AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1996
Global High Yield Securities Portfolio
Latin American Equity Portfolio
European Equity Portfolio
International Bond Portfolio
Small Cap Portfolio and
Pacific Basin Equity Portfolio
File No. 811-7774
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT No. 11
BT INVESTMENT PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 617-423-0800
Philip W. Coolidge, 6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
<PAGE>
BT0416B
EXPLANATORY NOTE
This Registration Statement on Form N-1A (the "Registration Statement")
has been filed by the Registrant pursuant to Section 8(b) of the Investment
Company Act of 1940, as amended. However, beneficial interests in the series of
the Registrant are not being registered under the Securities Act of 1933, as
amended (the "1933 Act"), because such interests will be issued solely in
private placement transactions that do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. Investments in the Registrant's
series may only be made by investment companies, insurance company separate
accounts, common or commingled trust funds or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D under the
1933 Act. The Registration Statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any beneficial interests in any series of
the Registrant.
This Amendment No. 11 (the "Amendment") to the Registration Statement
includes Part A and Part B relating to Global High Yield Securities Portfolio,
Latin American Equity Portfolio, International Bond Portfolio, European Equity
Portfolio, Small Cap Portfolio and Pacific Basin Equity Portfolio, each a series
of the Registrant, and incorporates by reference herein: Part A and Part B of
Amendment No. 8 relating to Liquid Assets Portfolio; Part A and Part B of
Amendment No. 9 relating to Asset Management Portfolio II and Asset Management
Portfolio III; and Part A and Part B of Amendment No. 10 relating to U.S. Bond
Index Portfolio, Equity 500 Equal Weighted Index Portfolio, Small Cap Index
Portfolio and EAFE(R) Equity Index Portfolio.
The purpose of the Amendment is to update the Registration Statement
with financial information for Global High Yield Securities Portfolio, Latin
American Equity Portfolio, Small Cap Portfolio and Pacific Basin Equity
Portfolio, as of these series' fiscal year ended September 30, 1995. As of the
same date, European Equity Portfolio and International Bond Portfolio had not
commenced investment operations.
<PAGE>
BT0416B
BT INVESTMENT PORTFOLIOS
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
LATIN AMERICAN EQUITY PORTFOLIO
SMALL CAP PORTFOLIO
PACIFIC BASIN 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.
BT Investment Portfolios (the "Trust") is a no-load, open-end
management investment company which was organized as a trust under the laws of
the State of New York on March 27, 1993. Beneficial interests in the Trust are
divided into separate series, each having a distinct investment objectives and
policies, four of which, Global High Yield Securities Portfolio, Latin American
Equity Portfolio, Small Cap Portfolio and Pacific Basin Equity Portfolio (each a
"Portfolio" and, collectively, the "Portfolios") are described herein.
Beneficial interests in each 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 Trust may only be made by investment companies, insurance
company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any "security" within
the meaning of the 1933 Act.
The investment objective of each Portfolio is as follows:
GLOBAL HIGH YIELD SECURITIES PORTFOLIO. The Portfolio seeks high
current income from investment in a non-diversified portfolio of high yield,
non-investment grade debt securities issued in many of the world's securities
markets. Capital appreciation will be considered when consistent with the
primary investment objective of high current income. The Portfolio intends to
invest in high risk, lower quality debt securities commonly referred to as "junk
bonds" and regarded as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation as well as in the debt securities of issuers located in emerging
markets, Brady bonds and other sovereign debt. The Portfolio may borrow money
for investment purposes and invest up to 10% of its assets in restricted
securities (including 144A securities), which may involve greater risk and
increased Portfolio expenses.
The Global High Yield Securities Portfolio is classified as a
"non-diversified" investment company under the 1940 Act and may invest a greater
portion of its assets in a single issuer than a diversified fund. As a result,
the Portfolio may be more susceptible to any single economic, political or
regulator occurrence than a diversified fund.
<PAGE>
A-2
Under normal circumstances, at least 65% of the Portfolio's assets will
be invested in high yield, noninvestment grade debt securities of both
governmental and corporate issuers in both the major industrialized markets and
the so-called "emerging markets." The world's industrialized markets generally
include but are not limited to the following: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States; the world's emerging
markets generally include but are not limited to the following: Argentina,
Bolivia, Brazil, Chile, China, Colombia, Costa Rica, the Czech Republic,
Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, the Ivory Coast,
Jordan, Malaysia, Mexico, Morocco, Nicaragua, Nigeria, Pakistan, Peru, the
Philippines, Poland, Portugal, Rumania, Russia, Slovakia, Slovenia, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela,
Vietnam and Zimbabwe. The Portfolio may also invest in securities of issuers
located in Eastern Europe which may at any time revert back to communist
governments and nationalized industries. Higher risk is associated with
investing in developed countries such as expropriation and withholding dividends
at the source.
Although Bankers Trust Company ("Bankers Trust"), the Trust's
investment adviser (the "Adviser") considers each of the above countries, both
industrialized and emerging, eligible for investment pursuant to the Portfolio's
objective, the Portfolio will not be invested in all such markets at all times.
Furthermore, investing in some of these markets may be neither feasible nor
desirable from time to time, due to the lack of adequate custodial arrangements
for the Portfolio's assets, exchange controls and overly burdensome
repatriation, the lack of organized and liquid securities markets, and
unacceptable political risks. Under normal circumstances, the Portfolio will
invest in at least three of the emerging markets listed above.
The Portfolio generally invests in securities which are rated BBB or
lower by Standard & Poor's Corporation ("S&P") or Baa or lower by Moody's
Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality in the
opinion of Bankers Trust. Securities which are rated BBB by S&P or Baa by
Moody's either have speculative characteristics or are speculative. A
description of the rating categories is contained in the Appendix. There is no
lower limit with respect to the rating categories for securities in which the
Portfolio may invest.
Lower-rated securities will usually offer higher yields than
higher-rated securities. However, there is more risk associated with these
investments. This is because of the reduced creditworthiness and increased risk
of default that these securities carry. Lower-rated securities generally tend to
reflect short-term corporate and market developments to a greater extent than
higher-rated securities which react primarily to fluctuations in the general
level of interest rates. Short-term corporate and market developments affecting
the prices and liquidity of lower-rated securities could include adverse news
impacting major issues, and underwriters or dealers in lower-rated or unrated
securities. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell securities at an optimum time.
<PAGE>
A-3
An economic downturn may adversely affect the value of some lower-rated
bonds. Such a downturn may especially affect highly leveraged companies or
companies in cyclically sensitive industries, where deterioration in a company's
cash flow may impair its ability to meet its obligation to pay principal and
interest to bondholders in a timely fashion. From time to time, as a result of
changing conditions, issuers of lower-rated bonds may seek or may be required to
restructure the terms and conditions of the securities they have issued. As a
result of these restructurings, holders of lower-rated securities may receive
less principal and interest than originally expected at the time such bonds were
purchased. In the event of a restructuring, the Portfolio may bear additional
legal or administrative expenses in order to maximize recovery from an issuer.
The secondary trading market for lower-rated bonds is generally less liquid than
the secondary trading market for higher-rated bonds.
NON-DIVERSIFIED INVESTMENT COMPANY. The Global High Yield Securities
Portfolio is classified as a "non-diversified" investment company so that with
respect to 50% of the Portfolio's assets it will be able to invest more than 5%
of its assets in obligations of one or more issuers, while being limited with
respect to the other half of its assets to investments not exceeding 5% of the
Portfolio's total assets. (A "diversified" invest company would be required
under the 1940 Act to maintain at least 75% of its assets in cash (including
foreign currency), cash items, U.S. Government securities, and other securities
limited per issuer to not more than 5% of the investment company's total
assets.) In order to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended, and regulations promulgated
thereunder (the "Code"), the Portfolio, among other thins, may not invest more
than 25% of its asset in obligations of any one issuer (other than U.S.
Government securities). As a "non-diversified" investment company, the Portfolio
may invest a greater proportion of its assets in the securities of a smaller
number of issuers and therefore may be subject to greater market and credit risk
than a more broadly diversified fund.
The Portfolio will not have more than 25% of the current value of its
total assets in any single industry, provided that this restriction shall not
apply to debt securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Portfolio may also
utilize the following investments and investment techniques and practices:
foreign currency exchange transactions, options on foreign currencies, options
on foreign bond indices, futures contracts on foreign bond indices, options on
futures contracts, when-issued or delayed delivery securities, zero coupon
securities and floating rate bonds and securities lending. See "Additional
Information" for further information.
LATIN AMERICAN EQUITY PORTFOLIO. The Portfolio seeks long-term capital
appreciation from investments primarily in the equity securities (or other
securities with equity characteristics) of companies domiciled in, or doing
business in, Latin America; the production of any current income is incidental,
to this objective.
<PAGE>
A-4
Under normal circumstances, the Portfolio invests at least 65% of the
value of its total assets in the equity securities of Latin American issuers.
For the purposes of this Registration Statement, "Latin America" is defined as
Mexico, and all the countries in Central America and South America, including
Argentina, Brazil, Chile and Venezuela. The Portfolio will invest in Argentina,
Brazil, Chile, Colombia, Peru, Mexico and Venezuela.
As used in this Registration Statement, "securities of Latin American
issuers" is defined as: (i) securities of companies the principal securities
trading market for which is Latin America; (ii) securities, traded in any
market, of companies that derive 50% or more of their total revenue from either
goods or services produced in Latin America or sales made in Latin America;
(iii) securities of companies organized under the laws of,and with a principal
office in, Latin America; and (iv) securities issued or guaranteed by the
government of a country in Latin America, its agencies or instrumentalities,
political subdivisions or the central bank of such a country. Determinations as
to eligibility will be made by Bankers Trust, under the supervision of the Board
of Trustees of the Trust, based on publicly available information and inquiries
made to the companies.
Bankers Trust intends to consider investment only in those countries in
Latin America in which it believes investing is feasible and does not involve
undue political risk. At the date of this amendment, this list included
Argentina, Brazil, Chile, Columbia, Mexico, Peru and Venezuela. The list of
acceptable countries will be reviewed by Bankers Trust and approved by the
Trust's Board of Trustees on a periodic basis and any additions or deletions
with respect to such list will be made in accordance with changing economic and
political circumstances involving such countries.
The Portfolio's investments will be diversified among at least three
Latin American 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. The Portfolio seeks to benefit from economic and other
developments in Latin America.
Bankers Trust will seek to select individual investments for the
Portfolio. Criteria for selection of individual securities include the issuer's
competitive position, prospects for growth, managerial strength, earnings
quality, underlying asset value, relative market value and overall
marketability. The Portfolio may invest in securities of companies having
various levels of net worth, including smaller companies whose securities may be
more volatile than securities offered by larger companies with higher levels of
net worth.
ADDITIONAL INVESTMENT TECHNIQUES. The Portfolio may also utilize the
following investments and investment techniques and practices: foreign currency
exchange transactions, options on foreign currencies, American Depositary
Receipts ("ADRs"), Global Depositary Receipts("EDRs"), European Depositary
<PAGE>
A-5
Receipts ("EDRs"), options on stocks, options on foreign stock indices, futures
contracts on foreign stock indices, options on futures contracts, when-issued
and delayed delivery securities (including Rule 144A securities) and securities
lending. See "Additional Information" for further information.
SMALL CAP PORTFOLIO. The Portfolio seeks long-term capital growth from
investments primarily in the equity securities of smaller companies. The
production of any current income is secondary to this objective. The Portfolio's
policy is to invest in equity securities of smaller companies that Adviser,
believes are in an early stage or transitional point in their development and
have demonstrated or have the potential for above average capital growth. The
Adviser will select companies which have the potential to gain market share in
their industry, achieve and maintain high and consistent profitability or
produce increased earnings. The Adviser also seeks companies with strong company
management and superior fundamental strength.
The Adviser employs a flexible investment program in pursuit of the
Portfolio's investment objective. The Adviser takes advantage of its market
access and the research available to it to select investments in promising
growth companies that are involved in new technologies, new products, foreign
markets and special developments, such as research discoveries, acquisitions,
recapitalizations, liquidations, or management changes, and companies whose
stock may be undervalued by the market. These situations are only illustrative
of the types of investment the Portfolio may make. The Portfolio is free to
invest in any common stock which in the Adviser's judgement provides above
average potential for long-term growth of capital and income.
Under normal market conditions, the Portfolio will invests at least 65%
of the value of its total assets in smaller companies (market capitalizations of
less than $750 million at the time of purchase that offer strong potential for
capital growth). Small capitalization companies have the potential to show
earnings growth over time that is well above the growth rate of the overall
economy. The Portfolio may also invest in larger, more established companies
that the Adviser believes may offer the potential for strong capital growth due
to their relative market position, anticipated earnings growth, changes in
management or other similar opportunities. The Portfolio will follow a
disciplined selling process to lessen market risks.
For temporary defensive purposes, when in the opinion of the Adviser
market conditions warrant, the Portfolio may invest all or a portion of its
assets in common stocks or larger, more established companies or in fixed-income
securities or short-term money market securities. To the extent the Portfolio is
engaged in temporary defensive investments, the Portfolio will not be pursuing
its investment objective.
The Portfolio may also invest up to 25% of its assets in similar
securities of foreign issuers. For further information on foreign investments
and related hedging techniques, see "Risk Factors," "Additional Information" and
Part B to this Registration Statement.
<PAGE>
A-6
ADDITIONAL INVESTMENT TECHNIQUES. The Portfolio may also utilize the
following investments and investment techniques and practices: foreign
investments, options on stocks, options on stocks indices, options on futures
contracts, foreign currency exchange transactions, options on foreign
currencies, Rule 144A securities, when-issued and delayed delivery securities,
securities lending and repurchase agreements. See "Additional Information" for
further information.
PACIFIC BASIN EQUITY PORTFOLIO. The Portfolio seeks long-term capital
appreciation from investment primarily in the equity securities (or other
securities with equity characteristics) of companies domiciled in, or doing
business in the Pacific Basin region, other than Japan; the production of any
current income is incidental to this objective. Investment in such securities
involves certain consideration which are not normally involved in investment in
securities of U.S. issuers. The Portfolio may invest up to 10% of its assets in
restricted securities (including 144A securities) which may involve greater risk
and increased Portfolio expenses.
Under normal circumstances, at least 65% of the Portfolio's assets will
be invested in equity securities of issuers domiciled in, or doing business in,
the Pacific Basin region, other than Japan. This shall include securities of
issuers: (1) which are organized under the laws of Pacific Basin countries (see
below); (2) for which the principal securities trading market is in a Pacific
Basin country; and (3) which derive a significant proportion (at least 50
percent) of their revenues or profits from goods produced or sold, investments
made, or services performed in the countries of the Pacific Basin or which have
at least 50 percent of their assets situated in the countries of the Pacific
Basin. The production of any income is incidental to this objective.
For the purpose of this Registration Statement, the "Pacific Basin"
includes, but is not limited to the following countries: Hong Kong, India,
Indonesia, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri
Lanka, South Korea, Thailand and Taiwan.
The Portfolio will be managed using a disciplined, value-oriented
investment philosophy that stresses the inherent value of, and the medium term
outlook for, the companies under examination. Experience has proven that often
the real basis of a business is quite different from that perceived by the
market: a misconception that usually results in its shares trading below its
true business or replacement value. The exploitation of this
"perception/reality" gap is a hallmark of the investment style that has been
adopted for the Portfolio, and a potential source of value for its investors.
"Value" investing means trying to find companies which are mispriced by
the market for reasons of neglect, fashion or misconception. These opportunities
arise out of legislative changes, industrial restructuring and technology
advancements, for example. As a result, the Adviser, and the sub-investment
adviser attach great importance to analyzing trends and accessing possible
breaks with traditional price patterns. At the company level, the emphasis is
placed on assessing the inherent "business" value of the firm. While this often
varies
<PAGE>
A-7
from the stock market's valuation, the Adviser and the sub-investment adviser
believe a company's stock price tends to gravitate to their "business" value
over time.
The Portfolio invests primarily in the equity securities of foreign
issuers, consisting of common stock and other securities with equity
characteristics. These issuers are primarily established companies based in
developed countries outside the United States. However, the Portfolio may also
invest in securities of issuers in underdeveloped countries. Investments in
these countries will be based on an acceptable degree of risk in anticipation of
superior returns. 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 in the Pacific Basin.
The Portfolio will not invest more than 20% of the value of its total
assets in issuers domiciled in China.
For further discussion of the unique risks associated with investing in
foreign securities in both developed and under developed countries, see "Risk
Factors" herein and in Part B.
The Portfolio's investments will generally be diversified among several
geographic regions and countries in the Pacific Basin. Criteria for determining
the appropriate distribution of investment among various countries and regions
include the prospects for relative growth among foreign countries, expected
levels of inflation, government policies influencing business conditions, the
outlook for currency relationships and the range of alternative opportunities
available to international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Portfolio. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, managerial
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Portfolio may invest in securities of companies
having various levels of net worth, including smaller companies whose securities
may be more volatile than securities offered by larger companies with higher
levels of net worth.
In other countries and regions where capital markets are underdeveloped
or not easily accessed and information is difficult to obtain, the Portfolio may
choose to invest only at the market level. Here, the Portfolio may seek to
achieve country exposure through use if options of futures based on an
established local index. Similarly, country exposure may also be achieved
through investments in other registered investment companies. Restrictions on
both these types of investments are fully explained herein and in Part B.
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 under "Short-Term Investment" below.
<PAGE>
A-8
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Portfolio may also
utilize the following investments and investment techniques and practices;
foreign currency exchange transactions, options on foreign currencies, ADRs,
GDRs, EDRs, options on stocks, options on foreign stock indices, future
contracts on foreign stock indices, options on futures contracts, when-issued
and delayed delivery securities and repurchase agreements. See "Additional
Information" for further information.
Investments in the Portfolios are not obligations of, or guaranteed
by, the Adviser with respect to each Portfolio, and are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency.
Additional information about the investment policies of each Portfolio
appears in Part B. There can be no assurance that the investment objective of
the Portfolios will be achieved.
EQUITY INVESTMENTS. Equity investments include investments in common
stock and other securities with equity characteristics. "Equity securities" are
defined as common stock, preferred stock, trust or limited partnership
interests, rights and warrants, to subscribe to or purchase such securities.
These investments may or may not pay dividends and may or may not carry voting
rights. Convertible securities entitle the holder to exchange the securities for
a specified number of shares of common stock usually of the same company, at
specified prices within a certain period of time and to receive interest or
dividends until the holder elects to exercise the conversion privilege. Since
the Portfolios invest in both common stock and convertible securities, the risks
of the general equity markets may be tempered to a degree by the Portfolio's
investments in convertible securities which are often not as volatile as equity
securities. 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. In the case of Latin American Equity Portfolio and
Pacific Basin Equity Portfolio, equity securities also includes sponsored or
unsponsored by ADRs, GDRs and EDRs. With the exception of Global High Yield
Securities Portfolio, each Portfolio invests in securities listed on foreign or
domestic securities exchanges and securities traded in foreign or domestic
over-the-counter markets and may invest in restricted 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 Investment Company Act of 1940, as amended
(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.
SHORT-TERM INSTRUMENTS. The Portfolios intend to stay invested in the
securities described above to the extent practical in light of each Portfolios
objective and long-term investment perspective. However, each Portfolio's assets
<PAGE>
A-9
may be invested in short-term instruments with remaining maturities of 397 days
or less to meet anticipated redemptions and expenses for day-to-day operating
purposes and when, in Bankers Trust's opinion, it is advisable to adopt a
temporary defensive position because of unusual and adverse conditions affecting
the equity markets.
In addition, when a Portfolio experiences large cash inflows through
the sale of securities and desirable equity securities, that are consistent with
the Portfolio's investment objective, which are unavailable in sufficient
quantities or at attractive prices, the Portfolio may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated Aa or higher by Moody's Investors Service, Inc. ("Moody's") or AA or
higher by Standard & Poor's Corporation ("S&P") or, if unrated, of comparable
quality in the opinion of Bankers Trust; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time deposits and
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
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.
FIXED INCOME INVESTMENTS. For purposes of seeking capital appreciation,
Latin American Equity Portfolio may invest up to 35% of its assets in debt
securities (defined as bonds, notes, debentures, commercial paper, certificates
of deposits, time deposits and banker's acceptances) of Latin American issuers
which are rated at least C by S&P or C by Moody's or, if unrated, of comparable
quality in the opinion of Bankers Trust. See "Risk Factors." As an operating
policy, which may be changed by the Board of Trustees of the Trust, the
Portfolio will not invest more than 10% of its total assets in debt securities
rated BBB or lower by S&P or Baa or lower by Moody's. Securities which are rated
BBB by S&P or Baa by Moody's either have speculative characteristics or are
speculative. Investments in lower-rated long-term obligations, including
securities rated from BB to C by S&P or Ba to C by Moody's, or. if unrated, of
comparable quality in the opinion of Bankers Trust, involve special risks as
compared with investments in higher-rated debt obligations, including greater
sensitivity to general economic downturns and significant increases in interest
rates, greater market price volatility, and less liquid secondary trading
markets. Regardless of rating levels, all debt securities considered for
purchase (whether rated or unrated) will be carefully analyzed by Bankers Trust
to insure, to the extent possible, that the planned investment is sound. Certain
debt securities can provide the potential for capital appreciation based on
various factors such as changes in interest rates, economic and market
conditions, improvement in an issuer's ability to repay principal and pay
interest and ratings upgrades. Additionally, convertible bonds offer the
potential for capital appreciation through the conversion feature, which enables
the holder of the bond to benefit
<PAGE>
A-10
from increases in the market price of the securities into which they are
convertible.
BRADY BONDS. Global High Yield Securities Portfolio and Latin American
Equity Portfolio may also invest in "Brady bonds," which have recently been
issued by the governments of Argentina, Costa Rica, Mexico, Nigeria, Uruguay,
Venezuela, Brazil and the Philippines, as well as other emerging market
countries. Most Brady bonds are currently rated below BBB by S&P or Baa by
Moody's. While Bankers Trust is not aware of the occurrence of any payment
defaults on Brady bonds, investors should recognize that these debt securities
have been issued only recently and, accordingly, do not have a long payment
history. Brady bonds may be collateralized or uncollateralized, are issued in
various currencies (primarily the U.S. dollar) and are actively traded in the
secondary market for Latin American debt.
LEVERAGE. Global High Yield Securities Portfolio and Latin American
Equity Portfolio may each borrow up to one-third of the value of its total
assets, from banks or through the use of reverse repurchase agreements, to
increase its holdings of portfolio securities. Under the 1940 Act, the Portfolio
is required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient. Portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of each Portfolio's
holdings may be disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any
increase or decrease in the value of the Portfolio's securities and money
borrowed by the Portfolio will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the income received from the securities purchased
with borrowed funds.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
Portfolio agrees to sell portfolio securities to financial institutions such as
banks and broker-dealers and to repurchase them at a mutually agreed date and
price. At the time the Portfolio enters into a reverse repurchase agreement it
will place in a segregated custodial account cash, U.S. Government securities or
high grade, liquid debt obligations having a value equal to the repurchase
price, including accrued interest. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Portfolio may decline
below the repurchase price of those securities. Reverse repurchase agreements
are considered to be borrowings by the Portfolio for purposes of the limitations
described in "Leverage" above.
REPURCHASE AGREEMENTS. Each Portfolio may engage in repurchase
agreement transactions with banks and governmental securities dealers approved
by the Trustees of the Portfolio. Under the terms of a typical repurchase
agreement, a Portfolio would acquire an underlying debt obligation of a kind in
which the Portfolio could invest for a relatively short period (usually not more
than one week) subject to an obligation of the seller to repurchase, and the
Portfolio to
<PAGE>
A-11
resell, the obligation at an agreed price and time, thereby determining the
yield during the Portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Portfolio's
holding period. The value of the underlying securities will be at least equal at
all time to the total amount of the repurchase obligations, including interest.
The Portfolio bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Portfolio is delayed in
or prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which the Portfolio seeks to assert these
rights. Bankers Trust, acting under the supervision of the Board of Trustees of
the Trust reviews the creditworthiness of those banks and dealers with which the
portfolio enters in repurchase agreements and monitors on an ongoing basis the
value of the securities subject to repurchase agreements to ensure that it is
maintained at the required level. Repurchase agreements are considered
collateralized loans under the 1940 Act.
ZERO COUPON SECURITIES. The Global High Yield Securities Portfolio may
purchase zero coupon securities which are the separate income or principal
components of a debt instrument. These include risks that are similar to those
of other debt securities, although they may be more volatile, and certain zero
coupon securities move in the same direction as interest rates.
FLOATING RATE BONDS. The Global High Yield Securities Portfolio may
purchase floating rate bonds which may have interest rates that move in tandem
with a benchmark, helping to stabilize their prices.
ASSET ALLOCATION. Global High Yield Securities Portfolio invests in
debt obligations allocated among diverse markets and denominated in various
currencies, including multi-currency units such as European Currency Units
("ECUs"). The Portfolio may purchase securities that are issued by the
government or a company or financial institution of one country but denominated
in the currency (or multi-currency unit) of another country. Bankers Trust will
allocate the assets of the Portfolio in securities of issuers in countries and
currency denominations where the combination of fixed income market returns, the
price appreciation potential of fixed income securities and currency exchange
rate movements will present opportunities primarily for high current income and
secondarily for capital appreciation. In so doing, Bankers Trust intends to take
full advantage of the different yield, risk and return characteristics that
investment in the fixed income markets of different countries can provide.
Fundamental economic strength, credit quality, currency and interest rate trends
and diversification to manage risk will be the principal determinants of the
emphasis given to various country, geographic and industry sectors within the
Portfolio. Securities held by the Portfolio may be invested without limitation
as to maturity and are summarized according to the following general
classifications, emerging market debt securities, Brady bonds, loan
participations and assignments, convertible bonds, preferred stock and
industrialized market debt securities.
<PAGE>
A-12
EMERGING MARKETS DEBT SECURITIES. Global High Yield Securities
Portfolio invests in emerging market debt securities. In addition to the risks
inherent in investment in debt securities of U.S. issuers, investments in debt
securities denominated in foreign currencies involve certain other risks. Less
public information may be available concerning non-U.S. issuers as compared to
U.S. issuers. Non-U.S. issuers are generally not subject to accounting, auditing
and financial practices comparable to those applicable to U.S. issuers.
In investing in bonds denominated in non-U.S. currencies, the Portfolio
may be subject to the risk of currency fluctuations. Non-U.S. currencies may be
affected by devaluation, adverse political and economic developments, and
governmental restrictions. The values of foreign investments and the investment
income derived from them may also be affected adversely by changes in currency
exchange control regulations. Although the Portfolio will invest primarily in
securities denominated in U.S. dollars or in currencies that are fully
convertible into U.S. dollars, it is a possibility that individual securities
might suffer loss of value or liquidity due to foreign government imposition of
currency exchange controls.
Securities denominated in foreign currencies of U.S. or non-U.S.
issuers may be less liquid and their prices more volatile than securities issued
by U.S. issuers and denominated in U.S. dollars. In addition, investing in
non-U.S. securities and securities denominated in non-U.S. currencies often
entails costs not associated with investments in U.S. dollar-denominated
securities of U.S. issuers such as the cost of converting U.S. dollars to
foreign currency, and higher brokerage commissions, custodial expenses and other
fees. Non-U.S. dollar denominated securities may be subject to withholding or
other taxes in the relevant jurisdiction, which may reduce the yield on the
securities to the Portfolio and which may not be recoverable by the Portfolio or
its investors.
SOVEREIGN AND SUPERNATIONAL DEBT OBLIGATIONS. Debt instruments issued
or guaranteed by foreign governments, agencies and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a higher degree of risk, and may be in default
or present the risk of default. The issuers of the obligation or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors.
LOAN PARTICIPATIONS AND ASSIGNMENTS. Global High Yield Securities
Portfolio may invest in fixed and floating rate loans ("loans") arranged through
private negotiations between a borrower and one or more institutions
("lenders"). The majority of the Portfolio's investments in loans in emerging
markets is expected to be in the form of participations in loans
("participations") and assignments of portions of loans from third parties
("assignments"). The Portfolio may also invest in loans, participations or
assignments of loans to borrowers located in the industrialized world.
Participations typically will result in the Portfolio having a contractual
relationship only with the lender, not the borrower. The Portfolio will have the
right to receive payments of
<PAGE>
A-13
principal, interest and any fees to which it is entitled only from the lender
selling the participation and only upon receipt by the lender of the payments
from the borrower. In connection with purchasing participations, the Portfolio
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan ("loan agreement"), nor any
rights of set-off against the borrower, and the Portfolio may not directly
benefit from any collateral supporting the loan in which it has purchased the
participation. As a result, the Portfolio will assume the credit risk of both
the borrower and the lender that is selling the participation. In the event of
the insolvency of the lender selling the participation, the Portfolio may be
treated as a general creditor of the lender and may not benefit from any set-off
between the lender and the borrower. The Portfolio will acquire participations
only if the lender interpositioned between the Portfolio and the borrower is
determined by Bankers Trust to be creditworthy. When the Portfolio purchases
assignments from lenders, the Portfolio will acquire direct rights against the
borrower on the loan; however, since assignments are arranged through private
negotiations between the potential assignees and assignors, the rights and
obligations acquired by the Portfolio as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender.
The Portfolio may have difficulty disposing of assignments and
participations. The liquidity of such securities is limited and the Portfolio
anticipates that such securities could only be sold to a limited number of
institutional investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on the Portfolio's ability to
dispose of particular assignments or participations when necessary to meet the
Portfolio's liquidity needs or in response to a specific economic event, such as
a deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for assignments and participations may make it more difficult
in valuing the Portfolio and, therefore, calculating the net asset value of the
Portfolio. All assignments and participations shall be considered to be illiquid
securities by the Portfolio. The investment by the Portfolio in illiquid
securities, including assignments and participations, is limited to a total of
15% of total assets.
CONVERTIBLE SECURITIES. A convertible security is a fixed income
security, such as a bond or preferred stock which may be converted at a stated
price within a specific period of time into a specified number of shares of
common stock of the same or different issuer. Convertible securities are senior
to common stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a fixed income
stream - generally higher in yield than in the income derivable from a common
stock but lower than that afforded by a non-convertible debt security - a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of common stock
into which it is convertible.
In general, the market value of a convertible security is the higher of
its investment value (its value as a fixed income security) or its conversion
value (the value of the underlying shares of common stock if the security is
<PAGE>
A-14
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
PREFERRED STOCK. The Portfolios may also invest in preferred stock of
U.S. and non-U.S. issuers. Preferred stock has a preference in liquidation (and,
generally dividends) over common stock but is subordinated in liquidation to
debt. As a general rule the market value of preferred stocks with fixed dividend
rates and no conversion rights varies inversely with interest rates and
perceived credit risk, with the price determined by the dividend rate. Some
preferred stocks are convertible into other securities, for example common
stock, at a fixed price and ratio or upon the occurrence of certain events. The
market price of convertible preferred stocks generally reflects an element of
conversion value. Because many preferred stocks lack a fixed maturity date,
these securities generally fluctuate substantially in value when interest rates
change; such fluctuations often exceed those of long-term bonds of the same
issuer. Some preferred stocks pay an adjustable dividend that may be based on an
index, formula, auction procedure or other dividend rate reset mechanism. In the
absence of credit deterioration, adjustable rate preferred stocks tend to have
more stable market values than fixed rate preferred stocks.
All preferred stocks are also subject to the same types of credit risks
of the issuer as those described above for corporate bonds. In addition, because
preferred stock is junior to debt securities and other obligations of an issuer,
deterioration in the credit rating of the issuer will cause greater changes in
the value of a preferred stock than in more senior debt security with similar
yield characteristics. Preferred stocks may be rated by S&P and Moody's although
there is no minimum rating which a preferred stock must have (and a preferred
stock may not be rated) to be an eligible investment for the Portfolio. Bankers
Trust expects, however, that generally the preferred stocks in which the
Portfolio invests will be rated at least CCC by S&P or Caa by Moody's or, if
unrated, of comparable quality in the opinion of Bankers Trust Preferred stocks
rated CCC by S&P are regarded as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations and represent the highest
degree of speculation among securities rated between BB and CCC; preferred
stocks rated Caa by Moody's are likely to be in arrears on dividend payments.
Moody's rating with respect to preferred stocks does not purport to indicate the
future status of payments of dividends.
INDUSTRIALIZED MARKET DEBT SECURITIES. Under normal market conditions,
Global High Yield Securities Portfolio will invest in certain securities that
are issued by corporate or guaranteed borrowers located in the world's
industrialized markets. These debt securities may pay interest in cash or in
additional securities, at fixed or adjustable rates or may be zero coupon
securities and may be convertible into common stock or other securities. Bankers
Trust selects securities for the Portfolio by considering, among other factors,
price and
<PAGE>
A-15
yield, interest coverage and financial resources, the liquidity of the secondary
trading market in the security, factors relating to the issuer's industry in
general and its sensitivity to economic conditions, its operating history and
quality of management, and regulatory matters.
The Portfolio will invest in higher-yielding, lower-rated U.S.
dollar-denominated debt securities, which may involve high risk and are
predominantly speculative in character. These securities are commonly known as
"junk bonds." Investments in lower-rated long-term debt obligations, including
securities rated from BB to D by S&P or Ba to C by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust involve special risks as
compared with investments in higher-rated debt obligations, including greater
sensitivity to general economic downturns and significant increases in interest
rates, greater market price volatility, and less liquid secondary trading
markets. See "Risk Factors." The net asset value of the Portfolio can be
expected to increase or decrease depending on real or perceived changes in the
credit risks associated with the Portfolio's investments, changes in interest
rates and other factors generally affecting the credit markers.
Most of the debt securities in which the Portfolio invests are rated,
at the time of investment, at least CCC by S&P or Caa by Moody's or, if unrated,
of comparable quality in the opinion of Bankers Trust. Such securities are
regarded by S&P as predominantly speculative with respect to the capacity to pay
interest and repay principal in accordance with the terms of the contract. Debt
rated Caa by Moody's is regarded as being of poor standing and may be in default
or there may be present elements of danger with respect to the payment of
principal or interest.
Certain of the debt securities in which the Portfolio invests are
rated, at the time of investment, or may be downgraded while held by the
Portfolio, to ratings below CCC by S&P or Caa by Moody's or, if unrated, their
credit quality may be or may decline to levels less than equivalent to such
ratings in the opinion of Bankers Trust, Such debt securities are highly
speculative and may be in default or payment of interest or principal may be in
arrears. The issuers of such securities may be involved in bankruptcy or
reorganization proceedings or may be restructuring outstanding debt. Default
debt securities may never resume interest payments or repay principal. Investing
in bankrupt and troubled companies involves special risk. The Portfolio will not
invest more than 10% of its assets in debt securities rated below CCC by S&P or
Caa by Moody's or, if unrated, of comparable quality in the opinion of Bankers
Trust.
The Portfolio is not required to dispose of debt securities whose
credit quality declines at some point after the security is purchased; however,
no more than 25% of the Portfolio's assets will be invested at any time in
securities rated less than CCC by S&P or Caa by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust. S&P's lowest rating for
bonds is Cl, which is reserved for income bonds on which no interest is being
paid and D, which is reserved for debt in default and in respect of which
payment of interest or repayment of principal is in arrears. Moody's lowest
rating is C, which is applied to bonds which have extremely poor prospects for
ever attaining any real investment standing. Other than as set forth above,
there is no restriction on
<PAGE>
A-16
the percentage of the Portfolio's assets which may be invested in bonds of a
particular rating.
ADDITIONAL INVESTMENT LIMITATIONS. As diversified funds, no more than
5% of the respective assets of Latin American Equity Portfolio, Small Cap
Portfolio or Pacific Basin Equity Portfolio may be invested in the securities of
one issuer (other than U.S. Government securities), except that up to 25% of a
Portfolio's assets may be invested without regard to this limitation. A
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 each
Portfolio which may not be changed without investor approval. No more than 15%
of a Portfolio's net assets maybe invested in illiquid or not readily marketable
securities (including repurchase agreements and time deposits with remaining
maturities of more than seven calendar days). Also, no more than 10% of a
Portfolio's net assets may be invested in securities restricted as to transfer
or re-sale. Additional investment policies of the Portfolios are contained in
Part B.
RISK OF INVESTING IN FOREIGN SECURITIES. Investors should realize that
investing in securities of foreign issuers involves considerations not typically
associated with investing in securities of companies organized and operated in
the United States. 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 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.
RISKS OF INVESTING IN EMERGING MARKETS. Because foreign securities
generally are denominated and pay dividends or interest in foreign currencies,
and the Portfolio holds various foreign currencies from time to time,the value
of the net assets of the Portfolio as measured in U.S. Dollars will be affected
favorable or unfavorably by changes in exchange rates. In order to protect
against uncertainty in the level of future foreign currency exchange rates,the
Portfolio is authorized to enter in certain foreign current exchange
transactions. Furthermore, the Portfolio's foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. The settlement periods for foreign securities,
<PAGE>
A-17
which are often longer than those for securities of U.S. issuers, may affect
portfolio liquidity. Finally, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
The Portfolio will invest in the securities of issuers based in some of
the world's underdeveloped emerging markets, including (in the case of Global
High Yield Securities Portfolio) 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.
So long as the Communist Party continues to exercise a significant or,
in some countries, dominant role in Easter European countries, investments in
such countries will involve risks of nationalization, expropriation and
confiscatory taxation. The Communist governments of a number of Eastern European
countries expropriated large amounts of private property in the past, in many
cases without adequate compensation, and there may be no assurance that such
expropriation will not occur in the future. In the event of such expropriation,
the Portfolio could lose a substantial portion of any investments it has made in
the affected countries. Further, no accounting standards exist in Eastern
European countries. Finally, even though certain Easter European currencies may
be convertible into U.S. dollars,the conversion rates may be artificial to the
actual market values and may be adverse to investors.
RISK FACTORS - GLOBAL HIGH YIELD SECURITIES PORTFOLIO. Under normal
circumstances, a majority of the Portfolio's assets will be invested in fixed
income securities offering high current income. Such high yield, fixed income
securities are ordinarily in the lower rating categories of recognized rating
agencies or will be non-rated and of equivalent quality in the opinion of
Bankers Trust. They are commonly known as "junk bonds." The market value for
such securities tends to be less sensitive to changes in prevailing interest
rates than higher-rated securities but more sensitive to individual corporate
developments than higher-rated securities. Such lower-rated securities also tend
to be more sensitive to economic conditions than are higher-rated securities.
Accordingly, these securities are considered predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation and will generally involve more
credit risk than securities in the higher-rated categories. Even securities
rated BBB or Baa by S&P and Moody's, respectively, possess some speculative
<PAGE>
A-18
characteristics. There are risks involved in applying credit ratings as a method
for evaluating high yield obligations in that credit ratings evaluate the safety
of principal and interest payments, not market value risk. In addition, credit
rating agencies may not change credit ratings on a timely basis to reflect
changes in economic or company conditions that affect a security's market value.
The Portfolio will rely on Bankers Trust's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, Bankers Trust
will take into consideration, among other things, the issuer's ability to cover
interest and fixed charges, factors relating to the issuer's industry and its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.
The Portfolio is authorized to invest in high risk, lower quality debt
securities without limit. Investments in lower-rated long-term. obligations,
including securities rated from BB to D by S&P or Ba to C by Moody's or, if
unrated of comparable quality in the opinion of Bankers Trust, involve special
risks as compared with investments in higher rated debt obligations, including
greater sensitivity to general economic downturns and significant increases in
interest rates, greater market price volatility, and less liquid secondary
trading markets. Regardless of rating levels, all debt securities considered for
purchase (whether rated or unrated) will be carefully analyzed by Bankers Trust
to insure, to the extent possible, that the planned investment is sound. The
Portfolio may, from time to time, purchase defaulted debt securities if, in the
opinion of Bankers Trust, the issuer may resume interest payments in the near
future. The Portfolio will not invest more than 10% of its total assets (at the
time of purchase) in defaulted debt securities, which may be illiquid.
The risk of loss due to default by the issuer is significantly greater
for the holders of high yield securities because such securities are generally
unsecured and are often subordinated to other obligations of the issuer. During
an economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience financial stress and
may not have sufficient revenues to meet their interest payment obligations. An
issuer's ability to service its debt obligations may also be adversely affected
by specific corporate developments, its inability to meet specific projected
business forecasts, or the unavailability or additional financing.
Factors adversely affecting the market value of high yield and other
securities will adversely affect the Portfolio's net asset value. In addition,
the Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal of or interest on its
portfolio holdings.
In addition to brokerage commissions, custodial services and other
costs relating to investment in emerging markets are generally more expensive
than in the United States. Such markets have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Portfolio to make intended security purchases
due to settlement problems could cause the Portfolio to miss attractive
investment opportunities. Inability to dispose of a security due to settlement
problems could result either in losses to the Portfolio due to subsequent
declines in the
<PAGE>
A-19
value of the security or, if the Portfolio has entered into a contract to sell
the security, could result in possible liability to the purchaser.
PORTFOLIO TURNOVER. The frequency of portfolio transactions -- the
Portfolio's turnover rate -- will vary from year to year depending on market
conditions. The Portfolio's turnover rate for the year ended September 30, 1995
and for the period from December 14, 1993 (commencement of operations) through
September 30, 1994, was 169% and 347%, respectively. Because a higher turnover
rate increases transaction costs and may increase taxable capital gains, Bankers
Trust carefully weighs the anticipate benefits of short-term investment against
these consequences.
RISK FACTORS - LATIN AMERICAN EQUITY PORTFOLIO. Governments of many
Latin American countries have exercised and continue to exercise substantial
influence over many aspects of the private sector through the ownership or
control of many companies, including some of the largest in those countries. As
a result, government actions in the future could have effect on economic
conditions which may adversely affect prices of certain portfolio securities.
Expropriation, confiscatory taxation, nationalization, political, economic or
social instability or other similar developments, such a military coups, have
occurred in the past and could also adversely affect the Portfolio's investments
in this region.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk.
In recent years, there have been significant improvements in some Latin
American economies; however, others continue to experience economic problems,
including high inflation rates and high interest rates. The emergence of Latin
American economies and securities markets will require economic and fiscal
discipline, as well as stable political and social conditions. Recovery may also
be influenced by international economic conditions, particularly those in the
United States, by world prices for oil and other commodities, and international
trade agreements such as the North American Free Trade Agreement. Because Latin
American securities generally are denominated and pay dividends or interest in
currencies of Latin American countries, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates, the Portfolio is authorized to enter into certain foreign
currency exchange transactions.
ADRs, GDRs and EDRs may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.
Ownership of unsponsored ADRs, GDRs and EDRs may not entitle the Portfolio to
financial or other reports from the issuer, to which it would be entitled as the
owner of sponsored ADRs, GDRs and EDRs. ADRs, GDRs and EDRs also involve the
risks of other investments in foreign securities, as discussed above.
<PAGE>
A-20
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time,the value of the net assets of the Portfolio as
measured in U.S. Dollars will be affected favorable or unfavorably by changes in
exchange rates. In order to protect against uncertainty in the level of future
foreign currency exchange rates,the Portfolio is authorized to enter in certain
foreign current exchange transactions. Furthermore, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. The settlement periods
for foreign securities, which are often longer than those for securities of U.S.
issuers, may affect portfolio liquidity. Finally, there is generally less
government supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States.
In addition to brokerage commissions, custodial services and other
costs relating to investment in emerging markets are generally more expensive
than in the United States. Such markets have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Portfolio to make intended security purchases
due to settlement problems could cause the Portfolio to miss attractive
investment opportunities. Inability to dispose of a security due to settlement
problems could result either in losses to the Portfolio due to subsequent
declines in the value of the security or, if the Portfolio has entered into a
contract to sell the security, could result in possible liability to the
purchaser.
The Portfolio is authorized to invest up to 35% of its total assets in
medium quality or high risk, lower quality debt securities that are rated
between BBB and as low as C by S&P, and between Baa and as low as C by Moody's
or, if unrated, of comparable quality in the opinion of Bankers Trust. As an
operating policy, which may be changed by the Board of Trustees of the Trust,
the Portfolio will not invest more than 10% of its total assets in debt
securities rated BBB or lower by S&P or Baa or lower by Moody's. The Board may
consider a change in this operating policy it in its judgment, economic
conditions change such that a higher level of investment in high risk lower
quality debt securities would be consistent with the interests of the Portfolio
and its investors. High risk lower quality debt securities, ("junk bonds") are
regarded on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation and may be in default. Unrated debt securities are not necessarily of
lower quality than rated securities but they may not be attractive to as many
buyers. Regardless of rating levels, all debt securities considered for purchase
(whether rated or unrated) will be carefully analyzed by Bankers Trust to
insure, to the extent possible, that the planned investment is sound. The
Portfolio may, from time to time, purchase defaulted debt securities if, in the
opinion of Bankers Trust, the issuer may resume interest payments in the near
future. As an operating policy, the Portfolio will not invest more than 10% of
its total assets (at the time of purchase) in defaulted debt securities, which
may be illiquid.
PORTFOLIO TURNOVER. The frequency of portfolio transactions -- the
Portfolio's turnover rate -- will vary from year to year depending on market
<PAGE>
A-21
conditions. The Portfolio's turnover rate for the year ended September 30, 1995
and for the period from October 25, 1995 (commencement of operations) through
September 30, 1994, was 161% and 124%, respectively. Because a higher turnover
rate increases transaction costs and may increase taxable capital gains, Bankers
Trust carefully weighs the anticipate benefits of short-term investment against
these consequences.
RISK FACTORS - SMALL CAP PORTFOLIO. By itself the Portfolio does not
constitute a balanced investment plan; the Portfolio seeks to provide long-term
capital growth, with the production of any current income being incidental to
this objective, by investments primarily in growth-oriented common stocks of
domestic corporations and, to a limited extent, foreign corporations. The
Portfolio is designed for those investors primarily interested in capital growth
from investments in smaller-sized growth companies. In view of the long-term
capital growth objective of the Portfolio and the smaller size of the companies,
the risks of investment in the Portfolio may be greater than the general equity
markets, and changes in domestic and foreign interest rates may also affect the
value of the Portfolio's investments, and rising interest rates can be expected
to reduce the Portfolio's net asset value. A description of a number of
investments and investment techniques available to the Portfolio, including
foreign investments and the use of options and futures, is found under
"Additional Information" as well as certain risks associated with these
investments and techniques.
In seeking its investment objectives, the Portfolio may invest in
securities of foreign issuers. Foreign securities may involve a higher degree of
risk and may be less liquid or more volatile than domestic investments. Foreign
securities usually are denominated in foreign currencies, which means their
value will be affected by changes in the strength of foreign currencies relative
to the U.S. dollar as well as the other factors that affect security prices.
Foreign companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and there often is less publicly
available information about their operations. Generally, there is less
governmental regulation of foreign securities markets, and security trading
practices abroad may offer less protection to investors such as the Portfolio.
The value of such 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. Additional risks of foreign securities include settlement
delays and costs, difficulties in obtaining and enforcing judgments, and
taxation of dividends at the source of payment. The Portfolio will not invest
more than 5% of the value of its total assets in the securities of issuers based
in developing countries, including Eastern Europe.
PORTFOLIO TURNOVER. The Portfolio intends to manage its holdings
actively to pursue its investment objective. Since the Portfolio has a long-term
investment perspective, it does not intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, it may take advantage of short-term trading opportunities that are
consistent
<PAGE>
A-22
with its objective. The Portfolio's turnover rate for the year ended September
30, 1995 and for the period from October 21, 1993 (commencement of operations)
through September 30, 1994 was 161% and 154%, respectively. The annual portfolio
turnover rate of the Portfolio is expected to be between 100% and 200%. Higher
portfolio turnover rates result in higher brokerage costs and in possible
adverse tax consequences.
RISK FACTORS - PACIFIC BASIN EQUITY PORTFOLIO. The Portfolio may invest
in the securities of issuers based in underdeveloped countries, including those
in the Pacific Basin. 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
non-existent 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 interest; and (iv) in the case
of Eastern Europe, the absence of developed capital market and legal structures
governing private of foreign investment and private property and the possibility
that recent favorable economic and political developments could be slowed or
reversed by unanticipated events. The Portfolio will not invest more than 5% of
the value of its total assets in securities of issuers based in Eastern Europe.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. Generally, the Portfolio's currency exchange transactions will
be conducted on a spot (I.E., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of the Portfolio's currency exchange
transactions will generally be the difference between the bid and offer spot
rate of the currency being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange rates, the
Portfolio is authorized to enter into certain foreign currency transactions. See
"Additional Information."
In addition, while the volume of the transactions effected of foreign
stock exchanges has increased in recent years, in most cases it remains
appreciably below that of the New York Stock Exchange Inc. (the "NYSE").
Accordingly, the Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities of U.S.
companies. Moreover, the settlement periods for foreign securities, which are
often longer than those for securities of U.S. issuers, may affect portfolio
liquidity.
In buying and selling securities on foreign exchanges, the Portfolio
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. In addition, there is generally less
<PAGE>
A-23
government supervision and regulation of securities exchange, brokers and
issuers in foreign countries than in the United States. Bankers Trust intends to
manage the Portfolio actively in pursuit of its investment objective. However,
the annual portfolio turnover rate of the Portfolio is generally not expected to
exceed 100%. 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.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. 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."
Furthermore, the Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities of U.S.
companies. The settlement periods for foreign securities, which are often longer
than those for securities of U.S. issuers, may affect portfolio liquidity.
Finally, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
In addition to brokerage commissions, custodial services and other
costs relating to investment in emerging markets are generally more expensive
than in the United States. Such markets have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Portfolio to make intended security purchases
due to settlement problems could cause the Portfolio to miss attractive
investment opportunities. Inability to dispose of a security due to settlement
problems could result either in losses to the Portfolio due to subsequent
declines in the value of the security or, if the Portfolio has entered into a
contract to sell the security, could result in possible liability to the
purchaser.
Futures contracts and related option transactions are discussed under
"Additional Information." Successful use of futures contracts and related
options is subject to special risk considerations. A liquid secondary market for
any futures or options contract may not be available when a futures or options
position is sought to be closed. In addition, there may be an imperfect
correlation between movements in the securities or foreign currency on which the
futures or options contract is based and movements in the securities or currency
of the Portfolio. Successful use of futures or options contracts is further
dependent on Bankers Trust's ability to correctly predict movements in the
securities or foreign currency markets and no assurance can be given that its
judgment will be correct. Successful use of options on securities or stock
indices is subject to similar risk considerations. In addition, by writing
covered call options, the Portfolio gives up the opportunity, which the option
is in effect, to profit from any price increase in the underlying securities
above the option exercise price.
<PAGE>
A-24
Risk Factors; Investments in China. The People's Republic of China
("China") has had for many centuries a well deserved reputation for being closed
to foreigners, with trade with the outside world being carried on under terms of
extreme restriction and under central control. Such conditions were maintained
in the first thirty years of the Communist regime which began in 1949; however
there have been several stages of evolution, from the institution of an
industrialization program in the 1950s to a modernization policy commencing in
1978 which combined economic development with the beginnings of opening the
country.
The economic reform plan was designed to bring in foreign investment
capital and technological skills. The result has been a move towards a more
mixed economy away from the previous centrally planned economy. The process of
devolving responsibility for all aspects of enterprise to local management and
authorities continues, even though the system of socialism with Chinese
characteristics involves considerable influence by the central government on
production and marketing.
In order to attract foreign investment, China has since 1978 designated
certain areas of the country where overseas investors can receive special
investment incentives and tax concessions. There are five Special Economic Zones
(Shenzhen, Shantou and Zhuhai in Guangdong Province, Xiamen in Fujian Province
and Hainan Island, which itself is a province). Fourteen coastal cities have
been designated as "open cities" and certain Open Economic Zones have been
established in coastal areas. Shanghai has established the Pudong New Area.
Twenty-seven High and New Technology Industrial Development Zones have been
approved where preferential treatment is given to enterprises which are
confirmed as technology intensive.
Exports continue to rise strongly, although China remains vulnerable to
United States economic conditions and possible trade sanctions, unless it
liberalizes current import restrictions and improves its human rights record.
However, imports are also expected to rise and may outstrip exports in terms of
growth rates.
There are currently two officially recognized securities exchanges in
China -- The Shanghai Securities Exchange which opened in December 1990 and The
Shenzhen Stock Exchange which opened in July 1991. Shares traded on these
Exchanges are two types -- "A" shares which can be traded only by Chinese
investors and "B" shares which can be traded only by individuals and
corporations not resident in China.
In Shanghai, all "B" Shares are denominated in Chinese renminbi
("RMB"), but all transactions in "B" shares must be settled in U.S. dollars, and
all distributions made on "B" shares are payable in U.S. dollars, the exchange
rate being the weighted average exchange rate for the U.S. dollar as published
by the Shanghai Foreign Exchange Adjustment Centre.
In Shenzhen, the purchase and sale prices for "B" shares are quoted in
Hong Kong dollars. Dividends and other lawful revenue derived from "B" shares
are
<PAGE>
A-25
calculated in RMB but payable in Hong Kong dollars, the rate of exchange being
the average rate published by Shenzhen Foreign Exchange Adjustment Centre.
There are no foreign exchange restrictions on the repatriation of gains
made on or income derived from "B" Shares, subject to the payment of taxes
imposed by China thereon.
Company law relating to companies limited by shares and regulations
regarding the issuing of shares by equity joint ventures have not yet been
developed on a national basis. The Shenzhen municipality issued regulations in
1992 relating to joint stock companies, and the Shanghai municipality has a
draft joint stock company law under review. Regulations governing the trading of
securities on both the Shenzhen and the Shanghai stock exchanges have been
issued by each municipality; there is no national securities legislation as yet.
The securities markets in the China Region are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. A high proportion of the shares of many Chinese issuers may be held by a
limited number of persons and financial institutions, which may limit the number
of shares available for investment by the Portfolio. Similarly, volume and
liquidity in the bond markets in China are less than in the United States and,
at times, price volatility can be greater than in the United States. A limited
number of issuers in Chinese securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of securities markets in China may also affect the
Portfolio's ability to acquire or dispose of securities at the price and time it
wishes to do so. Accordingly, during periods of rising securities prices in the
more illiquid Chinese securities markets, the Portfolio's ability to participate
fully in such price increases may be limited by its investment policy of
investing not more than 15% of its net assets in illiquid securities.
Conversely, the Portfolio's inability to dispose fully and promptly of positions
in declining markets will cause the Portfolio's net asset value to decline as
the value of the unsold positions is marked to lower prices. In addition, the
Chinese securities markets are susceptible to being influenced by large
investors trading significant blocks of securities.
The Chinese, Hong Kong and Taiwan stock markets are undergoing a period
of growth and change which may result in trading volatility and difficulties in
the settlement and recording of transactions, and in interpreting and applying
the relevant law and regulations.
Economies of countries in the China Region may differ favorably or
unfavorably from the U.S. economy in such respects as rate of growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As an export-driven economy,
the economy of China is affected by developments in the economies of its
principal trading partners. Revocation by the United States of China's "Most
Favored Nation" trading status, which the U.S. President and Congress reconsider
annually, would adversely affect the trade and economic development of China and
Hong Kong. Hong Kong and Taiwan have limited natural resources, resulting in
<PAGE>
A-26
dependence on foreign sources for certain raw materials and economic
vulnerability to global fluctuations of price and supply.
China governmental actions can have a significant effect on the
economic conditions in China, which could adversely affect the value and
liquidity of the Portfolio's investments. Although the Chinese Government has
recently begun to institute economic reform policies, there can be no assurances
that it will continue to pursue such policies or, if it does, that such policies
will succeed.
The securities industry in China is not well developed. China has no
securities laws of nationwide applicability. The municipal securities
regulations adopted by Shanghai and Shenzhen municipalities are very new, as are
their respective securities exchanges and other self-regulatory organizations.
In addition, Chinese stockbrokers and other intermediaries may not perform as
well as their counterparts in the United States and other more developed
securities markets. The prices at which the Portfolio may acquire investments
may be affected by trading by persons with material non-public information and
by securities transactions by brokers in anticipation of transactions by the
Portfolio in particular securities.
China does not have a comprehensive system of laws, although
substantial changes have occurred in this regard in recent years. The corporate
form of organization has only recently been permitted in China and national
regulations governing corporations were introduced only in May, 1992. Prior to
the introduction of such regulations, Shanghai had adopted a set of corporate
regulations applicable to corporations located or listed in Shanghai, and the
relationship between the two sets of regulations is not clear. Consequently,
until a firmer legal basis is provided, even such fundamental corporate law
tenets as the limited liability status of Chinese issuers and their authority to
issue shares remain open to question. Laws regarding fiduciary duties of
officers and directors and the protection of shareholders are not well
developed. China's judiciary is relatively inexperienced in enforcing the laws
that exist, leading to a higher than usual degree of uncertainty as to the
outcome of any litigation. Even where adequate law exists in China, it may be
impossible to obtain swift and equitable enforcement of such law, or to obtain
enforcement of the judgement by a court of another jurisdiction. The bankruptcy
laws pertaining to state enterprises have rarely been used and are untried in
regard to an enterprise with foreign shareholders, and there can be no assurance
that such shareholders, including the Portfolio, would be able to realize the
value of the assets of the enterprise or receive payment in convertible
currency. As the Chinese legal system develops, the promulgation of new laws,
changes to existing laws and the preemption of local laws by national laws may
adversely affect foreign investors, including the Portfolio. The uncertainties
faced by foreign investors in China are exacerbated by the fact that many laws,
regulations and decrees of China are not publicly available, but merely
circulated internally.
There are further risk factors, including possible losses through the
holding of securities in domestic and foreign custodian banks and depositories,
described elsewhere in this Part A and in Part B.
<PAGE>
A-27
PORTFOLIO TURNOVER. The frequency of portfolio transactions -- the
Portfolio's turnover rate -- will vary from year to year depending on market
conditions. The Portfolio's turnover rate for the year ended September 30, 1995
and for the period from November 1, 1993 (commencement of operations) through
September 30, 1994, was 104% and 40%, respectively. Because a higher turnover
rate increases transaction costs and may increase taxable capital gains, Bankers
Trust carefully weighs the anticipate benefits of short-term investment against
these consequences.
ITEM 5. MANAGEMENT OF THE FUND.
The Board of Trustees of the Portfolios provides broad supervision over
the affairs of the Portfolios. A majority of the Portfolios' Trustees are not
affiliated with the Adviser. As the administrator (the "Administrator"), Bankers
Trust supervises the overall administration of the Portfolios. The Portfolios'
fund accountant, transfer agent and custodian is also Bankers Trust.
Bankers Trust, a New York banking corporation with principal offices at
280 Park Avenue, New York, New York 10017, is a wholly-owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of general
banking and trust activities and is a major wholesale supplier of financial
services to the international and domestic institutional markets. As of
September 30, 1995, Bankers Trust New York Corporation was the ninth largest
bank holding company in the United States with total assets of approximately
$104 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 120 offices in 40 countries. Investment
management is a core business of Bankers Trust, built on a tradition of
excellence from its roots as a trust bank founded in 1903. The scope of Bankers
Trust's investment management capability is unique due to its leadership
positions in both active and passive quantitative management and its presence in
major equity and fixed income markets around the world. Bankers Trust is one of
the nation's largest and most experienced investment managers, with
approximately $200 billion in assets under management.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled fund
structures. Bankers Trust's officers have had extensive experience in managing
investment portfolios having objectives similar to that of the Portfolios.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Portfolios described in
this Registration Statement without violation of the Glass-Steagall Act or other
applicable banking laws or regulations.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Portfolio, manages the Portfolios in accordance with the
Portfolios' investment objectives and stated investment policies, makes
investment decisions for each Portfolio, places orders to purchase and sell
<PAGE>
A-28
securities and other financial instruments on behalf of the Portfolios and
employs professional investment managers and securities analysts who provide
research services to the Portfolios. All orders for investment transactions on
behalf of the Portfolios 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 Portfolios only if Bankers Trust
believes that the affiliate's charge for the transaction does not exceed usual
and customary levels. The Portfolios will not invest in obligations for which
Bankers Trust or any of its affiliates is the ultimate obligor or accepting
bank. The Portfolios may, however, invest in the obligations of correspondents
and customers of Bankers Trust.
Under its investment advisory agreement with the Trust, Bankers Trust
receives a fee from the Portfolios computed daily and paid monthly at the
following annual rates: Global High Yield Securities Portfolio -- 0.80% of the
average daily net assets of the Portfolio; Latin American Equity Portfolio --
1.00% of the average daily net assets of the Portfolio; Small Cap Portfolio --
0.65% of the average daily net assets of the Portfolio; and Pacific Basin Equity
Portfolio -- 0.75% of the average daily net assets of the Portfolio.
Bankers Trust has entered into a sub-investment advisory agreement (the
"Sub-Advisory Agreement") with BT Fund Managers International Limited ("BT Fund
Managers International") a wholly owned subsidiary of Bankers Trust Australia
Limited ("BTAL") in Sydney. BTAL is a wholly owned subsidiary of Bankers Trust
New York Corporation. Under the Sub-Advisory Agreement, Bankers Trust may
receive investment advice and research services with respect to companies based
in the Pacific Basin and may grant BT Fund Managers International investment
management authority as well as the authority to buy and sell securities if
Bankers Trust believes it would be beneficial to the Portfolio. Under the
Sub-Advisory Agreement, BT Fund Managers International receives a fee for
providing investment advice and research services from Bankers Trust computed
daily and paid monthly at the annual rate of 0.60% of the average daily assets
of the Portfolio.
BTAL, which was granted a banking license in 1986, is the parent of
Bankers Trust Australia Group which has offices is Sydney, Melbourne, Perth,
Brisbane, Adelaide, London and Hong Kong. A representative office of Bankers
Trust Company was opened in Australia in 1966 and Australian merchant banking
operations commences in 1969. A related organization, Bankers Trust New Zealand
Limited, was established in 1986. Although BTAL has not previously served as
investment adviser for a registered investment company, BTAL provides investment
services for a range of clients.
Under an administration and services agreement with the Trust, Bankers
Trust calculates the value of the assets of each Portfolio and generally assists
the Board of Trustees of the Portfolios in all aspects of the administration and
operation of the Portfolios. The administration and services agreement provides
for the Portfolios to pay the Administrator a fee computed daily and paid
monthly at the annual rate of 0.10% of the average daily net assets of each
Portfolio.
<PAGE>
A-29
Under the administration and services agreement, the Administrator may delegate
one or more of its responsibilities to others at its expense.
Each Portfolio bears its own expenses. Operating expenses for the
Portfolios generally consist of all costs not specifically borne by Bankers
Trust or Signature Broker-Dealer Services, Inc. ("Signature"), the Trust's
placement agent and sub-administrator, 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 Trust was 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 separate series of the Trust. Each investor is entitled
to a vote in proportion to the amount of its investment in each Portfolio.
Investments in the Portfolios may not be transferred, but an investor may
withdraw all or any portion of his investment at any time at net asset value.
Investors in the Portfolios (E.G., investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of each Portfolio. However, the risk of an investor in the
Portfolios incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and each Portfolio
itself was unable to meet its obligations.
The Trust reserves the right to create and issue a number of series, in
which case investments in each series would participate equally in earnings and
assets of the particular series. Currently, the Trust has ten series: Liquid
Asset Portfolio, Mortgage-Backed Securities Portfolio, Global High Yield
Securities Portfolio, Latin American Equity Portfolio, Small Cap Portfolio,
Pacific Basin Equity Portfolio, European Equity Portfolio, Asset Management
Portfolio II, Asset Management Portfolio III and International Bond Portfolio.
Investments in the Portfolios have no pre-emptive or conversion rights
and are fully paid and non-assessable, except as set forth below. The Trust is
not required and has no current intention to hold annual meetings of investors,
but the Trust 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
percentage of the aggregate value of the Trust's outstanding interests) 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 a
Portfolio, investors would be entitled to share PRO RATA in the net assets of
the Portfolio available for distribution to investors.
<PAGE>
A-30
The net asset value of each Portfolio is determined each day on which
the NYSE is open for trading ("Fund 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 as of the close of regular trading on the NYSE which
is currently 4:00 p.m., New York time (the "Valuation Time").
Each investor in the Portfolios may add to or reduce its investment in
each Portfolio on each Fund Business Day. At each Valuation Time on each such
business day, the value of each investor's beneficial interest in each Portfolio
will be determined by multiplying the net asset value of a 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 each 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 each 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 each Portfolio effected on
such day, and (ii) the denominator of which is the aggregate net asset value of
each 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 each Portfolio by all investors in each Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in each Portfolio as of the Valuation Time, on the following business
day of each Portfolio.
The net income of each Portfolio shall consist of (i) all income
accrued, less the amortization of any premium, on the assets of each Portfolio,
less (ii) all actual and accrued expenses of each Portfolio determined in
accordance with generally accepted accounting principles ("Net Income").
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 each Portfolio is allocated PRO RATA among the investors in each
Portfolio. The Net Income is accrued daily and distributed monthly to the
investors in each Portfolio.
Under the anticipated method of operation of the Portfolios, the
Portfolios will not be subject to any income tax. However, each investor in the
Portfolios will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolios' ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Code.
It is intended that the Portfolios' assets, income and distributions
will be managed in such a way that an investor in the Portfolios will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolios.
<PAGE>
A-31
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolios are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "General Description of Registrant"
above.
An investment in the Portfolios may be made without a sales load. All
investments are made at the net asset value next determined if an order is
received by the Portfolios by the designated cutoff time for each accredited
investor. The net asset value of each Portfolio is determined on each Fund
Business Day. Each 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 Portfolios.
However, because each 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 Trust's custodian bank by a Federal Reserve Bank).
The Trust and Signature reserve the right to cease accepting
investments in the Portfolios at any time or to reject any investment order.
The placement agent for the Portfolios is Signature. The principal
business address of Signature is 6 St. James Avenue, Boston, Massachusetts
02116. Signature receives no additional compensation for serving as the
placement agent for the Portfolios.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolios 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 Portfolios by the designated
cutoff time for each accredited investor. The proceeds of a withdrawal will be
paid by the Portfolios in federal funds normally on the Fund Business Day the
withdrawal is effected, but in any event within seven calendar days following
receipt of the request. The Portfolios reserve the right to pay redemptions in
kind. Investments in the Portfolios 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 such Exchange is restricted, or, to the extent otherwise permitted
by the 1940 Act, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
<PAGE>
A-32
ADDITIONAL INFORMATION.
Derivatives. The Portfolios may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset, or market index. Some "derivatives" such as mortgage-related
and other asset-backed securities are in many respects like any other
investment, although they may be more volatile or less liquid than more
traditional debt securities. There are, in fact, many different types of
derivatives and many different ways to use them. There are a range of risks
associated with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
However, some derivatives are used for leverage, which tends to magnify the
effects of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount of
financial assets, and can in some circumstances, lead to significant losses. The
Adviser will use derivatives only in circumstances where the Adviser believes
they offer the most economic means of improving the risk/reward profile of the
Portfolio. Derivatives will not be used in 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 a
Portfolio may use and some of their associated risks follows.
ADRs, GDRs and EDRs. The Portfolios may invest in securities of foreign
issuers directly or in the form of ADRs, GDRs, EDRs or other similar securities
representing securities of foreign issuers. These securities may not necessarily
be denominated in the same currency as the securities they represent. Designed
for 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 to which they relate.
When-Issued and Delayed Delivery Securities. The Portfolios 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 Portfolios maintain 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 Portfolios will rely on the other party to consummate the
transaction; if the other party fails to do so, a Portfolio may be
disadvantaged.
Rule 144A Securities. The Portfolios may purchase securities in the
United State that are not registered for sale under Federal securities laws but
which can be resold to institutions under the SEC's Rule 144A. Provided that a
dealer
<PAGE>
A-33
or institutional trading market in such securities exists, these restricted
securities are treated as exempt from the Portfolio's 10% 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.
Because Rule 144A is relatively new, it is not possible to predict how these
markets will develop. If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected. No more
than 10% of a Portfolio's assets may be invested in securities restricted as to
transfer or re-sale, including Rule 144A securities.
Securities Lending. Each 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 Portfolios can increase their 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 a Portfolio and
its investors. In lending securities to brokers, dealers and other
organizations, the Portfolio is subject to risk which, like those associated
with other extensions of credit, include delays in recover and possible loss of
rights in the collateral should the borrower fail financially.
Foreign Currency Exchange Transactions. Because the Portfolios buy and
sell securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the U.S.
dollar, a Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. A Portfolio either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
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 Portfolios maintain 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 Portfolios 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
<PAGE>
A-34
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, a Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions. However, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in a 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 Portfolios 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 Portfolios 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 a 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 a Portfolio's position, it
may forfeit the entire amount of the premium plus related transaction costs. In
addition, a 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 a
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 a 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
Portfolios pay 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. A
Portfolio's ability to terminate over-the-counter options ("OTC Options") will
be more limited than with exchange-traded options. It is also possible that
broker-
<PAGE>
A-35
dealers participating in OTC Options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased OTC Options and assets used to cover written OTC
Options as illiquid securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
Options on Foreign Bond Indices. The Portfolios may purchase and write
put and call options on foreign indices listed on domestic and foreign
Exchanges. A bond index fluctuates with changes in the market values of the
bonds included in the index.
Options on bond indices are generally similar to options on securities
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of securities at a specified price, an option on a bond
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 a bond 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 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
Portfolios may invest in options on foreign bond indices in lieu of direct
investment in foreign bonds. The Portfolios may also use foreign bond index
options for hedging purposes.
Because the value of a bond option depends upon movements in the level
of the index rather than the price of a particular bond, 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 bond prices in the securities market
generally, rather than movements in the price of a particular security.
Accordingly, successful use by the Portfolios of options on bond indices will be
subject to Bankers Trust's ability to predict correctly movements in the
direction of the corresponding bond market generally. This requires different
skills and techniques than predicting changes in the price of individual bonds.
Futures Contracts on Foreign Bond Indices. The Portfolios 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 bonds ("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
<PAGE>
A-36
of securities held by a Portfolio or adversely affect the prices of securities
which are intended to be purchased at a later date for a 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 a Portfolio will rise in value by an amount which
approximately offsets the decline in value of the portion of a 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 bond 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 a Portfolio. The Portfolios 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 a
Portfolio's total assets.
Options on Futures Contracts. The Portfolios may invest in options on
such futures contracts for similar purposes.
A 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 a Portfolio are qualified for offer and sale.
Asset Coverage. To assure that the Portfolios 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 Portfolios will cover such transactions, as required under the
applicable interpretations of the SEC, either by owning the underlying
securities or by establishing a segregated account with the Portfolio's
custodian containing high grade liquid debt securities in an amount at all times
equal to or exceeding the Portfolio's commitment with respect to these
instruments or contracts.
There can be no assurance that the use of these portfolio strategies
will be successful.
<PAGE>
A-37
APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e. they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such, bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both (good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds and issued so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
<PAGE>
A-38
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
DESCRIPTION OF S&PS CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C -The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
<PAGE>
A-39
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
DESCRIPTION OF FITCH INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS:
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issue.
DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS:
Duff 1+--Highest certainty of timely payment. Short term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk free U.S. Treasury short
term obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
DESCRIPTION OF IBCA'S LONG-TERM RATINGS:
AAA--Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly.
<PAGE>
A-40
AA--Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business economic or financial conditions may increase
investment risk albeit not very significantly.
A--Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB--Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
BB--Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest exists, but
is susceptible over time to adverse changes in business, economic or financial
conditions.
B--Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse changes in
business, economic or financial conditions.
CCC--Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on favorable
business, economic or financial conditions.
CC--Obligations which are highly speculative or which have a high risk
of default.
C--Obligations which are currently in default.
Notes: "+" or "-" may be appended to a rating to denote relative status
within major rating categories.
Ratings of BB and below are assigned where it is considered that
speculative characteristics are present.
DESCRIPTION OF IBCA'S SHORT-TERM RATINGS:
A1+--Obligations supported by the highest capacity for timely
repayment.
A1--Obligations supported by a strong capacity for timely repayment.
A2--Obligations supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
<PAGE>
A-41
A3--Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business, economic or
financial conditions than for obligations in higher categories.
B--Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
C--Obligations for which there is an inadequate capacity to ensure
timely repayment.
D--Obligations which have a high risk of default or which are currently
in default.
DESCRIPTION OF THOMSON BANK WATCH SHORT-TERM RATINGS:
TBW-1--The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2--The second-highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1".
TBW-3--The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4--The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
DESCRIPTION OF THOMSON BANKWATCH LONG-TERM RATINGS:
AAA--The highest category; indicates that the ability to repay
principal and interest on a timely basis is extremely high.
AA--The second-highest category; indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
A--The third-highest category; indicates the ability to repay principal
and interest is strong. Issues rated "a" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB--The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings.
NON-INVESTMENT GRADE
(ISSUES REGARDED AS HAVING SPECULATIVE CHARACTERISTICS IN THE LIKELIHOOD OF
TIMELY REPAYMENT OF PRINCIPAL AND INTEREST.)
<PAGE>
A-42
BB--While not investment grade, the "BB" rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations.
B--Issues rated "B" show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse development
could well negatively affect the payment of interest and principal on a timely
basis.
CCC--Issues rated "CCC" clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances.
CC--"CC" is applied to issues that are subordinate to other obligations
rated "CCC" and are afforded less protection in the event of bankruptcy or
reorganization.
D--Default
These long-term debt ratings can also be applied to local currency
debt. In such cases the ratings defined above will be preceded by the
designation "local currency".
RATINGS IN THE LONG-TERM DEBT CATEGORIES MAY INCLUDE A PLUS (+) OR
MINUS (-) DESIGNATION, WHICH INDICATES WHERE WITHIN THE RESPECTIVE CATEGORY THE
ISSUE IS PLACED.
<PAGE>
BT0416B
BT INVESTMENT PORTFOLIOS
INTERNATIONAL BOND PORTFOLIO
PART A
Responses to Items 1 through 3 have been omitted pursuant to paragraph
4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
BT Investment Portfolios (the "Trust") is a no-load, open-end
management investment company which was organized as a trust under the laws of
the State of New York on March 27, 1993.
Beneficial interests in the Trust are divided into separate series,
each having distinct investment objectives and policies, one of which,
International Bond Portfolio (the "Portfolio"), is described herein. Beneficial
interests in the Portfolio are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolio may only be made by investment companies, insurance company separate
accounts, common or commingled trust funds or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D under the
1933 Act. This registration statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
The investment objective of the Portfolio is high total investment
return (income and capital appreciation) through an international portfolio of
debt instrument s denominated in various currencies and multi-national currency
units. The Portfolio seeks to fulfill its objective by investing in high quality
debt securities of governments from the world's major industrialized countries,
their agencies and instrumentalities and in other investment grade debt
securities. Initially, the countries will include, but not be limited to,
Australia, Canada, Denmark, France, Germany, Japan, New Zealand, the United
Kingdom and the United States. Under normal circumstances, at least 65% of the
total assets of the Portfolio will be invested in foreign debt securities with
one year or more remaining maturities. The Portfolio will only purchase debt
securities rated investment grade or higher at the time of purchase by Moody's
investor services, Inc. ("Moody's") (Baa or higher) or Standard & Poor's
Corporation ("S&P") (BBB or better), or if not rated, are believed by the
Adviser to be of comparable quality. There can be no assurance that the
Portfolio will be able to achieve its investment objective.
The Portfolio's approach is value-based and it pursues its total return
objective by investing in various debt instrument on the basis of the potential
capital appreciation of such instruments and the rates of income paid. The
Adviser considers many factors in its selection of specific instruments,
<PAGE>
B-2
including credit quality, the relative levels of interest rates. The Portfolio
invests in instruments of denominated in various currencies without regard to
potential currency fluctuations and may therefore wish to utilize various
currency hedging techniques, in order to reduce overall portfolio volatility.
Under normal conditions, the Adviser invests mainly in medium-term
securities and, as such, does not expect that the weighted average maturity of
the Portfolio will exceed eight years. The weighted average maturity of the
Portfolio's investments will vary based on the Adviser's assessment of economic
and market conditions; the Adviser may respond to market changes in interest
rates by adjusting the weighted average maturity of the Portfolio through the
purchase and sale of securities. The market value of debt securities generally
moves inversely to the direction of movements in interest rates; furthermore,
instruments with longer maturities will fluctuate to a greater degree than those
with shorter maturities.
In countries and in regions with well-developed capital markets where
more information is available, the Adviser will seek to select individual
investments for the Portfolio. 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
chose to invest only at the market level. Here, the Portfolio may seek to
achieve country exposure through use of options or futures based on an
established local index. Similarly, country exposure may also be achieved
through investments in other registered investment companies. Restrictions on
both these types of investments are explained herein and in Part B.
The Portfolio can invest in the securities of ant type of issuer,
including U.S. and foreign governments, corporations, banks and supranational
organizations. There is no limit on investments in any region, country, or
currency, although the Portfolio normally invests in at least three different
countries, other than the United States.
DEBT SECURITIES. Bonds and other debt instruments are methods for an
issuer to borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity. Some,
such as zero coupon debt securities, do not pay current interest, but are
purchased at a discount from their face values. Debt securities have varying
degrees of quality and varying levels of sensitivity to changes in interest
rates. Debt securities rated Baa by Moody's or BBB by S&P have speculative
characteristics.
U.S. Government securities are issued or guaranteed by the U.S.
Treasury or by an agency or instrumentality of the U.S. Government. Not all U.S.
Government securities are backed by the full faith and credit of the United
States. Some are supported only by the credit of the agency that issued them.
<PAGE>
B-3
LEVERAGE. The Portfolio may borrow up to one-third of the value of its
total assets, from banks or through the use of reverse repurchase agreements, to
increase its holdings of portfolio securities. Under the 1940 Act, the Portfolio
is required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Portfolio's holdings
may be disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any
increase or decrease in the value of the Portfolio securities and money borrowed
by the Portfolio will be subject to interest and other costs (which may include
commitment fees and/or the cost of maintaining minimum average balances) which
may or may not exceed the income received from the securities purchased with
borrowed funds.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement the
Portfolio agrees to sell portfolio securities to financial institutions such as
banks and broker-dealers and to repurchase them at a mutually agreed date and
price. At the time the Portfolio enters into a reverse repurchase agreement it
will place in a segregated custodial account cash, U.S. Government securities or
high grade, liquid debt obligations having a value equal to the repurchase
price, including accrued interest. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Portfolio may decline
below the repurchase price of those securities. Reverse repurchase agreements
are considered to be borrowing by the Portfolio for purposes of the limitations
described in "Leverage" above.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with banks and governmental securities dealers approved by the
Trustees of the Portfolio. Under the terms of a typical repurchase agreement,
the Portfolio would acquire an underlying debt obligation of a kind in which the
Portfolio could invest for a relatively short period (usually not more than one
week) subject to an obligation of the seller to repurchase, and the Portfolio to
resell, the obligation at an agreed price and time, thereby determining the
yield during the Portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Portfolio's
holding period. The value of the underlying securities will be at least equal at
all time to the total amount of the repurchase obligations, including interest.
The Portfolio bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Portfolio is delayed in
or prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which the Portfolio seeks to assert these
rights. the Adviser, acting under the supervision of the Board of Trustees of
the Portfolio, reviews the creditworthiness of those banks and dealers with
which the Portfolio enters in repurchase agreements and monitors on an ongoing
basis the value of the securities subject to repurchase agreements to ensure
that it is maintained at the required level. Repurchase agreements are
considered collateralized loans under the 1940 Act.
<PAGE>
B-4
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 for ward 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 the Adviser's long-term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, the Adviser
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the trans actions 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 con sequence 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
<PAGE>
B-5
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. The
Portfolio's ability to terminate over-the-counter options ("OTC Options") will
be more limited than with exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased OTC Options and assets used to cover written OTC
Options as illiquid securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
OPTIONS ON 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 the Fund are qualified for offer and sale.
There can be no assurance that the use of these portfolio strategies
will be successful.
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
<PAGE>
B-6
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.
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.
DIRECT DEBT INSTRUMENTS. Loans and other direct debt instruments are
interests in amounts owed to another party by a Issued by U.S. Government
agencies and other private U.S.-based issuers, these securities may include
pools of consumer loans, mortgage-backed securities, collateralized mortgage
obligations, and stripped mortgage-backed securities.
The value of these securities may be significantly affected by changes
in interest rates, the market's perception of the issuers, and the
creditworthiness of parties involved. These securities may also be subject to
prepayment risk.
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 Portfolio's investment objective is not a Fundamental policy and
may be changed upon notice to but without the approval of the Portfolio's
investors.
RISK FACTORS.
By itself, the Portfolio does not constitute a balanced investment
plan; the Portfolio seeks high total investment return from investment primarily
in debt securities issued anywhere in the world. Changes in domestic and foreign
interest rates may affect the value of the Portfolio's investments and rising
interest rates can be expected to reduce the Portfolio's share value.
<PAGE>
B-7
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 intents to invest
primarily in securities of established companies based in developed countries,
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 Portfolios 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 favorable 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
judgement 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 non-existent 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
interest; and (iv) in the case of Eastern Europe, the absence of developed
capital market and legal structures governing private of foreign investment and
private property and the possibility that recent favorable economic and
political developments could be slowed or reversed by unanticipated events. The
Portfolio will not invest more than 5% of the value of its total assets in
securities of issuers based in Eastern Europe.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. Generally, the Portfolio's currency exchange transactions will
be conducted on a spot (I.E., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of the Portfolio's currency exchange
transactions will generally be the difference between the bid and offer spot
rate
<PAGE>
B-8
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 transactions. See the
Appendix.
In addition, while the volume of the transactions effected of foreign
stock exchanges has increased in recent years, in most cases it remains
appreciably below that of the New York Stock Exchange Inc. (the "NYSE").
Accordingly, the Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities of U.S.
companies. Moreover, the settlement periods for foreign securities, which are
often longer than those for securities of U.S. issuers, may affect portfolio
liquidity.
In buying and selling securities on foreign exchanges, the Portfolio
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. In addition, there is generally less
government supervision and regulation of securities exchange, brokers and
issuers in foreign countries than in the United States. Bankers Trust intends to
manage the Portfolio actively in pursuit of its investment objective. However,
the annual portfolio turnover rate of the Portfolio is generally not expected to
exceed 200%. 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.
ITEM 5. MANAGEMENT OF THE TRUST.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust. Bankers Trust serves as the Trust's investment adviser. A
majority of the Trust's Trustees are not affiliated with the Adviser. As the
administrator (the "Administrator"), Bankers Trust supervises the overall
administration of the Trust. The Trust's fund accountant, transfer agent and
custodian is also Bankers Trust.
Bankers Trust, a New York banking corporation with executive offices at
280 Park Avenue, New York, New York 10017, is a wholly-owned subsidiary of
Bankers Trust New York Corporation. As of December 31, 1992, Bankers Trust New
York Corporation was the seventh largest bank holding company in the United
States with total assets of approximately $72 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 83 offices in 36 countries. Investment management is a core business of
Bankers Trust, built on a tradition of excellence from its roots as a trust bank
founded in 1903. The scope of Bankers Trust's investment management capability
is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. As of December 31, 1992, Bankers Trust had assets
under management of about $151 billion worldwide and is one of the largest
investment managers in the United States. Bankers Trust's officers have had
extensive experience in managing investment portfolios having objectives similar
to that of the Portfolio. Bankers Trust has been advised by its counsel that, in
counsel's
<PAGE>
B-9
opinion, Bankers Trust currently may perform the services for the Trust
described in this Registration Statement without violation of the Glass-Steagall
Act or other applicable banking laws or regulations.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Trust, 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
Trust and the Portfolio. All orders for investment transactions on behalf of the
Portfolio are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust. A
Bankers Trust affiliate will be used in connection with a purchase or sale of an
investment for the Portfolio only if Bankers Trust believes that the affiliate's
charge for the transaction does not exceed usual and customary levels. The
Portfolio will not invest in obligations for which Bankers Trust or any of its
affiliates is the ultimate obligor or accepting bank. The Portfolio may,
however, invest in the obligations of correspondents and customers of Bankers
Trust. Under its investment advisory agreement with the Trust, Bankers Trust
receives a fee from the Portfolio computed daily and paid monthly at the annual
rate of 0.65% of the average daily net assets of the Portfolio.
Under an administration and services agreement with the Trust, Bankers
Trust calculates the value of the assets of the Portfolio and generally assists
the Board of Trustees of the Trust in all aspects of the administration and
operation of the Trust and the Portfolio. The administration and services
agreement provides for the Trust to pay the Administrator a fee computed daily
and paid monthly at the annual rate of 0.15% of the average daily net assets of
the Portfolio. Under the administration and services agreement, the
Administrator may delegate one or more of its responsibilities to others at its
expense.
The Portfolio bears its own expenses. Operating expenses for the
Portfolio generally consist of all costs not specifically borne by Bankers Trust
or Signature Broker-Dealer Services, Inc. ("Signature"), the Trust's placement
agent and sub-administrator, including investment advisory and administration
and service fees, fees for necessary professional services, the costs associated
with regulatory compliance and maintaining legal existence and investor
relations.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Trust 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 separate series of the Trust, such as 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 his 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
<PAGE>
B-10
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.
The Trust reserves the right to create and issue a number of series, in
which case investments in each series would participate equally in the earnings
and assets of the particular series. Currently, the Trust has ten active series,
the Portfolio, the Liquid Assets Portfolio, the Asset Management Portfolio II,
the Asset Management Portfolio III, the Mortgage-Backed Securities Portfolio,
the Global High Yield Securities Portfolio, the Latin American Equity Portfolio,
the Small Cap Portfolio, the Pacific Basin Equity Portfolio and European Equity
Portfolio.
Investments in the Portfolio have no pre-emptive or conversion rights
and are fully paid and non-assessable, except as set forth below. The Trust is
not required and has no current intention to hold annual meetings of investors,
but the Trust 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
percentage of the aggregate value of the Trust's outstanding interests) 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 for trading and New York chartered banks are not closed owing
to customary local or regional holidays ("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 which is currently 4:00 p.m., New York time
(the "Valuation Time").
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At each 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 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 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
<PAGE>
B-11
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 ("Net Income").
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 Trust, 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 Trust) 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.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "General Description of Registrant"
above.
An investment in the Portfolio may be made without a sales load. All
investments are made at the 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 Trust's custodian bank by a Federal Reserve Bank).
<PAGE>
B-12
The Trust and Signature reserve the right to cease accepting
investments in the Portfolio at any time or to reject any investment order.
The placement agent for the Trust is Signature. The principal business
address of Signature is 6 St. James Avenue, Boston, Massachusetts 02116.
Signature receives no additional compensation for serving as the placement agent
for the Trust.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request in
proper form is furnished by the investor to the Portfolio by the designated
cutoff time for each accredited investor. The proceeds of a withdrawal will be
paid by the Portfolio in federal funds normally on the Portfolio Business Day
the withdrawal is effected, but in any event within seven days. The Portfolio
reserves the right to pay redemptions in kind. 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 such NYSE is restricted, or, to the extent otherwise permitted by
the 1940 Act, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
<PAGE>
BT0416B
BT INVESTMENT PORTFOLIOS
EUROPEAN EQUITY PORTFOLIO
PART A
Responses to Items 1 through 3 have been omitted pursuant to paragraph
4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
BT Investment Portfolios (the "Trust") is a no-load, open-end
management investment company which was organized as a trust under the laws of
the State of New York on March 27, 1993.
Beneficial interests in the Trust are divided into separate series,
each having distinct investment objectives and policies, one of which, European
Equity Portfolio (the "Portfolio"), is described herein. Beneficial interests in
the Portfolio are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolio may only be made by investment companies, insurance company separate
accounts, common or commingled trust funds or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D under the
1933 Act. This registration statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
The investment objective of the Portfolio is long-term capital
appreciation through investment primarily in the equity securities of companies
domiciled in, or doing business in, Western Europe; this shall include
securities of issuers: (1) which are organized under the laws of Western
European countries (see below); (2) for which the principal securities trading
market is in a Western European country; and (3) which derive a significant
proportion (at least 50 percent) of their revenues or profits from goods
produced or sold, investments made, or services performed in the countries of
Western Europe or which have at least 50 percent of their assets situated in the
countries of Western Europe. The production of any income is incidental to this
objective. It is expected under normal conditions that at least 65% of the
Portfolio's assets will be invested in the equity securities of Western European
issuers. There can be no assurance that the Portfolio will be able to achieve
its investment objective.
For purposes of Part A, "Western Europe" is defined as the Western
European countries of Austria, Belgium, Denmark, Germany, Finland, France,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, and the United Kingdom.
The Portfolio will invest selectively in companies based in Europe, and
the geographic and industrial distribution of its investments will be actively
managed, depending on the economic and industrial prospects for the countries
and
<PAGE>
A-2
companies selected for investment. Bankers Trust intends to seek investments
primarily in companies with larger market capitalization and the portfolio is
likely to contain a high proportion of "blue chip" stocks. Limited exposure will
be given to smaller companies to take advantage of special situations and short
term trading opportunities that may arise.
The Portfolio invests primarily in the equity securities of foreign
issuers, consisting of common stock and other securities with equity
characteristics. These issuers are primarily established companies based in
developed countries outside the United States. However, the Portfolio may also
invest in securities of issuers in underdeveloped countries. Investments in
these countries will be based on an acceptable degree of risk in anticipation of
superior returns. 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 within Western Europe.
For further discussion of the unique risks associated with investing in
foreign securities in both developed and under developed countries, see "Risk
Factors" herein and Part B.
The Portfolio's investments will generally be diversified among several
geographic regions and countries in Western Europe. Criteria for determining the
appropriate distribution of investment among various countries and regions
include the prospects for relative growth among foreign countries, expected
levels of inflation, government policies influencing business conditions, the
outlook for currency relationships and the range of alternative opportunities
available to international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Portfolio. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, managerial
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Portfolio may invest in securities of companies
having various levels of net worth, including smaller companies whose securities
may be more volatile than securities offered by larger companies with higher
levels of net worth.
In other countries and regions where capital markets are underdeveloped
or not easily accessed and information is difficult to obtain, the Portfolio may
choose to invest only at the market level. Here, the Portfolio may seek to
achieve country exposure through use if options of futures based on an
established local index. Similarly, country exposure may also be achieved
through investments in other registered investment companies. Restrictions on
both these types of investments are fully explained herein and in Part B.
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 under "Short-Term Investment" below.
<PAGE>
A-3
EQUITY INVESTMENTS. The Portfolio invests primarily in common stock 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 Western European 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 and may invest in restricted unlisted securities.
With respect to certain countries in which capital markets are either
less developed or not easily accessed, investments by the Portfolio may be made
through investment in other investment companies that in turn are authorized to
invest in the securities of such countries. Investment in other investment
companies is limited in amount by the 1940 Act will involve the indirect payment
of a portion of the expenses, including advisory fees, of such other investment
companies and may result in a duplication of fees and expenses.
SHORT-TERM INSTRUMENTS. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its objective and
long-term investment perspective. However, the Portfolio's assets may be
invested in short-term instruments with remaining maturities of 397 days or less
to meet anticipated redemptions and expenses for day-to-day operating purposes
and when, in Bankers Trust's opinion, it is advisable to adopt a temporary
defensive position because of unusual and adverse conditions affecting the
equity markets.
In addition, when the Portfolio experiences large cash inflows through
the sale of securities and desirable equity securities that are consistent with
the Portfolio's investment objective are unavailable in sufficient quantities or
at attractive prices, the Portfolio may hold short-term investments for a
limited time pending availability of such equity securities. Short-term
instruments consist of foreign and domestic: (i) short-term obligations of
sovereign governments, their agencies, instrumentalities, authorities or
political subdivisions; (ii) other short-term debt securities rated Aa or higher
by Moody's Investors Service, Inc. ("Moody's") or AA or higher by Standard &
Poor's Corporation ("S&P") or, if unrated, or 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 much have outstanding debt rated Aa or higher by Moody's or AA or higher
by S&P or outstanding commercial paper or bank obligations rated prime-1 by
Moody's pr 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. Theses instruments may
be denominated in U.S dollars of in foreign currencies and will have been
determined to be of high quality by a nationally recognized rating service, or
if unrated, by Bankers Trust.
<PAGE>
A-4
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Portfolio may also
utilize the following investments and investment techniques and practices;
foreign currency exchange transactions, options on foreign currencies, American
Depositary Receipts and European Depositary Receipts, options on stocks, options
on foreign stock indexes, future contracts on foreign stock indexes, options on
futures contracts, when-issued and delayed delivery securities and repurchase
agreements. See the Appendix for further information.
ADDITIONAL INVESTMENT LIMITATIONS. As a diversified Portfolio, 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 Portfolio's investment objective is not a Fundamental policy and
may be changed upon notice to but without the approval of the Portfolio's
investors.
RISK FACTORS.
By itself, the Portfolio does not constitute a balanced investment
plan; the Portfolio and the Portfolio seek long-term capital appreciation from
investment primarily in the equity securities (or other securities with equity
characteristics) of foreign issuers. Change in domestic and foreign interest
rates may affect the value of the Portfolio's investments, and rising interest
rates can be expected to reduce the Portfolio's share value. The Appendix
includes 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 sets out certain risks associated with these investments and
techniques. The Portfolio's share price, yield and total return fluctuate and
your investment may be worth more or less than your original cost when you
redeem your shares.
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 intents to invest
primarily in securities of established companies based in developed countries,
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 Portfolios 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 favorable or
<PAGE>
A-5
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
judgement 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 non-existent 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
interest; and (iv) in the case of Eastern Europe, the absence of developed
capital market and legal structures governing private of foreign investment and
private property and the possibility that recent favorable economic and
political developments could be slowed or reversed by unanticipated events. The
Portfolio will not invest more than 5% of the value of its total assets in
securities of issuers based in Eastern Europe.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. Generally, the Portfolio's currency exchange transactions will
be conducted on a spot (I.E., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of the Portfolio's currency exchange
transactions will generally be the difference between the bid and offer spot
rate of the currency being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange rates, the
Portfolio is authorized to enter into certain foreign currency transactions. See
the Appendix.
In addition, while the volume of the transactions effected of 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,
<PAGE>
A-6
the settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity.
In buying and selling securities on foreign exchanges, the Portfolio
normally pays fixed commissions that are generally higher than the negotiated
commissions charged in the United States. In addition, there is generally less
government supervision and regulation of securities exchange, brokers and
issuers in foreign countries than in the United States. Bankers Trust intends to
manage the Portfolio actively in pursuit of its investment objective. However,
the annual portfolio turnover rate of the Portfolio is generally not expected to
exceed 100%. 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.
Futures contracts and related options are discussed in the Appendix.
Successful use of the futures contract and related options are subject to
special risk considerations. A liquid secondary market for any futures or
options contract may not be available when a futures or options position is
sought to be closed. In addition there may be an imperfect correlation between
movements in the securities or currency in the Portfolio. Successful use of
futures or options contracts are further dependent on Bankers Trust's ability to
correctly predict movements on the securities or foreign currency markets and no
assurance can be given that its judgement will be correct. Successful use of
options on securities or stock indices are subject to similar risk
considerations. In addition, by writing covered call options, the Portfolio
gives up the opportunity, while the option is in effect, to profit from any
price increase in the underlying securities above the options exercise price.
There are further risk factors, including possible losses through the
holding of securities in domestic and foreign custodian banks and depositories,
described elsewhere herein and in Part B.
ITEM 5. MANAGEMENT OF THE TRUST.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust. Bankers Trust serves as the Trust's investment adviser. A
majority of the Trust's Trustees are not affiliated with the Adviser. As the
administrator (the "Administrator"), Bankers Trust supervises the overall
administration of the Trust. The Trust's fund accountant, transfer agent and
custodian is also Bankers Trust.
Bankers Trust, a New York banking corporation with executive offices at
280 Park Avenue, New York, New York 10017, is a wholly-owned subsidiary of
Bankers Trust New York Corporation. As of December 31, 1992, Bankers Trust New
York Corporation was the seventh largest bank holding company in the United
States with total assets of approximately $72 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 83 offices in 36 countries. Investment management is a core business of
Bankers Trust, built on a tradition of excellence from its roots as a trust bank
<PAGE>
A-7
founded in 1903. The scope of Bankers Trust's investment management capability
is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. As of December 31, 1992, Bankers Trust had assets
under management of about $151 billion worldwide and is one of the largest
investment managers in the United States. Bankers Trust's officers have had
extensive experience in managing investment portfolios having objectives similar
to that of the Portfolio. Bankers Trust has been advised by its counsel that, in
counsel's opinion, Bankers Trust currently may perform the services for the
Trust described in this Registration Statement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Trust, 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
Trust and the Portfolio. All orders for investment transactions on behalf of the
Portfolio are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust. A
Bankers Trust affiliate will be used in connection with a purchase or sale of an
investment for the Portfolio only if Bankers Trust believes that the affiliate's
charge for the transaction does not exceed usual and customary levels. The
Portfolio will not invest in obligations for which Bankers Trust or any of its
affiliates is the ultimate obligor or accepting bank. The Portfolio may,
however, invest in the obligations of correspondents and customers of Bankers
Trust. Under its investment advisory agreement with the Trust, Bankers Trust
receives a fee from the Portfolio computed daily and paid monthly at the annual
rate of 0.65% of the average daily net assets of the Portfolio.
Under an administration and services agreement with the Trust, Bankers
Trust calculates the value of the assets of the Portfolio and generally assists
the Board of Trustees of the Trust in all aspects of the administration and
operation of the Trust and the Portfolio. The administration and services
agreement provides for the Trust to pay the Administrator a fee computed daily
and paid monthly at the annual rate of 0.20% of the average daily net assets of
the Portfolio. Under the administration and services agreement, the
Administrator may delegate one or more of its responsibilities to others at its
expense.
The Portfolio bears its own expenses. Operating expenses for the
Portfolio generally consist of all costs not specifically borne by Bankers Trust
or Signature Broker-Dealer Services, Inc. ("Signature"), the Trust's placement
agent and sub-administrator, including investment advisory and administration
and service fees, fees for necessary professional services, the costs associated
with regulatory compliance and maintaining legal existence and investor
relations.
<PAGE>
A-8
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Trust 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 separate series of the Trust, such as 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 his 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.
The Trust reserves the right to create and issue a number of series, in
which case investments in each series would participate equally in the earnings
and assets of the particular series. Currently, the Trust has nine active
series, the Portfolio, the Liquid Assets Portfolio, the Asset Management
Portfolio II, the Asset Management Portfolio III, the Mortgage-Backed Securities
Portfolio, the Global High Yield Securities Portfolio, the Latin American Equity
Portfolio, the Small Cap Portfolio and the Pacific Basin Equity Portfolio.
Investments in the Portfolio have no pre-emptive or conversion rights
and are fully paid and non-assessable, except as set forth below. The Trust is
not required and has no current intention to hold annual meetings of investors,
but the Trust 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
percentage of the aggregate value of the Trust's outstanding interests) 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 New York Stock Exchange Inc. (the "NYSE") is open for trading and New York
chartered banks are not closed owing to customary local or regional holidays
("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 which
is currently 4:00 p.m., New York time (the "Valuation Time").
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At each 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
<PAGE>
A-9
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
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 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 ("Net Income").
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 Trust, 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 Trust) 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.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "General Description of Registrant"
above.
An investment in the Portfolio may be made without a sales load. All
investments are made at the 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
<PAGE>
A-10
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 Trust's custodian bank by a Federal Reserve Bank).
The Trust and Signature reserve the right to cease accepting
investments in the Portfolio at any time or to reject any investment order.
The placement agent for the Trust is Signature. The principal business
address of Signature is 6 St. James Avenue, Boston, Massachusetts 02116.
Signature receives no additional compensation for serving as the placement agent
for the Trust.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may withdraw all or any portion of its
investment at the net asset value next determined if a withdrawal request in
proper form is furnished by the investor to the Portfolio by the designated
cutoff time for each accredited investor. The proceeds of a withdrawal will be
paid by the Portfolio in federal funds normally on the Portfolio Business Day
the withdrawal is effected, but in any event within seven days. The Portfolio
reserves the right to pay redemptions in kind. 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 such NYSE is restricted, or, to the extent otherwise permitted by
the 1940 Act, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
APPENDIX.
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.
<PAGE>
A-11
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase to sell a specific currency at a future dare, 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 feign 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 change in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parties 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 not forfeit the entire amount of the premium plus related transaction costs.
In addition, the Portfolio
<PAGE>
A-12
may purchase call options on currency when the investment 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 of dispose of assets held in a segregated account until the
options expire or are expected. 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-rated currency options. The
Portfolio's ability to terminate over-the-counter options ("OTC Options") will
be more limited than the exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Until such time at the staff of the SEC changes its position, the
Portfolio will treat purchased OTC Options and assets used to cover written OTC
Options as illiquid securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. The
Portfolio may invest in securities of foreign issuers directly in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or
other similar securities representing securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities they represent. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying securities. EDRs are
receipts issued by a European financial institution evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use on the
U.S. securities markets, and EDRs, in bearer form, are designed for use in
European securities markets.
OPTIONS ON STOCK. The Portfolio may write and purchase 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 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
<PAGE>
A-13
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 of the amount paid to purchase an option
is less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Portfolio may
make a "closing sale transaction" which involves liquidating the Portfolio's
position by selling the option previously purchased.
The Portfolio intends to treat OTC Options purchased and the assets
used to "cover" OTC Options written as not readily marketable and therefore
subject to the limitations described in "Investment Restrictions" in the
Statement of Additional Information.
OPTIONS ON FOREIGN STOCK INDEXES. The Portfolio may purchase and write
put and call options on foreign stock indexes listed on domestic and foreign
stock exchanges. A stock index fluctuates with changes in the market values of
the stocks included in the index.
Options on stock indexes 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 holders 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 the 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 indexes in lieu of direct
investment in foreign securities. The Portfolio may also use foreign stock index
options for hedging purposes.
<PAGE>
A-14
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 in
an index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in price of a particular stock. Accordingly, successful
use by the Portfolio of options on stock indexes will be subject to Bankers
Trust's ability to predict correctly movement 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 INDEXES. 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 with 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 transaction are successful, the
futures position 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
<PAGE>
A-15
options only to the extent permitted by the policies of state securities
authorities in states where shares of the Fund are qualified for offer and sale.
There can be no assurance that the use of these portfolio strategies
will be successful.
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 unless
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.
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.
<PAGE>
A-16
BT0416B
BT INVESTMENT PORTFOLIOS
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
LATIN AMERICAN EQUITY PORTFOLIO
SMALL CAP PORTFOLIO
PACIFIC BASIN EQUITY PORTFOLIO
INTERNATIONAL BOND PORTFOLIO
EUROPEAN EQUITY PORTFOLIO
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS. PAGE
General Information and History . . . . . . . . . . . B-1
Investment Objectives and Policies . . . . . . . . . B-1
Management of the Portfolios . . . . . . . . . . . . B-8
Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . . . B-10
Investment Advisory and Other Services . . . . . . . B-10
Brokerage Allocation and Other Practices . . . . . . B-12
Capital Stock and Other Securities . . . . . . . . . B-13
Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . . B-14
Tax Status . . . . . . . . . . . . . . . . . . . . . B-16
Underwriters . . . . . . . . . . . . . . . . . . . . B-16
Calculation of Performance Data . . . . . . . . . . . B-16
Financial Statements . . . . . . . . . . . . . . . . B-16
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
Part A contains additional information about the investment objectives
and policies of Global High Yield Securities Portfolio, Latin American Equity
Portfolio, Small Cap Portfolio, Pacific Basin Equity Portfolio, European Equity
Portfolio and International Bond Portfolio (each a "Portfolio", collectively,
the "Portfolios"). This Part B should only be read in conjunction with Part A.
This section contains supplemental information concerning the types of
securities and other instruments in which each Portfolio may invest, the
investment policies and portfolio strategies that each Portfolio may utilize and
certain risks attendant to those investments, policies and strategies.
<PAGE>
A-17
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.
LOWER-RATED DEBT SECURITIES. While the market for high yield corporate
debt securities has been in existence for many years and has weathered previous
economic downturns, the 1980's brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and restructuring.
Past experience may not provide an accurate indication of future performance of
the high yield bond market, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated debt securities may be thinner and less
active than that for higher rated debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not available,
lower- rated debt securities will be valued in accordance with procedures
established by the Board of Trustees, including the use of outside pricing
services. Judgement plays a greater role in valuing high yield corporate debt
securities than is the case for securities for which more external sources for
quotations and last sale information is available. Adverse publicity and
changing investor perception may affect the ability of outside pricing services
to value lower- rated debt securities and Global High Yield Securities
Portfolio's ability to dispose of these securities.
Since the risk of default is higher for lower-rated debt securities,
the investment adviser's research and credit analysis are an especially
important part of managing securities of this type held by the Portfolio. In
considering
<PAGE>
A-18
investments for the Portfolio, Bankers Trust Company ("Bankers Trust"), each
Portfolio's investment adviser (the "Adviser") will attempt to identify those
issuers of high yielding debt securities whose financial conditions are adequate
to meet future obligations, have improved or are expected to improve in the
future. Bankers Trust's analysis focuses on relative values based on such
factors as interest on dividend coverage, asset coverage, earnings prospects and
the experience and managerial strength of the issuer.
Global High Yield Securities Portfolio may choose, at its expense or in
conjunction with others, to pursue litigation or otherwise exercise its rights
as a security holder to seek to protect the interest of security holders if it
determines this to be in the best interest of security holders.
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 maturity of longer than seven days. Securities which have
not been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Adviser anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc. (the "NASD").
<PAGE>
A-19
The Adviser will monitor the liquidity of Rule 144A securities in each
Portfolio's portfolio 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).
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE.
The Global High Yield Securities Portfolio, European Equity Portfolio and
International Bond Portfolio may invest in foreign securities issued by Eastern
European countries. Investments in companies domiciled in Eastern European
countries may be subject to potentially greater risks than those of other
foreign issuers. These risks include: (i) potentially less social, political and
economic stability; (ii) the small current size of the markets for such
securities and the low volume of trading, which result in less liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Portfolios' investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed legal structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries, or in the Commonwealth of Independent States (formerly the Union of
Soviet Socialist Republics).
The economic situation remains difficult for Eastern European countries
in transition from central planning, following what has already been a sizable
decline in output. The contraction now appears to be bottoming out in parts of
Eastern Europe, where some countries are projected to register positive growth
in 1995. Following three successive years of output declines, there are
preliminary indications of a turnaround in the former Czech and Slovak Federal
Republic, Hungary and Poland; growth in private sector activity and strong
exports now appear to have contained the fall in output. A number of their
governments, including those of Hungary and Poland, are currently implementing
or considering reforms directed at political and economic liberalization,
including efforts to foster multi-party political systems, decentralize economic
planning, and a move toward free-market economies. But key aspects of the reform
and stabilization efforts have not yet been fully implemented, and there remain
risks of policy slippage. At present, no Eastern European country has a
developed stock market, but Poland, Hungary and the Czech Republic have small
securities markets in operation.
In many other countries of the region, output losses have been even
larger. These declines reflect the adjustment difficulties during the early
stages of the transition, high rates of inflation, the compression of imports,
disruption in trade among the countries of the former Soviet Union, and
uncertainties about the
<PAGE>
A-20
reform process itself. Large-scale subsidies are delaying industrial
restructuring and are exacerbating the fiscal situation. A reversal of these
adverse factors is not anticipated in the near term, and output is expected to
decline further in most of these countries. In the Russian Federation and most
other countries of the former Soviet Union, economic conditions are of
particular concern because of economic instability due to political unrest and
armed conflicts in many regions. Further, no accounting standards exist in
Eastern European countries. Although certain Eastern European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to each Fund's shareholders.
BRADY BONDS. The Latin American Equity Portfolio and Global High Yield
Securities Portfolio may invest in "Brady bonds," which have been issued by the
governments of Argentina, Costa Rica, Mexico, Nigeria, Uruguay and Venezuela.
Most Brady bonds are currently rated below BBB by Standard & Poor's Corporation
("S&P") or Baa by Moody's Investors Services Inc. ("Moody's").
The Brady Plan was conceived by the U.S. Treasury in the 1980's in an
attempt to produce a debt restructuring program which would enable a debt
country to (i) reduce the absolute level of debt of its creditor banks, and (ii)
reschedule its external debt repayments, based upon its ability to service such
debts by persuading its creditor banks to accept a debt write-off by offering
them a selection of options, each of which represented an attractive substitute
for the nonperforming debt. Although it was envisaged that each debtor country
would agree to a unique package of options with its creditor banks, the plan was
that these options would be based upon the following:(i) a discount bond
carrying a market rate of interest (whether fixed or floating), with principal
collateralized by the debtor country with cash or securities in an amount equal
to at least one year of rolling interest; (ii) a par bond carrying a low rate of
interest (whether fixed or floating), collateralized in the same way as in (i)
above; and (iii) retention of existing debt (thereby avoiding a debt write-off)
coupled with an advance of new money or subscription of new bonds.
The Latin American Equity Portfolio and Global High Yield Securities
Portfolio may invest in either collateralized or uncollateralized Brady bonds.
U.S. dollar-denominated, collateralized Brady bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at the time and is adjusted at regular intervals
thereafter.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING LATIN AMERICA.
Investing in securities of Latin American issuers may entail risks relating to
the potential political and economic instability of certain Latin American
countries and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of expropriation, nationalization or other confiscation
<PAGE>
A-21
by any country, the Latin American Equity Fund could lose its entire investment
in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The economies of Latin American countries may be predominantly based in
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates; and (v) securities of issuers located in Latin America may have
limited marketability and may be subject to more abrupt or erratic price
movements.
The Latin American Equity Portfolio invests in securities denominated
in currencies of Latin American countries. Accordingly, changes in the value of
these currencies against the U.S. dollar will result in corresponding changes in
the U.S. dollar value of the Portfolio's assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar.
The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have a
debilitating effect on an economy. Furthermore, certain Latin American countries
may impose withholding taxes on dividends payable to the Portfolio at a higher
rate than those imposed by other foreign countries.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk. The governmental entity that
controls the
<PAGE>
A-22
repayment of sovereign debt may not be able or willing to repay the principal
and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, including the Portfolio, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt may be collected in whole or in part.
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and agriculture. The
region has a large population (roughly 300 million) representing a large
domestic market. Economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in some instances was negative) in the 1980's as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in Gross Domestic Product (GDP) than they have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly rescheduled. Political turmoil, high
inflation, capital repatriation restrictions and nationalization have further
exacerbated conditions.
Large budget deficits and a high level of state ownership in many
productive and service areas have given way to balanced budgets and
privatization in Mexico, Brazil, Chile and Argentina. Changes in political
leadership have encouraged the implementation of market oriented economic
policies such as balanced budgets. Privatization trade reform and monetary
reform have been among the steps taken to modernize the Latin American economies
and to regenerate growth in the region. However, governments of many Latin
American countries have exercised and continue to exercise substantial influence
over many aspects of the private sector through the ownership or control of many
companies, including some of the largest in those countries. As a result,
government actions in the future
<PAGE>
A-23
could have a significant effect on economic conditions which may adversely
affect prices of certain portfolio securities. Expropriation, confiscatory
taxation, nationalization, political, economic or social instability or other
similar developments, such as military coups, have occurred in the past and
could also adversely affect the Portfolio's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left the
home country) has begun to return. Inflation control efforts have also been
implemented. Free Trade Zones are being discussed in various areas around the
region, the most notable being a free trade zone between Mexico and the U.S.
Various trade agreements have also been formed within the region such as the
Andean Pact, Mercosur and the North American Free Trade Agreement (NAFTA). The
largest of these is NAFTA, which was implemented on January 1, 1994. Latin
American equity markets can be extremely volatile and in the past have shown
little correlation with the U.S. market. Currencies are typically weak, but most
are now relatively free floating, and it is not unusual for the currencies to
undergo wide fluctuations in value over short periods of time due to changes in
the market.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING THE PACIFIC
BASIN. Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
European countries. Such instability may result from (i) authoritarian
governments or military involvement in political and economic decision-making;
(ii) popular unrest associated with demands for improved political, economic and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection.
The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.
Thailand has been transformed into one of the fastest growing stock
markets in the world. On February 23, 1991, the military staged its 17th coup
since the overthrow of the absolute monarchy in 1932. The newly appointed
government quickly focused on the economy and enacted major tax revisions,
slashing personal income tax and reducing taxes on imports. Most significantly,
it pushed through a 7% value added tax. Released from political consideration by
the coup, the Bank of Thailand was finally able to implement a monetary
tightening. As a result, interest rates rose and GDP declined to 7.7% from 10%
the previous year. The government continues to move ahead with new projects -
especially telecommunications, roads and port facilities - needed to refurbish
the country's overtaxed infrastructure. Nonetheless, political unrest coupled
with the
<PAGE>
A-24
shooting of antigovernment demonstrators in May 1992 has caused many
international businesses to question Thailand's political stability.
Hong Kong's impending return to Chinese dominion in 1997 has not
initially had a positive effect on its economic growth which was vigorous in the
1980's. However, authorities in Beijing have agreed to maintain a capitalist
system for 50 years that, along with Hong Kong's economic growth, continued to
further strong stock market returns. In preparation for 1997, Hong Kong has to
develop trade with China, where it is the largest foreign investor, while also
maintaining its longstanding export relationship with the United States.
Spending on infrastructure improvements is a significant priority of the
colonial government while the private sector continues to diversify abroad based
on its position as an established international trade center in the Far East.
In terms of GDP, industrial standards and level of education, South
Korea is second only to Japan in Asia. It enjoys the benefits of a diversified
economy with well developed sectors in electronics, automotive, textiles and
shoe manufacturing, steel and shipbuilding among others. The driving force
behind the economy's dynamic growth has been the planned development of an
export-oriented economy in a vigorously entrepreneurial society. Real GDP grew
about 7.5% in 1991. Labor unrest was noticeably calmer, unemployment averaged a
low of 2.3%, and investment was strong. Inflation rates, however, are beginning
to challenge South Korea's strong economic performance. In addition, the
international situation between South and North Korea continues to improve. Both
Koreas joined the United Nations separately in late 1991, creating another forum
for negotiation and joint cooperation.
Indonesia is a mixed economy with many socialist institutions and
central planning, but has recently placed emphasis on deregulation and private
enterprise. Like Thailand, Indonesia has extensive natural wealth, yet with a
large and rapidly increasingly population, it remains a poor country.
Agriculture, including forestry and fishing, is an important sector, accounting
for 21% of GDP and over 50% of the labor force. Once the world's largest rice
importer, Indonesia is now nearly self-sufficient.
The Malaysian economy continued to perform well, growing at an average
annual rate of 9% from 1987 through 1991. This placed Malaysia as one of the
fastest growing economies in the Asian-Pacific region. Malaysia has become the
world's third-largest producer of semiconductor devices (after the US and Japan)
and the world's largest exporter of semiconductor devices. More remarkable is
the country's ability to achieve rapid economic growth with relative price
stability (2% inflation over the past five years) as the government followed
prudent fiscal/monetary policies. Malaysia's high export dependence level leaves
it vulnerable to a recession in the OECD countries or a fall in world commodity
prices.
Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived from its
entrepot history. During the 1970's and early 1980's, the economy expanded
rapidly, achieving an average annual growth rate of 9%. Per capita GDP is among
<PAGE>
A-25
the highest in Asia. Singapore holds a position as a major oil refining and
services center.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The successful use of such instruments draws upon the
Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures contracts and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.
FUTURES CONTRACTS. A Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed-income securities, foreign
currencies, or contracts based on financial indices including any index of U.S.
Government securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange. A Portfolio may enter into futures
contracts which are based on debt securities that are backed by the full faith
and credit of the U.S. Government, such as long-term U.S. Treasury Bonds,
Treasury Notes, GNMA modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. A Portfolio may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
Government.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
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
<PAGE>
A-26
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Portfolio will incur brokerage fees when
it purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of a Portfolio which holds or intends to acquire fixed-income securities,
is to attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currencies. For example, if interest rates were expected to increase,
the Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as selling an equivalent
value of the debt securities owned by the Portfolio. If interest rates did
increase, the value of the debt security in the Portfolio would decline, but the
value of the futures contracts to the Portfolio would increase at approximately
the same rate, thereby keeping the net asset value of the Portfolio from
declining as much as it otherwise would have. The Portfolio could accomplish
similar results by selling debt securities and investing in bonds with short
maturities when interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of futures contracts
as an investment technique allows the Portfolio to maintain a defensive position
without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Portfolio could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent a Portfolio enters into futures contracts for
this purpose, the assets in the segregated asset account maintained to cover the
Portfolio's obligations with respect to such futures contracts will consist of
cash, cash equivalents or high quality liquid debt securities from its portfolio
in an amount equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial and variation
margin payments made by the Portfolio with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are 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
<PAGE>
A-27
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 Portfolios, if the
Adviser's investment judgment about the general direction of interest rates is
incorrect, a Portfolio's overall performance would be poorer than if it had not
entered into any such contract. For example, if a Portfolio has hedged against
the possibility of an increase in interest rates which would adversely affect
the price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if a Portfolio
has insufficient cash, it may have to sell debt securities from its portfolio to
meet daily variation margin requirements. Such sales of bonds may be, but will
not necessarily be, at increased prices which reflect the rising market. A
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio may purchase and write
options on futures contracts for hedging purposes. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when a Portfolio is not fully invested it may
purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's 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
<PAGE>
A-28
losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may purchase a put option on a futures contract to hedge
its portfolio against the risk of rising interest rates.
The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees of each Portfolio has adopted a further
restriction that the Portfolio will not enter into any futures contracts or
options on futures contracts if immediately thereafter the amount of margin
deposits on all the futures contracts of the Portfolio and premiums paid on
outstanding options on futures contracts owned by the Portfolio (other than
those entered into for bona fide hedging purposes) would exceed 5% of the market
value of the total assets of the Portfolio.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio may purchase and write
options on foreign currencies for hedging purposes in a manner similar to that
in which futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, a Portfolio will have the right to sell such currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may 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.
Each Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, where a Portfolio anticipates a decline
in the dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
<PAGE>
A-29
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.
Each Portfolio intends to write covered call options on foreign
currencies. A call option written on a foreign currency by a Portfolio is
"covered" if the Portfolio owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its Custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call option is also covered if the
Portfolio has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Portfolio in cash, U.S. Government securities and other high quality liquid
debt securities in a segregated account with its custodian.
Each 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 a Portfolio
in futures contracts, options on foreign currencies and forward contracts are
not traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-
<PAGE>
A-30
the-counter. In an over-the-counter trading environment, many of the protections
afforded to exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements could therefore
continue to an unlimited extent over a period of time. Although the purchaser of
an option cannot lose more than the amount of the premium plus related
transaction costs, this entire amount could be lost. Moreover, the option writer
and a trader of forward contracts could lose amounts substantially in excess of
their initial investments, due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. A
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, each
Portfolio will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
<PAGE>
A-31
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. With the exception of International Bond
Portfolio, each Portfolio may write (sell) covered call and put options to a
limited extent on its portfolio securities ("covered options") in an attempt to
increase income. However, the Portfolio may forgo the benefits of appreciation
on securities sold or may pay more than the market price on securities acquired
pursuant to call and put options written by the Portfolio.
When a Portfolio writes a covered call option, it gives the purchaser
of the option the right to buy the 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 a Portfolio writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. The Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.
A 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"
<PAGE>
A-32
which involves liquidating the Portfolio's position by selling the option
previously purchased. Where the Portfolio cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
When a Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
A 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.
A 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.
<PAGE>
A-33
Each 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.
A 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 Board of Trustees.
OPTIONS ON SECURITIES INDICES. In addition to options on securities,
each Portfolio, with the exception of International Bond 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 International Bond Portfolio, the European Equity Portfolio and the
Pacific Basin Equity Portfolio may, to the extent allowed by Federal and state
securities laws, invest in securities indices instead of investing directly in
individual foreign securities.
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Portfolio generally will only purchase or write such an option if the Adviser
believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the
<PAGE>
A-34
index is interrupted. The Portfolio will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in a Portfolio's portfolio 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 each 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, each Portfolio from time to time may enter into foreign currency
exchange transactions to convert to and from different foreign currencies and to
convert foreign currencies to and from the U.S. dollar. A Portfolio either
enters into these transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market or uses forward contracts to
purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. Each 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.
Each Portfolio may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, a Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
<PAGE>
A-35
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event
the Portfolio's ability to utilize forward contracts in the manner set forth in
the Prospectus may be restricted. Forward contracts may reduce the potential
gain from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for the Portfolio than if it had not entered into
such contracts. The use of foreign currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on a Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject a Portfolio to certain
risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, a Portfolio may not always be able to enter into foreign currency
forward contracts at attractive prices and this will limit the Portfolio's
ability to use such contract to hedge or cross-hedge its assets. Also, with
regard to a Portfolio's use of cross-hedges, there can be no assurance that
historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying a Portfolio's cross- hedges and the movements in the exchange rates
of the foreign currencies in which the Portfolio's assets that are the subject
of such cross-hedges are denominated.
Rating Services. The ratings of Moody's and S&P 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
of the Trust. After purchase by a Portfolio, an obligation may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event would require either Portfolio to eliminate the
obligation from its portfolio, but Bankers Trust will consider such an event in
its determination of whether a Portfolio should continue to hold the obligation.
A description of the ratings categories of Moody's and S&P is set forth below.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Trust with
respect to each Portfolio as fundamental policies. Under the Investment Company
Act of 1940, as amended (the "1940 Act"), a "fundamental" policy may not be
<PAGE>
A-36
changed without the vote of a "majority of the outstanding voting securities" of
a Portfolio, which is defined in the 1940 Act as the lesser of (a) 67% or more
of the securities present at a meeting if the holders of more than 50% of the
outstanding securities are present or represented by proxy, or (b) more than 50%
of the outstanding securities. The percentage limitations contained in the
restrictions listed below apply at the time of the purchase of the securities.
As a matter of fundamental policy, a 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 net assets, it may borrow money as a temporary
measure for extraordinary or emergency purposes and enter into reverse
repurchase agreements or dollar roll transactions, and except that it
may pledge, mortgage or hypothecate not more than 1/3 of such assets to
secure such borrowings (it is intended that money would be borrowed
only from banks and only either to accommodate requests for the
withdrawal of beneficial interests while effecting an orderly
liquidation of portfolio securities or to maintain liquidity in the
event of an unanticipated failure to complete a portfolio security
transaction or other similar situations) or reverse repurchase
agreements, provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and
variation margin, are not considered a pledge of assets for purposes of
this restriction and except that assets may be pledged to secure
letters of credit solely for the purpose of participating in a captive
insurance company sponsored by the Investment Company Institute; for
additional related restrictions, see clause (i) under the caption
"State and Federal Restrictions" below. (As an operating policy, the
Portfolios 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 Securities Act of 1933, as amended (the "1933 Act"), in selling a
portfolio security;
3. Make loans to other persons except (a) through the lending
of the Portfolio's portfolio securities and provided that any such
loans not exceed 30% of the Portfolio's total assets (taken at market
value), (b) through the use of repurchase agreements or the purchase of
short-term obligations or (c) by purchasing a portion of an issue of
debt securities of types distributed publicly or privately (under
current regulations, the Portfolio's fundamental policy with respect to
20% risk weighing for financial institutions prevent the (Fund) from
engaging in securities lending);
4. Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (except futures and option contracts) in the
ordinary course of business (the Portfolio may hold and sell, for its
portfolio,
<PAGE>
A-37
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;
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.
As an operating policy the Portfolios will not invest in another
open-end registered investment company.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies the Portfolios 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 of the Portfolio contemporaneously owns or has the
right to obtain securities equivalent in kind and amount to
<PAGE>
A-38
those sold, i.e., short sales against the box.) (the
Portfolios have no current intention to engage in short
selling);
(v) invest for the purpose of exercising control or management of
another company;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of
merger or consolidation; provided, however, that securities of
any investment company will not be purchased for the Portfolio
if such purchase at the time thereof would cause: (a) more
than 10% of the Portfolio's total assets (taken at the greater
of cost or market value) to be invested in the securities of
such issuers; (b) more than 5% of the Portfolio's total assets
(taken at the greater of cost or market value) to be invested
in any one investment company; or (c) more than 3% of the
outstanding voting securities of any such issuer to be held
for the Portfolio; provided further that, except in the case
of a merger or consolidation, the Portfolio shall not purchase
any securities of any open-end investment company unless (1)
the Portfolio' 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
(including 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) with the exception of the Global High Yield Securities
Portfolio with respect to 75% of the Portfolio's total assets,
purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio to hold more than 10% of any
class of securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single class and
all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be
subject to this restriction;
<PAGE>
A-39
(x) with the exception of the Global High Yield Securities
Portfolio with respect to 75% of its assets, invest more than
5% of its total assets in the securities (excluding U.S.
Government securities) of any one issuer;
(xi) invest in securities issued by an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Portfolio (Trust), or is an officer
or director of the Adviser, if after the purchase of the
securities of such issuer for the Portfolio 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 Options Clearing Corporation,
except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b)
the aggregate value of the obligations underlying the puts
determined as of the date the options are sold shall not
exceed 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
<PAGE>
A-40
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.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
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.
PORTFOLIO TURNOVER. The Adviser is responsible for decisions to buy and
sell securities, futures contracts and options on such securities and futures
for each Portfolio, the selection of brokers, dealers and futures commission
merchants to effect transactions and the negotiation of brokerage commissions,
if any. Broker-dealers may receive brokerage commissions on portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon the exercise of options.
Orders may be directed to any broker-dealer or futures commission merchant,
including to the extent and in the manner permitted by applicable law, Bankers
Trust or its subsidiaries or affiliates. Purchases and sales of certain
portfolio securities on behalf of a Portfolio are frequently placed by the
Adviser with the issuer or a primary or secondary market-maker for these
securities on a net basis, without any brokerage commission being paid by the
Portfolio. Trading does, however, involve transaction costs. Transactions with
dealers serving as market-makers reflect the spread between the bid and asked
prices. Transaction costs may also include fees paid to third parties for
information as to potential purchasers or sellers of securities. Purchases of
underwritten issues may be made which will include an underwriting fee paid to
the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for a Portfolio taking into account such factors
as price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
<PAGE>
A-41
The Adviser is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for a Portfolio with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Portfolio may determine, the Adviser may consider sales of
shares of the Trust and of other investment company clients of Bankers Trust as
a factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to a Portfolio and to the Adviser, it is the
opinion of the management of the Portfolios 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
Portfolios, and not all such information is used by the Adviser in connection
with the Portfolios. 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
Portfolios.
In certain instances there may be securities which are suitable for a
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for a Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
<PAGE>
A-42
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as a Portfolio is concerned. However, it is believed that
the ability of a Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
Latin American Equity Portfolio paid brokerage commissions in the
amount of $202,130 for the fiscal year ended September 30, 1995, and $188,008
for the period from October 25, 1993 (commencement of operations) through
September 30, 1994.
Global High Yield Securities Portfolio paid brokerage commissions in
the amount of $5,653 for the fiscal year ended September 30, 1995 and paid no
brokerage commissions for the period from December 14, 1993 (commencement of
operations) through September 30, 1994.
Small Cap Portfolio paid brokerage commissions in the amount of $70,603
for the fiscal year ended September 30, 1995 and $20,835 for the period from
October 21, 1993 (commencement of operations) through September 30, 1994.
Pacific Basin Equity Portfolio paid brokerage commissions in the amount
of $192,123 for the fiscal year ended September 30, 1995 and $139,363 for the
period from November 1, 1993 (commencement of operations) through September 30,
1994.
European Equity Portfolio and International Bond Portfolio have not
commenced operations as of the fiscal year ended September 30, 1995 and have not
paid brokerage commissions.
ITEM 14. MANAGEMENT OF THE FUND.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate that those Trustees and officers are
"interested persons" (as defined in the 1940 Act) of the Trust. Unless otherwise
indicated below, the address of each Trustee and officer is 6 St. James Avenue,
Boston, Massachusetts 02116.
TRUSTEES
CHARLES P. BIGGAR (aged 65)-- Trustee; Retired; Director of Chase/NBW Bank
Advisory Board; Director, Batemen, Eichler, Hill Richards Inc.; formerly Vice
President of International Business Machines and President of the National
Services and the Field Engineering Divisions of IBM. His address is 12 Hitching
Post Lane, Chappaqua, New York 10514.
<PAGE>
A-43
S. LELAND DILL (aged 65) -- Trustee; Retired; Director, Coutts &
Company Group; Coutts & Co. (U.S.A.) International; 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. (aged 60) -- Trustee; Principal, Philip Saunders Associates
(Consulting); former Director of Financial Industry Consulting, Wolf & Company;
President, John Hancock Home Mortgage Corporation; and Senior Vice President of
Treasury and Financial Services, John Hancock Mutual Life Insurance Company,
Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.
PHILIP W. COOLIDGE* (aged 44) -- President and Trustee; Chairman, Chief
Executive Officer and President, Signature Financial Group, Inc. ("SFG") (since
December, 1988) and Signature Broker-Dealer Services, Inc. ("Signature") (since
April, 1989).
OFFICERS
JOHN R. ELDER (aged 47) -- Treasurer; Vice President, SFG (since April, 1995);
Treasurer, Phoenix Family of Mutual Funds (prior to April, 1995).
DAVID G. DANIELSON (aged 30) -- Assistant Treasurer; Assistant Manager, SFG
(since May, 1991); Graduate Student, Northeastern University (from April, 1990
to March, 1991).
JAMES S. LELKO, JR. (aged 30) -- Assistant Treasurer; Assistant Manager, SFG
(since January, 1993); Senior Tax Compliance Accountant, Putnam Companies (since
prior to December, 1992).
BARBARA M. O'DETTE (aged 36) -- Assistant Treasurer; Assistant Treasurer, SFG
(since December, 1988) and Signature (since April, 1989); Administrative
Controller, Massachusetts Financial Services Company (prior to December, 1988).
DANIEL E. SHEA (aged 33) -- Assistant Treasurer; Assistant Manager, SFG (since
November, 1993); Supervisor and Senior Technical Advisor, Putnam Investments
(prior to 1990).
THOMAS M. LENZ (aged 37) -- Secretary; Vice President and Associate General
Counsel, SFG (since November, 1989); Assistant Secretary, Signature (since
February, 1991); Attorney, Ropes & Gray (prior to November, 1989).
MOLLY S. MUGLER (aged 44) -- Assistant Secretary; Legal Counsel and Assistant
Secretary, SFG (since December, 1988); Assistant Secretary, Signature (since
April, 1989).
LINDA T. GIBSON Aged 30) -- Assistant Secretary; Legal Counsel and Assistant
Secretary, SFG (since May, 1992); Assistant Secretary, Signature (since October,
<PAGE>
A-44
1992); student, Boston University School of Law (September, 1989 to May, 1992);
Product Manager, SFG (January, 1989 to September, 1989).
ANDRES E. SALDANA (aged 33) -- Assistant Secretary; Legal Counsel, SFG (since
November, 1992); Assistant Secretary, Signature (since September, 1993);
Attorney, Ropes & Gray (September, 1990 to November, 1992); law student, Yale
Law School (September, 1987 to May, 1990).
Messrs. Coolidge, Danielson, Elder, Lelko, Lenz, Saldana and Shea and
Mss. Gibson, Mugler and O'Dette also hold similar positions for other investment
companies for which Signature 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 Portfolios. No director, officer or employee of Signature or
any of its affiliates will receive any compensation from the Portfolios for
serving as an officer or Trustee of a Portfolio. The Portfolios pay each Trustee
who is not a director, officer or employee of the Adviser, Signature, the
administrator or any of their affiliates an annual fee of $10,000, respectively,
per annum plus $1,250, respectively, per meeting attended and reimburses them
for travel and out-of-pocket expenses. Each Portfolio and Cash Management,
Treasury Money, Tax Free Money, NY Tax Free Money, Utility, Short/Intermediate
U.S. Government Securities, Intermediate Tax Free, Asset Management and BT
Investment Portfolios collectively pay each Trustee who is not a director,
officer or employee of the Adviser, the Distributor, the Administrator or any of
their affiliates an annual fee of $10,000, respectively, per annum plus $1,250,
respectively, per meeting attended and reimburses them for travel and
out-of-pocket expenses.
For the fiscal year ended September 30, 1995, Global High Yield
Securities Portfolio accrued Trustees fees equal to $1,563, Latin American
Equity Portfolio accrued Trustees fees equal to $1,535, Small Cap Portfolio
accrued Trustees fees equal to $1,563 and Pacific Basin Equity Portfolio accrued
Trustees fees equal to $1,535.
As of the fiscal year ended September 30, 1995, European Equity
Portfolio and International Bond Portfolio had not commenced investment
operations and did not accrue Trustees fees.
Bankers Trust reimbursed the Portfolios for a portion of their Trustees
fees for the period above. See "Investment Advisory and Other Services" and
below.
The Portfolios' 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 the
investors in the Portfolio, it is finally adjudicated that they engaged in
wilful 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 Portfolios. In the
case of settlement, such
<PAGE>
A-45
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 wilful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of January 1, 1996, Global High Yield Securities Fund, Latin
American Equity Fund, Small Cap Fund and Pacific Basin Equity Fund (each a
"Fund"), each a series of shares of BT Investment Funds, each owned
approximately 100% of the value of the outstanding interests in the Global High
Yield Securities Portfolio, Latin American Equity Portfolio, Small Cap Portfolio
and Pacific Basin Equity Portfolio, respectively. As of the same date, Global
High Yield Securities Fund, a series of shares of The Leadership Trust, did not
own any outstanding interests in Global High Yield Securities Portfolio. Because
each Fund controls the corresponding Portfolio, it may take actions without the
approval of any other investor in the Portfolios or any other series of the
Trust, as the case may be.
Each Fund has informed the Trust that whenever it is requested to vote
on matters pertaining to the fundamental policies of each 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 Portfolios will follow the same or a similar
practice.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
The Adviser manages the assets of the Portfolios pursuant to an
investment advisory agreement (the "Advisory Agreement"). Subject to such
policies as the Board of Trustees of the Trust may determine, the Adviser makes
investment decisions for each Portfolio. Bankers Trust will: (i) act in strict
conformity with the Trust'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 each Portfolio in accordance with each Portfolio's investment
objectives, restrictions and policies as stated herein; (iii) make investment
decisions for each Portfolio; and (iv) place purchase and sale orders for
securities and other financial instruments on behalf of each Portfolio.
The Adviser furnishes at its own expense all services, facilities and
personnel necessary in connection with managing each Portfolio's investments and
effecting securities transactions for each 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 each
Portfolio (with the vote of each being in proportion to the amount of its
investment), and, in either case, by a majority of the Trust'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 with respect to each Portfolio
without penalty on 60 days' written notice by each Portfolio when authorized
either by
<PAGE>
A-46
majority vote of the investors in each Portfolio (with the vote of each being in
proportion to the amount of its investment), or by a vote of a majority of the
Trust's 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 not 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 wilful
misfeasance, bad faith or gross negligence or of reckless disregard of its or
their obligations and duties under the Advisory Agreement.
In compensation for investment advisory services provided to Latin
American Equity Portfolio, Bankers Trust aggregated $173,145 for the fiscal year
ended September 30, 1995 and $102,872 for the period from October 25, 1993
(commencement of operations) through September 30, 1994. During the same
periods, Bankers Trust reimbursed $138,351 and $81,307, respectively, to that
Portfolio to cover expenses.
In compensation for investment advisory services provided to Global
High Yield Securities Portfolio, Bankers Trust aggregated $141,692 for the
fiscal year ended September 30, 1995 and $66,073 for the period from December
14, 1993 (commencement of operations) through September 30, 1994. During the
same periods, Bankers Trust reimbursed $78,840 and $48,741, respectively to that
Portfolio to cover expenses.
In compensation for investment advisory services provided to Small Cap
Portfolio, Bankers Trust aggregated $389,015 for the fiscal year ended September
30, 1995 and $69,420 for the period from October 21, 1993 (commencement of
operations) through September 30, 1994. During the same periods, Bankers Trust
reimbursed $111,862 and $41,110, respectively, to that Portfolio to cover
expenses.
In compensation for investment advisory services provided to Pacific
Basin Equity Portfolio, Bankers Trust aggregated $173,591 for the fiscal year
ended September 30, 1995 and $116,020 for the period from November 1, 1993
(commencement of operations) through September 30, 1994. During the same
periods, Bankers Trust reimbursed $47,338 and $40,461, respectively, to that
Portfolio to cover expenses.
As of the fiscal year ended September 30, 1995, European Equity
Portfolio and International Bond Portfolio had not commenced investment
operations and did not accrue investment advisory fees.
Bankers Trust has entered into a sub-investment advisory agreement (the
"Sub-Advisory Agreement") with BT Fund Managers International Limited ("BT Fund
Managers International") a wholly owned subsidiary of Bankers Trust Australia
Limited ("BTAL") in Sydney. BTAL is a wholly owned subsidiary of Bankers Trust
New York Corporation. Under the Sub-Advisory Agreement, Bankers Trust may
receive investment advice and research services with respect to companies based
in the Pacific Basin and may grant BT Fund Managers International investment
management authority as well as the authority to buy and sell securities if
<PAGE>
A-47
Bankers Trust believes it would be beneficial to Pacific Basin Equity Portfolio.
BTAL, which was granted a banking license in 1986, is the parent of
Bankers Trust Australia Group which has offices is Sydney, Melbourne, Perth,
Brisbane, Adelaide, London and Hong Kong. A representative office of Bankers
Trust Company was opened in Australia in 1966 and Australian merchant banking
operations commences in 1969. A related organization, Bankers Trust New Zealand
Limited, was established in 1986. Although BTAL has not previously served as
investment adviser for a registered investment company, BTAL provides investment
services for a range of clients.
Pursuant to an administration and services agreement (the
"Administration Agreement"), Bankers Trust provides administration services to
the Trust. 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 Trust.
Bankers Trust will generally assist in all aspects of the Trust's operations;
supply and maintain the Trust with office facilities, 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 Trust), 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 Securities and Exchange
Commission (the "SEC"); supply supporting documentation for meetings of the
Board of Trustees; provide monitoring reports and assistance regarding
compliance with the Trust's Declaration of Trust, by-laws, investment objectives
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 Portfolios; and negotiate arrangements with, and
supervise and coordinate the activities of, agents and others retained by the
Trust to supply services to the Trust and/or the investors in the Portfolios.
Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement"), Signature performs such sub-administration duties for the Trust as
from time to time may be agreed upon by Bankers Trust and Signature. The Sub-
Administration Agreement provides that Signature will receive such compensation
as from time to time may be agreed upon by Signature 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 Trust and the Portfolios, pursuant to the
Administration Agreement.
For the fiscal year ended September 1995 and the fiscal period from
October 25, 1993 (commencement of operations) through September 30, 1994,
Bankers Trust aggregated $34,629 and $20,574, respectively, in compensation for
administrative and other services provided to Latin American Equity Portfolio.
<PAGE>
A-48
For the fiscal year ended September 1995 and the fiscal period from
December 14, 1993 (commencement of operations) through September 30, 1994,
Bankers Trust aggregated $35,423 and $16,518, respectively, in compensation for
administrative and other services provided to Global High Yield Securities
Portfolio.
For the fiscal year ended September 1995 and the fiscal period from
October 21, 1993 (commencement of operations) through September 30, 1994,
Bankers Trust aggregated $59,848 and $10,680, respectively, in compensation for
administrative and other services provided to Small Cap Portfolio.
For the fiscal year ended September 1995 and the fiscal period from
November 1, 1993 (commencement of operations) through September 30, 1994,
Bankers Trust aggregated $57,864 and $38,673, respectively, in compensation for
administrative and other services provided to Pacific Basin Equity Portfolio.
As of the fiscal year ended September 30, 1995, European Equity
Portfolio and International Bond Portfolio had not commenced investment
operations and did not accrue administrative fees.
Bankers Trust reimbursed each Portfolio for a portion of its
administrative and services fees for the period above. See "Investment Advisory
and Other Services" above.
Coopers & Lybrand L.L.P. are the independent certified public
accountants for the Trust, 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,
Suite 900, Kansas City, Missouri 64105.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
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 Portfolios 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 Portfolios to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, when placing portfolio transactions for the
Portfolios 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
<PAGE>
A-49
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 Trust'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 Portfolios' 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 Portfolios and to the Adviser, it is
the opinion of the management of the Portfolios 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
Portfolios, and not all such information is used by the Adviser in connection
with the Portfolios. 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
Portfolios.
In certain instances there may be securities which are suitable for the
Portfolios as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolios 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 Portfolios are concerned. However, it is believed
that the ability of the Portfolio to participate in volume transactions will
produce better executions for the Portfolios.
<PAGE>
A-50
Latin American Equity Portfolio paid brokerage commissions in the
amount of $202,130 for the fiscal year ended September 30, 1995, and $188,008
for the period from October 25, 1993 (commencement of operations) through
September 30, 1994.
Global High Yield Securities Portfolio paid brokerage commissions in
the amount of $5,653 for the fiscal year ended September 30, 1995 and paid no
brokerage commissions for the period from December 14, 1993 (commencement of
operations) through September 30, 1994.
Small Cap Portfolio paid brokerage commissions in the amount of $20,853
for the fiscal year ended September 30, 1995 and $20,835 for the period from
October 21, 1993 (commencement of operations) through September 30, 1994.
Pacific Basin Equity Portfolio paid brokerage commissions in the amount
of $192,123 for the fiscal year ended September 30, 1995 and $139,363 for the
period from November 1, 1993 (commencement of operations) through September 30,
1994.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in separate series, such as the Portfolios. No series of
the Trust has any preference over any other series. Investors in the Portfolios
are entitled to participate PRO RATA in distributions of taxable income, loss,
gain and credit of the Portfolios. Upon liquidation or dissolution of the
Portfolios, investors are entitled to share PRO RATA in the net assets of the
Portfolios available for distribution to investors. Investments in the
Portfolios have no preference, preemptive, conversion or similar rights and are
fully paid and nonassessable, except as set forth below. Investments in the
Portfolios may not be transferred.
Each investor in the Portfolios is entitled to a vote in proportion to
the amount of its investment. The Portfolios and the other series of the Trust
will all vote together in certain circumstances (e.g., election of the Trust's
Trustees and auditors, as required by the 1940 Act and the rules thereunder).
One or more series of the Trust could control the outcome of these votes.
Investors do not have cumulative voting rights, and investors holding more than
50% of the aggregate beneficial interests in the Trust, or in a series as the
case may be, may control the outcome of votes and in such event the other
investors in the Portfolios, or in the series, would not be able to elect any
Trustee. The Trust is not required and has no current intention to hold annual
meetings of investors but the Portfolios will hold special meetings of investors
when in the judgment of the Trust's Trustees it is necessary or desirable to
submit matters for an investor vote. No material amendment may be made to the
Trust'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 Trust, with respect to each 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 the Portfolios' investors (with the vote of each being
in proportion to its percentage of the beneficial interests in a Portfolio),
except
<PAGE>
A-51
that if the Trustees of the Trust 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 each Portfolio) will be
sufficient. A 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 of the Trust by written notice to its
investors.
The Trust is organized as a trust under the laws of the State of New
York. Investors in the Portfolios or any other series of the Trust will be held
personally liable for its obligations and liabilities, subject, however, to
indemnification by the Trust in the event that there is imposed upon an investor
a greater portion of the liabilities and obligations than its proportionate
beneficial interest. The Declaration of Trust also provides that the Trust shall
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, 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 Trust itself was unable to meet its obligations with respect to any
series thereof.
The Declaration of Trust further provides that obligations of the
Portfolios or any other series of the Trust are not binding upon the Trustees
individually but only upon the property of the Portfolios or other series of the
Trust, as the case may be, and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
The Trust reserves the right to create and issue a number of series, in
which case investments in each series would participate equally in the earnings
and assets of the particular series. Investors in each series would be entitled
to vote separately to approve advisory agreements or changes in investment
policy, but investors of all series may vote together in the election or
selection of Trustees, principal underwriters and accountants. Upon liquidation
or dissolution of any series of the Trust, the investors in that series would be
entitled to share PRO RATA in the net assets of that series available for
distribution to investors.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
Beneficial interests in each Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. See "General Description of
Registrant," "Purchase of Securities Being Offered" and "Redemption or
Repurchase" in Part A.
<PAGE>
A-52
Each Portfolio determines its net asset value as of 4:00 p.m., New York
time, on each day on which the NYSE is open for trading ("Fund Business Day"),
by dividing the value of each 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 each Portfolio at
the time the determination is made. (As of the date of this Registration
Statement, the NYSE is both open 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 Day; and (b) the
preceding Friday of the subsequent Monday when one of the calendar-determined
holidays falls on a Saturday or Sunday, respectively. Purchases and withdrawals
will be effected at the time of determination of net asset value next following
the receipt of any purchase or withdrawal order.
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market. Other assets are valued at fair value using
methods determined in good faith by the Board of Trustees.
ITEM 20. TAX STATUS.
The Trust is organized as a trust under New York law. Under the
anticipated method of operation of the Trust, the Portfolios will not be subject
to any income tax. However each investor in the Portfolios will be taxable on
its share (as determined in accordance with the governing instruments of the
Trust) of a Portfolio's ordinary income and capital gain in determining its
income tax liability. The determination of such share will be made in accordance
with the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder.
The Trust's taxable year-end is December 31. Although, as described
above, each Portfolio will not be subject to federal income tax, the Trust will
file appropriate income tax returns with respect to each Portfolio.
It is intended that the assets, income and distributions of the
Portfolios will be managed in such a way that an investor in each Portfolio will
be able to satisfy the requirements of Subchapter M of the Code, assuming that
the investor invested all of its assets in that 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 Portfolios. 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 Portfolios.
<PAGE>
A-53
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 each
Portfolio's assets to be invested in various countries will vary.
If each Portfolio is liable for foreign taxes, and if more than 50% of
the value of each 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 each 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 each 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 each 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 Trust is Signature, which receives no
additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in each Portfolio.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The following financial statements for each Portfolio have been filed
with the SEC pursuant to section 30(b) of the 1940 Act and Rule 30b2-1
thereunder and are hereby incorporated herein by reference.
BT INVESTMENT PORTFOLIOS - LATIN AMERICAN EQUITY PORTFOLIO
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995 Statement of Changes
in Net Assets for the year ended September 30, 1995 and the period from
October 25, 1993 (commencement of operations) through September 30,
1994
<PAGE>
A-54
Financial Highlights: Supplemental data for the period indicated
Schedule of Portfolio of Investments, September 30, 1995
Notes to Financial Statements
Report of Independent Accountants
BT INVESTMENT PORTFOLIOS - GLOBAL HIGH YIELD SECURITIES PORTFOLIO
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995 Statement of Changes
in Net Assets for the year ended September 30, 1995 and the period from
December 14, 1993 (commencement of operations) through September 30,
1994 Financial Highlights: Selected ratios and supplemental data for
the period indicated Schedule of Portfolio of Investments, September
30, 1995 Notes to Financial Statements Report of Independent
Accountants
BT INVESTMENT PORTFOLIOS - SMALL CAP PORTFOLIO
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995 Statement of Changes
in Net Assets for the year ended September 30, 1995 and the period from
October 21, 1993 (commencement of operations) through September 30,
1994 Financial Highlights: Selected ratios and supplemental data for
the period indicated Schedule of Portfolio of Investments, September
30, 1995 Notes to Financial Statements Report of Independent
Accountants
BT INVESTMENT PORTFOLIOS - PACIFIC BASIN EQUITY PORTFOLIO
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995 Statement of Changes
in Net Assets for the year ended September 30, 1995 and the period from
November 1, 1993 (commencement of operations) through September 30,
1994 Financial Highlights: Selected ratios and supplemental data for
the period indicated Schedule of Portfolio of Investments, September
30, 1995 Notes to Financial Statements Report of Independent
Accountants
<PAGE>
BT0416B
BT INVESTMENT PORTFOLIOS
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
LATIN AMERICAN EQUITY PORTFOLIO
SMALL CAP PORTFOLIO
PACIFIC BASIN EQUITY PORTFOLIO
EUROPEAN EQUITY PORTFOLIO
INTERNATIONAL BOND PORTFOLIO
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The financial statements called for by this Item are included
in Part B and listed in Item 23 hereof.
(B) EXHIBITS
1. Declaration of Trust of the Registrant.3
2. By-Laws of the Registrant.3
5(A). Investment Advisory Agreement between the Registrant and
Bankers Trust Company ("Bankers Trust").3
5(B). Sub-Investment Advisory Agreement between Bankers Trust and BT
Fund Managers International Limited.2
9. Administration and Services Agreement between the Registrant
and Bankers Trust.1
13. Investment representation letters of initial investors.1,4
17. Financial Data Schedules.4,5
1Incorporated by reference to the Registrant's Registration Statement
as filed with the Commission on June 7, 1993.
2Incorporated by reference to Amendment No. 3 to the Registrant's
Registration Statement as filed with the Commission on September 20,
1993.
3Incorporated by reference to Amendment No. 9 to the Registrant's
Registration Statement as filed with the Commission on August 1, 1995.
4Incorporated by reference to Amendment No. 10 to the Registrant's
Registration Statement as filed with the Commission on January 12,
1996.
5Filed herewith.
<PAGE>
C-2
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
(1)
(2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Series of Beneficial Interests (as of January 12, 1996)
Liquid Assets Portfolio 2
Growth and Income Portfolio 0
100% Treasury Portfolio 0
Asset Management Portfolio II 1
Asset Management Portfolio III 1
Global High Yield Securities Portfolio 1
Latin American Equity Portfolio 1
Small Cap Portfolio 1
European Equity Portfolio 0
Pacific Basin Equity Portfolio 1
International Bond Portfolio 0
U. S. Bond Index Portfolio 1
Equity 500 Equal Weighted Index Portfolio 1
Small Cap Index Portfolio 1
EAFE(R)Equity Index Portfolio 1
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an Exhibit herewith.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
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 any time 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
<PAGE>
C-3
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, 280 Park Avenue, New York, New York 10015.
NAME AND PRINCIPAL BUSINESS ADDRESS, PRINCIPAL OCCUPATION AND OTHER INFORMATION
George B. Beitzel, International Business Machines Corporation, Old Orchard
Road, Armonk, NY 10504. Retired Senior Vice President and Director, Member
of Advisory Board of International Business Machines Corporation. Director of
Bankers Trust and Bankers Trust New York Corporation. Director of
FlightSafety International, Inc. Director of Phillips Petroleum Company.
Director of Roadway Services, Inc. Director of Rohm and Hass Company.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman of the Board and Chief Executive Officer, J.C. Penney
Company, Inc. Director of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of Exxon Corporation, Halliburton Company and
Warner-Lambert Corporation.
Jon M. Huntsman, Huntsman Chemical Corporation, 2000 Eagle Gate Tower, Salt
Lake City, UT 84111. Chairman and Chief Executive Officer, Huntsman Chemical
Corporation, Director of Bankers Trust and Bankers Trust New York
Corporation. Chairman of Constar Corporation, Huntsman Corporation, Huntsman
Holdings Corporation and Petrostar Corporation. President of Autostar
Corporation, Huntsman Polypropylene Corporation and Restar Corporation.
Director of Razzleberry Foods Corporation and Thiokol Corporation. General
Partner of Huntsman Group Ltd., McLeod Creek Partnership and Trustar Ltd.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Partner, Akin, Gump, Strauss, Hauer
& Feld, LLP. Director of Bankers Trust and Bankers Trust New York Corporation.
Also a Director of American Express Company, Corning Incorporated, Dow Jones,
Inc., J.C. Penney Company, Inc., RJR Nabisco Inc., Revlon Group Incorporated,
Ryder System, Inc., Sara Lee Corporation, Union Carbide Corporation and Xerox
Corporation.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10017. Chairman of the Executive Committee, Philip Morris Companies Inc.
Director of Bankers Trust and Bankers Trust New York Corporation. Director of
The News Corporation Limited.
Donald F. McCullough, Collins & Aikman Corporation, 210 Madison Avenue, New
York, NY 10016. Chairman Emeritus, Collins & Aikman Corporation. Director
of Bankers Trust and Bankers Trust New York Corporation. Director of
Massachusetts Mutual Life Insurance Co. and Melville Corporation.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Former President,
Co-Chief Executive Officer and Director of Time Warner Inc. Director of
Bankers Trust and Bankers Trust New York Corporation. Also a Director of
Xerox Corporation.
<PAGE>
C-4
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group. Director of Bankers Trust and Bankers Trust New York Corporation. Also
Director of Allied-Signal Inc., Contel Cellular, Inc., Federal Home Loan
Mortgage Corporation, GTE Corporation, Goodyear Tire & Rubber Company, Imasco
Limited, May Department Stores Company and Safeguard Scientifics, Inc.
Member, Radnor Venture Partners Advisory Board.
Didier Pineau-Valencienne, Schneider S.A., 4 Rue de Longchamp, 75116 Paris,
France. Chairman and Chief Executive Officer, Schneider S.A. Director and member
of the European Advisory Board of Bankers Trust and Director of Bankers Trust
New York Corporation. Director of AXA (France) and Equitable Life Assurance
Society of America, Arbed (Luxembourg), Banque Paribas (France), Ciments
Francais (France), Cofibel (Belgique), Compagnie Industrielle de Paris (France),
SIAPAP, Schneider USA, Sema Group PLC (Great Britain), Spie- Batignolles,
Tractebel (Belgique) and Whirlpool. Chairman and Chief Executive Officer of
Societe Parisienne d'Entreprises et de Participations.
Charles S. Sanford, Jr., Bankers Trust Company, 280 Park Avenue, New York, NY
10017. Chairman of the Board of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of Mobil Corporation and J.C. Penney Company,
Inc.
Eugene B. Shanks, Jr., Bankers Trust Company, 280 Park Avenue, New York, NY
10017. President of Bankers Trust and Bankers Trust New York Corporation.
Patricia Carry Stewart, c/o Office of the Secretary, 280 Park Avenue, New
York, NY 10017. Former Vice President, The Edna McConnell Clark Foundation.
Director of Bankers Trust and Bankers Trust New York Corporation. Director,
Borden Inc., Continental Corp. and Melville Corporation.
George J. Vojta, Bankers Trust Company, 280 Park Avenue, New York, NY 10017.
Vice Chairman of the Board of Bankers Trust and Bankers Trust New York
Corporation. Director of Northwest Airlines and Private Export Funding Corp.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
Signature Broker-Dealer 6 St. James Avenue
Services, Inc. Boston, MA 02116
(placement agent)
Bankers Trust Company 280 Park Avenue
(investment adviser, administrator, New York, NY 10017
custodian, transfer agent)
<PAGE>
C-5
Investors Fiduciary Trust Company 127 West 10th Street
Kansas City, MO 64105
BT Fund Managers International Ltd. Commonwealth Park Building, Level 23
(investment sub-advisor for 367 Collins Street
Pacific Basin Equity Portfolio) Melbourne, Victoria
Australia 32000
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston and Commonwealth of Massachusetts on the 29th day of January,
1996.
BT INVESTMENT PORTFOLIOS
By: /S/ Thomas M. Lenz
Thomas M. Lenz
Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Global High
Yield Securities Portfolio Annual Report dated September 30, 1995, and is
qualified in its entirety by reference to such annual report.
</LEGEND>
<CIK> 0000906619
<NAME> BT INVESTMENT PORTFOLIOS
<SERIES>
<NAME> GLOBAL HIGH YIELD SECURITIES PORTFOLIO
<NUMBER> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 21438021
<INVESTMENTS-AT-VALUE> 21468005
<RECEIVABLES> 664616
<ASSETS-OTHER> 1404995
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23537616
<PAYABLE-FOR-SECURITIES> 497815
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36336
<TOTAL-LIABILITIES> 534151
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22973472
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29993
<NET-ASSETS> 23003465
<DIVIDEND-INCOME> 15761
<INTEREST-INCOME> 1823124
<OTHER-INCOME> 0
<EXPENSES-NET> 132837
<NET-INVESTMENT-INCOME> 1706048
<REALIZED-GAINS-CURRENT> (516419)
<APPREC-INCREASE-CURRENT> (3411)
<NET-CHANGE-FROM-OPS> 1186218
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8274467
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 141692
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 211677
<AVERAGE-NET-ASSETS> 17715971
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the BT
Investment Portfolios/Latin American Portfolio Annual Report dated September 30,
1995, and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000906619
<NAME> BT INVESTMENT PORTFOLIOS
<SERIES>
<NAME> LATIN AMERICAN PORTFOLIO
<NUMBER> 8
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 13678031
<INVESTMENTS-AT-VALUE> 13282555
<RECEIVABLES> 383374
<ASSETS-OTHER> 39337
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13705266
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47351
<TOTAL-LIABILITIES> 47351
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14054059
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (396144)
<NET-ASSETS> 13657915
<DIVIDEND-INCOME> 247512
<INTEREST-INCOME> 145868
<OTHER-INCOME> 0
<EXPENSES-NET> 173145
<NET-INVESTMENT-INCOME> 220235
<REALIZED-GAINS-CURRENT> (9485483)
<APPREC-INCREASE-CURRENT> (3176213)
<NET-CHANGE-FROM-OPS> (12441461)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> (13708101)
<ACCUMULATED-GAINS-PRIOR> 106308
<OVERDISTRIB-NII-PRIOR> 201391
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 173145
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 311496
<PER-SHARE-NAV-BEGIN> 17314132
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 100
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the BT
Investment Portfolio/ Small Cap Portfolio Annual Report dated Sep-30-1995, and
is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000906619
<NAME> BT INVESTMENT PORTFOLIOS
<SERIES>
<NAME> SMALL CAP PORTFOLIO
<NUMBER> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 96338528
<INVESTMENTS-AT-VALUE> 118641475
<RECEIVABLES> 9167872
<ASSETS-OTHER> 353684
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 128163031
<PAYABLE-FOR-SECURITIES> 4243404
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91675
<TOTAL-LIABILITIES> 4335079
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101525005
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22302947
<NET-ASSETS> 123827952
<DIVIDEND-INCOME> 11228
<INTEREST-INCOME> 462219
<OTHER-INCOME> 0
<EXPENSES-NET> 359092
<NET-INVESTMENT-INCOME> 114355
<REALIZED-GAINS-CURRENT> 11205496
<APPREC-INCREASE-CURRENT> 19127783
<NET-CHANGE-FROM-OPS> 30447634
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 102500441
<ACCUMULATED-NII-PRIOR> 7187
<ACCUMULATED-GAINS-PRIOR> (1172477)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 389015
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 470954
<AVERAGE-NET-ASSETS> 59848519
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the BT
Investment Portfolios Pacific Basin Portfolio Annual Report dated September 30,
1995, and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000906619
<NAME> BT INVESTMENT PORTFOLIOS
<SERIES>
<NAME> PACIFIC BASIN PORTFOLIO
<NUMBER> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 21794123
<INVESTMENTS-AT-VALUE> 22315544
<RECEIVABLES> 1585928
<ASSETS-OTHER> 914333
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24815805
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159507
<TOTAL-LIABILITIES> 159507
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24251588
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 404710
<NET-ASSETS> 24656298
<DIVIDEND-INCOME> 433065
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 231456
<NET-INVESTMENT-INCOME> 201609
<REALIZED-GAINS-CURRENT> (481527)
<APPREC-INCREASE-CURRENT> (821330)
<NET-CHANGE-FROM-OPS> (1101248)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (709976)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 173591
<INTEREST-EXPENSE> 4423
<GROSS-EXPENSE> 278794
<AVERAGE-NET-ASSETS> 23145536
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 100
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
