portfolio and employs
professional investment managers and securities analysts who provide
research services to the Portfolio. All orders for investment transactions
on behalf of the Portfolio are placed by Bankers Trust with broker-dealers
and other financial intermediaries that it selects, including those
affiliated with Bankers Trust. A Bankers Trust affiliate will be used in
connection with a purchase or sale of an investment for the Portfolio only
if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. The Portfolio will not invest
in obligations for which Bankers Trust or any of its affiliates is the
ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents and customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee
from the Portfolio, computed daily and paid monthly at the annual rate of
0.25% of the average daily net assets of the Portfolio.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Portfolio
described in this Registration Statement without violation of the Glass-
Steagall Act or other applicable banking laws or regulations.
Under the administration and services agreement with the Portfolio (the
"Administration and Services Agreement"), Bankers Trust calculates the
value of the assets of the Portfolio and generally assists the Board of
Trustees in all aspects of the administration and operation of the
Portfolio. The Administration and Services Agreement provides for the
Portfolio to pay Bankers Trust a fee computed daily and paid monthly at the
rate of 0.05% of the average daily net assets of the Portfolio. Under the
Administration and Services Agreement, Bankers Trust may delegate one or
more of its responsibilities to others, including Edgewood Services, Inc.
(`Edgewood'') and its affiliates, at Bankers Trust's expense. For more
information see Part B.
The Portfolio bears its own expenses. Operating expenses for the
Portfolio generally consist of all costs not specifically borne by Bankers
Trust or Edgewood Services, Inc., 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.
Bankers Trust acts as Custodian of the assets of the Portfolio and serves
as the Transfer Agent for the Portfolio under the Administration and
Services Agreement with the Portfolio.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolio is organized as a trust under the laws of the State of New
York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Each investor is entitled to a vote
in proportion to the amount of its investment in the Portfolio. Investments
in the Portfolio may not be transferred, but an investor may withdraw all
or any portion of its investment at any time at net asset value. Investors
in the Portfolio (e.g., investment companies, insurance company separate
accounts and common and commingled trust funds) will each be liable for all
obligations of the Portfolio. However, the risk of an investor in the
Portfolio incurring financial loss on account of such liability is limited
to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations.
Investments in the Portfolio have no preemptive or conversion rights and
are fully paid and nonassessable, except as set forth below. The Portfolio
is not required and has no current intention to hold annual meetings of
investors, but the Portfolio will hold special meetings of investors when
in the judgment of the Trustees it is necessary or desirable to submit
matters for an investor vote. Changes in fundamental policies will be
submitted to investors for approval. Investors have under certain
circumstances (e.g., upon application and submission of certain specified
documents to the Trustees by a specified number of investors) the right to
communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also
have the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of investors. Upon liquidation
of the Portfolio, investors would be entitled to share pro rata in the net
assets of the Portfolio available for distribution to investors.
The net asset value of the Portfolio is calculated on each day on which
the New York Stock Exchange, Inc. ("NYSE") is open ("Portfolio Business
Day") (and on such other days as are deemed necessary in order to comply
with Rule 22c-1 under the 1940 Act). This determination is made each
Portfolio Business Day as of the close of regular trading on the NYSE
(currently 4:00 p.m., Eastern time or, in the event that the NYSE closes
early, at the time of such early closing) (the "Valuation Time").
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Portfolio Business Day. At the Valuation Time, on each
such business day, the value of each investor's beneficial interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, that represents that
investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or withdrawals, which are to be effected on that day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be re-computed as the percentage equal
to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of the Valuation Time, on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio effected on such day, and
(ii) the denominator of which is the aggregate net asset value of the
Portfolio as of the Valuation Time on such day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of
the investor's interest in the Portfolio as of the Valuation Time, on the
following business day of the Portfolio Business Day.
The "net income" of the Portfolio shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of the Portfolio, less
(ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Interest income
includes discount earned (including both original issue and market
discount) on discount paper accrued ratably to the date of maturity and any
net realized gains or losses on the assets of the Portfolio. All the net
income of the Portfolio is allocated pro rata among the investors in the
Portfolio. The net income is accrued daily and distributed monthly to the
investors in the Portfolio.
Under the anticipated method of operation of the Portfolio, the Portfolio
will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with
the governing instruments of the Portfolio) of the Portfolio's ordinary
income and capital gain in determining its income tax liability. The
determination of such share will be made in accordance with the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations promulgated
thereunder.
It is intended that the Portfolio's assets, income and distributions will
be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the
investor invested all of its assets in the Portfolio.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "General Description of the
Registrant" above.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined if an order is
received by the Portfolio by the designated cutoff time for each accredited
investor. The net asset value of the Portfolio is determined on each
Portfolio Business Day. The Portfolio's portfolio securities are valued
primarily on the basis of market quotations or, if quotations are not
readily available, by a method which the Board of Trustees believes
accurately reflects fair value.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times
as is reasonably practicable in order to enhance the yield on its assets,
investments must be made in Federal funds (i.e., monies credited to the
account of the Portfolio's custodian bank by a Federal Reserve Bank).
The Portfolio and Edgewood reserve the right to cease accepting
investments at any time or to reject any investment order.
The placement agent for the Portfolio is Edgewood. The principal business
address of Edgewood and its affiliates is Clearing Operations, P.O. Box
897, Pittsburgh, Pennsylvania 15230-0897. Edgewood receives no additional
compensation for serving as the placement agent for the Portfolio.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request
in proper form is furnished by the investor to the Portfolio by the
designated cutoff time for each accredited investor. The proceeds of a
withdrawal will be paid by the Portfolio in Federal funds normally on the
Portfolio Business Day the withdrawal is effected, but in any event within
seven days. The Portfolio reserves the right to pay redemptions in kind.
Unless requested by an investor, the Portfolio will not make a redemption
in kind to the investor, except in situations where that investor may make
redemptions in kind. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any withdrawal
may be suspended or the payment of the withdrawal proceeds postponed during
any period in which the NYSE is closed (other than weekends or holidays) or
trading on the NYSE is restricted or, to the extent otherwise permitted by
the 1940 Act, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
SHORT/INTERMEDIATE U.S. GOVERNMENT SECURITIES PORTFOLIO
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
General Information and History.....................1
Investment Objectives and Policies.....................1
Management of the Fund ................................8
Control Persons and Principal Holders of Securities ...10
Investment Advisory and Other Services ................10
Brokerage Allocation and Other Practices ..............12
Capital Stock and Other Securities ....................13
Purchase, Redemption and Pricing of Securities.........13
Tax Status ............................................14
Underwriters ..........................................14
Calculation of Performance Data........................14
Financial Statements ..................................14
Appendix
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ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
Part A contains additional information about the investment objective and
policies of Short/Intermediate U.S. Government Securities Portfolio (the
"Portfolio"). This Part B should only be read in conjunction with Part A.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), securities which are otherwise not readily marketable and
repurchase agreements having a remaining maturity of longer than seven
calendar days. Securities which have not been registered under the 1933 Act
are referred to as private placements or restricted securities and are
purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect
on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register
such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has recently adopted
Rule 144A, which allows a broader institutional trading market for
securities otherwise subject to restriction on their resale to the general
public. Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act of resales of certain securities to qualified
institutional buyers. Bankers Trust Company ("Bankers Trust"), as the
Portfolio's investment adviser (the "Adviser"), anticipates that the market
for certain restricted securities such as institutional commercial paper
will expand further as a result of this regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System
sponsored by the National Association of Securities Dealers, Inc. (the
"NASD").
The Adviser will monitor the liquidity of Rule 144A securities in the
Portfolio's portfolio securities under the supervision of the 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 wishing to purchase or sell the security; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer).
LENDING OF PORTFOLIO SECURITIES. The Portfolio has the authority to lend
portfolio securities to brokers, dealers and other financial organizations.
The Portfolio will not lend securities to Bankers Trust, Edgewood Services,
Inc. ("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% 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.
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 contract which are based on debt
securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-
backed securities and three-month U.S. Treasury Bills. The Portfolio may
also enter into futures contracts which are based on bonds issued by
entities other than the U.S. government.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit").
It is expected that the initial deposit would be approximately 1 1/2% to 5%
of a contract's face value. Daily thereafter, the futures contract is
valued and the payment of "variation margin" may be required, since each
day the Portfolio would provide or receive cash that reflects any decline
or increase in the contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the
delivery of securities with a different interest rate from that specified
in the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same
month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the
securities. Since all transactions in the futures market are made, offset
or fulfilled through a clearinghouse associated with the exchange on which
the contracts are traded, the Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, when the
Portfolio holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities
or foreign currencies. For example, if interest rates were expected to
increase, the Portfolio might enter into futures contracts for the sale of
debt securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt security in the Portfolio would
decline, but the value of the futures contracts to the Portfolio would
increase at approximately the same rate, thereby keeping the net asset
value of the Portfolio from declining as much as it otherwise would have.
The Portfolio could accomplish similar results by selling debt securities
and investing in bonds with short maturities when interest rates are
expected to increase. However, since the futures market is more liquid than
the cash market, the use of futures contracts as an investment technique
allows the Portfolio to maintain a defensive position without having to
sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated
purchases of debt securities at higher prices. Since the fluctuations in
the value of futures contracts should be similar to those of debt
securities, the Portfolio could take advantage of the anticipated rise in
the value of debt securities without actually buying them until the market
had stabilized. At that time, the futures contracts could be liquidated and
the Portfolio could then buy debt securities on the cash market. To the
extent the Portfolio enters into futures contracts for this purpose, the
assets in the segregated asset account maintained to cover the Portfolio's
obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio
in an amount equal to the difference between the fluctuating market value
of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such
futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial
deposit and variation margin requirements. Rather than meeting additional
variation margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather
than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast
of general interest rate trends by the Adviser may still not result in a
successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes
that use of such contracts will benefit the Portfolio, if the Adviser's
investment judgment about the general direction of interest rates is
incorrect, the Portfolio's overall performance would be poorer than if it
had not entered into any such contract. For example, if the Portfolio has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its portfolio and
interest rates decrease instead, the Portfolio will lose part or all of the
benefit of the increased value of its debt securities which it has hedged
because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Portfolio has insufficient cash, it
may have to sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not necessarily
be, at increased prices which reflect the rising market. The Portfolio may
have to sell securities at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Portfolio intends to purchase and write
options on futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the purchase of
a call option on an individual security. Depending on the pricing of the
option compared to either the price of the futures contract upon which it
is based or the price of the underlying debt securities, it may or may not
be less risky than ownership of the futures contract or underlying debt
securities. As with the purchase of futures contracts, when the Portfolio
is not fully invested it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Portfolio's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable upon exercise of the futures contract. If the futures
price at expiration of the option is higher than the exercise price, the
Portfolio will retain the full amount of the option premium which provides
a partial hedge against any increase in the price of securities which the
Portfolio intends to purchase. If a put or call option the Portfolio has
written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and
changes in the value of its futures positions, the Portfolio's losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, the Portfolio may purchase a put option on a futures contract
to hedge its portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above,
the purchase of an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value
of the option purchased.
The Board of Trustees has adopted the requirement that futures contracts
and options on futures contracts be used only as a hedge and not for
speculation. In addition to this requirement, the Board of Trustees has
also adopted two percentage restrictions on the use of futures contracts.
The first restriction is 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 would exceed 5% of the market value of the total assets of the
Portfolio.
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 a Portfolio to liquidate open
positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such options must
be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign
currency option exercises, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the
fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which
may not be present in the case of exchange-traded currency options. A
Portfolio's ability to terminate over-the-counter options will be more
limited than with exchange-traded options. It is also possible that broker-
dealers participating in over-the-counter options transactions will not
fulfill their obligations. Until such time as the staff of the SEC changes
its position, each Portfolio will treat purchased over-the-counter options
and assets used to cover written over-the-counter options as illiquid
securities. With respect to options written with primary dealers in U.S.
government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign
exchanges. Such transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected
by: (i) other complex foreign political and economic factors; (ii) lesser
availability than in the United States of data on which to make trading
decisions; (iii) delays in the Portfolio's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in the United
States; (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States; and
(v) lesser trading volume.
OPTIONS ON SECURITIES. The Portfolio may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options")
in an attempt to increase income. However, the Portfolio may forgo the
benefits of appreciation on securities sold or may pay more than the market
price on securities acquired pursuant to call and put options written by
the Portfolio.
When the Portfolio writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified
in the option (the "exercise price") by exercising the option at any time
during 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." 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 at may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The
purchase of a call option would entitle the Portfolio, in exchange for the
premium paid, to purchase a security at a specified price during the option
period. The Portfolio would ordinarily have a gain if the value of the
securities increased above the exercise price sufficiently to cover the
premium and would have a loss if the value of the securities remained at or
below the exercise price during the option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective
puts") or securities of the type in which it is permitted to invest. The
purchase of a put option would entitle the Portfolio, in exchange for the
premium paid, to sell a security, which may or may not be held in the
Portfolio's portfolio securities, 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 portfolio
securities. Put options also may be purchased by the Portfolio for the
purpose of affirmatively benefiting from a decline in the price of
securities which the Portfolio does not own. The Portfolio would ordinarily
recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss
if the value of the securities remained at or above the exercise price.
Gains and losses on the purchase of protective put options would tend to be
offset by countervailing changes in the value of underlying portfolio
securities.
The Portfolio has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The Portfolio's activities
in options may also be restricted by the requirements of the Internal
Revenue Code of 1986, as amended (the `Code''), for qualification as a
regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options,
and there can be no assurance that viable exchange markets will develop or
continue.
The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately
ten broker-dealers, including several of the largest primary dealers in
U.S. government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker
rather than an exchange, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. To
reduce this risk, the Portfolio will purchase such options only from
broker-dealers who are primary government securities dealers recognized by
the Federal Reserve Bank of New York and who agree to (and are expected to
be capable of) entering into closing transactions, although there can be no
guarantee that any such option will be liquidated at a favorable price
prior to expiration. The Adviser will monitor the creditworthiness of
dealers with whom the Portfolio enters into such options transactions under
the general supervision of the Portfolio's Trustees.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
Portfolio may also purchase and write (sell) call and put options on
securities indices. Such options give the holder the right to receive a
cash settlement during the term of the option based upon the difference
between the exercise price and the value of the index. Such options will be
used for the purposes described above under "Options on Securities."
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close
out options positions on securities indices is more likely to occur,
although the Portfolio generally will only purchase or write such an option
if the Adviser believes the option can be closed out.
Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included
in the index is interrupted. The Portfolio will not purchase such options
unless the Adviser believes the market is sufficiently developed such that
the risk of trading in such options is no greater than the risk of trading
in options on securities.
Price movements in the Portfolio's portfolio securities may not correlate
precisely with movements in the level of an index and, therefore, the use
of options on indices cannot serve as a complete hedge. Because options on
securities indices require settlement in cash, the Adviser may be forced to
liquidate portfolio securities to meet settlement obligations.
RATING SERVICES. The ratings of rating services represent their opinions
as to the quality of the securities that they undertake to rate. It should
be emphasized, however, that ratings are relative and subjective and are
not absolute standards of quality. Although these ratings are an initial
criterion for selection of portfolio investments, Bankers Trust also makes
its own evaluation of these securities, subject to review by the Board of
Trustees. After purchase by the Portfolio, an obligation may cease to be
rated or its rating may be reduced below the minimum required for purchase
by the Portfolio. Neither event would require the Portfolio to eliminate
the obligation from its portfolio, but Bankers Trust will consider such an
event in its determination of whether the Portfolio should continue to
hold the obligation. A description of the ratings used is set forth in the
Appendix.
INVESTMENT RESTRICTIONS
The following investment restrictions "fundamental policies," of the
Portfolio and may not be changed without approval by holders of a "majority
of the outstanding shares" of the Portfolio, which as used in this
Registration Statement means the vote of the lesser of (i) 67% or more of
the outstanding "voting securities" of the Portfolio present at a meeting,
if the holders of more than 50% of the outstanding "voting securities" of
the Portfolio are present or represented by proxy, or (ii) more than 50% of
the outstanding "voting securities" of the Portfolio. The term "voting
securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act").
As a matter of fundamental policy, the Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks and
only either to accommodate requests for the withdrawal of beneficial
interests while effecting an orderly liquidation of portfolio securities or
to maintain liquidity in the event of an unanticipated failure to complete
a portfolio security transaction or other similar situations) or reverse
repurchase agreements, provided that collateral arrangements with respect
to options and futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute; for additional
related restrictions, see clause (i) under the caption "Additional
Restrictions" below. (As an operating policy, the Portfolio may not engage
in dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's total assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt securities
of types distributed publicly or privately (under current regulations, the
Portfolio's fundamental policy with respect to 20% risk weighting for
financial institutions prevent the Portfolio from engaging in securities
lending);
(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business
(except that the Portfolio may hold and sell, for the Portfolio's portfolio
securities, real estate acquired as a result of the Portfolio's ownership
of securities);
(5) concentrate its investments in any particular industry (excluding U.S.
government securities), but if it is deemed appropriate for the achievement
of the Portfolio's investment objective, up to 25% of its total assets may
be invested in any one industry; and
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and
policies the Portfolio will not as a matter of operating policy:
(i) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's assets (taken at cost), except
that the Portfolio may borrow for temporary or emergency purposes up to 1/3
of its total assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, and reverse repurchase
agreements are not considered a pledge of assets for purposes of this
restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale aright to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided, however,
that securities of any investment company will not be purchased for the
Portfolio if such purchase at the time thereof would cause (a) more than
10% of the Portfolio's total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers; (b) more than 5%
of the Portfolio's total assets (taken at the greater of cost or market
value) to be invested in any one investment company; or (c) more than 3% of
the outstanding voting securities of any such issuer to be held for the
Portfolio; provided further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any securities of any open-
end investment company unless the Portfolio (1) waives the investment
advisory fee with respect to assets invested in other open-end investment
companies and (2) incurs no sales charge in connection with the investment
(as an operating policy the Portfolio will not invest in another open-end
registered investment company);
(vii) invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable not including (a) Rule 144A securities that have been
determined to be liquid by the Board of Trustees; and (b) commercial paper
that is sold under section 4(2) of the 1933 Act which: (i) is not traded
flat or in default as to interest or principal; and (ii) is rated in one of
the two highest categories by at least two nationally recognized
statistical rating organizations and the Portfolio's (Fund's) Board of
Trustees have determined the commercial paper to be liquid; or (iii) is
rated in one of the two highest categories by one nationally recognized
statistical rating agency and the Portfolio's (Fund's) Board of Trustees
have determined that the commercial paper is equivalent quality and is
liquid;
(viii) invest more than 10% of the Portfolio's total assets (taken at the
greater of cost or market value) in securities that are restricted as to
resale under the 1933 Act (other than Rule 144A securities deemed liquid by
the Portfolio's Board of Trustees);
(ix) no more than 5% of the Portfolio's total assets are invested in
securities issued by issuers which (including predecessors) have been in
operation less than three years;
(x) with respect to 75% of the Portfolio's total assets, purchase
securities of any issuer if such purchase at the time thereof would cause
the Portfolio to hold more than 10% of any class of securities of such
issuer, for which purposes all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be subject to this
restriction;
(xi) if the Portfolio is a "diversified" fund with respect to 75% of its
assets, invest more than 5% of its total assets in the securities
(excluding U.S. government securities) of any one issuer;
(xii) purchase or retain in the Portfolio's portfolio securities any
securities issued by an issuer any of whose officers, directors, trustees
or security holders is an officer or Trustee of the Portfolio, or is an
officer or partner of the Adviser, if after the purchase of the securities
of such issuer for the Portfolio one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons owning more than
1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities, or both, all taken at market value;
(xiii) invest more than 5% of the Portfolio's net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by
the Portfolio as part of a unit or attached to securities at the time of
purchase), but not more than 2% of the Portfolio's net assets may be
invested in warrants not listed on the New York Stock Exchange, Inc.
("NYSE") or the American Stock Exchange;
(xiv) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue and equal in
amount to, the securities sold short, and unless not more than 10% of the
Portfolio's net assets (taken at market value) is represented by such
securities, or securities convertible into or exchangeable for such
securities, at any one time (the Portfolio has no current intention to
engage in short selling);
(xv) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is within
the investment policies of the Portfolio and the option is issued by the
Options Clearing Corporation, except for put and call options issued by
non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate value of the obligations underlying the puts
determined as of the date the options are sold shall not exceed 50% of the
Portfolio's net assets; (c) the securities subject to the exercise of the
call written by the Portfolio must be owned by the Portfolio at the time
the call is sold and must continue to be owned by the Portfolio until the
call has been exercised, has lapsed, or the Portfolio has purchased a
closing call, and such purchase has been confirmed, thereby extinguishing
the Portfolio's obligation to deliver securities pursuant to the call it
has sold; and (d) at the time a put is written, the Portfolio establishes a
segregated account with its custodian consisting of cash or short-term U.S.
government securities equal in value to the amount the Portfolio will be
obligated to pay upon exercise of the put (this account must be maintained
until the put is exercised, has expired, or the Portfolio has purchased a
closing put, which is a put of the same series as the one previously
written); and
(xvi) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons and: (a)
the options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all such options which are held at any time do
not exceed 20% of the Portfolio's total net assets; and (c) the aggregate
margin deposits required on all such futures or options thereon held at any
time do not exceed 5% of the Portfolio's total assets.
ITEM 14. MANAGEMENT OF THE FUND.
The Board of Trustees is composed of persons experienced in financial
matters who meet throughout the year to oversee the activities of the
Portfolio. In addition, the Trustees review contractual arrangements with
companies that provide services to the Portfolio.
The Trustees and officers of the Portfolio and their principal
occupations during the past five years are set forth below. Their titles
may have varied during that period. Unless otherwise indicated below, the
address of each officer is Clearing Operations, P.O. Box 897, Pittsburgh,
Pennsylvania 15230-0897.
TRUSTEES
PHILIP W. COOLIDGE* (birthdate: September 2, 1951 ) -- Trustee and
President; Chairman, Chief Executive Officer and President, Signature
Financial Group, Inc. ("SFG") (since December, 1988) and Signature (since
April, 1989). His address is 6 St. James Avenue, Boston, Massachusetts
02116.
CHARLES P. BIGGAR (birthdate: July 15, 1937) -- 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.
* indicates an `interested person'' (as defined in the 1940 Act) of the
Portfolio.
OFFICERS
RONALD M. PETNUCH (birthdate: February 27, 1960) President and Treasurer;
Senior Vice President, Federated Services Company (`FSC''); formerly,
Director of Proprietary Client Services, Federated Administrative Services
(`FAS''), and Associate Corporate Counsel, Federated Investors (``FI'').
CHARLES L. DAVIS, JR. (birthdate: March 23, 1960) Vice President and
Assistant Treasurer; Vice President, FAS.
JAY S. NEUMAN (birthdate: April 22, 1950) Secretary; Corporate Counsel,
FI.
Messrs. Coolidge, Petnuch, Davis, and Neuman also hold similar positions
for other investment companies for which Edgewood or an affiliate serves as
the principal underwriter.
The following table reflects fees paid to the Trustees of the Portfolio for
the year ended September 30, 1996.
TRUSTEES COMPENSATION TABLE
Name, Aggregate Total
Position With Compensation Compensation From
Trust/Portfolio From Portfolio Fund Complex*
Philip W. Coolidge none none
Trustee of Trust
and Portfolio
Charles P. Biggar none none
Trustee of Portfolio
S. Leland Dill none none
Trustee of Portfolio
Philip Saunders, Jr. none none
Trustee of the Portfolio
* Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional
Funds, BT Pyramid Funds, BT Advisor Funds, BT Investment Portfolios,
Cash Management Portfolio, Treasury Money Portfolio, Tax Free Money
Portfolio, NY Tax Free Money Portfolio, International Equity
Portfolio, Utility Portfolio, Short Intermediate US Government
Securities Portfolio, Intermediate Tax Free Portfolio, Asset
Management Portfolio, Equity 500 Index Portfolio, and Capital
Appreciation Portfolio.
The Portfolio's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or unless with respect to any other
matter it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of the
Portfolio. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving
the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that
such officers or Trustees have not engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of December 31, 1996, Short/Intermediate U.S. Government Securities
Fund, a Fund in the BY Pyramid Mutual Funds, owned approximately 100% of
the value of the outstanding interests in the Portfolio.
Each Fund has informed the Portfolio that whenever it is requested to vote
on matters pertaining to the fundamental policies of the Portfolio, the
Fund will hold a meeting of shareholders and will cast its votes as
instructed by the Fund's shareholders. It is anticipated that other
registered investment companies investing in the Portfolio will follow the
same or a similar practice.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
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
Advisors Act of 1940, as the same may from time to time be amended; (ii)
manage the Portfolio in accordance with the Portfolio's investment
objectives, restrictions and policies as stated herein; (iii) make
investment decisions for the Portfolio; and (iv) place purchase and sale
orders for securities and other financial instruments on behalf of the
Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Portfolio bears certain other
expenses incurred in its operation, including; taxes, interest, brokerage
fees and commissions, if any; fees of 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 Portfolio, and any extraordinary expenses.
The Adviser furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the Portfolio's investments
and effecting securities transactions for the Portfolio. The Advisory
Agreement will continue in effect if such continuance is specifically
approved at least annually by the Board of Trustees or by a majority vote
of the investors in the Portfolio (with the vote of each being in
proportion to the amount of its investment) and, in either case, by a
majority of the Portfolio's Trustees who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for
the purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty on 60 days' written
notice by the Portfolio when authorized either by majority vote of the
investors in the Portfolio (with the vote of each being in proportion to
the amount of its investment) or by a vote of a majority of its Board of
Trustees, or by the Adviser, and will automatically terminate in the event
of its assignment. The Advisory Agreement provides that neither the Adviser
nor its personnel shall be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or
omission in the execution of security transactions for the Portfolio,
except for willful misfeasance, bad faith or gross negligence or of
reckless disregard of its or their obligations and duties under the
Advisory Agreement.
For the period from January 1, 1996 to September 30, 1996, and for the
fiscal years ended December 31, 1995, and 1994, Bankers Trust earned
$100,786, $130,819, and $90,050, respectively, in compensation for
investment advisory services provided to the Portfolio. During the same
periods, Bankers Trust reimbursed $20,932, $25,406, and $31,703,
respectively, to the Portfolio to cover expenses.
Pursuant to an administration and services agreement (the "Administration
Agreement"), Bankers Trust provides administration services to the
Portfolio. Under the Administration Agreement, Bankers Trust is obligated
on a continuous basis to provide such administrative services as the Board
of Trustees reasonably deems necessary for the proper administration of the
Portfolio. Bankers Trust will generally assist in all aspects of the
Portfolio's operations; supply and maintain the Portfolio with office
facilities (which may be in Bankers Trust's own offices), statistical and
research data, data processing services, clerical, accounting, bookkeeping
and recordkeeping services (including without limitation the maintenance of
such books and records as are required under the 1940 Act and the rules
thereunder, except as maintained by other agents of the Portfolio),
internal auditing, executive and administrative services, and stationery
and office supplies; prepare reports to investors; prepare and file tax
returns; supply financial information and supporting data for reports to
and filings with the SEC; supply supporting documentation for meetings of
the Board of Trustees; provide monitoring reports and assistance regarding
compliance with the Portfolio's Declaration of Trust, By-Laws, investment
objective and policies and with Federal and state securities laws; arrange
for appropriate insurance coverage; calculate the net asset value, net
income and realized capital gains or losses of the Portfolio; and negotiate
arrangements with, and supervise and coordinate the activities of, agents
and others retained by the Portfolio to supply services to the Portfolio
and/or its investors.
Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement"), FSC performs such sub-administration duties for the Portfolio
as from time to time may be agreed upon by Bankers Trust and FSC. The Sub-
Administration Agreement provides that FSC will receive such compensation
as from time to time may be agreed upon by FSC and Bankers Trust. All such
compensation will be paid by Bankers Trust.
For the period from January 1, 1996 to September 30, 1996, and for the
fiscal years ended December 31, 1995 and 1994, Bankers Trust earned
$20,157, $26,164, and $18,010, respectively, in compensation for
administrative and other services provided to the Portfolio. Bankers Trust
reimbursed the Portfolio for a portion of its administrative and services
fees for the periods above. See "Investment Advisory and Other Services"
above.
Bankers Trust also provides fund accounting, transfer agency and custodian
services to the Portfolio pursuant to the Administration Agreement.
Coopers & Lybrand L.L.P. are the Independent Accountants for the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC. The
principal business address of Coopers & Lybrand L.L.P. is 1100 Main Street,
Suite 900, Kansas City, Missouri 64105.
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022-4669, serves as Counsel to the Portfolio.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the
Portfolio, the selection of brokers, dealers and futures commission
merchants to effect transactions and the negotiation of brokerage
commissions, if any. Broker- dealers may receive brokerage commissions on
portfolio transactions, including options, futures and options on futures
transactions and the purchase and sale of underlying securities upon the
exercise of options. Orders may be directed to any broker-dealer or futures
commission merchant, including to the extent and in the manner permitted by
applicable law, Bankers Trust or its subsidiaries or affiliates. Purchases
and sales of certain portfolio securities on behalf of the Portfolio are
frequently placed by the Adviser with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Portfolio. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Transaction costs may
also include fees paid to third parties for information as to potential
purchasers or sellers of securities. Purchases of underwritten issues may
be made which will include an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and
skill required of the executing broker-dealer through familiarity with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the Portfolio to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, when placing portfolio transactions for the Portfolio
with a broker to pay a brokerage commission (to the extent applicable) in
excess of that which another broker might have charged for effecting the
same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical
information" includes advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the
availability of securities or purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts.
Consistent with the policy stated above, the Rules of Fair Practice of the
NASD and such other policies as the Portfolio's Trustees may determine, the
Adviser may consider sales of shares of the Portfolio's investors 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 in concerned. However, it is believed
that the ability of the Portfolio to participate in volume transactions
will produce better executions for the Portfolio.
For the period from January 1, 1996 to September 30, 1996, and for the
fiscal years ended December 31, 1995 and 1994, the Portfolio did not incur
brokerage commissions.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain and
credit of the Portfolio. Upon liquidation or dissolution of the Portfolio,
investors are entitled to share pro rata in the Portfolio's net assets
available for distribution to its investors. Investments in the Portfolio
have no preference, preemptive, conversion or similar rights and are fully
paid and nonassessable, except as set forth below. Investments in the
Portfolio may not be transferred. Certificates representing an investor's
beneficial interest in the Portfolio are issued only upon the written
request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have
cumulative voting rights, and investors holding more than 50% of the
aggregate beneficial interest in the Portfolio may elect all of the
Trustees if they choose to do so and in such event the other investors in
the Portfolio would not be able to elect any Trustee. The Portfolio is not
required and has no current intention to hold annual meetings of investors
but the Portfolio will hold special meetings of investors when in the
judgment of the Portfolio's Trustees it is necessary or desirable to submit
matters for an investor vote. No material amendment may be made to the
Portfolio's Declaration of Trust without the affirmative majority vote of
investors (with the vote of each being in proportion to the amount of its
investment).
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds of
its investors (with the vote of each being in proportion to its percentage
of the beneficial interests in the Portfolio), except that if the Trustees
recommend such sale of assets, the approval by vote of a majority of the
investors (with the vote of each being in proportion to its percentage of
the beneficial interests of the Portfolio) will be sufficient. The
Portfolio may also be terminated (i) upon liquidation and distribution of
its assets if approved by the vote of two thirds of its investors (with the
vote of each being in proportion to the amount of its investment) or (ii)
by the Trustees by written notice to its investors.
The Portfolio is organized as a trust under the laws of the State of New
York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater
portion of the liabilities and obligations of the Portfolio than its
proportionate beneficial interest in the Portfolio. The Declaration of
Trust also provides that the Portfolio shall maintain appropriate insurance
(for example, fidelity bonding and errors and omissions insurance) for the
protection of the Portfolio, its investors, Trustees, officers, employees
and agents covering possible tort and other liabilities. Thus, the risk of
an investor incurring financial loss on account of investor liability is
limited to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations.
The Declaration of Portfolio further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects
a Trustee against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
ITEM 19. PURCHASE, REDEMPTION, AND PRICING OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "Purchase of Securities" and
"Redemption or Repurchase" in Part A.
The Portfolio determines its net asset value on each day on which the NYSE
is open ("Portfolio Business Day"). This determination is made each
Portfolio Business Day as of the close of regular trading on the NYSE
(currently 4:00 p.m., Eastern time) (the "Valuation Time") by dividing the
value of the Portfolio's net assets (i.e., the value of its securities and
other assets less its liabilities, including expenses payable or accrued)
by the value of the investment of the investors in the Portfolio at the
time the determination is made. (As of the date of this Registration
Statement, the NYSE is open for trading every weekday except for (a) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas; and (b)
the preceding Friday of the subsequent Monday when one of the calendar-
determined holidays falls on a Saturday or Sunday, respectively. Purchases
and withdrawals will be effected at the time of determination of net asset
value next following the receipt of any purchase or withdrawal order.
Equity and debt securities (other than short-term debt obligations maturing
in 60 days or less), including listed securities and securities for which
price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt
obligations and money market securities maturing in 60 days or less are
valued at amortized cost, which approximates market. Other assets are
valued at fair value using methods determined in good faith by the Board of
Trustees.
ITEM 20. TAX STATUS.
The Portfolio is organized as a trust under New York law. Under the
anticipated method of operation of the Portfolio, the Portfolio will not be
subject to any income tax. However each investor in the Portfolio will be
taxable on its share (as determined in accordance with the governing
instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of
such share will be made in accordance with the Internal Revenue Code of
1986, as amended (the "Code"), and regulations promulgated thereunder.
The Portfolio's taxable year-end is December 31. Although, as described
above, the Portfolio will not be subject to Federal income tax, it will
file appropriate income tax returns.
It is intended that the Portfolio's assets, income and distributions will
be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the
investor invested all of its assets in the Portfolio.
There are certain tax issues that will be relevant to only certain of the
investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to the Portfolio. It is
intended that such segregated asset accounts will be able to satisfy
diversification requirements applicable to them and that such contributions
of assets will not be taxable provided certain requirements are met. Such
investors are advised to consult their own tax advisors as to the tax
consequences of an investment in the Portfolio.
ITEM 21. UNDERWRITERS.
The placement agent for the Portfolio is Edgewood, which receives no
additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the
Portfolio.
ITEM 22. CALCULATION OF FUND PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The following financial statements of the Portfolio dated September 30,
1996 have been filed with the SEC pursuant to Section 30(b) of the 1940 Act
and Rule 30b2-1 thereunder and are hereby incorporated herein by reference.
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights: Selected ratios and supplemental data for each
of the periods presented
Schedule of Portfolio of Investments
Notes to Financial Statements
Report of Independent Accountants
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the ratings of Moody's and S&P, which
represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.
S&P'S BOND RATINGS
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt
rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated "AA" has a
very strong capacity to pay interest and to repay principal and differs
from the highest rated issues only in small degree.
The rating "AA" may be modified by the addition of a plus or minus sign to
show relative standing within such category.
MOODY'S BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa judged
to be the best quality, carry the smallest degree of investment risk; Aa
judged to be of high quality by all standards.
FITCH INVESTORS SERVICE BOND RATINGS
AAA. Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, and liable to but slight market fluctuation other than
through changes in the money rate. The factor last named is of importance
varying with the length of maturity. Such securities are mainly senior
issues of strong companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this rating. The
prime feature of an AAA rating is showing of earnings several times or many
times interest requirements with such stability of applicable earnings that
safety is beyond reasonable question whatever changes occur in conditions.
Other features may enter in, such as a wide margin of protection through
collateral security or direct lien on specific property as in the case of
high class equipment certificates or bonds that are first mortgages on
valuable real estate. Sinking funds or voluntary reduction of the debt by
call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.
AA. Securities in this group are of safety virtually beyond question, and
as a class are readily salable while many are highly active. Their merits
are not greatly unlike those of the AAA class, but a security so rated may
be of junior though strong lien in many cases directly following an AAA
security or the margin of safety is less strikingly broad. The issue may be
the obligation of a small company, strongly secured but influenced as to
ratings by the lesser financial power of the enterprise and more local type
of market.
FITCH INVESTORS SERVICE AND DUFF & PHELPS COMMERCIAL PAPER RATINGS
Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for
timely payment. "Fitch-2" is considered very good grade paper and reflects
an assurance of timely payment only slightly less in degree than the
strangest issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by strong fundamental protection factors, and
risk factors which are very small. Issues rated "Duff 2" have a good
certainty of timely payment, sound liquidity factors and company
fundamentals, small risk factors, and good access to capital markets.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a)Financial Statements:
Incorporated by reference to the Annual Report of BT
Investment Funds dated September 30, 1996, pursuant to Rule
411 under the Securities Act of 1933. (File Nos. 33-62103
and 811-7347)
(b)Exhibits:
(1) (i) Conformed copy of Declaration of Trust of the
Registrant; (2)
(ii) Confomed copy of Amendment No. 1 to the
Declaration of Trust of the Registrant; (2)
(2) Copy of By-Laws of the Registrant; (2)
(3) Not applicable;
(4) Not applicable;
(5) Conformed copy of Advisory Agreement between the
Registrant and Bankers Trust Company (``Bankers
Trust''); (2)
(6) Not applicable;
(7) Not applicable;
(8) Not applicable;
(9) Conformed copy of Administration and Services
Agreement between the Registrant and Bankers Trust; (1)
(10) Not applicable;
(11) Not applicable;
(12) Not applicable;
(13) Investment representation letters of initial investors;
(1)
(14) Not applicable;
(15) Not applicable;
(16) Not applicable;
(17) Copy of Financial Data Schedule; +
(18) Not applicable;
(19) Conformed copy of Power of Attorney. +
+ All exhibits have been filed electronically.
1.Previously filed on June 9, 1992.
2.Response is incorporated by reference to Registrant's Amendment No. 3 on
Form N-1A filed April 24, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of December 31, 1996
Beneficial Interests 1
Item 27. Indemnification: (2)
Item 28. Business and Other Connections of Investment Adviser:
Bankers Trust serves as investment adviser to the Trust. Bankers Trust, a
New York banking corporation, is a wholly owned subsidiary of Bankers Trust
New York Corporation. Bankers Trust conducts a variety of commercial
banking and trust activities and is a major wholesale supplier of financial
services to the international institutional market.
To the knowledge of the Trust, none of the directors or officers of Bankers
Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, that certain
directors and officers also hold various positions with and engage in
business for Bankers Trust New York Corporation. Set forth below are the
names and principal businesses of the directors and officers of Bankers
Trust who are engaged in any other business, profession, vocation or
employment of a substantial nature.
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Retired Senior Vice President and Director,
Member of Advisory Board of International Business Machines Corporation.
Director of Bankers Trust and Bankers Trust New York Corporation. Director
of FlightSafety International, Inc. Director of Phillips Petroleum
Company. Director of Roadway Services, Inc. Director of Rohm and Haas
Company.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman of the Board and Chief Executive Officer, J.C. Penney
Company, Inc. Director of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of Exxon Corporation, Halliburton Company and
Warner-Lambert Corporation.
Jon M. Huntsman, Huntsman Chemical Corporation, 2000 Eagle Gate Tower, Salt
Lake City, UT 84111. Chairman and Chief Executive Officer, Huntsman
Chemical Corporation, Director of Bankers Trust and Bankers Trust New York
Corporation. Chairman of Constar Corporation, Huntsman Corporation,
Huntsman Holdings Corporation and Petrostar Corporation. President of
Autostar Corporation, Huntsman Polypropylene Corporation and Restar
Corporation. Director of Razzleberry Foods Corporation and Thiokol
Corporation. General Partner of Huntsman Group Ltd., McLeod Creek
Partnership and Trustar Ltd.
2.Response is incorporated by reference to Registrant's Amendment No. 4 on
Form N-1A filed April 24, 1996.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP. Director of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of American Express Company, Corning
Incorporated, Dow Jones, Inc., J.C. Penney Company, Inc., RJR except
Nabisco Inc., Revlon Group Incorporated, Ryder System, Inc., Sara Lee
Corporation, Union Carbide Corporation and Xerox Corporation.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10017. Chairman of the Executive Committee, Philip Morris Companies Inc.
Director of Bankers Trust and Bankers Trust New York Corporation. Director
of The News Corporation Limited.
Donald F. McCullough, Collins & Aikman Corporation, 210 Madison Avenue, New
York, NY 10016. Chairman Emeritus, Collins & Aikman Corporation.
Director of Bankers Trust and Bankers Trust New York Corporation. Director
of Massachusetts Mutual Life Insurance Co. and Melville Corporation.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Former
President, Co-Chief Executive Officer and Director of Time Warner Inc.
Director of Bankers Trust and Bankers Trust New York Corporation. Also a
Director of Xerox Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group. Director of Bankers Trust and Bankers Trust New York Corporation.
Also Director of Allied-Signal Inc., Contel Cellular, Inc., Federal Home
Loan Mortgage Corporation, GTE Corporation, Goodyear Tire & Rubber Company,
Imasco Limited, May Department Stores Company and Safeguard Scientifics,
Inc. Member, Radnor Venture Partners Advisory Board.
Didier Pineau-Valencienne, Schneider S.A., 4 Rue de Longchamp, 75116 Paris,
France. Chairman and Chief Executive Officer, Schneider S.A. Director and
member of the European Advisory Board of Bankers Trust and Director of
Bankers Trust New York Corporation. Director of AXA (France) and Equitable
Life Assurance Society of America, Arbed (Luxembourg), Banque Paribas
(France), Ciments Francais (France), Cofibel (Belgique), Compagnie
Industrielle de Paris (France), SIAPAP, Schneider USA, Sema Group PLC
(Great Britain), Spie- Batignolles, Tractebel (Belgique) and Whirlpool.
Chairman and Chief Executive Officer of Societe Parisienne d'Entreprises et
de Participations.
Charles S. Sanford, Jr., Bankers Trust Company, 280 Park Avenue, New York,
NY 10017. Chairman of the Board of Bankers Trust and Bankers Trust New
York Corporation. Also a Director of Mobil Corporation and J.C. Penney
Company, Inc.
Eugene B. Shanks, Jr., Bankers Trust Company, 280 Park Avenue, New York, NY
10017. President of Bankers Trust and Bankers Trust New York Corporation.
Patricia Carry Stewart, c/o Office of the Secretary, 280 Park Avenue, New
York, NY 10017. Former Vice President, The Edna McConnell Clark
Foundation. Director of Bankers Trust and Bankers Trust New York
Corporation. Director, Borden Inc., Continental Corp. and Melville
Corporation.
George J. Vojta, Bankers Trust Company, 280 Park Avenue, New York, NY
10017. Vice Chairman of the Board of Bankers Trust and Bankers Trust New
York Corporation. Director of Northwest Airlines and Private Export
Funding Corp.
Item 29. Principal Underwriters:
Not applicable.
ITEM 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:
Registrant: Federated Investor Tower, Pittsburgh, PA
15222-3779.
Bankers Trust Company: 280 Park Avenue, New York, NY
10017.
Investors Fiduciary Trust Company: 127 West 10th Street, Kansas City, MO
64105.
Edgewood Services, Inc.: Clearing Operations, P.O. Box 897,
Pittsburgh, PA 15230-0897.
Item 31. Management Services:
Not applicable.
Item 32. Undertakings:
Not applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant, SHORT/INTERMEDIATE U.S. GOVERNMENT SECURITIES PORTFOLIO, has
duly caused this Amendment to its Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereto duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania on the 29th day of
January, 1997.
SHORT/INTERMEDIATE U.S. GOVERNMENT SECURITIES PORTFOLIO
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
January 29, 1997
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/ Philip W. Coolidge Trustee of each Trust and
Philip W. Coolidge Portfolio Trust
/s/ Charles P. Biggar Trustee of each Portfolio Trust
Charles P. Biggar and BT Institutional Funds
SIGNATURES TITLE
/s/ S. Leland Dill Trustee of each Portfolio Trust
S. Leland Dill and BT Investment Funds
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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