1940 Act File No. 811-06702
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 7 ............................... X
INTERNATIONAL EQUITY 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
INTERNATIONAL EQUITY 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.
International Equity 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 Portfolio's investment objective of the Portfolio is to long-term
capital appreciation from investment in foreign equity securities (or other
securities with equity characteristics); the production of any current
income is incidental to this objective. The Portfolio invests primarily in
established companies based in developed countries outside the United
States, but the Portfolio also invests in securities of issuers in emerging
markets.
Under normal circumstances, the Portfolio will invest at least 65% of the
value of its total assets in the equity securities of issuers based in at
least three countries other than the United States. The Portfolio's
investments will generally be diversified among several geographic regions
and countries. These issuers are primarily established companies based in
developed countries outside the United States. However, the Portfolio may
also invest in securities of issuers in underdeveloped countries.
Investments in these countries will be based on an acceptable degree of
risk in anticipation of superior returns. The Portfolio will at all times
be invested in the securities of issuers based in at least three countries
other than the United States. For further discussion of the unique risks
associated with investing in foreign securities in both developed and
underdeveloped countries see `Risk Factors'' herein and Part B.
The Portfolio's investment will generally be diversified among several
geographic regions and countries. Criteria for determining the appropriate
distribution of investments among various countries and regions include the
prospects for relative growth among foreign countries, expected levels of
inflation, government policies influencing business conditions, the outlook
for currency relationships and the range of alternative opportunities
available to international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust Company ("Bankers Trust"), as the
Portfolio's Adviser (the "Adviser"), will seek to select individual
investments for the Portfolio. Criteria for selection of individual
securities include the issuer's competitive position, prospects for growth,
managerial strength, earnings quality, underlying asset value, relative
market value and overall marketability. The Portfolio may invest in
securities of companies having various levels of net worth, including
smaller companies whose securities may be more volatile than securities
offered by larger companies with higher levels of net worth.
In other countries and regions where capital markets are underdeveloped or
not easily accessed and information is difficult to obtain, the Portfolio
may choose to invest only at the market level. Here, the Portfolio may seek
to achieve country exposure through use of options or futures based on an
established local index. Similarly, country exposure may also be achieved
through investments in other registered investment companies. Investment in
other investment companies is limited in amount by the 1940 Act, will
involve the indirect payment of a portion of the expenses, including
advisory fees, of such other investment companies and may result in a
duplication of fees and expenses.
The remainder of the Portfolio's assets will be invested in dollar and non-
dollar denominated short-term instruments. These investments are subject to
the conditions described in `Short-Term Instruments'' herein.
Equity Investments. The Portfolio invests primarily in common stocks and
other securities with equity characteristics. For purposes of the
Portfolio's policy of investing at least 65% of the value of its total
assets in the equity securities of foreign issuers. Equity securities are
defined as common stock, preferred stock, trust or limited partnership
interests, rights and warrants, and convertible securities, consisting of
debt securities or preferred stock that may be converted into common stock
or that carry the right to purchase common stock. The Portfolio invests in
securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets, in
addition to investment in restricted or unlisted securities.
With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Portfolio may be made
through investment in other investment companies that in turn are
authorized to invest in the securities of such countries. Investment in
other investment companies is limited in amount by the 1940 Act, will
involve the indirect payment of a portion of the expensed, including
advisory fees, of such other investment companies and may result in
duplication of fees and expenses.
SHORT-TERM INSTRUMENTS. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its
objective an 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 advisable to adopt a temporary defensive position
because of unusual and adverse conditions affecting the equity markets. In
addition, when the Portfolio experiences large cash inflows through the
sale of securities and desirable equity securities that are consistent with
the Portfolio's investment objective are unavailable in sufficient
quantities or at attractive prices, the Portfolio may hold short-term
investments for a limited time pending availability of such equity
securities. Short-term instruments consist of foreign and domestic: (I)
short-term obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-
term debt securities rated As or higher by Moody's Investors Service, Inc.
(`Moody's'') or AA or higher by Standard and Poor's Ratings Group (``S&P'')
or, if unrated, of comparable quality in the option 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 As or higher by Moody's or AA or higher by
S&P or outstanding commercial paper or bank obligations rated Prime-1 by
Moody's or A-1 by S&P; or, if no such ratings are available, the instrument
must be of comparable quality in the opinion of Bankers Trust. These
instruments may be denominated in U.S. dollars or in foreign currencies and
will have been determined to be of high quality by a nationally recognized
statistical rating organization, or if unrated, by Bankers Trust.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies may
be acquired by the Portfolio to the extent permitted under the 1940 Act,
that is, the Portfolio may invest a maximum of up to 10% of its total
assets in securities of other investment companies so long as not more than
3% of the total outstanding voting stock of any one investment company is
held by the Portfolio. In addition, not more than 5% of the Portfolio's
total assets may be invested in the securities of any one investment
company. The Portfolio may be permitted to exceed these limitations by an
exemptive order of the SEC. It should be noted that investment companies
incur certain expenses such as management, custodian, and transfer agency
fees, and, therefore, any investment by the Portfolio in shares of other
investment companies would be subject to such duplicate expenses.
ADDITIONAL INVESTMENT TECHNIQUES. The Portfolio may also utilize the
following investments and investment techniques and practices: American
Depositary Receipts (`ADRs'') , Global Depositary Receipts (``GDRs''),
European Depositary Receipts (`EDRs''),when-issued and delayed deliver
securities, Rule 144A securities, securities lending, repurchase
agreements, foreign currency exchange transactions, options on foreign
currency exchange transactions options on foreign currencies, options on
stocks, options on foreign stock indices, futures contracts on foreign
stock indices and options on futures contracts. See `Additional
Information''herein for further information.
ADDITIONAL INVESTMENT LIMITATIONS. As a diversified fund, no more than 5%
of the assets of the Portfolio may be invested in the securities of one
issuer (other than U.S. government securities), except that up to 25% of
the Portfolio's assets may be invested without regard to this limitation.
The Portfolio will not invest more than 25% of its assets in the securities
of issuers in any one industry. These are fundamental investment policies
of the Portfolio which may not be changed without investor approval. No
more than 15% of the Portfolio's net assets may be invested in illiquid or
not readily marketable securities (including repurchase agreements and time
deposits maturing in more than seven days). Additional investment policies
of the Portfolio are contained in Part B.
The investment objective of the Portfolio is also not a fundamental policy.
RISK FACTORS. Changes in domestic and foreign interest rates may affect the
value of the Portfolio's investments. A description of a number of
investments and investment techniques available to the Portfolio, including
foreign investments and the use of options and futures, and certain risks
associated with these investments and techniques is included under
`Additional Information'' herein.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investors should realize that
investing in securities of foreign issuers involves considerations not
typically associated with investing in securities of companies organized
and operated in the United States. Although the Portfolio intends to invest
primarily in securities of established companies based in developed
countries, investors should realize that the value of the Portfolio's
investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control or tax regulations in those
foreign countries. In addition, changes in government administrations or
economic or monetary policies in the United States or abroad could result
in appreciation or depreciation of portfolio securities and could favorably
or unfavorably affect the Portfolio's operations. Furthermore, the
economies of individual foreign nations may differ from the U.S. economy,
whether favorably or unfavorably, in areas such as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position; it may also be more difficult to obtain
and enforce a judgment against a foreign issuer. In general, less
information is publicly available with respect to foreign issuers than is
available with respect to U.S. companies. Most foreign companies are also
not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. Any foreign investments made by
the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.
The Portfolio may invest in the securities of issuers based in
underdeveloped countries, including those in Eastern Europe. Investment in
securities of issuers based in underdeveloped countries entails all of the
risks of investing in securities of foreign issuers outlined in this
section to a heightened degree. These heightened risks include: (i) greater
risks of expropriation, confiscatory taxation, nationalization, and less
social, political and economic stability; (ii) the smaller size of the
market for such securities and a low or nonexistent volume of trading,
resulting in lack of liquidity and in price volatility; (iii) certain
national policies which may restrict the Portfolio's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) in the case of
Eastern Europe, the absence of developed capital market and legal
structures governing private or foreign investment and private property and
the possibility that recent favorable economic and political developments
could be slowed or reversed by unanticipated events. The Portfolio will not
invest more than 5% of the value of its total assets in securities of
issuers based in Eastern Europe.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of the
Portfolio as measured in U.S. dollars will be affected favorably or
unfavorably by changes in exchange rates. Generally, the Portfolio's
currency exchange transactions will be conducted on a spot (i.e., cash)
basis at he spot rate prevailing in the currency exchange market. The cost
of the Portfolio's currency exchange transactions will generally be the
difference between the bid and offer spot rate of the currency being
purchased or sold. In order to protect against uncertainty in the level of
future foreign currency exchange rates, the Portfolio is authorized to
enter into certain foreign currency exchange transactions. See `Additional
Information''herein.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains
appreciably below that of the New York Stock Exchange, Inc. (the `NYSE'').
Accordingly, the Portfolio's foreign investments may be less liquid and
their prices may be more volatile than comparable investments in securities
of U.S. companies. Moreover, the settlement periods for foreign securities,
which are often longer than those for securities of U.S. issuers, may
affect portfolio liquidity. In buying and selling securities on foreign
exchanges, the Portfolio normally pays fixed commissions that are generally
higher than the negotiated commissions charge in the United States. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
PORTFOLIO TURNOVER. Bankers Trust intends to manage the Portfolio actively
in pursuit of its investment objective. The Portfolio does not expect to
trade in securities for short-term profits but, when circumstances warrant,
securities may be sold without regard to the length of time held. The
Portfolio's portfolio turnover rates for the fiscal year ended September
30, 1996, and for the period from January 1, 1995 to September 30, 1995
were 68% and 21%, respectively.
DERIVATIVES. The Portfolio may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a
traditional security, asset or market index. Some "derivatives" such as
mortgage-related and other asset-backed securities are in many respects
like any other investments, although they may be more volatile or less
liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There
are a range of risks associated with those uses. Futures and options are
commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices or currency
exchange rates and for cash management purposes as a low cost method of
gaining exposure to a particular securities market without investing
directly in those securities. However, some derivatives are used for
leverage, which tends to magnify the effects of an instrument's price
changes as market conditions change. Leverage involves the use of a small
amount of money to control a large amount of financial assets and can, in
some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where the Adviser believes they offer the
most economic means of improving the risk/reward profile of the Portfolio.
Derivatives will not be used to increase portfolio risk above the level
that could be achieved using only traditional investment securities or to
acquire exposure to changes in the value of assets or indices that by
themselves would not be purchased for the Portfolio. The use of derivatives
for non-hedging purposes may be considered speculative. A description of
the derivatives that the Portfolio may use and some of their associated
risks is found under `Additional Information'' herein.
ITEM 5. MANAGEMENT OF THE TRUST.
The Board of Trustees provides broad supervision over the affairs of the
Portfolio. Bankers Trust is the Portfolio's investment adviser. A majority
of the Portfolio's Trustees are not affiliated with the Adviser. Bankers
Trust, as the Portfolio's administrator, supervises the overall
administration of the Portfolio. Bankers Trust is also the Portfolio's fund
accountant, transfer agent, custodian and dividend paying agent.
Mr. Michael Levy, Manager Director of Bankers Trust Global Investment
Management, has been a manager of the Portfolio since joining Bankers Trust
in March, 1993 and has been its primary manager since 1995. He also heads
the international active equity team, which is responsible for the day to
day management of the Portfolio. Since joining Bankers Trust, Mr. Levy has
been the head of this team and International Equity Strategist. The
international equity team has provided input into the management of the
Portfolio since the Portfolio's commencement of operations. Prior to
joining Bankers Trust, Mr. Levy was an investment banker and an equity
analyst with Oppenheimer & Company. He has twenty-six years of business
experience, of which fifteen years have been in the investment industry.
Robert Reiner, Vice President of Bankers Trust Global Investment
Management, has been a manager of the Portfolio since joining Bankers Trust
in 1994 and its co-manager since 1995. At Bankers Trust, he has been
responsible for managing global portfolios and developing analytical and
investment tools for the group's global equity team. His primary focus has
been on Japanese and European markets. Prior to joining Bankers Trust, he
was an equity analyst and also provided macroeconomic coverage for Scudder,
Stevens & Clark. He previously served as Senior Analyst at Sanford C.
Bernstein & Co. and was instrumental in the development of Bernstein's
International Value Fund. Mr. Reiner spent more than nine years at Standard
& Poor's Corporation, where he was a member of its international ratings
group. His tenure included managing the day to day operations of Standard &
Poor's Corporation Tokyo office for three years.
Bankers Trust, a New York banking corporation with principal executive
offices at 280 Park Avenue, New York, New York 10017, is a wholly owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic
institutional markets. As of June 30, 1996, Bankers Trust New York
Corporation was the seventh largest bank holding company in the United
States with total assets of approximately $115 billion. Bankers Trust is a
worldwide merchant bank dedicated to servicing the needs of corporations,
governments, financial institutions and private clients through a global
network of over 120 offices in more than 40 countries. Investment
management is a core business of Bankers Trust, built on a tradition of
excellence from its roots as a trust bank founded in 1930. The scope of
Bankers Trust's investment management capability is unique due to its
leadership positions in both active and passive quantitative management and
its presence in major equity and fixed income markets around the world.
Bankers Trust is one of the nation's largest and most experienced
investment managers with approximately $215 billion in assets under
management globally.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled
fund structures. Now, the BT Family of Funds brings Bankers Trust's
extensive investment management expertise, once available to only the
largest institutions in the U.S., to individual investors. Bankers Trust's
officers have had extensive experience in managing investment portfolios
having objectives similar to that of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment
decisions for the Portfolio, places orders to purchase and sell securities
and other financial instruments on behalf of the Portfolio and employs
professional investment managers and securities analysts who provide
research services to the Portfolio. All orders for investment transactions
on behalf of the Portfolio are placed by Bankers Trust with broker-dealers
and other financial intermediaries that it selects, including those
affiliated with Bankers Trust. A Bankers Trust affiliate will be used in
connection with a purchase or sale of an investment for the Portfolio only
if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. The Portfolio will not invest
in obligations for which Bankers Trust or any of its affiliates is the
ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents and customers of Bankers Trust. As
compensation for its investment advisory services, the Portfolio will pay
Bankers Trust a fee computed daily and paid monthly at the annual rate of
0.65% (before waiver) of the average daily net assets of the Portfolio
pursuant to an investment advisory agreement.
Under an administration and services agreement with the Portfolio (the
"Administration and Services Agreement"), Bankers Trust calculates the
value of the assets of the Portfolio and generally assists the Board of
Trustees in all aspects of the administration and operation of the
Portfolio. The Administration and Services Agreement provides for the
Portfolio to pay Bankers Trust a fee, computed daily and paid monthly, at
the rate of 0.15% 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 at Bankers Trust's expense.
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. 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.
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. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Each investor is entitled to a vote
in proportion to the amount of its investment in the Portfolio. Investments
in the Portfolio may not be transferred, but an investor may withdraw all
or any portion of its investment at any time at net asset value. Investors
in the Portfolio (e.g., investment companies, insurance company separate
accounts and common and commingled trust funds) will each be liable for all
obligations of the Portfolio. However, the risk of an investor in the
Portfolio incurring financial loss on account of such liability is limited
to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations.
Investments in the Portfolio have no preemptive or conversion rights and
are fully paid and nonassessable, except as set forth below. The Portfolio
is not required and has no current intention to hold annual meetings of
investors, but the Portfolio will hold special meetings of investors when
in the judgment of the Trustees it is necessary or desirable to submit
matters for an investor vote. Changes in fundamental policies will be
submitted to investors for approval. Investors have under certain
circumstances (e.g., upon application and submission of certain specified
documents to the Trustees by a specified number of investors) the right to
communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also
have the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of investors. Upon liquidation
of the Portfolio, investors would be entitled to share pro rata in the net
assets of the Portfolio available for distribution to investors.
The net asset value of the Portfolio is 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 1940 Act).
This determination is made each Portfolio Business Day as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time or, in the
event the NYSE closes early, at the time of such early closing) (the
"Valuation Time").
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Portfolio Business Day. At the Valuation Time, on each
such business day, the value of each investor's beneficial interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, that represents that
investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or withdrawals, which are to be effected on that day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be re-computed as the percentage equal
to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of the Valuation Time, on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio effected on such day, and
(ii) the denominator of which is the aggregate net asset value of the
Portfolio as of the Valuation Time on such day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of
the investor's interest in the Portfolio as of the Valuation Time, on the
following business day of the Portfolio.
The "net income" of the Portfolio shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of the Portfolio, less
(ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Interest income
includes discount earned (including both original issue and market
discount) on discount paper accrued ratably to the date of maturity and any
net realized gains or losses on the assets of the Portfolio. All the net
income of the Portfolio is allocated pro rata among the investors in the
Portfolio. The net income is accrued daily and distributed monthly to the
investors in the Portfolio.
Under the anticipated method of operation of the Portfolio, the Portfolio
will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with
the governing instruments of the Portfolio) of the Portfolio's ordinary
income and capital gain in determining its income tax liability. The
determination of such share will be made in accordance with the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations promulgated
thereunder.
It is intended that the Portfolio's assets, income and distributions will
be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the
investor invested all of its assets in the Portfolio.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. See "General Description
of the Registrant" above.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined if an order is
received by the Portfolio by the designated cutoff time for each accredited
investor. The net asset value of the Portfolio is determined on each
Portfolio Business Day. The Portfolio's portfolio securities are valued
primarily on the basis of market quotations or, if quotations are not
readily available, by a method which the Board of Trustees believes
accurately reflects fair value.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times
as is reasonably practicable in order to enhance the yield on its assets,
investments must be made in Federal funds (i.e., monies credited to the
account of the Portfolio's custodian bank by a Federal Reserve Bank).
The Portfolio and Edgewood reserve the right to cease accepting investments
at any time or to reject any investment order.
The placement agent for the Portfolio is Edgewood. The principal business
address of Edgewood and its affiliates is Clearing Operations, P.O. Box
897, Pittsburgh, Pennsylvania 15230-0897. Edgewood receives no additional
compensation for serving as the placement agent for the Portfolio.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request
in proper form is furnished by the investor to the Portfolio by the
designated cutoff time for each accredited investor. The proceeds of a
withdrawal will be paid by the Portfolio in Federal funds normally on the
Portfolio Business Day the withdrawal is effected, but in any event within
seven calendar 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
ADRS, GDRS AND EDRS. ADRs, GDRs and EDRs are certificates evidencing
ownership of shares of a foreign-based issuer held in trust by a bank or
similar financial institution. Designed for use in U.S., global and
European securities markets, respectively, ADRs, GDRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies. ADRs, GDRs and EDRs are subject to the same risks
as the foreign securities to which they relate.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take place as long as a month or more
after the date of the purchase commitment. The value of these securities is
subject to market fluctuation during this period and no income accrues to
the Portfolio until settlement takes place. The Portfolio maintains with
the custodian a segregated account containing high grade liquid securities
in an amount at least equal to these commitments. When entering into a
when-issued or delayed delivery transaction, the Portfolio will rely on the
other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged.
RULE 144A SECURITIES. The Portfolio may purchase securities in the United
States that are not registered for sale under Federal securities laws but
which can be resold to institutions under Securities and Exchange
Commission ("SEC") Rule 144A. Provided that a dealer or institutional
trading market in such securities exists, these restricted securities are
treated as exempt from the Portfolio's 15% limit on illiquid securities.
Under the supervision of the Board of Trustees, Bankers Trust determines
the liquidity of restricted securities and, through reports from Bankers
Trust, the Board will monitor trading activity in restricted securities. If
institutional trading in restricted securities were to decline, the
liquidity of the Portfolio could be adversely affected.
SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of the
total value of its securities. These loans must be secured continuously by
cash or equivalent collateral or by a letter of credit at least equal to
the market value of the securities loaned plus accrued income. By lending
its securities, the Portfolio can increase its income by continuing to
receive income on the loaned securities as well as by the opportunity to
receive interest on the collateral. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to
the Portfolio and its investors. In lending securities to brokers, dealers
and other organizations, the Portfolio is subject to risks which, like
those associated with other extensions of credit, include delays in
recovery and possible loss of rights in the collateral should the borrower
fail financially.
REPURCHASE AGREEMENTS. In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price. In
the event of the bankruptcy of the other party to either a repurchase
agreement or a securities loan, the Portfolio could experience delays in
recovering either its cash or the securities it lent. To the extent that,
in the meantime, the value of the securities repurchased had decreased or
the value of the securities lent had increased, the Portfolio could
experience a loss. In all cases, Bankers Trust must find the
creditworthiness of the other party to the transaction satisfactory. A
repurchase agreement is considered a collateralized loan under the 1940
Act.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and
sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the
U.S. dollar, the Portfolio from time to time may enter into foreign
currency exchange transactions to convert to and from different foreign
currencies and to convert foreign currencies to and from the U.S. dollar.
The Portfolio either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market
or uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract. Forward
foreign currency exchange contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has
no deposit requirement and is traded at a net price without commission. The
Portfolio maintains with its custodian a segregated account of high grade
liquid assets in an amount at least equal to its obligations under each
forward foreign currency exchange contract. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the
prices of the Portfolio's securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions
or changes in foreign currency exchange rates that would adversely affect a
portfolio position or an anticipated investment position. Since
consideration of the prospect for currency parities will be incorporated
into Bankers Trust's long-term investment decisions, the Portfolio will not
routinely enter into foreign currency hedging transactions with respect to
security transactions; however, Bankers Trust believes that it is important
to have the flexibility to enter into foreign currency hedging transactions
when it determines that the transactions would be in the Portfolio's best
interest. Although these transactions tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of such
securities between the date the forward contract is entered into and the
date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. The Portfolio may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different, but related currency. As with
other types of options, however, the writing of an option on foreign
currency will constitute only a partial hedge up to the amount of the
premium received, and the Portfolio could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may be used to hedge
against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the
entire amount of the premium plus related transaction costs. In addition,
the Portfolio may purchase call options on currency when the Adviser
anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange
will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect
to covered options it has written, the Portfolio will not be able to sell
the underlying currency or dispose of assets held in a segregated account
until the options expire or are exercised. Similarly, if the Portfolio is
unable to effect a closing sale transaction with respect to options it has
purchased, it would have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of
underlying currency. The Portfolio pays brokerage commissions or spreads in
connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which
may not be present in the case of exchange-traded currency options. In some
circumstances, the Portfolio's ability to terminate over-the-counter
options (`OTC Options'') may be more limited than with exchange-traded
options. It is also possible that broker-dealers participating in OTC
Options transactions will not fulfill their obligations. Provided that a
dealer or institutional trading market in such securities exists, these
restricted securities are not covered by the Portfolio's 15% limit on
illiquid securities. Under the supervision of the Board of Trustees of the
Portfolio, Bankers Trust determines the liquidity of restricted securities,
and through reports from Bankers Trust, the Board will monitor trading
activity in restricted securities. With respect to options written with
primary dealers in U.S. government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase
formula.
OPTIONS ON STOCKS. The Portfolio may write and purchase put and call
options on stocks. A call option gives the purchaser of the option the
right to buy, and obligates the writer to sell, the underlying stock at the
exercise price at any time during the option period. Similarly, a put
option gives the purchaser of the option the right to sell, and obligates
the writer to buy, the underlying stock at the exercise price at any time
during the option period. A covered call option, which is a call option
with respect to which the Portfolio owns the underlying stock, sold by the
Portfolio exposes the Portfolio during the term of the option to possible
loss of opportunity to realize appreciation in the market price of the
underlying stock or to possible continued holding of a stock which might
otherwise have been sold to protect against depreciation in the market
price of the stock. A covered put option sold by the Portfolio exposes the
Portfolio during the term of the option to a decline in price of the
underlying stock. A put option sold by the Portfolio is covered when, among
other things, cash or liquid securities are placed in a segregated account
to fulfill the obligations undertaken.
To close out a position when writing covered options, the Portfolio may
make a "closing purchase transaction," which involves purchasing an option
on the same stock with the same exercise price and expiration date as the
option which it has previously written on the stock. The Portfolio will
realize a profit or loss for a closing purchase transaction if the amount
paid to purchase an option is less or more, as the case may be, than the
amount received from the sale thereof. To close out a position as a
purchaser of an option, the Portfolio may make a "closing sale
transaction," which involves liquidating the Portfolio's position by
selling the option previously purchased.
The Portfolio intends to treat OTC Options purchased and the assets used to
"cover" OTC Options written as not readily marketable and therefore subject
to the limitations described in "Investment Restrictions" in Part B.
OPTIONS ON FOREIGN STOCK INDICES. The Portfolio may purchase and write put
and call options on foreign stock indices listed on domestic and foreign
stock exchanges. The portfolio may also purchase and write OTC Options on
foreign stock indices. These OTC Options would be subject to the same
liquidity and credit risks noted above with respect to OTC Options on
foreign currencies. A stock index fluctuates with changes in the market
values of the stocks included in the index.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as
`Counterparties'' and individually referred to as a ``Counterparty'')
through direct bilateral agreement with the Counterparty. In contrast to
exchange listed options, which generally have standardized terms and
performance mechanics, all of the terms of an OTC Option, including such
terms as method of settlement, term exercise price, premium, guaranties and
security, are set be negotiation of the parties.
Unless the parties provide for it, no central clearing or guaranty function
is involved in an OTC Option. As a result, if a Counterparty fails to make
or take delivery of the security, currency or other instrument underlying
an OTC Option it has entered into with the Portfolio or fails to make a
cash settlement payment due in accordance with the terms of that option,
the Portfolio will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Thus, Bankers Trust must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that
the terms of the OTC Option will be met.
Options on stock indices are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the fixed
exercise price of the option exceeds (in the case of a put) or is less than
(in the case of a call) the closing value of the underlying index on the
date of exercise, multiplied by (b) a fixed "index multiplier". Receipt of
this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. The
amount of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option expressed
in dollars or a foreign currency, as the case may be, times a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a
closing transaction on an exchange or the option may expire unexercised.
To the extent permitted by U.S. Federal or state securities laws, the
Portfolio may invest in options on foreign stock indices in lieu of direct
investment in foreign securities. The Portfolio may also use foreign stock
index options for hedging purposes.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the
Portfolio will realize a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Portfolio of options
on stock indices will be subject to Bankers Trust's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
FUTURES CONTRACTS ON FOREIGN STOCK INDICES. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement
based upon changes in the value of an index of foreign securities ("Futures
Contracts"). This investment technique is designed only to hedge against
anticipated future change in general market prices which otherwise might
either adversely affect the value of securities held by the Portfolio or
adversely affect the prices of securities which are intended to be
purchased at a later date for the Portfolio. A Futures Contract may also be
entered into to close out or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to that
of the investment being hedged. If these hedging transactions are
successful, the futures positions taken for the Portfolio will rise in
value by an amount which approximately offsets the decline in value of the
portion of the Portfolio's investments that are being hedged. Should
general market prices move in an unexpected manner, the full anticipated
benefits of Futures Contracts may not be achieved or a loss may be
realized.
Although Futures Contracts would be entered into for hedging purposes only,
such transactions do involve certain risks. These risks could include a
lack of correlation between the Futures Contract and the foreign equity
market being hedged, a potential lack of liquidity in the secondary market
and incorrect assessments of market trends which may result in poorer
overall performance than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted
and maintained as a good-faith deposit against performance of obligations
under Futures Contracts written for the Portfolio. The Portfolio may not
purchase or sell a Futures Contract if immediately thereafter its margin
deposits on its outstanding Futures Contracts would exceed 5% of the market
value of the Portfolio's total assets.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may invest in options on such
Futures Contracts for similar purposes.
All options that the Portfolio writes will be covered under applicable
requirements of the SEC. The Portfolio will write and purchase put and call
options only to the extent permitted by the policies of state securities
authorities in states where shares of investors in the Portfolio are
qualified for offer and sale.
There can be no assurance that the use of these portfolio strategies will
be successful.
ASSET COVERAGE. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment
leverage, the Portfolio will cover such transactions, as required under the
applicable interpretations of the SEC, either by owning the underlying
securities or by segregating with the Portfolio's custodian containing high
grade liquid debt securities in an amount at all times equal to or
exceeding the Portfolio's commitment with respect to these instruments or
contracts.
INTERNATIONAL EQUITY PORTFOLIO
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
General Information and History ......................1
Investment Objective and Policies.....................1
Management of the Portfolio..........................11
Control Persons and Principal Holders of Securities..12
Investment Advisory and Other Services ..............12
Brokerage Allocation and Other Practices.............13
Capital Stock and Other Securities ..................14
Purchase, Redemption and Pricing of Securities.......15
Tax Status...........................................16
Underwriters.........................................17
Calculation of Performance Data .....................17
Financial Statements.................................17
Appendix: Bond and Commercial Paper Ratings..........18
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
Part A contains additional information about the investment objective and
policies of International Equity 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.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), securities which are otherwise not readily marketable and
repurchase agreements having a remaining maturity of longer than seven
calendar days. Securities which have not been registered under the 1933 Act
are referred to as private placements or restricted securities and are
purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect
on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register
such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has recently adopted
Rule 144A, which allows a broader institutional trading market for
securities otherwise subject to restriction on their resale to the general
public. Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act of resales of certain securities to qualified
institutional buyers. Bankers Trust Company ("Bankers Trust"), as the
Portfolio's investment adviser (the "Adviser"), anticipates that the market
for certain restricted securities such as institutional commercial paper
will expand further as a result of this new regulation and the development
of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
(the "NASD").
The Adviser will monitor the liquidity of Rule 144A securities in the
Portfolio's portfolio securities under the supervision of the Board of
Trustees. In reaching liquidity decisions, the Adviser will consider, among
other things, the following factors: (1) the frequency of trades and quotes
for the security; (2) the number of dealers and other potential purchasers
wishing to purchase or sell the security; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and of the
marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer).
LENDING OF PORTFOLIO SECURITIES. The Portfolio has the authority to lend
portfolio securities to brokers, dealers and other financial organizations.
The Portfolio will not lend securities to Bankers Trust, Edgewood Services,
Inc. ("Edgewood") or their affiliates. By lending its securities, the
Portfolio can increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash collateral in
short-term securities or obtaining yield in the form of interest paid by
the borrower when U.S. government obligations are used as collateral. There
may be risks of delay in receiving additional collateral or risks of delay
in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially. The Portfolio will
adhere to the following conditions whenever its securities are loaned: (i)
the Portfolio must receive at least 100% cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the securities including accrued
interest rises above the level of the collateral; (iii) the Portfolio must
be able to terminate the loan at any time; (iv) the Portfolio must receive
reasonable interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities, and any increase in market
value; (v) the Portfolio may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities
may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must
terminate the loan and regain the right to vote the securities.
SHORT-TERM INSTRUMENTS. When the Portfolio experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Portfolio's investment objective, which are unavailable
in sufficient quantities or at attractive prices, each Portfolio may invest
in short-term instruments for a limited time pending availability of such
portfolio securities. Short-term instruments consist of foreign or
domestic: (i) short-term obligations of sovereign governments, their
agencies, instrumentalities, authorities or political subdivisions; (ii)
other short-term debt securities rated AA or higher by Standard & Poor's
Rating Group (`S&P'') or Aa or higher by Moody's Investors Services, Inc.
(`Moody's'') or, if unrated, of comparable quality in the opinion of
Bankers Trust; (iii) commercial paper; (iv) bank obligations, including
negotiable certificates of deposit, time deposits and banker's acceptances;
and (v) repurchase agreements. At the time the Portfolio invests in
commercial paper, bank obligations or repurchase agreements, the issuer of
the issuer's parent must have outstanding debt rated AA or higher by S&P or
Aa or higher by Moody's or outstanding commercial paper or bank obligations
rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instruments may be denominated in U.S. dollars or in
foreign currencies.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
GENERAL. The successful use of such instruments draws upon the Adviser's
skill and experience with respect to such instruments and usually depends
on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Portfolio may not achieve the anticipated benefits
of futures contracts or options on futures contracts or may realize losses
and thus will be in a worse position than if such strategies had not been
used. In addition, the correlation between movements in the price of
futures contracts or options on futures contracts and movements in the
price of the securities and currencies hedged or used for cover will not be
perfect and could produce unanticipated losses.
FUTURES CONTRACTS. The Portfolio may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, foreign currencies,
or contracts based on financial indices including any index of U.S.
government securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which
have been designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant contract
market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of
the contracts as between the clearing members of the exchange. The
Portfolio may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury bonds, Treasury notes,
Government National Mortgage Association modified pass-through mortgage-
backed securities and three-month U.S. Treasury bills. The Portfolio may
also enter into futures contracts which are based on bonds issued by
entities other than the U.S. government.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit").
It is expected that the initial deposit would be approximately 1 1/2% to 5%
of a contract's face value. Daily thereafter, the futures contract is
valued and the payment of "variation margin" may be required, since each
day the Portfolio would provide or receive cash that reflects any decline
or increase in the contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the
delivery of securities with a different interest rate from that specified
in the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same
month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the
securities. Since all transactions in the futures market are made, offset
or fulfilled through a clearinghouse associated with the exchange on which
the contracts are traded, the Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, when the
Portfolio holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities
or foreign currencies. For example, if interest rates were expected to
increase, the Portfolio might enter into futures contracts for the sale of
debt securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt security in the Portfolio would
decline, but the value of the futures contracts to the Portfolio would
increase at approximately the same rate, thereby keeping the net asset
value of the Portfolio from declining as much as it otherwise would have.
The Portfolio could accomplish similar results by selling debt securities
and investing in bonds with short maturities when interest rates are
expected to increase. However, since the futures market is more liquid than
the cash market, the use of futures contracts as an investment technique
allows the Portfolio to maintain a defensive position without having to
sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated
purchases of debt securities at higher prices. Since the fluctuations in
the value of futures contracts should be similar to those of debt
securities, the Portfolio could take advantage of the anticipated rise in
the value of debt securities without actually buying them until the market
had stabilized. At that time, the futures contracts could be liquidated and
the Portfolio could then buy debt securities on the cash market. To the
extent the Portfolio enters into futures contracts for this purpose, the
assets in the segregated asset account maintained to cover the Portfolio's
obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio
in an amount equal to the difference between the fluctuating market value
of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such
futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial
deposit and variation margin requirements. Rather than meeting additional
variation margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather
than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast
of general interest rate trends by the Adviser may still not result in a
successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes
that use of such contracts will benefit the Portfolio, if the Adviser's
investment judgment about the general direction of interest rates is
incorrect, the Portfolio's overall performance would be poorer than if it
had not entered into any such contract. For example, if the Portfolio has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its portfolio and
interest rates decrease instead, the Portfolio will lose part or all of the
benefit of the increased value of its debt securities which it has hedged
because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Portfolio has insufficient cash, it
may have to sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not necessarily
be, at increased prices which reflect the rising market. The Portfolio may
have to sell securities at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Portfolio intends to purchase and write
options on futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the purchase of
a call option on an individual security. Depending on the pricing of the
option compared to either the price of the futures contract upon which it
is based or the price of the underlying debt securities, it may or may not
be less risky than ownership of the futures contract or underlying debt
securities. As with the purchase of futures contracts, when the Portfolio
is not fully invested it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Portfolio's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable upon exercise of the futures contract. If the futures
price at expiration of the option is higher than the exercise price, the
Portfolio will retain the full amount of the option premium which provides
a partial hedge against any increase in the price of securities which the
Portfolio intends to purchase. If a put or call option the Portfolio has
written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and
changes in the value of its futures positions, the Portfolio's losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, the Portfolio may purchase a put option on a futures contract
to hedge its portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above,
the purchase of an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value
of the option purchased.
The Board of Trustees has adopted the requirement that futures contracts
and options on futures contracts be used only as a hedge and not for
speculation. In addition to this requirement, the Board of Trustees of the
Portfolio has also adopted a restriction that the Portfolio will not enter
into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of
the Portfolio and premiums paid on outstanding options on futures contracts
owned by the Portfolio (other than those entered into for bona fide hedging
purposes) would exceed 5% of the market value of the total assets of the
Portfolio.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write options
on foreign currencies for hedging purposes in a manner similar to that in
which futures contracts on foreign currencies, or forward contracts, will
be utilized. For example, a decline in the dollar value of a foreign
currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in
the value of portfolio securities, the Portfolio may purchase put options
on the foreign currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing
the cost of such securities, the Portfolio may purchase call options
thereon. The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Portfolio deriving from
purchases of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, the
Portfolio could sustain losses on transactions in foreign currency options
which would require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, where the Portfolio anticipates a decline in
the dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected
decline occurs, the options will most likely not be exercised, and the
diminution in value of portfolio securities will be offset by the amount of
the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates
move in the manner projected, will expire unexercised and allow the
Portfolio to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If this does
not occur, the option may be exercised and the Portfolio would be required
to purchase or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options on
foreign currencies, the Portfolio also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
The Portfolio intends to write covered call options on foreign currencies.
A call option written on a foreign currency by the Portfolio is "covered"
if the Portfolio owns the underlying foreign currency covered by the call
or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option is also
covered if the Portfolio has a call on the same foreign currency and in the
same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if
the difference is maintained by the Portfolio in cash, U.S. government
securities and other high quality liquid debt securities in a segregated
account with its custodian.
The Portfolio also intends to write call options on foreign currencies that
are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in the U.S. dollar value of a
security which the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change
in the exchange rate. In such circumstances, the Portfolio collateralizes
the option by maintaining in a segregated account with its custodian, cash
or U.S. government securities or other high quality liquid debt securities
in an amount not less than the value of the underlying foreign currency in
U.S. dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by the
Portfolio in futures contracts, options on foreign currencies and forward
contracts are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the SEC. To the
contrary, such instruments are traded through financial institutions acting
as market-makers, although foreign currency options are also traded on
certain national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no
daily price fluctuation limits, and adverse market movements could
therefore continue to an unlimited extent over a period of time. Although
the purchaser of an option cannot lose more than the amount of the premium
plus related transaction costs, this entire amount could be lost. Moreover,
the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a
national securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of counterparty
default. Further, a liquid secondary market in options traded on a national
securities exchange may be more readily available than in the over-the-
counter market, potentially permitting the Portfolio to liquidate open
positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such options must
be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign
currency option exercises, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the
fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which
may not be present in the case of exchange-traded currency options. The
Portfolio's ability to terminate over-the-counter options will be more
limited than with exchange-traded options. It is also possible that broker-
dealers participating in over-the-counter options transactions will not
fulfill their obligations. Until such time as the staff of the SEC changes
its position, the Portfolio will treat purchased over-the-counter options
and assets used to cover written over-the-counter options as illiquid
securities. With respect to options written with primary dealers in U.S.
government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign
exchanges. Such transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected
by: (i) other complex foreign political and economic factors; (ii) lesser
availability than in the United States of data on which to make trading
decisions; (iii) delays in the Portfolio's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in the United
States; (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States; and (v)
lesser trading volume.
OPTIONS ON SECURITIES. The Portfolio may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options")
in an attempt to increase income. However, the Portfolio may forgo the
benefits of appreciation on securities sold or may pay more than the market
price on securities acquired pursuant to call and put options written by
the Portfolio.
When the Portfolio writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified
in the option (the "exercise price") by exercising the option at any time
during the option period. If the option expires unexercised, the Portfolio
will realize income in an amount equal to the premium received for writing
the option. If the option is exercised, a decision over which the Portfolio
has no control, the Portfolio must sell the underlying security to the
option holder at the exercise price. By writing a covered call option, the
Portfolio forgoes, in exchange for the premium less the commission ("net
premium"), the opportunity to profit during the option period from an
increase in the market value of the underlying security above the exercise
price.
When the Portfolio writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at
the specified exercise price at any time during the option period. If the
option expires unexercised, the Portfolio will realize income in the amount
of the premium received for writing the option. If the put option is
exercised, a decision over which the Portfolio has no control, the
Portfolio must purchase the underlying security from the option holder at
the exercise price. By writing a covered put option, the Portfolio, in
exchange for the net premium received, accepts the risk of a decline in the
market value of the underlying security below the exercise price. The
Portfolio will only write put options involving securities for which a
determination is made at the time the option is written that the Portfolio
wishes to acquire the securities at the exercise price.
The Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration
date as the option previously written. This transaction is called a
"closing purchase transaction". The Portfolio will realize a profit or loss
for a closing purchase transaction if the amount paid to purchase an option
is less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Portfolio
may make a "closing sale transaction" which involves liquidating the
Portfolio's position by selling the option previously purchased. Where the
Portfolio cannot effect a closing purchase transaction, it may be forced to
incur brokerage commissions or dealer spreads in selling securities it
receives or it may be forced to hold underlying securities until an option
is exercised or expires.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked to market to
reflect the current market value of the option written. The current market
value of a traded option is the last sale price or, in the absence of a
sale, the mean between the closing bid and asked price. If an option
expires on its stipulated expiration date or if the Portfolio enters into a
closing purchase transaction, the Portfolio will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the premium received
when the option was sold), and the deferred credit related to such option
will be eliminated. If a call option is exercised, the Portfolio will
realize a gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the premium originally received.
The writing of covered call options may be deemed to involve the pledge of
the securities against which the option is being written. Securities
against which call options are written will be segregated on the books of
the custodian for the Portfolio.
The Portfolio may purchase call and put options on any securities in which
it may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The
purchase of a call option would entitle the Portfolio, in exchange for the
premium paid, to purchase a security at a specified price during the option
period. The Portfolio would ordinarily have a gain if the value of the
securities increased above the exercise price sufficiently to cover the
premium and would have a loss if the value of the securities remained at or
below the exercise price during the option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective
puts") or securities of the type in which it is permitted to invest. The
purchase of a put option would entitle the Portfolio, in exchange for the
premium paid, to sell a security, which may or may not be held in the
Portfolio's portfolio, at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the market value of the Portfolio's portfolio securities. Put
options also may be purchased by the Portfolio for the purpose of
affirmatively benefiting from a decline in the price of securities which
the Portfolio does not own. The Portfolio would ordinarily recognize a gain
if the value of the securities decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if the value
of the securities remained at or above the exercise price. Gains and losses
on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.
The Portfolio has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The Portfolio's activities
in options may also be restricted by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a
regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options,
and there can be no assurance that viable exchange markets will develop or
continue.
The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately
ten broker-dealers, including several of the largest primary dealers in
U.S. government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker
rather than an exchange, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. To
reduce this risk, the Portfolio will purchase such options only from
broker-dealers who are primary government securities dealers recognized by
the Federal Reserve Bank of New York and who agree to (and are expected to
be capable of) entering into closing transactions, although there can be no
guarantee that any such option will be liquidated at a favorable price
prior to expiration. The Adviser will monitor the creditworthiness of
dealers with whom the Portfolio enters into such options transactions under
the general supervision of the Portfolio's Trustees.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
Portfolio may also purchase and write (sell) call and put options on
securities indices. Such options give the holder the right to receive a
cash settlement during the term of the option based upon the difference
between the exercise price and the value of the index. Such options will be
used for the purposes described above under "Options on Securities".
The Portfolio may, to the extent allowed by Federal and state securities
laws, invest in securities indices instead of investing directly in
individual foreign securities.
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close
out options positions on securities indices is more likely to occur,
although the Portfolio generally will only purchase or write such an option
if the Adviser believes the option can be closed out.
The use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities
included in the index is interrupted. The Portfolio will not purchase such
options unless the Adviser believes the market is sufficiently developed
such that the risk of trading in such options is no greater than the risk
of trading in options on securities.
Price movements in the Portfolio's portfolio securities may not correlate
precisely with movements in the level of an index and, therefore, the use
of options on indices cannot serve as a complete hedge. Because options on
securities indices require settlement in cash, the Adviser may be forced to
liquidate portfolio securities to meet settlement obligations.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Because the Portfolio buys and
sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the
U.S. dollar, the Portfolio from time to time may enter into foreign
currency exchange transactions to convert to and from different foreign
currencies and to convert foreign currencies to and from the U.S. dollar.
The Portfolio either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market
or uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract. Forward
foreign currency exchange contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has
no deposit requirement and is traded at a net price without commission. The
Portfolio maintains with its custodian a segregated account of high grade
liquid assets in an amount at least equal to its obligations under each
forward foreign currency exchange contract. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the
prices of the Portfolio's securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions
or changes in foreign currency exchange rates that would adversely affect a
portfolio position or an anticipated investment position. Since
consideration of the prospect for currency parities will be incorporated
into Bankers Trust's long-term investment decisions, the Portfolio will not
routinely enter into foreign currency hedging transactions with respect to
security transactions; however, Bankers Trust believes that it is important
to have the flexibility to enter into foreign currency hedging transactions
when it determines that the transactions would be in the Portfolio's best
interest. Although these transactions tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of such
securities between the date the forward contract is entered into and the
date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC may
in the future assert authority to regulate forward contracts. In such event
the Portfolio's ability to utilize forward contracts in the manner set
forth in Part A to this Registration Statement may be restricted. Forward
contracts may reduce the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the
Portfolio than if it had not entered into such contracts. The use of
foreign currency forward contracts may not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the prices of or rates of return
on the Portfolio's foreign currency denominated portfolio securities and
the use of such techniques will subject the Portfolio to certain risks.
The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Portfolio may not always be able to enter into foreign
currency forward contracts at attractive prices and this will limit the
Portfolio's ability to use such contract to hedge or cross-hedge its
assets. Also, with regard to the Portfolio's use of cross-hedges, there can
be no assurance that historical correlations between the movement of
certain foreign currencies relative to the U.S. dollar will continue. Thus,
at any time poor correlation may exist between movements in the exchange
rates of the foreign currencies underlying the Portfolio's cross-hedges and
the movements in the exchange rates of the foreign currencies in which the
Portfolio's assets that are the subject of such cross-hedges are
denominated.
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 the Appendix.
INVESTMENT RESTRICTIONS
The Portfolio has adopted its investment objective and the following
investment restrictions as "fundamental policies," which may not be changed
without approval by holders of a "majority of the outstanding shares" of
the Portfolio, which as used in this Registration Statement means the vote
of the lesser of (i) 67% or more of the outstanding "voting securities" of
the Portfolio present at a meeting, if the holders of more than 50% of the
outstanding "voting securities" of the Portfolio are present or represented
by proxy, or (ii) more than 50% of the outstanding "voting securities" of
the Portfolio. The term "voting securities" as used in this paragraph has
the same meaning as in the Investment Company Act of 1940 (the "1940 Act").
As a matter of fundamental policy, the Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio, except
that in an amount not to exceed 1/3 of the current value of the Portfolio's
assets, it may borrow money as a temporary measure for extraordinary or
emergency purposes and enter into reverse repurchase agreements or dollar
roll transactions, and except that it may pledge, mortgage or hypothecate
not more than 1/3 of such assets to secure such borrowings (it is intended
that money would be borrowed only from banks and only either to accommodate
requests for the withdrawal of beneficial interests while effecting an
orderly liquidation of portfolio securities or to maintain liquidity in the
event of an unanticipated failure to complete a portfolio security
transaction or other similar situations) or reverse repurchase agreements,
provided that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, and reverse
repurchase agreements 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
(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 reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Portfolio's total
assets (taken at cost), except that the Portfolio may borrow for temporary
or emergency purposes up to 1/3 of its total assets;
(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 securities it does not own such that the dollar amount of such
short sales at any one time exceeds 25% of the net equity of the Portfolio,
and the value of securities of any one issuer in which the Portfolio is
short exceeds the lesser of 2.0% of the value of the Portfolio's net assets
or 2.0% of the securities of any class of any U.S. issuer, and provided
that short sales may be made only in those securities which are fully
listed on a national securities exchange or a foreign exchange (This
provision does not include the sale of securities the Portfolio
contemporaneously owns or where the Portfolio has the right to obtain
securities equivalent in kind and amount to those sold, i.e., short sales
against the box.) (The Portfolio has no current intention to engage in
short selling.);
(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, unless permitted to exceed these limitations by an exemptive
order of the SEC; provided further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any securities of any open-
end investment company unless (1) the Portfolio's investment adviser waives
the investment advisory fee with respect to assets invested in other open-
end investment companies and (2) the Portfolio incurs no sales charge in
connection with the investment;
(vii) invest more than 10% of the Portfolio's total assets (taken at the
greater of cost or market value) in securities (excluding Rule 144A
securities) that are restricted as to resale under the 1933 Act;
(viii) invest more than 15% of the Portfolio's total assets (taken at the
greater of cost or market value) in (a) securities (excluding Rule 144A
securities) that are restricted as to resale under the 1933 Act, and (b)
securities that are issued by issuers which (including predecessors) have
been in operation less than three years (other than U.S. government
securities), provided, however, that no more than 5% of the Portfolio's
total assets are invested in securities issued by issuers which (including
predecessors) have been in operation less than three years;
(ix) invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable (excluding Rule 144A securities deemed by the Board of
Trustees of the Portfolio to be liquid);
(x) with respect to 75% of its assets, invest more than 5% of its total
assets in the securities (excluding U.S. government securities) of any one
issuer;
(xi) invest in securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the
Portfolio, or is an officer or director 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;
(xii) invest in warrants (other than warrants acquired by the Portfolio as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Portfolio's net assets or if, as a result,
more than 2% of the Portfolio's net assets would be invested in warrants
not listed on a recognized United States or foreign stock exchange, to the
extent permitted by applicable state securities laws;
(xiii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is within
the investment policies of the Portfolio and the option is issued by the
OCC, except for put and call options issued by non-U.S. entities or listed
on non-U.S. securities or commodities exchanges; (b) the aggregate value of
the obligations underlying the puts determined as of the date the options
are sold shall not exceed 5% of the Portfolio's 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
(xiv)buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons and: (a)
the options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all such options which are held at any time do
not exceed 20% of the Portfolio's 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 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 PORTFOLIO.
The Trustees and officers of the Portfolio and their principal occupations
during the past five years are set forth below. Their titles may have
varied during that period. Unless otherwise indicated below, the address of
each officer is Clearing Operations, P.O. Box 897, Pittsburgh, Pennsylvania
15230-0897.
TRUSTEES
CHARLES P. BIGGAR (birthdate: October 13, 1930) -- 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) -- President of the
Portfolio; Chairman, Chief Executive Officer and President, Signature
Financial Group, Inc. ("SFG") (since December, 1988) and Signature (since
April, 1989). His address is 6 St. James Avenue, Boston, Massachusetts
02116.
S. LELAND DILL (birthdate: March 28, 1930) -- Retired; Director, Coutts
Trust Holdings Ltd.; Coutts (U.S.A.) International; Coutts Group; 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) -- Principal, Philip
Saunders Associates (Consulting); former Director of Financial Industry
Consulting, Wolf & Company; President, John Hancock Home Mortgage
Corporation; and Senior Vice President of Treasury and Financial Services,
John Hancock Mutual Life Insurance Company, Inc. His address is 445 Glen
Road, Weston, Massachusetts 02193.
* indicates an `interested person'' (as defined in the 1940 Act) of the
Portfolio.
OFFICERS
RONALD M. PETNUCH (birthdate: February 27, 1960) -- President and
Treasurer; Senior Vice President, Federated Services Company (`FSC'');
formerly, Director of Proprietary Client Services, Federated Administrative
Services (`FAS''), and Associate Corporate Counsel, Federated Investors
(`FI'').
CHARLES L. DAVIS, JR. (birthdate: March 23, 1960) -- Vice President and
Assistant Treasurer; Vice President, FAS.
JAY S. NEUMAN (birthdate: April 22, 1950) -- Secretary; Corporate Counsel,
FI.
Messrs. Coolidge, Petnuch, Davis, and Neuman also hold similar positions
for other investment companies for which Signature orEdgewood,
respectively, or an affiliate serves as the principal underwriter.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the 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 or Trustee of the Portfolio.
For the fiscal year ended September 30, 1996, the period from January 1,
1995 to September, 30, 1995, and the fiscal year ended December 31, 1994,
the Portfolio accrued Trustees fees equal to $3,004, $1,079 and $1,230,
respectively. Bankers Trust reimbursed the Portfolio for a portion of its
Trustees fees for the periods above. See "Investment Advisory and Other
Services" below.
The Trustees of the Portfolio received the following remuneration from the
Portfolio for the fiscal year ended September 30, 1996:
TRUSTEES COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION FROM FUND COMPLEX*
POSITION FROM PORTFOLIO PAID TO TRUSTEES
S. Leland Dill, none $23,000
Philip Saunders, Jr., none $23,000
Philip W. Coolidge, none none
Charles P. Biggar, none none
* Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free
Money Portfolio, International Equity Portfolio, Utility Portfolio, Short
Intermediate US Government Securities Portfolio, Intermediate Tax Free
Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio and
Capital Appreciation Portfolio.
The Portfolio's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or unless with respect to any other
matter it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of the
Portfolio. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving
the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that
such officers or Trustees have not engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of December 31, 1996, BT Investment International Equity Fund, a fund in
the BT Investment Funds, International Equity Fund, a fund in the BT
Advisor Funds, and BT Institutional International Equity Fund, a fund in
the BT Institutional Funds, owned approximately 100% of the outstanding
interests in the Portfolio.
The 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.
Bankers Trust manages the assets of the Portfolio pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as
the Board of Trustees may determine, the Adviser makes investment decisions
for the Portfolio. Bankers Trust will: (i) act in strict conformity with
the Portfolio's Declaration of Trust, the 1940 Act and the Investment
Advisors Act of 1940, as the same may from time to time be amended; (ii)
manage the Portfolio in accordance with the Portfolio's investment
objectives, restrictions and policies; (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.
The Adviser furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the Portfolio's investments
and effecting securities transactions for the Portfolio. The Advisory
Agreement will continue in effect if such continuance is specifically
approved at least annually by the Board of Trustees or by a majority vote
of the investors in the Portfolio (with the vote of each being in
proportion to the amount of its investment) and, in either case, by a
majority of the Portfolio's Trustees who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for
the purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty on 60 days' written
notice by the Portfolio when authorized either by majority vote of the
investors in the Portfolio (with the vote of each being in proportion to
the amount of its investment) or by a vote of a majority of its Board of
Trustees, or by the Adviser, and will automatically terminate in the event
of its assignment. The Advisory Agreement provides that neither the Adviser
nor its personnel shall be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or
omission in the execution of security transactions for the Portfolio,
except for willful misfeasance, bad faith or gross negligence or of
reckless disregard of its or their obligations and duties under the
Advisory Agreement.
For the fiscal year ended September 30, 1996, the period from January 1,
1995 to September 30, 1995, and the fiscal year ended December 31, 1994,
Bankers Trust accrued $759,552, $322,696, and $322,489, respectively, in
compensation for investment advisory services provided to the Portfolio.
During the same periods, Bankers Trust reimbursed $229,297, $108,743, and
$117,653, respectively, to the Portfolio to cover expenses.
Pursuant to an administration and services agreement (the "Administration
Agreement"), Bankers Trust provides administration services to the
Portfolio. Under the Administration Agreement, Bankers Trust is obligated
on a continuous basis to provide such administrative services as the Board
of Trustees reasonably deems necessary for the proper administration of the
Portfolio. Bankers Trust will generally assist in all aspects of the
Portfolio's operations; supply and maintain the Portfolio with office
facilities (which may be in Bankers Trust's own offices), statistical and
research data, data processing services, clerical, accounting, bookkeeping
and recordkeeping services (including without limitation the maintenance of
such books and records as are required under the 1940 Act and the rules
thereunder, except as maintained by other agents of the Portfolio),
internal auditing, executive and administrative services, and stationery
and office supplies; prepare reports to investors; prepare and file tax
returns; supply financial information and supporting data for reports to
and filings with the SEC; supply supporting documentation for meetings of
the Board of Trustees; provide monitoring reports and assistance regarding
compliance with the Portfolio's Declaration of Trust, By-Laws, investment
objective and policies and with Federal and state securities laws; arrange
for appropriate insurance coverage; calculate the net asset value, net
income and realized capital gains or losses of the Portfolio; and negotiate
arrangements with, and supervise and coordinate the activities of, agents
and others retained by the Portfolio to supply services to the Portfolio
and/or its investors.
Pursuant to a sub-administration agreement dated May 22, 1990 (the "Sub-
Administration Agreement"), FSC performs such sub-administration duties for
the Portfolio as from time to time may be agreed upon by Bankers Trust and
FSC. The Sub-Administration Agreement provides that FSC will receive such
compensation as from time to time may be agreed upon by FSC and Bankers
Trust. All such compensation will be paid by Bankers Trust.
Bankers Trust also provides fund accounting, transfer agency and custodian
services to the Portfolio pursuant to the Administration Agreement.
For the fiscal year ended September 30, 1996, the period from January 1,
1995 to September 30, 1995, and the fiscal year ended December 31, 1994,
Bankers Trust received $175,281, $74,468, and $52,956, respectively, in
compensation for administrative and other services provided 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
NASD and such other policies as the Portfolio's Trustees may determine, the
Adviser may consider sales of securities of other investment company
clients of Bankers Trust as a factor in the selection of broker-dealers to
execute portfolio transactions. Bankers Trust will make such allocations if
commissions are comparable to those charged by nonaffiliated, qualified
broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to
the extent permitted by law. Bankers Trust may use this research
information in managing the Portfolio's assets, as well as the assets of
other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from brokers
and dealers can be useful to the Portfolio and to the Adviser, it is the
opinion of the management of the Portfolio that such information is only
supplementary to the Adviser's own research effort, since the information
must still be analyzed, weighed and reviewed by the Adviser's staff. Such
information may be useful to the Adviser in providing services to clients
other than the Portfolio, and not all such information is used by the
Adviser in connection with the Portfolio. Conversely, such information
provided to the Adviser by brokers and dealers through whom other clients
of the Adviser effect securities transactions may be useful to the Adviser
in providing services to the Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients.
Investment decisions for the Portfolio and for the Adviser's other clients
are made with a view to achieving their respective investment objectives.
It may develop that a particular security is bought or sold for only one
client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the
same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase
or sale of the same security, the securities are allocated among clients in
a manner believed to be equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio 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 year ended September 30, 1996, the period from January 1,
1995 to September 30, 1995, and the fiscal year ended December 31, 1994,
the Portfolio paid brokerage commissions in the amounts of
$603,995,$132,894, and $110,580, 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 Trust further provides that obligations of the Portfolio
are not binding upon the Trustees individually but only upon the property
of the Portfolio and that the Trustees will not be liable for any action or
failure to act, but nothing in the Declaration of Trust protects a Trustee
against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
ITEM 19. PURCHASE, REDEMPTION, AND PRICING OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "Purchase of Securities Being
Offered" and "Redemption or Repurchase" in Part A.
The Portfolio determines its net asset value on each day on which the New
York Stock Exchange, Inc. (the "NYSE") is open ("Portfolio Business Day").
This determination is made each Portfolio Business Day as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time or earlier
should the NYSE close earlier) (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 or 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.
Securities for which market quotations are not readily available are valued
by Bankers Trust pursuant to procedures adopted by the Board of Trustees.
It is generally agreed that securities for which market quotations are not
readily available should not be valued at the same value as that carried by
an equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release
No. 1 ("FRR 1" (formerly Accounting Series Release No. 113)) which
concludes that there is "no automatic formula" for calculating the value of
restricted securities. It recommends that the best method simply is to
consider all relevant factors before making any calculation. According to
FRR 1, such factors would include consideration of the:
type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of unrestricted
securities of the same class at the time of purchase, special reports
prepared by analysts, information as to any transactions or offers
with respect to the security, existence of merger proposals or tender
offers affecting the security, price and extent of public trading in
similar securities of the issuer or comparable companies, and other
relevant matters.
To the extent that the Portfolio purchases securities which are restricted
as to resale or for which current market quotations are not readily
available, the Adviser will value such securities based upon all relevant
factors as outlined in FRR 1.
The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or withdrawal by
making payment in whole or in part in readily marketable securities chosen
by the Portfolio and valued as they are for purposes of computing the
Portfolio's net asset value (a redemption in kind). The Portfolio has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Portfolio is obligated to redeem beneficial interests
with respect to any one investor during any 90-day period, solely in cash
up to the lesser of $250,000 or 1% of the net asset value of the Portfolio
at the beginning of the period.
The Portfolio has agreed to make a redemption in kind to a Fund which
invests its assets in the Portfolio whenever such Fund wishes to make a
redemption in kind and therefore shareholders of that Fund that receive
redemptions in kind will receive portfolio securities of the Portfolio and
in no case will they receive a security issued by the Portfolio. The
Portfolio will not redeem in kind except in circumstances in which such
Fund is permitted to redeem in kind or unless requested by that Fund.
Each investor in the Portfolio, may add to or reduce its investment in the
Portfolio on each day the Portfolio determines its net asset value. At the
close of each such business day, the value of each investor's beneficial
interest in the Portfolio will be determined by multiplying the net asset
value of the Portfolio by the percentage effective for that day, which
represents that investor's share of the aggregate beneficial interests in
the Portfolio. Any additions or withdrawals which are to be effected as of
the close of business on that day will then be effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio will then
be recomputed as the percentage equal to the fraction (i) the numerator of
which is the value of such investor's investment in the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount
of net additions to or withdrawals from the investor's investment in the
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as
of the close of business on such day plus or minus, as the case may be, the
amount of net additions to or withdrawals from the aggregate investments in
the Portfolio by all investors in the Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Portfolio as the close of business on the following
business day.
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 Code and regulations
promulgated thereunder.
The Portfolio's taxable year-end is September 30. 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 Edgewood, which receives no
additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the
Portfolio.
ITEM 22. CALCULATION OF FUND PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The following financial statements, contained in the Annual Report of the
BT Investment Funds (File No. 811-04760) for the fiscal year ended
September 30, 1996, are incorporated by reference into this Part B:
Statement of Assets and Liabilities, September 30, 1996
Statement of Operations for the fiscal year ended September 30, 1996
Statement of Changes in Net Assets for the fiscal year ended September
30, 1996, and for the period from January 1, 1995 to September 30,
1995
Financial Highlights: Selected ratios and supplemental data for
each of the periods indicated
Schedule of Portfolio Investments, September 30, 1996
Notes to Financial Statements
Report of Independent Accountants
APPENDIX: BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the ratings of Moody's 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 BOND RATINGS
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt
rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated "AA" has a
very strong capacity to pay interest and to repay principal and differs
from the highest rated issues only in small degree.
The rating "AA" may be modified by the addition of a plus or minus sign to
show relative standing within such category.
MOODY'S BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa--
judged to be the best quality, carry the smallest degree of investment
risk; Aa--judged to be of high quality by all standards.
FITCH INVESTORS SERVICE BOND RATINGS
AAA. Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions,
and liable to but slight market fluctuation other than through changes in
the money rate. The factor last named is of importance varying with the
length of maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public utility fields,
though some industrial obligations have this rating. The prime feature of
an AAA rating is showing of earnings several times or many times interest
requirements with such stability of applicable earnings that safety is
beyond reasonable question whatever changes occur in conditions. Other
features may enter in, such as a wide margin of protection through
collateral security or direct lien on specific property as in the case of
high class equipment certificates or bonds that are first mortgages on
valuable real estate. Sinking funds or voluntary reduction of the debt by
call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.
AA. Securities in this group are of safety virtually beyond question, and
as a class are readily salable while many are highly active. Their merits
are not greatly unlike those of the AAA class, but a security so rated may
be of junior though strong lien--in many cases directly following an AAA
security--or the margin of safety is less strikingly broad. The issue may
be the obligation of a small company, strongly secured but influenced as to
ratings by the lesser financial power of the enterprise and more local type
of market.
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.
FITCH INVESTORS SERVICE AND DUFF & PHELPS COMMERCIAL PAPER RATINGS
Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for
timely payment. "Fitch-2" is considered very good grade paper and reflects
an assurance of timely payment only slightly less in degree than the
strongest issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by strong fundamental protection factors, and
risk factors which are very small. Issues rated "Duff 2" have a good
certainty of timely payment, sound liquidity factors and company
fundamentals, small risk factors, and good access to capital markets.
PART C. OTHER INFORMATION.
Responses to Items 24(b)(6), 24(b)(10, 24(b)(11), and 24(b)(12) have been
omitted pursuant to paragraph 4 of Instruction F of the General
Instructions to Form N-1A.
Item 24. Financial Statements and Exhibits:
(a)Financial Statements:
Incorporated by reference to the Annual Report of BT
Investment Funds dated September 30, 1996, pursuant to Rule
411 under the Securities Act of 1933. (File Nos. 33-62103
and 811-7347)
(b)Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant; (2)
(2) Copy of By-Laws of the Registrant; (2)
(3) Not applicable;
(4) Not applicable;
(5) Conformed copy of Advisory Agreement between the
Registrant and Bankers Trust Company (``Bankers
Trust''); (2)
(6) Not applicable;
(7) Not applicable;
(8) Conformed copy of Custodian Agreement between the
Registrant and Bankers Trust;4
(9) Conformed copy of Administration and Services Agreement
between the Registrant and Bankers Trust; (1)
(i) Conformed copy of Exclusive Placement Agent
Agreement; 4
(ii) Copy of Exhibit A to Exclusive Placement Agent
Agreement; 4
(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; (3)
(18) Not applicable;
(19) Conformed copy of Power of Attorney. (3)
+ All exhibits have been filed electronically.
1.Previously filed on June 15, 1992.
2. Response is incorporated by reference to Registrant's Amendment No. 4
on Form N-1A filed January 29, 1996.
3. Response is incorporated by reference to Registrant's Amendment No. 5
on Form N-1A filed January 30, 1997.
4. Response is incorporated by reference to Registrant's Amendment No. 6
on Form N-1A filed May y23, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of May 1, 1997
Beneficial Interests 3
Item 27. Indemnification: (2)
Item 28. Business and Other Connections of Investment Adviser:
Bankers Trust serves as investment adviser to each Portfolio. Bankers
Trust, a New York banking corporation, is a wholly owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of
commercial banking and trust activities and is a major wholesale supplier
of financial services to the international institutional market. To the
knowledge of the Trust, none of the directors or
officers of Bankers Trust, except those set forth below, is or has been at
anytime during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that
certain directors and officers also hold various positions with and engage
in business for Bankers Trust New York Corporation. Set forth below are the
names and principal businesses of the directors and officers of Bankers
Trust who are or during the past two fiscal years have been engaged in any
other business, profession, vocation or employment of a substantial nature.
These persons may be contacted c/o Bankers Trust Company, 130 Liberty
Street, New York, New York 10006.
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Director, Bankers Trust Company; Retired senior
vice president and Director, International Business machines Corporation;
Director, Computer Task Group; Director, Phillips Petroleum Company;
Director, Caliber Systems, Inc. (formerly, Roadway Services Inc.);
Director, Rohm and Haas Company; Director, TIG Holdings; Chairman emeritus
of Amherst College; and Chairman of the Colonial Willimsburg Foundation.
Richard H. Daniel, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Vice chairman and chief financial officer, Bankers Trust
Company and Bankers Trust New York Corporation; Beneficial owner, general
partner, Daniel Brothers, Daniel Lingo & Assoc., Daniel Pelt & Assoc.;
Beneficial owner, Rhea C. Daniel Trust.
2. Response is incorporated by reference to Registrant's Amendment No. 4
on Form N-1A filed January 29, 1996.
Philip A. Griffiths, Bankers Trust Company, 130 Liberty Street, New York,
New York 10006. Director, Institute for Advanced Study; Director, Bankers
Trust Company; Chairman, Committee on Science, Engineering and Public
Policy of the National Academies of Sciences and Engineering & the
Institute of Medicine; and Chairman and member, Nominations Committee and
Committee on Science and Engineering Indicators, National Science Board;
Trustee, North Carolina School of Science and Mathematics and the Woodward
Academy.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers
Trust Company; Director, Exxon Corporation; Director, Halliburton Company;
Director, Warner-Lambert Corporation; Director, The Williams Companies,
Inc.; and Director, National Retail Federation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Senior Partner, Akin, Gump,
Strauss, Hauer & Feld, LLP; Director, Bankers Trust Company; Director,
American Express Company; Director, Dow-Jones, Inc.; Director, J.C. Penney
Company, Inc.; Director, Revlon Group Incorporated; Director, Ryder System,
Inc.; Director, Sara Lee Corporation; Director, Union Carbide Corporation;
Director, Xerox Corporation; Trustee, Brookings Institution; Trustee, The
Ford Foundation; and Trustee, Howard University.
David Marshall, 130 Liberty Street, New York, New York 10006. Chief
Information Officer and Executive Vice President, Bankers Trust New York
Corporation; Senior Managing Director, Bankers Trust Company.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10006. Retired Chairman and Chief Executive Officer, Philip Morris
Companies Inc.; Director, Bankers Trust Company; Director, The News
Corporation Limited; Director, Sola International Inc.; and Chairman, WWP
Group pic.
Frank N. Newman, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Chairman of the Board, Chief Executive Officer and President,
Bankers Trust New York Corporation and Bankers Trust Company; Director,
Bankers Trust Company; Director, Dow-Jones, Inc.; and Director, Carnegie
Hall.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Director, Bankers
Trust Company; Director, Boston Scientific Corporation; and Director, Xerox
Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group; Director, Bankers Trust Company; Director, Allied-Signal Inc.;
Director, Federal Home Loan Mortgage Corporation; Director, GTE
Corporation; Director, The May Department Stores Company; Director,
Safeguard Scientifics, Inc.; and Trustee, University of Pennsylvania.
Donald L. Staheli, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Chairman of the Board and Chief Executive Officer, Continental
Grain Company; Director, Bankers Trust Company; Director, ContiFinancial
Corporation; Director, Prudential Life Insurance Company of America;
Director, Fresenius Medical Care, A.g.; Director, America-China Society;
Director, National Committee on United States-China Relations; Director,
New York City Partnership; Chairman, U.S.-China Business Council; Chairman,
Council on Foreign Relations; Chairman, National Advisor Council of Brigham
Young University's Marriott School of Management; Vice Chairman, The Points
of Light Foundation; and Trustee, American Graduate School of International
Management.
Patricia Carry Stewart, c/o Office of the Secretary, 130 Liberty Street,
New York, NY 10006. Director, Bankers Trust Company; Director, CVS
Corporation; Director, Community Foundation for Palm Beach and Martin
Counties; Trustee Emerita, Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty Street, New York, NY
10006. Vice Chairman, Bankers Trust New York Corporation and Bankers Trust
Company; Director, bankers Trust Company; Director; Alicorp S.A.; Director;
Northwest Airlines; Director, Private Export Funding Corp.; Director, New
York State Banking Board; Director, St. Lukes-Roosevelt Hospital Center;
Partner, New York City Partnership; and Chairman, Wharton Financial
Services Center.
Paul A. Volcker, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Director, Bankers Trust Company; Director, American Stock
Exchange; Director, Nestle S.A.; Director, Prudential Insurance Company;
Director, UAL Corporation; Chairman, Group of 30; North American Chairman,
Trilateral Commission; Co-Chairman, Bretton Woods Committee; Co-Chairman,
U.S./Hong Kong Economic Cooperation Committee; Director, American Council
on Germany; Director, Aspen Institute; Director, Council on Foreign
Relations; Director, The Japan Society; and Trustee, The American Assembly.
Melvin A. Yellin, Bankers Trust Company, 130 Liberty Street, New York, New
York 10006. Senior Managing Director and General Counsel of Bankers Trust
New York Corporation and Bankers Trust Company; Director, 1136 Tenants
Corporation; and Director, ABA Securities Association.
ITEM 29. Principal Underwriters
a) Edgewood Service, Inc., the placement agent for shares of the
Registrant, also acts as principal underwriter for the following open-end
investment companies: BT Investment Funds, BT Advisor Funds, BT Pyramid
Mutual Funds, BT Institutional Funds, Excelsior Institutional Trust
(formerly, UST Master Funds, Inc.), Excelsior Tax-Exempt Funds, Inc.
(formerly, UST Master Tax-Exempt Funds, Inc.), Excelsior Intitutional
Trust, FTI Funds, FundManager Portfolios, Marketvest Funds, Marketvest
Funds, inc. and Old Westbury Funds, Inc.
b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Lawrence Caracciolo Director, President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Arthur L. Cherry Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
J. Christopher Donahue Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ronald M. Petnuch Vice President, President and Treasurer
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Schmitt Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant Secretary
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas J. Ward Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
(c) None
ITEM 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:
Registrant: Federated Investor Tower, Pittsburgh, PA
15222-3779
Bankers Trust Company: 130 Liberty Street, New York,
NY 10006
Investors Fiduciary Trust Company: 127 West 10th Street, Kansas City, MO
64105
Edgewood Services, Inc.: Clearing Operations, P.O. Box 897,
(Placement Agent) 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, INTERNATIONAL EQUITY PORTFOLIO, has duly caused this Amendment
No. 7 to its Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania on the 2nd day of June, 1997.
INTERNATIONAL EQUITY PORTFOLIO
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
June 2, 1997
