1940 Act File No. 811-6698
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
EQUITY 500 INDEX 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. This Registration Statement
does not constitute an offer to sell, or the solicitation of an offer to
buy, any beneficial interests in the Registrant.
EQUITY 500 INDEX 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
Equity 500 Index 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 to provide investment results
that, before expenses, correspond to the total return (i.e., the
combination of capital changes and income) of common stocks publicly traded
in the United States, as represented by the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500" or "Index").
Additional information about the investment policies of the Portfolio
appears in Part B.
The Portfolio is not managed according to traditional methods of
"active" investment management, which involve the buying and selling of
securities based upon economic, financial, and market analyses and
investment judgment. Instead, the Portfolio, utilizing a "passive" or
"indexing" investment approach, attempts to duplicate, before expenses, the
performance of the S&P 500. There is no assurance that the Portfolio will
achieve its investment objective.
Under normal conditions when the Portfolio's assets are above $10 million,
the Portfolio will invest at least 80% of its assets in common stocks of
companies which compose the S&P 500. In seeking to duplicate the
performance of the S&P 500, Bankers Trust Company ("Bankers Trust"), as the
Portfolio's investment adviser (the "Adviser"), will attempt over time to
allocate the Portfolio's portfolio of investments among common stocks in
approximately the same weightings as the S&P 500, beginning with the
heaviest-weighted stocks that make up a larger portion of the Index's
value. Over the long term, Bankers Trust seeks a correlation between the
performance of the Portfolio, before expenses, and that of the S&P 500 of
0.98 or better (0.95 or better if Portfolio asset levels are below $10
million). A figure of 1.00 would indicate perfect correlation. In the
unlikely event that the correlation is not achieved, the Board of Trustees
will consider alternative structures.
The Adviser utilizes a two-stage sampling approach in seeking to obtain its
objective. Stage one, which encompasses large cap stocks, maintains the
stock holdings at or near their benchmark weights. Large capitalization
stocks are defined as those securities which represent 0.10% or more of the
Index. In stage two, smaller stocks are analyzed and selected using risk
characteristics and industry weights in order to match the sector and risk
characteristics of the smaller companies in the S&P 500. This approach
helps to maximize portfolio liquidity while minimizing costs.
Bankers Trust generally will seek to match the composition of the S&P 500
but usually will not invest the Portfolio's stock portfolio to mirror the
Index exactly. Because of the difficulty and expense of executing
relatively small stock transactions, the Portfolio may not always be
invested in the less heavily weighted S&P 500 stocks, and may at times have
its portfolio weighted differently from the S&P 500, particularly if the
Portfolio has a low level of assets. When the Portfolio's size is greater,
Bankers Trust expects to purchase more of the stocks in the S&P 500 and to
match the relative weighting of the S&P 500 more closely, and anticipates
that the Portfolio will be able to mirror, before expenses, the performance
the S&P 500 with little variance at asset levels of $10 million or more. In
addition, the Portfolio may omit or remove any S&P 500 stock from the
Portfolio if, following objective criteria, Bankers Trust judges the stock
to be insufficiently liquid or believes the merit of the investment has
been substantially impaired by extraordinary events or financial
conditions. Bankers Trust will not purchase the stock of Bankers Trust New
York Corporation, which is included in the Index, and instead will
overweight its holdings of companies engaged in similar businesses.
Under normal conditions, Bankers Trust will attempt to invest as much of
the Portfolio's assets as is practical in common stocks included in the S&P
500. However, the Portfolio may maintain up to 25% of its assets in short-
term debt securities and money market instruments hedged with stock index
futures and options to meet redemption requests or to facilitate the
investment in common stocks.
When the Portfolio has cash from new investments in the Portfolio or holds
a portion of its assets in money market instruments, it may enter into
stock index futures or options to attempt to increase its exposure to the
stock market. Strategies the Portfolio could use to accomplish this include
purchasing futures contracts, writing put options, and purchasing call
options. When the Portfolio wishes to sell securities, because of
shareholder redemptions or otherwise, it may use stock index futures or
options to hedge against market risk until the sale can be completed. These
strategies could include selling futures contracts, writing call options,
and purchasing put options.
Bankers Trust will choose among futures and options strategies based on its
judgment of how best to meet the Portfolio's goals. In selecting futures
and options, Bankers Trust will assess such factors as current and
anticipated stock prices, relative liquidity and price levels in the
options and futures markets compared to the securities markets, and the
Portfolio's cash flow and cash management needs. If Bankers Trust judges
these factors incorrectly, or if price changes in the Portfolio's futures
and options positions are not well correlated with those of its other
investments, the Portfolio could be hindered in the pursuit of its
objective and could suffer losses. The Portfolio could also be exposed to
risks if it could not close out its futures or options positions because of
an illiquid secondary market.
SHORT-TERM INSTRUMENTS. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its
objective and long-term investment perspective. However, the Portfolio's
assets may be invested in short-term instruments with remaining maturities
of 397 days or less to meet anticipated redemptions and expenses or for
day-to-day operating purposes. Short-term instruments consist of: (i)
short-term obligations of the U.S. government, its agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-
term debt securities rated Aa or higher by Moody's Investors Service, Inc.
("Moody's") or AA or higher by Standard & Poor's Rating Group ("S&P") or,
if unrated, of comparable quality in the opinion of Bankers Trust; (iii)
commercial paper; (iv) bank obligations, including negotiable certificates
of deposit, time deposits and bankers' acceptances; and (v) repurchase
agreements. At the time the Portfolio invests in commercial paper, bank
obligations or repurchase agreements, the issuer or the issuer's parent
must have outstanding debt rated Aa or higher by Moody's or AA or higher by
S&P or outstanding commercial paper or bank obligations rated Prime-1 by
Moody's or A-1 by S&P; or, if no such ratings are available, the instrument
must be of comparable quality in the opinion of Bankers Trust.
ABOUT THE S&P 500 INDEX. The S&P 500 is a well-known stock market index
that includes common stocks of 500 companies from several industrial
sectors representing a significant portion of the market value of all
common stocks publicly traded in the United States, most of which are
listed on the New York Stock Exchange Inc. (the "NYSE"). Stocks in the S&P
500 are weighted according to their market capitalization (i.e., the number
of shares outstanding multiplied by the stock's current price). Bankers
Trust believes that the performance of the S&P 500 is representative of the
performance of publicly traded common stocks in general. The composition of
the S&P 500 is determined by S&P and is based on such factors as the market
capitalization and trading activity of each stock and its adequacy as a
representation of stocks in a particular industry group, and may be changed
from time to time.
The Portfolio is not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, implied or express, to purchasers of
the Portfolio or any member of the public regarding the advisability of
investing in index funds or the ability of the S&P 500 to track market
performances. S&P does not guarantee the accuracy and/or the completeness
of the S&P 500 or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained
by the Portfolio, owners of the Portfolio, any person or any entity from
the use of the S&P 500 or any data included therein. S&P makes no express
or implied warranties and hereby expressly disclaims all such warranties of
merchantability or fitness for a particular purpose for use with respect to
the S&P 500 or any data included therein.
For more complete information about the S&P 500 see Part B.
DERIVATIVES. The Portfolios may invest in stock index futures and
options thereon which 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. The Adviser will only use
derivative for cash management purposes. Derivatives will not be used to
increase portfolio risk above the level that could be achieved using only
traditional investment securities or to acquire exposure to changes in the
value of assets or indices that by themselves would not be purchased for
the Portfolio.
ADDITIONAL INVESTMENT LIMITATIONS
As a diversified fund, no more than 5% of the assets of the Portfolio may
be invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Portfolio's assets may be
invested without regard to this limitation. The Portfolio will not invest
more than 25% of its assets in the securities of issuers in any one
industry. In the unlikely event that the S&P 500 should concentrate to an
extent greater than that amount, the Portfolio's ability to achieve its
investment objective may be impaired. These are fundamental investment
policies of the Portfolio which may not be changed without investor
approval. No more than 15% of the Portfolio's net assets may be invested in
illiquid or not readily marketable securities (including repurchase
agreements and time deposits maturing in more than seven days). Additional
investment policies of the Portfolio are contained in Part B.
RISK FACTORS
As described above, the Portfolio invests in an index of securities that is
representative of the stock market as a whole. While the performance of the
S&P 500 has fluctuated considerably, the long-term performance of the S&P
500 has been greater than inflation.
The ability of the Portfolio to meet its investment objective depends to
some extent on the cash flow. Bankers Trust will make investment changes to
accommodate cash flow in an attempt to maintain the similarity of the
Portfolio to the S&P 500. Investors should also be aware that the
performance of the S&P 500 is a hypothetical number which does not take
into account brokerage commissions and other costs of investing, unlike the
Portfolio which must bear these costs. Finally, since the Portfolio seeks
to track the S&P 500, Bankers Trust generally will not attempt to judge the
merits of any particular stock as an investment.
PORTFOLIO TURNOVER. The frequency of portfolio transactions--the
Portfolio's turnover rate--will vary from year to year depending on market
conditions and the Portfolio's cash flows. The Portfolio's annual portfolio
turnover rate is not expected to exceed 100%. The Portfolio's portfolio
turnover rates for the years ended December 31, 1996 and 1995 were 15% and
6%, respectively.
ITEM 5. MANAGEMENT OF THE FUND
The affairs of the Portfolio are managed by the Board of Trustees. By
virtue of the responsibilities assumed by Bankers Trust, the administrator
of the Portfolio, the Portfolio does not require employees other than its
executive officers. None of the executive officers of the Portfolio devote
full time to the affairs of the Portfolio.
The Portfolio has retained the services of Bankers Trust as investment
adviser. Mr. Frank Salerno, Managing Director of Bankers Trust, is
primarily responsible for the day-to-day management of the Portfolio.Mr.
Frank Salerno, Managing Director of Bankers Trust, is responsible for the
day-to-day management of the Portfolio. Mr. Salerno has been employed by
Bankers Trust since 1981 and has managed the Portfolio's assets since the
Portfolio commenced operations.
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 December 31, 1996, Bankers Trust New York Corporation was the seventh
largest bank holding company in the United States with total assets of
approximately $120 billion. Bankers Trust is a worldwide merchant bank
dedicated to servicing the needs of corporations, governments, financial
institutions and private clients through a global network of over 120
offices in more than 40 countries. Investment management is a core business
of Bankers Trust, built on a tradition of excellence from its roots as a
trust bank founded in 1903. The scope of Bankers Trust's investment
management capability is unique due to its leadership positions in both
active and passive quantitative management and its presence in major equity
and fixed income markets around the world. Bankers Trust is one of the
nation's largest and most experienced investment managers, with
approximately $227 billion in assets under management globally. Of that
total, approximately $92 billion are in U.S. equity index assets alone.
This makes Bankers Trust one of the nation's leading managers of index
funds.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled
fund structures. Bankers Trust's officers have had extensive experience in
managing investment portfolios having objectives similar to those of the
Portfolio.
Bankers Trust, 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. Bankers Trust may utilize the expertise
of any of its worldwide subsidiaries and affiliates to assist in its role
as Adviser. All orders for investment transactions on behalf of the
Portfolio are placed by Bankers Trust with broker-dealers and other
financial intermediaries that it selects, including those affiliated with
Bankers Trust. A Bankers Trust affiliate will be used in connection with a
purchase or sale of an investment for the Portfolio only if Bankers Trust
believes that the affiliate's charge for the transaction does not exceed
usual and customary levels. The Portfolio will not invest in obligations
for which Bankers Trust or any of its affiliates is the ultimate obligor or
accepting bank. The Portfolio may, however, invest in the obligations of
correspondents and customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee
from the Portfolio, computed daily and paid monthly, at the annual rate of
0.10% 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 an Administration and Services Agreement with the Portfolio , Bankers
Trust calculates the value of the assets of the Portfolio and generally
assists the Board of Trustees 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
affiliates of Edgewood, at Bankers Trust's expense. For more information,
see Part B.
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.
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. (`Edgewood'') including investment advisory and
administration and service fees, fees for necessary professional services,
amortization of organizational expenses, the costs associated with
regulatory compliance and maintaining legal existence and investor
relations.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Portfolio is organized as a trust under the laws of the State of New
York. The Portfolio's Declaration of Trustprovides that 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 determined each day on which the
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 Investment
Company Act of 1940, as amended (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) (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.
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
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 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.
ADDITIONAL INFORMATION
REPURCHASE AGREEMENTS. In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price at a
future date. In the event of the bankruptcy of the other party to a
repurchase agreement, the Portfolio could experience delays in recovering
either its cash or selling the securities subject to the repurchase
agreement. To the extent that, in the meantime, the value of the securities
repurchased had decreased or the value of the securities 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.
SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of the
total value of its securities. These loans must be secured continuously by
cash or equivalent collateral or by a letter of credit at least equal to
the market value of the securities loaned plus accrued income. By lending
its securities, the Portfolio can increase its income by continuing to
receive income on the loaned securities as well as by the opportunity to
receive interest on the collateral. During the term of the loan, the
Portfolio continues to bear the risk of fluctuations in the price of the
loaned securities. In lending securities to brokers, dealers and other
organizations, the Portfolio is subject to risk which, like those
associated with other extensions of credit, includes delays in recovery and
possible loss of rights in the securities lent should the borrower fail
financially.
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 segregates with
the Custodian 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.
OPTIONS ON STOCK INDICES. The Portfolio may purchase and write put and call
options on stock indices listed on stock exchanges. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
Options on stock indices are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the fixed
exercise price of the option exceeds (in the case of a put) or is less than
(in the case of a call) the closing value of the underlying index on the
date of exercise, multiplied by (b) a fixed "index multiplier". Receipt of
this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. The
amount of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option expressed
in dollars times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this
amount. The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or the
option may expire unexercised.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the
Portfolio will realize a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Portfolio of options
on stock indices will be subject to Bankers Trust's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
FUTURES CONTRACTS ON STOCK INDICES. The Portfolio may enter into contracts
providing for the making and acceptance of a cash settlement based upon
changes in the value of an index of securities ("Futures Contracts"). This
investment technique is designed only to hedge against anticipated future
change in general market prices which otherwise might either adversely
affect the value of securities held by the Portfolio or adversely affect
the prices of securities which are intended to be purchased at a later date
for the Portfolio. A Futures Contract may also be entered into to close out
or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to that
of the investment being hedged. If these hedging transactions are
successful, the futures positions taken for the Portfolio will rise in
value by an amount which approximately offsets the decline in value of the
portion of the Portfolio's investments that are being hedged. Should
general market prices move in an unexpected manner, the full anticipated
benefits of Futures Contracts may not be achieved or a loss may be
realized.
Although Futures Contracts would be entered into for hedging purposes
only, such transactions do involve certain risks. These risks could include
a lack of correlation between the Futures Contract and the equity market, a
potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance
than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted
and maintained as a good-faith deposit against performance of obligations
under Futures Contracts written for the Portfolio. The Portfolio may not
purchase or sell a Futures Contract (or options thereon) if immediately
thereafter its margin deposits on its outstanding Futures Contracts (and
its premium paid on outstanding options thereon) would exceed 5% of the
market value of the Portfolio's total assets.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may invest in options on such
Futures Contracts for similar purposes.
ASSET COVERAGE. The Portfolio will cover the Portfolio's transactions in
futures and related options, as well as in when-issued and delayed
delivery, as required under applicable interpretations of the Securities
and Exchange Commission, either by owning the underlying securities or by
segregating liquid assets with the Portfolio's Custodian in an amount at
all times equal to or exceeding the Portfolio's commitment with respect to
these instruments or contracts.
EQUITY 500 INDEX PORTFOLIO
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS. PAGE
General Information and History 1
Investment Objectives and Policies 1
Management of the Fund 9
Control Persons and Principal Holder of Securities 10
Investment Advisory and Other Services 11
Brokerage Allocation and Other Practices 13
Capital Stock and Other Securities 15
Purchase, Redemption and Pricing of Securities Being Offered 15
Tax Status 16
Underwriters 17
Calculation of Performance Data 17
Financial Statements 17
Appendix A 18
Appendix B 19
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 Equity 500 Index Portfolio (the "Portfolio"). This Part B
should only be read in conjunction with Part A.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit
are receipts issued by a depository institution in exchange for the deposit
of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to
maturity. Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance
commercial transactions. Generally, an acceptance is a time draft drawn on
a bank by an exporter or an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then "accepted" by a bank that,
in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the secondary
market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances
have maturities of six months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note
(which is a type of commercial paper) represents a direct borrowing
arrangement involving periodically fluctuating rates of interest under a
letter agreement between a commercial paper issuer and an institutional
lender pursuant to which the lender may determine to invest varying
amounts.
For a description of commercial paper ratings, see the Appendix 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.
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 Company ("Bankers
Trust"), as the Portfolio's investment adviser (the "Adviser"), 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 voting rights of the
securities.
FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS
FUTURES CONTRACTS. The Portfolio may enter into contracts for the
purchase or sale for future delivery of 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 between the clearing
members of the exchange.
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.
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 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 the Index 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 a decrease in the Index which would
adversely affect the value of the securities held in its portfolio and
securities prices increas instead, the Portfolio will lose part or all of
the benefit of the increased value of its 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 securities from its portfolio to meet daily variation
margin requirements. Such sales of securities 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 INDEX FUTURES CONTRACTS. The Portfolio may purchase and write
options on futures contracts with respect to the Index. The purchase of a
call option on an index futures contract is similar in some respects to the
purchase of a call option on such an index. 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
securities. As with the purchase of futures contracts, when the Portfolio
is not fully invested it may purchase a call option on an index futures
contract to hedge against a market advance with respect tothe Index.
The writing of a call option on a futures contract with respect to the
Index constitutes a partial hedge against declining prices of the
underlying securities which are 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 holdings. The writing of a put option on an
index futures contract constitutes a partial hedge against increasing
prices of the underlying securities which are 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 with respect to the
Index is similar in some respects to the purchase of protective put options
on the Index. For example, the Portfolio may purchase a put option on an
index futures contract to hedge against the risk of lower securities
values.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract with respect to the Index is the premium paid for the
option plus related transaction costs. In addition to the correlation risks
discussed above, the purchase of an option also entails the risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the option purchased.
The Board of Trustees of the Portfolio has adopted the requirement that
index futures contracts and options on index futures contracts be used only
for cash management purposesThe 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.
OPTIONS ON SECURITIES INDEXES. The Portfolio may write (sell) covered call
and put options to a limited extent on the Index ("covered options") in an
attempt to increase income. 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. The
Portfolio may forgo the benefits of appreciation on the Index or may pay
more than the market price of the Index pursuant to call and put options
written by the Portfolio.
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 Index
above 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 Index below 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.
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 the Index. The Portfolio
would normally purchase a call option in anticipation of an increase in the
market value of the Index. The purchase of a call option would entitle the
Portfolio, in exchange for the premium paid, to purchase the underlying
securities 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 the Index ("protective puts"). The purchase
of a put option would entitle the Portfolio, in exchange for the premium
paid, to sell the underlying 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 Index. The Portfolio
would ordinarily recognize a gain if the value of the Index decreased below
the exercise price sufficiently to cover the premium and would recognize a
loss if the value of the Index 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 the Index.
The Portfolio has adopted certain other nonfundamental policies concerning
index option transactions which are discussed below. The Portfolio's
activities in index 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 the Index 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.
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 herein and in Part
A is set forth in Appendix A.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of the
Portfolio and may not be changed with respect to the Portfolio without the
approval of a "majority of the outstanding voting securities" of the
Portfolio. "Majority of the outstanding voting securities" under the
Investment Company Act of 1940, as amended (the "1940 Act"), and as used in
this Part B and Part A, means, with respect to the Portfolio, the lesser of
(i) 67% or more of the the total beneficial interests of the Portfolio
present at a meeting, if the holders of more than 50% of the total
beneficial interests of the Portfolio are present or represented by proxy,
or (ii) more than 50% of the total beneficial interests of the Portfolio.
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;
(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, 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 a right to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(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; and provided further that, except in the case of merger or
consolidation, the Portfolio shall not invest in any other 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 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.
The Portfolio will comply with the securities laws and regulations of all
states in which any investor in the Portfolio is registered. The Portfolio
will comply with the permitted investments and investment limitations in
the securities laws and regulations of all states in which any registered
investment company investing in the Portfolio is registered.
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, their birthdates and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Unless otherwise indicated, the
address of each officer is Clearing Operations, P.O. Box 897, Pittsburgh,
Pennsylvania 15230-0897.
TRUSTEES
CHARLES P. BIGGAR (birthdate: October 13, 1930) - Trustee; Retired;
Director of Chase/NBW Bank Advisory Board; Director, Batemen, Eichler, Hill
Richards Inc.; formerly Vice President of International Business Machines
and President of the National Services and the Field Engineering Divisions
of IBM. His address is 12 Hitching Post Lane, Chappaqua, New York 10514.
PHILIP W. COOLIDGE* (birthdate: September 2, 1951) - Trustee; Chairman,
Chief Executive Officer and President, SFG (since December, 1988) and
Signature (since April, 1989). His address is 6 St. James Avenue, Boston,
Massachusetts 02116.
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) for the
Trust.
OFFICERS
Unless otherwise specified, each officer listed below holds the same
position with the Trust and the Portfolio.
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.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Portfolio. No director, officer or employee of Edgewood or
any of its affiliates will receive any compensation from the Portfolio for
serving as an officer of the Portfolio.
For the year ended December 31, 1996, the Portfolio incurred Trustees fees
of $9,865.
The following table reflects fees paid to the Trustees of the Portfolio for
the year ended December 31, 1996:
TRUSTEE COMPENSATION TABLE
NAME OF PERSON, COMPENSATION TOTAL COMPENSATION
POSITION FROM PORTFOLIO FROM FUND COMPLEX*
Charles P. Biggar,
Trustee of Portfolio $1955 $28,750
S. Leland Dill,
Trustee of Portfolio $2015 $28,750
Philip Saunders, Jr.,
Trustee of Portfolio $1955 $28,750
Philip W. Coolidge $23 $1,250
Trustee of 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, Utilittiy
Portfolio, Short Intermediate US Government Securities Portfolio,
Intermediate Tax Free Portfolio, Asset Management Portfolio, Equity 500
Index Portfolio, and Capital Appreciation Portfolio.
Bankers Trust reimbursed the Portfolio for a portion of their Trustee fees
for the period above.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 20, 1996, Equity 500 Index Fund and BT Investment Equity
500 Index Fund (each a "Fund") (series of shares of BT Institutional Funds
and BT Pyramid Mutual Funds, respectively) owned approximately 100% of the
value of the outstanding interests in the corresponding Portfolio. Because
each Fund controls the corresponding Portfolio, it may take actions
without the approval of any other investor 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
Advisers Act of 1940, as the same may from time to time be amended; (ii)
manage the Portfolio in accordance with the Portfolio's investment
objective, restrictions and policies; (iii) make investment decisions for
the Portfolio; and (iv) place purchase and sale orders for securities and
other financial instruments on behalf of the Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Trust and the Portfolio each
bear certain other expenses incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of Trustees of the
Trust or the Portfolio who are not officers, directors or employees of
Bankers Trust, Edgewood or any of their affiliates; SEC fees and state Blue
Sky 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 Trust or the
Portfolio; and any extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on
behalf of the Portfolio, including outstanding loans to such issuers which
could be repaid in whole or in part with the proceeds of securities so
purchased. Such affiliates deal, trade and invest for their own accounts
in such obligations and are among the leading dealers of various types of
such obligations. Bankers Trust has informed the Portfolio that, in making
its investment decisions, it does not obtain or use material inside
information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Portfolio,
Bankers Trust will not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by the Portfolio is a customer
of Bankers Trust, its parent or its subsidiaries or affiliates and, in
dealing with its customers, Bankers Trust, its parent, subsidiaries and
affiliates will not inquire or take into consideration whether securities
of such customers are held by any fund managed by Bankers Trust or any such
affiliate.
For the fiscal years ended December 31, 1996, 1995 and 1994, Bankers Trust
accrued $1,505,963, $770,530 and $428,346, respectively, in compensation
for investment advisory services provided to the Portfolio. During the same
period, Bankers Trust reimbursed $870,024, $418,814 and $249,230,
respectively, to the Portfolio to cover expenses.
ADMINSTRATOR
Under administration and services agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deem necessary for the
proper administration of the Trust or the Portfolio. Bankers Trust will
generally assist in all aspects of the Fund's and Portfolio's operations;
supply and maintain office facilities (which may be in Bankers Trust's own
offices), statistical and research data, data processing services,
clerical, accounting, bookkeeping and recordkeeping services (including
without limitation the maintenance of such books and records as are
required under the 1940 Act and the rules thereunder, except as maintained
by other agents), internal auditing, executive and administrative services,
and stationery and office supplies; prepare reports to shareholders or
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC and various state
Blue Sky authorities; supply supporting documentation for meetings of the
Board of Trustees; provide monitoring reports and assistance regarding
compliance with Declarations of Trust, by-laws, investment objectives and
policies and with Federal and state securities laws; arrange for
appropriate insurance coverage; calculate NAVs, net income and realized
capital gains or losses; and negotiate arrangements with, and supervise and
coordinate the activities of, agents and others to supply services.
Pursuant to a Sub-Administration Agreement (the `Sub-Administration
Agreement'), FSC performs such sub-administration duties for the Trust and
the Portfolio as from time to time may be agreed upon by Bankers Trust and
FSC. The Sub-Administration Agreement provides that FSC will receive such
compensation as from time to time may be agreed upon by FSC and Bankers
Trust. All such compensation will be paid by Bankers Trust.
For the years ended December 31, 1996, 1995 and 1994, Bankers Trust accrued
$752,981, $385,265 and $214,173, respectively, in compensation for
administrative and other services provided to the Portfolio.
BANKING REGULATORY MATTERS
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the
Portfolio contemplated by the investment advisory agreement and other
activities for the Fund and the Portfolio described in the Prospectus and
this SAI without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. However, counsel has pointed out that future
changes in either Federal or state statutes and regulations concerning the
permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and
future statutes and regulations, might prevent Bankers Trust from
continuing to perform those services for the Trust and the Portfolio.
State laws on this issue may differ from the interpretations of relevant
Federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. If the circumstances
described above should change, the Boards of Trustees would review the
relationships with Bankers Trust and consider taking all actions necessary
in the circumstances.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust serves as Custodian for the Portfolio pursuant to the
administration and services agreements. As Custodian, it holds the
Portfolio's assets. Bankers Trust also serves as transfer agent of the
Portfolio pursuant to the respective administration and services agreement.
Bankers Trust may be reimbursed by the Portfolio for its out-of-pocket
expenses. Bankers Trust will comply with the self-custodian provisions of
Rule 17f-2 under the 1940 Act.
COUNSEL AND INDEPENDENT ACCOUNTS
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022-4669, serves as Counsel to the Portfolio. 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.
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, as amended, when placing portfolio transactions for
the Portfolio with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research,
market or statistical information. The term "research, market or
statistical information" includes advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the
availability of securities or purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts.
Consistent with the policy stated above, the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as
the Portfolio's Trustees may determine, the Adviser may consider sales of
securities 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 fiscal years ended December 31, 1996, 1995 and 1994, the
Portfolio paid brokerage commissions in the amount of $289,791, $172,924
and $97,069, respectively.
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 wilful 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 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 "Purchase of Securities Being
Offered" 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 York 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 and New York chartered banks are both 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.
FOREIGN SECURITIES. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to
determine the effective rate of foreign tax in advance since the amount of
the Portfolio's assets to be invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of the
value of the Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, it may make an
election pursuant to which certain foreign taxes paid by it would be
treated as having been paid directly by its investors. Pursuant to such
election, the amount of foreign taxes paid will be included in the income
of the Portfolio's investors, and such investors (except tax-exempt
investors) may, subject to certain limitations, claim either a credit or
deduction for the taxes. Each such investor will be notified after the
close of the Portfolio's taxable year whether the foreign taxes paid will
"pass through" for that year and, if so, such notification will designate
(a) the investor's portion of the foreign taxes paid to each such country
and (b) the portion which represents income derived from sources within
each such country.
The amount of foreign taxes for which an investor may claim a credit in any
year will generally be subject to a separate limitation for "passive
income," which includes, among other items of income, dividends, interest
and certain foreign currency gains. Because capital gains realized by the
Portfolio on the sale of foreign securities will be treated as U.S.-source
income, the available credit of foreign taxes paid with respect to such
gains may be restricted by this limitation.
ITEM 21. UNDERWRITERS
The placement agent for the Portfolio is Signature, 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 PERFORMANCE DATA
Not applicable.
ITEM 23. FINANCIAL STATEMENTS
The financial statements for the Portfolio for the period ended December
31, 1996 are incorporated herein by reference to the Annual Report dated
December 31, 1996. A copy of the Annual Report may be obtained without
charge by contacting the Trust.
APPENDIX A
Set forth below are descriptions of the ratings of Moody's Investors
Service, Inc. (`Moody's'') and Standard & Poor's Ratings Group (``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 COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-
term debt rating is A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow are in an
upward trend. Typically, the issuer is a strong company in a well-
established industry and has superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal
cash generation; well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
APPENDIX B
The table on the following page shows the performance of the S&P 500 for
the periods indicated. Stock prices fluctuated widely during the periods
but were higher at the end than at the beginning. The results shown should
not be considered as a representation of the income or capital gain or loss
which may be generated by the Index in the future. Nor should this be
considered as a representation of the past or future performance of the
Fund.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS*
{PRIVATE TOTAL YEAR TOTAL
}YEAR RETURN RETURN
1996 22.96% 1960 0.47%
1995 37.49% 1959 11.96%
1994 1.32% 1958 43.36%
1993 9.99% 1957 -10.78%
1992 7.67% 1956 6.56%
1991 30.55% 1955 31.56%
1990 -3.17% 1954 52.62%
1989 31.49% 1953 -0.99%
1988 16.81% 1952 18.73%
1987 5.23% 1951 24.02%
1986 18.47% 1950 31.71%
1985 32.16% 1949 18.79%
1984 6.27% 1948 5.50%
1983 22.51% 1947 5.71%
1982 21.41% 1946 -8.07%
1981 -4.91% 1945 36.44%
1980 32.42% 1944 19.75%
1979 18.44% 1943 25.90%
1978 6.56% 1942 20.34%
1977 -7.18% 1941 -11.59%
1976 23.84% 1940 -9.78%
1975 37.20% 1939 -0.41%
1974 -26.47% 1938 31.12%
1973 -14.66% 1937 -35.03%
1972 18.98% 1936 33.92%
1971 14.31% 1935 47.67%
1970 4.01% 1934 -1.44%
1969 -8.51% 1933 53.99%
1968 11.06% 1932 -8.19%
1967 23.98% 1931 -43.34%
1966 -10.06% 1930 -24.90%
1965 12.45% 1929 -8.42%
1964 16.48% 1928 43.61%
1963 22.08% 1927 37.49%
1962 -8.73% 1926 11.62%
1961 26.89%
*Source: Ibbotson Associates
PART C OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Incorporated by reference to the Annual Report of Equity 500
Index Fund dated December 31, 1996, pursuant to Rule 411
under the Securities Act of 1933. (File Nos. 33-34079 and
811-06071).
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant; (2)
(i) Amendment No. 1 to Declaration of Trust; (2)
(2) By-Laws of the Registrant; (2)
(3) Not applicable.
(4) Not applicable.
(5) Advisory Agreement between the Registrant and Bankers
Trust Company ("Bankers Trust"); (2)
(6) Not applicable.
(7) Not applicable.
(8) Not applicable.
(9) 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 electroncally.
(1) Incorporated by reference to Registrant's registration statement
on Form N-1A (`Registration Statement'') as filed with the Securities
and Exchange Commission (`Commission'') on June 9, 1992.
(2) Incorporated by reference to Amendment No. 4 to Registrant's
Registration Statement as filed with the Commission on April 26,
1996.
ITEM 25. Persons Controlled by or Under Common Control with Registrant:
None
ITEM 26. Number of Holders of Securities:
Title of Class Number of Record Holders
as of December 31, 1996
Equity 500 Index Portfolio 4
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, except that certain directors and
officers also hold various positions with and engage in business for
Bankers Trust New York Corporation. Set forth below are the names and
principal businesses of the directors and officers of Bankers Trust who are
engaged in any other business, profession, vocation or employment of a
substantial nature. These persons may be contacted c/o Bankers Trust
Company, 280 Park Avenue, New York, New York, 10017.
George B. Beitzel, 29 King Street, Chappaqua, NY 10514-3432. Retired
Senior Vice President and Director of International Business Machines
Corporation. Director of Bankers Trust and Bankers Trust New York
Corporation. Director of Computer Task Group, FlightSafety International,
Inc., Phillips Gas Company, Phillips Petroleum Company, Caliber Systems,
Inc. (formerly, Roadway Services, Inc.), Rohm and Haas Company and TIG
Holdings, Chairman Emeritus of Amherst College, and Chairman of the
Colonial Williamsburg Foundation.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Dallas, 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, National Urban League, Inc. and the National
Retail Federation.
+ All exhibits have been filed electroncally.
(2) Incorporated by reference to Amendment No. 4 to Registrant's
Registration Statement as filed with the Commission on April 26,
1996.
Jon M. Huntsman, Huntsman Corporation, 500 Huntsman Way, Salt Lake City, UT
84108. Chairman and Chief Executive Officer, Huntsman Corporation and other
affiliated companies. Director of Bankers Trust and Bankers Trust New York
Corporation. Chairman, Chief Executive Officer and Director of Sunstar
Corporation and JK Corp. Chairman and Director of Co-Ex Plastics Inc. and
Global Polymers Corporation. Chairman of Constar Corporation and Petrostar
Corporation. President of Autostar Corporation and Restar Corporation.
Director of Airstar Corporation, Consolidated Press International
(Australia), Razzleberry Foods Corporation and Thiokol Corporation.
General Partner of Huntsman Group Ltd., McLeod Creek Partnership and
Trustar Ltd. Chairman of Primary Children's Medical Center Foundation, an
overseer, The Wharton School, University of Pennsylvania, an advisor,
University of Utah, Eccles Business School, founder of Huntsman Cancer
Institute, University of Utah, chairman and director of the Huntsman Cancer
Foundation, and a trustee and president of the Jon and Karen Huntsman
Foundation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Suite 400, Washington, DC 20036. Senior 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.,
Revlon Group Incorporated, Ryder System, Inc., Sara Lee Corporation, Union
Carbide Corporation and Xerox Corporation, a trustee of Brookings
Institution, The Ford Foundation and Howard University, and governor of the
Joint Center for Political and Economic Studies.
Hamish Maxwell, Philip Morris Companies Inc., 100 Park Avenue, 10th Floor,
New York, NY 10017. Retired Chairman and Chief Executive Officer, Philip
Morris Companies Inc. Director of Bankers Trust and Bankers Trust New York
Corporation. Director of The New Corporation Limited and Sola
International Inc..
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., 15 West 53rd Street, New York, NY 10019. 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 Boston Scientific Corporation and 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.
Former Dean of The Wharton School, University of Pennsylvania and former
Chief Executive Officer of Touche Ross & Co. (now Deloitte and Touche).
Also Director of Allied-Signal Inc., Contel Cellular, Inc., Federal Home
Loan Mortgage Corporation, GTE Corporation, Goodyear Tire & Rubber Company,
Imasco Limited, The May Department Stores Company and Safeguard
Scientifics, Inc. Member, Radnor Venture Partners Advisory Board, advisory
board of the Controller General of the United States, and a Trustee, the
Universtiy of Pennsylvania.
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 - 17W,
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, Director and Vice Chair of Community Foundation for Palm Beach
and Martin Counties, and a Trustee Emerita of Cornell University.
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 UST Corp., the New York State Banking Board and St. Lukes-Roosevelt
Hospital Center, a partner of New York City Partnership and Chairman,
Wharton Financial Services Center.
ITEM 29. Principal Underwriters:
Not applicable.
ITEM 30. Location of Accounts and Records:
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
EQUITY 500 INDEX PORTFOLIO: Federated Investor Tower
(`Registrant'') Pittsburgh, PA 15222-3779
BANKERS TRUST COMPANY: 280 Park Avenue
(`Adviser, Custodian and New York, NY 10017
Administrator')
INVESTORS FIDUCIARY TRUST COMPANY: 127 West 10th Street
(`Transfer Agent and Dividend Kansas City, MO 64105
Disbursing Agent')
EDGEWOOD SERVICES, INC.: Clearing Operations
(`Distributor'') P.O. Box 897
Pittsburgh, PA 15230-0897
ITEM 31. Management Services:
Not applicable.
ITEM 32. Undertakings:
Not applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant, EQUITY 500 INDEX PORTFOLIO, has duly caused this amendment
to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania on the 19th day of March, 1997.
EQUITY 500 INDEX PORTFOLIO
By /s/Jay S. Neuman
Jay S. Neuman, Secretary
March 19, 1997
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
The undersigned Trustees and officers, as indicated respectively
below, of BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual
Funds, The Leadership Trust, and BT Advisor Funds (each, a `Trust'') and,
Cash Management Portfolio, Treasury Money Portfolio, Tax Free Money
Portfolio, NY Tax Free Money Portfolio, International Equity Portfolio,
Utility Portfolio, Short/Intermediate U.S. Government Securities Portfolio,
Equity 500 Index Portfolio, Asset Management Portfolio, Capital
Appreciation Portfolio, Intermediate Tax Free Portfolio, and BT Investment
Portfolios (each, a `Portfolio Trust'') each hereby constitutes and
appoints the Secretary and each Assistant Secretary of each Trust and each
Portfolio Trust and the Deputy General Counsel of Federated Investors, each
of them with full powers of substitution, as his true and lawful attorney-
in-fact and agent to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, and all other documents, filed by a Trust or a
Portfolio Trust with the Securities and Exchange Commission (the `SEC'')
under the Investment Company Act of 1940, as amended, and (as applicable)
the Securities Act of 1933, as amended, and any and all instruments which
such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust or Portfolio Trust to comply with such Acts, the rules,
regulations and requirements of the SEC, and the securities or Blue Sky
laws of any state or other jurisdiction, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the SEC
and such other jurisdictions, and the undersigned each hereby ratifies and
confirms as his own act and deed any and all acts that such attorneys and
agents, or any of them, shall do or cause to be done by virtue hereof. Any
one of such attorneys and agents has, and may exercise, all of the powers
hereby conferred. The undersigned each hereby revokes any Powers of
Attorney previously granted with respect to any Trust or Portfolio Trust
concerning the filings and actions described herein.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
as of the 30th day of September, 1996.
SIGNATURES TITLE
/s/Ronald M. Petnuch President and Treasurer (Chief Executive
Officer,
Ronald M. Petnuch Principal Financial and Accounting Officer)
of each Trust and Portfolio Trust
/s/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
2
/s/Philip Saunders, Jr. Trustee of each Portfolio Trust
Philip Saunders, Jr. and BT Investment Funds
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the BT
Equity 500 Index Portfolio Annual Report dated December 31, 1996, and is
qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0081106698
<NAME> EQUITY 500 INDEX PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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