1933 Act File No. 33-62103
1940 Act File No. 811-7347
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 5 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 8 X
BT ADVISOR FUNDS
(Formerly, BT Global Investors)
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Jay S. Neuman, Esquire Copies to: Burton M. Leibert, Esq.
Federated Investors Tower Willkie Farr & Gallagher
Pittsburgh, Pennsylvania 15222-3779 One Citicorp Center
(Name and Address of Agent for Service) 153 East 53rd Street
New York, New York 10022
It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 29, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
BT Investment Portfolios has also executed this Registration Statement.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
filed the Notice required by that Rule on ; or
X intends to file the Notice required by that Rule on or about November
30, 1996 for Registrant's fiscal year ended September 30, 1996 and on or
about February 28, 1997 for Registrants fiscal year ending December 31,
1996; or
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of BT ADVISOR FUNDS
(formerly, BT Global Investors) ,which is comprised of twelve Funds,
relates only to Global High Yield Securities Fund, Capital Appreciation
Fund, Small Cap Fund, International Equity Fund, Latin American Equity Fund
and Pacific Basin Equity Fund, and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page Cover Page.
Item 2. Synopsis Summary of Fund Expenses.
Item 3. Condensed Financial
Information Financial Highlights; Performance.
Item 4. General Description of
Registrant. The Funds; Investment Principles and Risks; Investment
Objectives and Investment Policies; Special Information Concerning Master-
Feeder Fund Structure; Securities and Investment Practices; Appendix.
Item 5. Management of the Fund Management of the Trust and the
Portfolios.
Item 6. Capital Stock and Other
Securities Shareholder and Account Policies; Dividends, Capital
Gains, and Taxes; Additional Information about the Trust's Portfolios.
Item 7. Purchase of Securities Being
Offered Types of Accounts; How to Buy Shares; Minimum Investments;
Investment Services.
Item 8. Redemption or Repurchase How to Sell Shares; Additional
Information About Selling Shares; Exchange Limitations.
Item 9. Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page Cover Page.
Item 11. Table of Contents Table of Contents.
Item 12. General Information and
History Organization of the Trust
Item 13. Investment Objectives and
Policies Investment Objective; Investment Practices; Investment
Restrictions.
Item 14. Management of the Fund Management of the Trust and the
Portfolios; Trustees' Compensation.
Item 15. Control Persons and Principal
Holders of Securities Fund Ownership.
Item 16. Investment Advisory and Other
Services Investment Adviser; Administrator.
Item 17. Brokerage Allocation Portfolio Transactions and Brokerage
Commissions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered Valuation of Securities; Redemptions and Purchases in Kind.
Item 20. Tax Status Taxation.
Item 21. Underwriters Not applicable.
Item 22. Calculation of Performance
Data Performance Information
Item 23. Financial Statements Incorporate by reference the combined
Annual Report of the Portfolios dated September 30, 1996 (File Nos. 33-
62103 and 811--7347).
BT ADVISOR FUNDS
GLOBAL HIGH YIELD SECURITIES FUND
CAPITAL APPRECIATION FUND
SMALL CAP FUND
INTERNATIONAL EQUITY FUND
PACIFIC BASIN EQUITY FUND
LATIN AMERICAN EQUITY FUND
PROSPECTUS: November 30, 1996
BT Advisor Funds (the `Trust'') is an open-end, management investment
company (mutual fund) which currently consists of ten funds. Shares of the
six funds listed above (each, a `Fund'') are offered by this
prospectus.
UNLIKE OTHER OPEN-END MANAGEMENT INVESTMENT COMPANIES (MUTUAL FUNDS),
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS
INVESTABLE ASSETS (`ASSETS'') IN THE CORRESPONDING PORTFOLIO WHICH IS A
SEPARATE FUND WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE `SPECIAL
INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE''HEREIN.
Bankers Trust Company (`Bankers Trust'') is the investment adviser (the
`Adviser'') of each Portfolio.
Please read this Prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
Fund invests and the services available to shareholders.
To learn more about each Fund and its investments, investors can obtain
a copy of the Funds' Statement of Additional Information (the `SAI''),
dated November 30, 1996, along with each Portfolio's most recent financial
report and portfolio listing. The SAI has been filed with the Securities
and Exchange Commission (the `SEC'') and is incorporated herein by
reference. For a free copy of this prospectus or the SAI, call (800) 730-
1313 or contact the Trust, or an Investment Professional.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANKERS TRUST OR ANY OTHER BANKING OR DEPOSITORY INSTITUTION.
SHARES ARE NOT FEDERALLY GUARANTEED OR INSURED BY THE FDIC, THE U.S.
GOVERNMENT, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT
TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
The Global High Yield Securities Portfolio and Latin American Equity
Portfolio may invest in lower-quality debt securities, sometimes call
`junk bonds.'' The Global High Yield Securities Portfolio may invest in
these types of securities without limit. Investors should consider that
these securities carry greater risks, such as the risk of default, than
other debt securities. Refer to `Risk Factors and Certain Securities and
Investment Practices - Risks of Investing in High Yield Securities (Junk
Bonds)''herein for further information.
The Latin American Equity Portfolio and Global High Yield Securities
Portfolio may borrow money for investment in securities. Such leverage
will exaggerate any increase or decrease the value of shares in the Funds.
Borrowing also involves costs to the Portfolio. See `Risk Factors and
Certain Securities and Investment Practices - Leverage''herein. Each of
these Funds may be considered a speculative investment and is designed for
aggressive investors.
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
THE FUNDS 1
WHO MAY WANT TO INVEST
INVESTMENT PRINCIPLES AND RISKS
Each Fund's overall approach to investing.
EXPENSE SUMMARY
Each Fund's sales charges and annual operating expenses.
THE FUNDS IN DETAIL 7
INVESTMENT OBJECTIVES AND POLICIES
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE
SECURITIES AND INVESTMENT PRACTICES
PERFORMANCE
How each Fund has done over time.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
ACCOUNT INFORMATION 33
TYPES OF ACCOUNTS
Different ways to set up your account, including tax-sheltered retirement
plans.
HOW TO BUY SHARES
Opening an account and making additional investments.
HOW TO SELL SHARES
Taking money out and closing your account.
INVESTOR SERVICES
To help you manage your account.
SHAREHOLDER AND ACCOUNT POLICIES 41
DIVIDENDS, CAPITAL GAINS AND TAXES
VALUATION DETAILS
Share price calculations and the timing of purchases and redemptions.
EXCHANGE LIMITATIONS
SALES CHARGE REDUCTION AND WAIVERS
ADDITIONAL INFORMATION ABOUT THE TRUST AND PORTFOLIOS
APPENDIX 50
THE FUNDS
The Trust seeks to achieve the investment objective of each Fund by
investing all the Assets of the Fund in the corresponding Portfolio.
GLOBAL HIGH YIELD SECURITIES FUND'S investment objective is 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. See `Risk Factors
and Certain Securities and Investment Practices.''
CAPITAL APPRECIATION FUND'S investment objective is long-term capital
growth; the production of any current income is secondary to this
objective. The Portfolio invests primarily in growth-oriented common
stocks of medium sized domestic corporations and, to a lesser extent,
foreign corporations. See `Risk Factors and Certain Securities and
Investment Practices.''
SMALL CAP FUND'S investment objective is long-term capital growth; the
production of any current income is secondary to this objective. The
Portfolio seeks to provide long-term capital growth by investing primarily
in equity securities of smaller sized growth companies. See `Risk Factors
and Certain Securities and Investment Practices.''
INTERNATIONAL EQUITY FUND'S investment objective is long-term capital
appreciation from investment in foreign equity securities (or other
securities with equity characteristics); the production of any current
income is incidental to this objective. The Portfolio invests primarily in
established companies based in developed countries outside the United
States, but the Portfolio may also invest in emerging market securities.
See `Risk Factors and Certain Securities and Investment Practices.''
PACIFIC BASIN EQUITY FUND'S investment objective is 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. See `Risk Factors and
Certain Securities and Investment Practices.''
LATIN AMERICAN EQUITY FUND'S investment objective is 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, Latin America; the production of any current income is
incidental to this objective. See `Risk Factors and Certain Securities
and Investment Practices.
WHO MAY WANT TO INVEST
Shares of each Fund are offered through this Prospectus to investors who
engage an Investment Professional.
The Capital Appreciation Fund, Small Cap Fund, International Equity Fund,
Pacific Basin Equity Fund, and Latin American Equity Fund are designed for
investors who are willing to accept short-term domestic and/or foreign
stock market fluctuations in pursuit of potentially high long-term returns.
These Funds invest for growth and do not pursue income.
In addition, the International Equity Fund, Global High Yield Securities
Fund, Latin American Equity Fund and Pacific Basin Equity Fund may also be
appropriate for investors who want to pursue their investment goals in
markets outside of the United States. By including international
investments in your portfolio. You can achieve an extra level of
diversification and also participate in opportunities around the world.
Each Fund is not in itself a balanced investment plan. Investors should
consider their investment objective and tolerance for risk when making an
investment decision. When investors sell their Fund Shares. they may be
worth more or less than what they originally paid for them.
INVESTMENT PRINCIPLES AND RISKS
The value of each Portfolio's investments varies based on many factors.
The value of bonds fluctuates based on changes in domestic or foreign
interest rates, the credit quality of the issuer, market conditions, and
other economic and political news. In general, bond prices rise when
interest rates fall, and vice versa. This effect is usually more
pronounced for longer-term securities. Lower-quality securities offer
higher yields, but also carry more risk.
Stock values fluctuate, sometimes dramatically, in response to the
activities of individual companies and general market and economic
conditions. Over time, however, stocks have shown greater long-term growth
potential than other types of securities.
Because many foreign investments are denominated in foreign currencies,
changes in the value of these currencies can significantly affect a Fund's
share price. General economic factors in the various world markets can
also impact the value of an investor's investment, especially for
securities in emerging markets. Many investments in emerging markets can
be considered speculative, and therefore may offer higher income (for debt
funds) and total return potential. but significantly greater risk.
The Global High Yield Securities Portfolio is classified as a `non-
diversified''investment company under the Investment Company Act of 1940,
as amended (the `1940 Act''), and may invest a greater portion of its
assets in a single issuer than a diversified fund. As a result, this
Portfolio may be more susceptible to any single economic, political or
regulatory occurrence than a diversified fund. See `Risk Factors and
Certain Securities and Investment Practices Non-Diversified Fund''for more
information.
Bankers Trust may use various investment techniques to hedge a Portfolios
risks, but there is no guarantee that these strategies will work as
intended. When an investor sells their Fund shares (`Shares''), they may
be worth more or less than what they originally paid for them. See `Risk
Factors and Certain Securities and Investment Practices''for more
information.
EXPENSE SUMMARY
ANNUAL OPERATING EXPENSES are paid out of the assets of each Portfolio and
Fund. Each Portfolio pays an investment advisory fee and an administrative
services fee to Bankers Trust. Each Fund incurs expenses such as
maintaining shareholder records and furnishing shareholder statements.
Each Fund must provide financial reports.
The following table provides a summary of expenses relating to purchases
and sales of the Shares of each Fund and the annual operating expenses of
the Fund and expenses of the corresponding Portfolio. in the aggregate, as
a percentage of average daily net assets of each Fund: and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in
each Fund. THE TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE PER SHARE
EXPENSES OF EACH FUND AND THE CORRESPONDING PORTFOLIO WILL BE LESS THAN OR
APPROXIMATELY EQUAL TO THE EXPENSES WHICH THE FUND WOULD INCUR IF THE TRUST
RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE ASSETS OF EACH FUND
WERE INVESTED DIRECTLY IN THE TYPE OF SECURITIES BEING HELD BY THE
CORRESPONDING PORTFOLIO.
SHAREHOLDER TRANSACTION EXPENSES (WITH THE EXCEPTION OF GLOBAL HIGH
YIELD SECURITIES FUND)
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.75%
Maximum Sales Charge on Reinvested Distributions None
Redemption Fee None
Global High Yield Securities Fund:
Maximum Sales Charge on Purchases
(as a percentage of offering price) 3.75%
Maximum Sales Charge on Reinvested Distributions None
Redemption Fee None
Shareholder transaction expenses are charges paid when investors buy, sell,
exchange, or hold Shares of a Fund. Lower front-end sales charges may be
available with purchases of $50,000 or more and/or in conjunction with
various programs. See `Valuation Details,'' herein for an explanation of
how and when these charges apply.
ANNUAL OPERATING EXPENSES
GLOBAL HIGH YIELD SECURITIES FUND
Investment advisory fee (after reimbursement or waiver) 0.36%
12b-1 fees 0.35
Other expenses (after reimbursements or waivers) 0.79
Total operating expenses (after reimbursements or waivers) 1.50%
CAPITAL APPRECIATION FUND
Investment advisory fee (after reimbursement or waiver) 0.48%
12b-1 fees 0.50
Other expenses (after reimbursements or waivers) 0.52
Total operating expenses (after reimbursements or waivers) 1.50%
SMALL CAP FUND
Investment advisory fee (after reimbursement or waiver) 0.48%
12b-1 fees 0.50
Other expenses (after reimbursements or waivers) 0.52
Total operating expenses (after reimbursements or waivers) 1.50%
INTERNATIONAL EQUITY FUND
Investment advisory fee (after reimbursement or waiver) 0.45%
12b-1 fees 0.50
Other expenses (after reimbursements or waivers) 0.75
Total operating expenses (after reimbursements or waivers) 1.70%
PACIFIC BASIN EQUITY FUND
Investment advisory fee (after reimbursement or waiver) 0.64%
12b-1 fees 0.50
Other expenses (after reimbursements or waivers) 0.71
Total operating expenses (after reimbursements or waivers) 1.85%
LATIN AMERICAN EQUITY FUND
Investment advisory fee (after reimbursement or waiver) 0.69%
12b-1 fees 0.50
Other expenses (after reimbursements or waivers) 1.06
Total operating expenses (after reimbursements or waivers) 2.25%
EXPENSE TABLE EXAMPLE:
An investor would pay the following expenses, including the maximum front-
end sales charge on a $1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Global High Yield Securities Fund $52 $83 $116 $210
Capital Appreciation Fund $62 $93 $125 $218
Small Cap Fund $62 $93 $125 $218
International Equity Fund $64 $99 $135 $239
Pacific Basin Equity Fund $65 $103 $143 $254
Latin American Equity Fund $69 $114 $162 $294
The expense table and the example above show the costs and expense that an
investor will bear directly or indirectly as a shareholder of a Fund.
Bankers Trust has voluntarily agreed to waive a portion of its investment
advisory fee with respect to each Portfolio. Without such waiver, each
Portfolio's investment advisory fee would be equal to the following:
Global High Yield Securities Portfolio - 0.80%; Capital Appreciation
Portfolio - 0.65%; Small Cap Portfolio - 0.65%; International Equity
Portfolio - 0.65%; Pacific Basin Portfolio - 0.75%, and Latin American
Equity Portfolio - 1.00%. The expense table and the example reflect a
voluntary undertaking by Bankers Trust or Edgewood Services, Inc.
(`Edgewood''), as the distributor (the ``Distributor'') of the Shares of
each Fund, to waive or reimburse expenses such that the total operating
expenses of each fund and the corresponding Portfolio (as a percentage of
the funds' averages daily net assets) will not exceed the following: Global
High Yield Securities Fund - 1.50%; Capital Appreciation Fund - 1.50%;
Small Cap Fund - 1.50%; International Equity Fund - 1.70%; Pacific Basin
Fund - 1.85%, and Latin American Equity Fund - 2.25%. In the absence of
this undertaking, `Total Operating Expenses'' on an annualized basis would
have been as follows: Global High Yield Securities Fund - 32.52%; Capital
Appreciation Fund - 7.11%; Small Cap Fund - 4.31%; International Equity
Fund - 4.31%; Pacific Basin Fund - 35.15%, and Latin American Equity Fund -
361.61%. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Moreover, while each example assumes a 5% annual return, actual performance
will vary and may result in a return greater or less than 5%.
12b-1 fees for each fund include a shareholder service fee and a
distribution fee. Shareholder service fees are paid by a Fund to Edgewood
to enable Edgewood to compensate Investment Professional for providing
personal shareholder service and/or maintenance of shareholder accounts.
Distribution fees are paid by a Fund to Edgewood to compensate Investment
Professionals for services and expenses in connection with the distribution
of the applicable Fund's shares. Long-term shareholders may pay more than
the economic equivalent of the maximum sales charges permitted by the
National Association of Securities Dealers, Inc. (`NASD''), due to 12b-1
fees.
For more information about each Fund's and each Portfolio's expenses see
`Management of the Trust and the Portfolios'' and ``Valuation Details.''
FINANCIAL HIGHLIGHTS
Contained below are the selected data for a share outstanding, total
investment return and other supplemental data and ratios for the period
indicated for each of the Funds.
Capital Global High Yield International
Appreciation** Securities** Equity**
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00
Income form Investment Operations
Net Investment Income (Loss) (0.05) 0.45 0.04
Net Realized and Unrealized Gain on Investments 1.40 0.49 0.89
Total from Investment Operations 1.35 0.94 0.93
Distribution to Shareholders from:
Net Investment Income (0.11)
Net Asset Value, End of Period $11.35 $10.83 $10.93
Total Investment Return 13.50% 9.51% 9.30%
Supplemantal Data and Ratios:
Net Assets, End of Period (000's) $924 $182 $3,144
Ratios to Average Net Assets
Net Investment Income (Loss) (0.98)%* 10.08%* 0.99%*
Expenses, including Expenses of the Portfolio*** 1.50%* 1.50%*
1.70%*
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers Trust 5.61%* 31.02%*
2.61%*
Latin American Pacific Basin Small
Equity** Equity** Cap**
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00
Income form Investment Operations
Net Investment Income (Loss) (0.02) 0.01 0.04
Net Realized and Unrealized Gain on Investments (0.06) (0.41) 1.50
Total from Investment Operations (0.08) (0.40) 1.46
Net Asset Value, End of Period $9.92 $9.60 $11.46
Total Investment Return (0.80)% (4.00)% 14.60%
Supplemantal Data and Ratios:
Net Assets, End of Period (000's) $24 $230 $2,813
Ratios to Average Net Assets
Net Investment Income (Loss) (0.91)%* 0.48%* (1.01)%*
Expenses, including Expenses of the Portfolio*** 2.25%* 1.85%*
1.50%*
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers Trust 359.36%* 33.30%*
2.81%*
*Annualized
**The period represents from Commencement of Operations to September 30,
1996. The following are commencement dates for each fund, repectively:
Funds Commencement of Operations
Capital Appreciation Februaty 16, 1996
Global High Yield Securities April 26, 1996
International Equity February 16, 1996
Latin American Equity May 24, 1996
Pacific Basin Equity April 26, 1996
Small Cap February 16, 1996
***Expense allocated from Capital Appreciation Portfolio, Global High Yield
Securities Portfolio, Internation Equity Portfolio, Latin American Equity
Portfolio, Pacific Basin Equity Portfolio and Small Cap Portfolio.
THE FUNDS IN DETAIL
INVESTMENT OBJECTIVES AND POLICIES
The Trust seeks to achieve the investment objective of each Fund by
investing all of its Assets in the corresponding Portfolio, which has the
same investment objective as the Fund. Since the investment
characteristics of each Fund will correspond directly to those of the
corresponding Portfolio, the following is a discussion of the various
investments of and techniques employed by each Portfolio. Additional
information about the investment policies of each Portfolio appears in
`Risk Factors and Certain Securities and Investment Practices'' in this
Prospectus and in the Funds' SAI. There can be no assurance that the
investment objective of either a Fund or the corresponding Portfolio will
be achieved.
The GLOBAL HIGH YIELD SECURITIES PORTFOLIO'S investment objective is
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 Brady bonds and other sovereign debt and
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 obligations, as well as in the debt securities of issuers
located in emerging markets.
Under normal circumstances, at least 65% of the Portfolio's assets will be
invested in high yield, non-investment grade debt securities of both
governmental and corporate issuers in both the major industrialized markets
and the so-called `emerging markets.'' See ``Risk Factors and Certain
Securities and Investment Practices - Risks of Investing in Foreign
Securities''and
`-Risk of Investing in Emerging Markets.''
Although Bankers Trust considers both industrialized and emerging countries
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 emerging 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 rules, the lack of organized and liquid securities
markets, and unacceptable political risks. Under normal circumstances, the
Portfolio will invest in at least three emerging markets countries. See
`Risk Factors and Certain Securities and Investment Practices - Risks of
Investing in Foreign Securities''and ``- Risk of Investing in Emerging
Markets.''
The Portfolio generally invests in securities which are rated BBB or
lower by Standard & Poor's Ratings Group (`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 possess some speculative characteristics. A
description of the rating categories is attached to this Prospectus. THERE
IS NO LOWER LIMIT WITH RESPECT TO THE RATING CATEGORIES FOR SECURITIES IN
WHICH THE PORTFOLIO MAY INVEST. See `Risk Factors and Certain Securities
and Investment Practices - Risks of Investing In High Yield Securities
(Junk Bonds).'
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 ratings
for bonds are C1, 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. 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. Other than as set forth above, there is no restriction on the
percentage of the Portfolio's assets which may be invested in bonds of a
particular rating.
The 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.
The Portfolio is classified as a `non-diversified'' fund under the 1940
Act, which means the Portfolio is not limited by the 1940 Act in the
proportion of its assets that may be invested in a single issuer. The
Portfolio may, therefore, invest in the securities of individual issuers to
a greater degree than a diversified fund and may be more susceptible to any
single economic, political or regulatory occurrence affecting those
issuers. However, in order to enable the Fund (and other registered
investment companies which may in the future invest all their assets in the
Portfolio) to qualify as a regulated investment company (a `RIC''), the
Portfolio must comply with the diversification requirement of Subchapter M
of the Internal Revenue Code of 1986, as amended (the `Code''), for U.S.
federal income tax purposes. See `Risk Factors and certain Securities and
Investment Practices - Non-Diversified Fund''herein.
Other Investments and Investment Techniques. The Portfolio may also
utilize the following investments and investment techniques and practices:
short-term investments, floating rate bonds, zero coupon bonds, sovereign
and supranational debt obligations, Brady bonds, loan participations and
assignments, convertible bonds, preferred stock, foreign currency exchange
transactions, options on Foreign currencies, options on foreign bond
indices, futures contracts on foreign bond indices, options on futures
contracts, Rule 144A securities, when-issued or delayed-delivery
securities, securities lending, repurchase agreements and reverse
repurchase agreements. See `Risk Factors and Certain Securities and
Investment Practices''in this Prospectus and in the SAI for further
information.
The Portfolio may borrow money for investment purposes. See `Risk Factors
and Certain Securities and Investment Practices - Leverage.''
The CAPITAL APPRECIATION PORTFOLIO'S investment objective is long-term
capital growth; the production of any current income is secondary to this
objective. The Portfolio invests primarily in growth-oriented common
stocks of medium-size domestic corporations and, to a lesser extent,
foreign corporations.
Bankers Trust employs a flexible investment program in pursuit of the
Portfolio's investment objective. The Portfolio is not restricted to
investments in specific market sectors. The Portfolio may invest in any
market sectors and in companies of any size and may take advantage of any
investment company with attractive long-term prospects. 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 judgment provides above-average potential for long-
term growth of capital and income.
The Portfolio will generally invest a majority of its assets in equity
securities of medium-sized companies (companies with a market
capitalization of between $500 million and $2 billion), but may invest in
securities of companies having various levels of market capitalization,
including smaller companies whose securities may be more volatile and less
liquid than securities issued by larger companies with higher levels of net
worth. Investments will be in companies in various industries. Industry
and company fundamentals along with key investment themes and various
quantitative screens will be used in the investment process. Criteria for
selection of individual securities include the issuer's competitive
environment and position, prospects for growth, managerial strength,
earnings momentum and quality, underlying asset value, relative market
value and overall marketability. The Portfolio will follow a disciplined
selling process to lessen market risks.
The Portfolio may also invest up to 25% of its assets in similar securities
of foreign issuers. For further information on foreign investments see
`Risk Factors and Certain Securities and Investment Practices - Risks of
Investing in Foreign Securities.''
Other Investments and Investment Techniques. The Portfolio may also
utilize the following investments and investment techniques and practices:
short-term investments, options on stocks, options on stock indices,
futures contracts on stock 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 `Risk Factors and Certain
Securities and Investment Practices''in this Prospectus and in the SAI for
further information.
The SMALL CAP PORTFOLIO'S investment objective is long-term capital growth;
the production of any current income is secondary to this objective.
The Portfolio seeks to provide long-term capital growth by investing
primarily in equity securities of smaller U.S. companies. The Portfolio's
policy is to invest in equity securities of smaller companies that Bankers
Trust 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
consistent profitability or produce increases in 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 Portfolio is free to invest in any
common stock which in the Adviser's judgment provides above-average
potential for long-term growth of capital and income.
Under normal market conditions, the Portfolio will invest at least 65% of
its assets in smaller companies (with market capitalizations less than $750
million at 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 that
market conditions so warrant, the Portfolio may invest all or a portion of
its Assets in common stocks of 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, see
`Risk Factors and Certain Securities and Investment Practices - Risks of
Investing in Foreign Securities.''
Other Investments and Techniques. The Portfolio may also utilize the
following investments and investment techniques and practices: short-term
investments, options on stocks, options on stock indices, futures contracts
on stock indices, options on future contracts, foreign currency exchange
transactions, options on foreign currencies, Rule 144A securities, when-
issued and delayed delivery securities, securities lending and repurchase
agreements. See `Risk Factors and Certain Securities and Investment
Practices''in this Prospectus and in the SAI for further information.
The INTERNATIONAL EQUITY PORTFOLIO'S investment objective is long-term
capital appreciation from investment in foreign equity securities (or other
securities with equity characteristics); the production of any current
income is incidental to this objective. The Portfolio invests primarily in
established companies based in developed countries outside the United
States, but the Portfolio also invests in securities of issuers in emerging
markets. See `Risk Factors and Certain Securities and Investment
Practices - Risks of Investing in Foreign Securities''and ``- Risk of
Investing in Emerging Markets.''Under normal circumstances, the Portfolio
will invest at least 65% of the value of its total assets in the equity
securities of issuers based in at least three countries other than the
United States. The Portfolio's investments will generally be diversified
among several geographic regions and countries.
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, to the
extent available and consistent with applicable regulations, the Portfolio
may seek to achieve country exposure through use of options or futures
based on an established local index or through investment in other
registered investment companies rather than investing directly in
individual securities. Investment in other investment companies is
limited in amount by the 1940 Act, will involve the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies and may result in a duplication of fees and expenses.
The 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.
Other Investments and Investment Techniques. The Portfolio may also
utilize the following investments and investment techniques and practices:
short-term investments, foreign currency exchange transactions, options on
foreign currencies, American Depositary Receipts (`ADRs''), Global
Depositary Receipts (`GDRs'') and European Depositary Receipts (``EDRs''),
options on stocks, options on foreign stock indices, futures contracts on
foreign stock indices, options on futures contracts, Rule 144A securities,
when-issued and delayed delivery securities, securities lending and
repurchase agreements. See `Risk Factors and Certain Securities and
Investment Practices''in this Prospectus and in the SAI for further
information.
The PACIFIC BASIN EQUITY PORTFOLIO'S investment objective is 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 considerations which are not
normally involved in investment in securities of U.S. issuers, and an
investment in the Fund may be considered speculative.
For purposes of this Prospectus, `issuers domiciled in, or doing business
in, the Pacific Basin region (other than Japan)''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; or (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. It is expected under
normal conditions that at least 65% of the Portfolio's assets will be
invested in the equity securities of issuers located in at least three
countries in the Pacific Basin.
For the purpose of this Prospectus, the `Pacific Basin'' includes, but is
not limited to, the following countries: Hong Kong, India, Indonesia,
Malaysia, New Zealand, Pakistan, the Philippines, the People's Republic of
China (`China''), Singapore, Sri Lanka, South Korea, Thailand, Taiwan,
and Vietnam. See `Risk Factors and Certain Securities and Investment
Practices - Risks of Investing in Foreign Securities''in this Prospectus
and `Risk Factors and Certain Securities and Investment Practices - Risks
of Investing in China and China Region''in the SAI.
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, Bankers Trust and
the sub-investment adviser attach great importance to analyzing trends and
accessing possible breaks with traditional price patterns. At the company
level, the emphasis is placed on assessing the inherent `business'' value
of the firm. While this often varies from the stock market's valuation,
the Adviser and the sub-investment adviser believe a company's stock price
tends to gravitate to their `business'' value over time.
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.
The Portfolio will not invest more than 20% of the value of its total
assets in issuers domiciled in China.
In countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, the Portfolio may
choose to invest only at the market level. Here, to the extent available
and consistent with applicable regulations, the Portfolio may seek to
achieve country exposure through the use of options on futures based on an
established local index or through investment in other registered
investment companies. Investment in other investment companies is limited
in amount by the 1940 Act, will involve the indirect payment of a portion
of the expenses, including advisory fees, of such other investment
companies and may result in a duplication of fees and expenses.
The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic over-the-
counter markets and may invest in restricted unlisted securities.
Other Investments and Investment Techniques. The Portfolio may also
utilize the following investments and investment techniques and practices:
short-term investments, foreign currency exchange transactions, options on
foreign currencies, ADRs, GDRs and EDRs, options on stocks, options on
foreign stock indices, futures contracts on foreign stock indices, options
on futures contracts, Rule 144A securities, when-issued and delayed
delivery securities, securities lending and repurchase agreements. See
`Risk Factors and Certain Securities and Investment Practices'' in this
Prospectus and in the SAI for further information.
The LATIN AMERICAN EQUITY PORTFOLIO'S investment objective is 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, Latin America; the production of any current income is
incidental to this objective. Investment in such securities involves
certain considerations which are not normally involved in investment in
securities of U.S. issuers, and an investment in the Fund may be considered
speculative. See `Risk Factors and Certain Securities and Investment
Practices - Risks of Investing in Foreign Securities''and ``- Risk of
Investing in Emerging Markets''herein and ``Foreign Securities: Special
Considerations Concerning Latin America''in the SAI. It is expected under
normal conditions that at least 65% of the Portfolio's total assets will be
invested in the equity securities of Latin American issuers.
The Fund may borrow money for investment purposes. See `Risk Factors and
Certain Securities and Investment Practices - Leverage.''
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 or unlisted securities.
For purposes of this Prospectus, `Latin America'' is defined as Mexico,
and all countries in Central America and South America, including
Argentina, Brazil, Chile, Colombia, Peru and Venezuela.
As used in this Prospectus, `securities of Latin American issuers'' is
defined as: (i) securities of companies the principal securities trading
market for which is in 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; or (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 BT Investment Portfolios,
based on publicly available information and inquiries made to the issuers.
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 risks. As of the date of this Prospectus, this
list included Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela. Under normal circumstances, the Portfolio's investments will be
diversified among at least three Latin American countries.
The Portfolio may invest in securities of companies having various levels
of net worth, including small 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, to the extent
available and consistent with applicable regulations, the Portfolio may
seek to achieve country exposure through the use of options or futures
based on an established local index or through investment in other
registered investment companies. Investment in other investment companies
is limited in amount by the 1940 Act, will involve the indirect payment of
a portion of the expenses, including advisory fees, of such other
investment companies and may result in a duplication of fees and expenses.
Fixed Income Investments. For purposes of seeking capital appreciation,
the Portfolio may invest up to 35% of its total assets in debt securities
of Latin American issuers which are rated at least C by S&P or 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 BT
Investment Portfolios, 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
possess speculative characteristics. Bonds rated C by S&P are of the
lowest quality and may be used when the issuer has filed a bankruptcy
petition, but debt payments are still being paid. Moody's lowest rating is
C, which is applied to bonds which have extremely poor prospects of ever
attaining any real investment standing. See `Risk Factors and Certain
Securities and Investment Practices - Risks of Investing in High Yield
Securities (Junk Bonds).''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
issuers 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 from increases in the market price of the securities
into which they are convertible.
Other Investments and Investment Techniques. The Portfolio may also
utilize the following investments and investment techniques and practices:
Brady bonds, foreign currency exchange transactions, options on foreign
currencies, ADRs, GDRs and 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, Rule 144A
securities, short-term investments, repurchase agreements, reverse
repurchase agreements, and securities lending. See `Risk Factors and
Certain Securities and Investment Practices''in this Prospectus and in the
SAI for further information.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a Portfolio may invest and strategies Bankers Trust
may employ in pursuit of a Portfolio's investment objective. A summary of
risks and restrictions associated with these instrument types and
investment practices is included as well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so
will help a Portfolio achieve its goal. Holdings and recent investment
strategies are described in the financial reports of a Fund and the
corresponding Portfolio, which are sent to Fund shareholders twice a year.
For a free SAI or financial report, call an Investment Professional.
RISKS OF INVESTING IN FOREIGN SECURITIES
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in
securities of companies organized and operated in the United States.
Investors should realize that the value of a Portfolio's foreign
investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control or tax regulations in foreign
countries. In addition, changes in government administrations or economic
or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Portfolio's operations. Furthermore, the economies
of individual foreign nations may differ from the U.S. economy, whether
favorably or unfavorably, in areas such as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position; it may also be more difficult to obtain
and enforce a judgment against a foreign issuer. In general, less
information is publicly available with respect to foreign issuers than is
available with respect to U.S. companies. Most foreign companies are also
not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. Any foreign investments made
by the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of a 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, each Portfolio is also
authorized to enter into certain foreign currency exchange transactions.
Furthermore, a Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities of
U.S. companies. The settlement periods for foreign securities, which are
often longer than those for securities of U.S. issuers, may affect
portfolio liquidity. Finally, there may be less government supervision and
regulation of securities exchanges, brokers and issuers in foreign
countries than in the United States.
RISK OF INVESTING IN 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, Bulgaria, Chile, China, Colombia, Costa Rica,
the Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia,
Israel, the Ivory Coast, Jordan, Malaysia, Mexico, Morocco, Nicaragua,
Nigeria, Pakistan, Peru, the Philippines, Poland, Portugal, Romania,
Russia, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela, Vietnam, and Zimbabwe.
Investment in securities of issuers based in underdeveloped/emerging market
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 interests; and
(iv) in the case of Eastern Europe and in China and other Asian countries,
the absence of developed capital markets and legal structures governing
private or foreign investment and private property and the possibility that
recent favorable economic and political developments could be slowed or
reversed by unanticipated events.
So long as the Communist Party continues to exercise a significant or, in
some countries, dominant role in Eastern European countries or in China and
other Asian 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, a 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 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 Fund
shareholders.
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 a 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.
RISKS OF INVESTING IN HIGH YIELD SECURITIES (JUNK BONDS)
Lower rated securities, 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, 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. Lower-rated securities also involve
greater sensitivity to significant increases in interest rates. Short-term
corporate and market developments affecting the prices and liquidity of
lower rated securities could include adverse news impacting major issues or
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.
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.
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 of
additional financing.
Factors adversely affecting the market value of high yield and other
Portfolio securities will adversely affect the corresponding Fund's net
asset value. In addition, a Portfolio may incur additional expenses to the
extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings.
RISKS OF INVESTING IN MEDIUM- AND SMALL-CAPITALIZATION STOCKS
The Small Cap Portfolio and Capital Appreciation Portfolio invest primarily
in smaller-size and medium-size, respectively, growth-oriented common
stocks of domestic corporations and, to a limited extent, foreign
corporations. Historically, medium- and small-capitalization stocks have
been more volatile in price than the larger-capitalization stocks included
in the S&P 500. Among the reasons for the greater price volatility of
these securities are the less-certain growth prospects of smaller firms,
the lower degree of liquidity in the markets for such stocks, and the
greater sensitivity of medium- and small-size companies to changing
economic conditions. In addition to exhibiting greater volatility, medium-
and small-size company stocks may fluctuate independently of larger company
stocks. Medium- and small-size company stocks may decline in price as
large company stocks rise, or rise in prices as large company stocks
decline.
NON-DIVERSIFIED FUND
The Global High Yield Securities Portfolio and Fund are each 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'' investment 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 enable the Fund to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the `Code''), the Portfolio, among other things, may not invest
more than 25% of its assets 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 invested 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.
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE
Unlike other open-end management investment companies (mutual funds) which
directly acquire and manage their own portfolio securities, each Fund seeks
to achieve its investment objective by investing all of its Assets in the
corresponding Portfolio, a separate registered investment company with the
same investment objective as the Fund. Therefore, an investor's interest
in the Portfolio's securities is indirect. In addition to selling a
beneficial interest to the corresponding Fund, each Portfolio may sell
beneficial interests to other mutual funds or institutional investors.
Such investors will invest in a Portfolio on the same terms and conditions
and will pay a proportionate share of the Portfolio's expenses. However,
the other investors investing in a Portfolio are not required to sell their
shares at the same public offering price as the Fund due to variations in
sales commissions and other operating expenses. Therefore, investors in a
Fund should be aware that these differences may result in differences in
returns experienced by investors in the different funds that invest in the
Portfolio. Such differences in returns are also present in other mutual
fund structures. Information concerning other holders of interests in the
Portfolio is available from Bankers Trust, as the Administrator, as (800)
730-1313.
The master-feeder structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.
Smaller funds investing in a Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a
large fund withdraws from a Portfolio, the remaining funds may experience
higher pro rata operating expenses, thereby producing lower returns
(however, this possibility exists as well for traditionally structured
funds which have large institutional investors). Additionally, a Portfolio
may become less diverse, resulting in increased portfolio risk. Also,
funds with a greater pro rata ownership in a Portfolio could have effective
voting control of the operations of the Portfolio. Except as permitted by
the SEC, whenever the Trust is requested to vote on matters pertaining to a
Portfolio, the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes in the same proportion as the votes of the
Fund's shareholders. Fund shareholders who do not vote will not affect the
Trust's votes at the Portfolio meeting. The percentage of the Trust's
votes representing the Fund shareholders not voting will be voted by the
Trustee or officers of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote. Certain changes in the Portfolio's
investment objectives, policies or restrictions may require the Fund to
withdraw its interest in the portfolio. Any such withdrawal could result
in a distribution `in kind'' of portfolio securities (as opposed to a cash
distribution from the Portfolio). If securities are distributed, the Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less
diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.
A Fund may withdraw its investment from the Portfolio at any time if the
Board of Trustees of the Trust determines that it is in the best interests
of the shareholders of the Fund to do so. Upon any such withdrawal, the
Board of Trustees of the Trust would consider what action might be taken,
including the investment of all the Assets of the Fund in another pooled
investment entity having the same investment objectives as the Fund or the
retaining of an investment adviser to manage the Fund's Assets in
accordance with the investment policies described herein with respect to
the corresponding Portfolio.
Each Fund's investment objective is not a fundamental policy and may be
changed upon notice to but without the approval of the Fund's shareholders.
If there is a change in a Fund's investment objective, the Fund's
shareholders should consider whether the Fund remains an appropriate
investment in light of their then-current needs. The investment objective
of each Portfolio is also not a fundamental policy. Shareholders of the
Funds will receive 30 days' prior written notice with respect to any change
in the investment objective of a Fund or the corresponding Portfolio. See
`Risk Factors and Certain Securities and Investment Practices'' in the SAI
for a description of the fundamental policies of each Portfolio that cannot
be changed without approval by `the vote of a majority of the outstanding
voting securities''(as defined in the 1940 Act) of the Portfolio.
For descriptions of the investment objective, policies and restrictions of
each Portfolio, see `The Funds in Detail'' herein and ``Risk Factors and
Certain Securities and Investment Practices''in this Prospectus and in the
SAI. For descriptions of the management of the Trust and the Portfolios,
see `Management of the Trust and the Portfolios'' herein and in the SAI.
For description of the expenses of the Portfolio, see `The Funds - Expense
Summary''herein and ``Management of the Trust and the Portfolios'' herein
and in the SAI.
SECURITIES AND INVESTMENT PRACTICES
EQUITY SECURITIES. As used herein, `equity securities'' are defined as
common stock, preferred stock, trust or limited partnership interests,
rights and warrants to subscribe to or purchase such securities, sponsored
or unsponsored ADRs, EDRs and GDRs, and convertible securities, consisting
of debt securities or preferred stock that may be converted into common
stock or that carry the right to purchase common stock. Common stocks, the
most familiar type, represent an equity (ownership) interest in a
corporation. Although equity securities have a history of long-term growth
in value, their prices fluctuate based on changes in a company's financial
condition and on overall market conditions. Smaller companies are
especially sensitive to these factors.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. Debt
securities, loans, and other direct debt have varying degrees of quality
and varying levels of sensitivity to changes in interest rates. Longer
term bonds are generally more sensitive to interest rate changes than
short-term bonds.
Lower quality foreign government securities are often considered to be
speculative and involve greater risk of default or price changes, or they
may already be in default. These risks are in addition to the general
risks associated with foreign securities.
CONVERTIBLE SECURITIES. A convertible security is a bond or preferred
stock which may be converted at a stated price within a specific period of
time into a specified number of shares of common stock of the same or
different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-
convertible debt securities. While providing a fixed income stream -
generally higher in yield than in the income derived from a common stock
but lower than that afforded by a non-convertible debt security - a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of common
stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion
value (the value of the underlying shares of common stock if the security
is converted). As a fixed income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise; however, the price of a
convertible security generally increases as the market value of the
underlying stock increases, and generally decreases as the market value of
the underlying stock declines. Investments in convertible securities
generally entail less risk than investments in the common stock of the same
issuer.
PREFERRED STOCK. Preferred stock has a preference in liquidation (and,
generally dividends) over common stock but is subordinated in liquidation
to debt. As a general rule, the market value of preferred stocks with
fixed dividend rates and no conversion rights varies inversely with
interest rates and perceived credit risk, with the price determined by the
dividend rate. Some preferred stocks are convertible into other
securities, for example common stock, at a fixed price and ratio or upon
the occurrence of certain events. The market price of convertible
preferred stocks generally reflects an element of conversion value.
Because many preferred stocks lack a fixed maturity date, these securities
generally fluctuate substantially in value when interest rates change; such
fluctuations often exceed those of long-term bonds of the same issuer.
Some preferred stocks pay an adjustable dividend that may be based on an
index, formula, auction procedure or other dividend rate reset mechanism.
In the absence of credit deterioration, adjustable rate preferred stocks
tend to have more stable market values than fixed rate preferred stocks.
All preferred stocks are also subject to the same types of credit risks of
the issuer as corporate bonds. In addition, because preferred stock is
junior to debt securities and other obligations of an issuer, deterioration
in the credit rating of the issuer will cause greater changes in the value
of a preferred stock than in a more senior debt security with similar yield
characteristics. Preferred stocks may be rated by S&P and Moody's although
there is no minimum rating thata preferred stock must have (and a preferred
stock may not be rated) to be an eligible investment for a portfolio.
Bankers Trust expects, however, that generally the preferred stocks in
which a portfolio invests will be rated at least CCC by S&P or Caa by
Moody's or, if unrated, of comparable quality in the opinion of Bankers
Trust. Preferred stocks rated CCC by S&P are regarded as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations and represent the highest degree of speculation among
securities rated between BB and CCC: preferred stocks rated Caa by Moody's
are likely to be in arrears on dividend payments. Moody's rating with
respect to preferred stocks does not purport to indicate the future status
of payments of dividends.
WARRANTS are instruments which entitle the holder to buy underlying equity
securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying securities.
U.S. GOVERNMENT SECURITIES are high-quality debt securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. government. Not all U.S. government securities are backed by the full
faith and credit of the United States. For example, securities issued by
the Farm Credit Banks or by the Federal National Mortgage Association are
supported by the instrumentality's right to borrow money from the U.S.
Treasury under certain circumstances. However, securities issued by other
agencies or instrumentalities are supported only by the credit of the
entity that issued them.
ADRS, GDRS AND EDRS are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial
institution. Designed for use in U.S. and European securities markets,
respectively, ADRs, GDRs and EDRs are alternatives to the purchase of the
underlying securities in their national markets and currencies. ADRs, GDRs
and EDRs are subject to the same risks as the foreign securities to which
they relate. See `Risk Factors and Certain Securities and Investment
Practices - Risks of Investing in Foreign Securities.''
ZERO COUPON SECURITIES are the separate income or principal components of a
debt instrument. These involve 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 may have interest rates that move in tandem with a
benchmark, helping to stabilize their prices.
SOVEREIGN AND SUPRANATIONAL DEBT OBLIGATIONS. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational
organizations (`sovereign debt obligations''), especially sovereign debt
obligations of developing countries, may involve a high degree of risk, and
may be in default or present the risk of default. The issuer of the
obligation or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal and interest when
due, and may require renegotiation or scheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend on
political as well as economic factors.
BRADY BONDS. `Brady bonds'' are bonds issued as a result of restructuring
of a country's debt obligations to commercial banks under the `Brady
plan.'' Brady bonds have 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.
RULE 144A SECURITIES are securities in the Untied States 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 or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the 15% limit on illiquid securities.
Under the supervision of the Board of Trustees of the Portfolio, Bankers
Trust determines the liquidity of restricted securities and, through
reports from Bankers Trust, the Board will monitor trading activity in
restricted securities. 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and
payment of these securities may take place as long as a month or more after
the date of the purchase commitment. The value of these securities is
subject to market fluctuation during this period and no income accrues to
the Portfolio until settlement takes place. The Portfolio maintains with
the Custodian a segregated account containing high grade securities in an
amount at least equal to these commitments.
REPURCHASE AGREEMENTS. In a repurchase agreement, a Portfolio buys a
security at one price and simultaneously agrees to sell it back at a higher
price. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
Portfolio temporarily transfers possession of a portfolio instrument to
another party in return for cash. This could increase the risk of
fluctuation in the Fund's yield or in the market value of its assets. A
reverse repurchase agreement is a form of borrowing and will be counted
towards each Portfolio's borrowing restrictions. See `Risk Factors and
Certain Securities and Investment Practices - Leverage''below and in the
SAI.
INVESTMENT COMPANIES. With respect to certain countries in which capital
markets are either less developed or not easily accessed, investments by
the Portfolio may be made through investment in other registered investment
companies that in turn are authorized to invest in the securities of such
countries. 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 INVESTMENTS. Each 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, a Portfolio's
assets may be invested in high quality short-term investments 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 respective markets.
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 Portfolio can increase its income by continuing to
receive income on the loaned securities as well as by the opportunity to
receive interest on the collateral. Any gain or loss in the market price
of the borrowed securities which occurs during the term of the loan inures
to the Portfolio and its investors. In lending securities to brokers,
dealers and other financial organizations, a Portfolio is subject to risks,
which, like those associated with other extension of credit, include delays
in recovery and possible loss of rights in the collateral should the
borrower fail financially.
LEVERAGE. The 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, each
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 a 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 each Portfolio's securities and the
corresponding Fund's net asset value and money borrowed by a 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.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The 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's having a contractual relationship only with the lender, not the
borrower. The Portfolio will have the right to receive payments of
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 also may make it more difficult in valuing the Portfolio
and, therefore, calculating the net asset value per share of the Fund. 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 net assets.
DERIVATIVES. Each Portfolio may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or `derived'' from, a
traditional security, asset, or market index. Some `derivatives'' such as
mortgage-related and other asset-backed securities are in may 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 is a range
of risks associated with those uses. Futures and options are commonly used
for traditional hedging purposes to attempt to protect a fund from exposure
to changing interest rates, securities prices, or currency exchange rates
and as a low cost method of gaining exposure to a particular securities
market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves
the use of a small amount of money to control a large amount of financial
assets, and can in some circumstances, lead to significant losses. Bankers
Trust will use derivatives only in circumstances where they offer the most
efficient means of improving the risk/reward profile of a Portfolio. The
use of derivatives for non-hedging purposes may be considered speculative.
Foreign Currency Exchange Transactions. Each Portfolio may enter into
foreign currency exchange transactions to convert to and from different
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 to 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. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Portfolio's
securities or in foreign exchange rates, or prevent loss if the prices of
these securities should decline.
A 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. 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. Each 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 U.S. dollar value of
portfolio securities and against increases in the U.S. dollar cost of
securities to be acquired. Each 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 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 a 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 a
Portfolio is unable to effect a closing purchase transaction with respect
to covered options in has written, the Portfolio will not be able to sell
the underlying currency or dispose of assets held in a segregated account
until it closes out the options or the options expire or are exercised.
Similarly, if the Portfolio is unable to close out options it has
purchased, it would have to exercise the options in order to realize any
profit and will incur transaction costs. The Portfolio pays brokerage
commissions or spreads in connection with its options transactions.
Options on Stocks. Each Portfolio (except the Global High Yield Securities
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 a Portfolio owns the underlying stock sold by
the Portfolio, exposes the Portfolio during the term of the option to
possible loss of opportunity to realize appreciation in the market price of
the underlying stock or to possible continued holding of a stock which
might otherwise have been sold to protect against depreciation in the
market price of the stock. A covered put option sold by a Portfolio
exposes the Portfolio during the term of the option to a decline in price
of the underlying stock.
Options on Securities Indices. Each Portfolio may purchase and write put
and call options on stock or bond indices listed on domestic and foreign
stock exchanges, in lieu of direct investment in the underlying securities
or for hedging purposes. A stock or bond index fluctuates with changes in
the market values of the securities included in the index.
Options on securities indices are generally similar to options on stocks
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 stock or bond 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.''
Successful use by a Portfolio of options on security indices will be
subject to Bankers Trust's ability to predict correctly movement in the
direction of the security market generally or of a particular industry.
This requires different skills and techniques than predicting changes in
the price of individual securities.
Futures Contracts on Securities Indices. A 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 domestic or foreign
securities (`Futures Contracts''). This investment technique may be used
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities or to hedge against
anticipated future changes in general market prices which 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.
When used for hedging purposes, 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 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 is 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.
The risks of Futures Contracts also include a potential lack of liquidity
in the secondary market and incorrect assessments of market.
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. A Portfolio
may not purchase or sell a Futures Contract if immediately thereafter its
margin deposits on its outstanding Futures Contracts, other than Futures
Contracts used for hedging purposes, would exceed 5% of the market value of
the Portfolio's total assets.
Options on Futures Contracts. Each Portfolio may invest in options on
futures contracts for similar purposes.
There can be no assurance that the use of these portfolio strategies will
be successful.
Asset Coverage. To assure that a Portfolio's use of futures and related
options, as well as when-issued and delayed delivery securities and foreign
currency exchange transactions, are not used to achieve invest leverage, a
Portfolio will cover such transactions, as required under applicable
interpretations, of the SEC, either by owning the underlying securities,
entering into an off-setting transaction, or by 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.
PORTFOLIO TURNOVER
The portfolio turnover rates for each Portfolio for the periods indicated
were as follows: Global High Yield Securities Portfolio - 207% and 169%,
for the fiscal years ended September 30, 1996, and 1995, respectively;
Capital Appreciation Portfolio - 271% and 125%, for the fiscal year ended
September 30, 1996, and for the period from January 1, 1995 to September
30, 1995, respectively; Small Cap Portfolio - 159% and 161%, for the fiscal
years ended September 30, 1996, and 1995, respectively; International
Equity Portfolio - 68% and 21%, for the fiscal year ended September 30,
1996, and for the period from January 1, 1995 to September 30, 1995,
respectively; Pacific Basin Equity Portfolio - 118% and 104%, for the
fiscal years ended September 30, 1996, and 1995, respectively; and Latin
American Equity Portfolio - 171% and 161% for the fiscal years ended
September 30, 1996 and 1995, respectively. These rates will vary from year
to year. High turnover rates increase transaction costs and may increase
investable capital gains. Bankers Trust considers these effects when
evaluating the anticipated benefits of short-term investing.
PERFORMANCE
Each Portfolio's recent strategies and holdings, and the corresponding
Fund's performance, is detailed twice a year in the Funds' financial
reports, which are sent to all Fund shareholders.
For current Fund performance or a free copy of the Funds' financial report,
please contact an Investment Professional.
Mutual fund performance is commonly measured as total return and/or yield.
Each Fund's performance is affected by the expenses of that Fund. The
exclusion of any applicable sales charge from a performance calculation
produces a higher return.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in a Fund over a given
period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return
that, if achieved annually, would have produced the same cumulative total
return if performance had been constant over the entire period. Average
annual total return calculations smooth out variations in performance; they
are not the same as actual year-by-year results. Average annual total
returns covering periods of less than one year assume that performance will
remain constant for the rest of the year.
Average annual and cumulative total returns may or may not include the
effect of paying the maximum applicable sales charge.
TOTAL RETURNS (AS OF SEPTEMBER 30, 1996)
AVERAGE ANNUAL CUMULATIVE TOTAL
TOTAL RETURN FOR RETURN FOR
LIFE OF FUND* LIFE OF FUND*
Global High Yield Securities Fund 23.52%(a) 9.51%(a)
Capital Appreciation Fund 22.60%(b) 13.50%(b)
Small Cap Fund 24.52%(c) 14.60%(c)
International Equity Fund 15.38%(d) 9.30%(d)
Pacific Basin Equity Fund (9.06)%(e) (4.00)%(e)
Latin American Equity Fund (2.53)%(f) (0.80)%(f)
(a) Fund commenced operations on April 26, 1996.
(b) Fund commenced operations on February 16, 1996.
(c) Fund commenced operations on February 16, 1996.
(d) Fund commenced operations on February 16, 1996.
(e) Fund commenced operations on April 26, 1996.
(f) Fund commenced operations on May 24, 1996.
* Excludes applicable maximum sales charges.
YIELD refers to the income generated by an investment in a Fund over a
given period of time, expressed an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted
yield may not equal the income actually paid to shareholders. This
difference may be significant for a Fund investing in a Portfolio whose
investments are denominated in foreign currencies.
Performance information may include comparisons of a Fund's investment
results to various unmanaged indices or results of other mutual funds or
investment or savings vehicles. From time to time, Fund rankings may be
quoted from various sources, such as Lipper Analytical Services, Inc.,
Value Line, and Morningstar, Inc.
Unlike some bank deposits or other investments which pay a fixed yield
for a stated period of time, the total return of a Fund will vary depending
upon interest rates, the current market value of the securities held by the
corresponding Portfolio and changes in the expenses of the Fund or
Portfolio. In addition, during certain periods for which total return may
be provided, Bankers Trust or Edgewood may have voluntarily agreed to waive
portions of their fees, or reimburse certain operating expenses of a Fund
or Portfolio, on a month -to-month basis. Such waivers will have the
effect of increasing the Fund's net income (and therefore its yield and
total return) during the period such waivers are in effect.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
MANAGEMENT OF THE TRUST AND THE PORTFOLIOS
BOARD OF TRUSTEES
The Trust and each Portfolio are governed by a Board of Trustees which is
responsible for protecting the interests of investors. A majority of the
Trustees who are not `interested persons'' (as defined in the 1940 Act) of
the Trust or the Portfolio, as the case may be, have adopted written
procedures reasonably appropriate to deal with potential conflicts of
interest arising from the fact that the same individuals are Trustees of
the Trust and the Portfolios, up to and including creating separate boards
of trustees. See `Management of the Trust and the Portfolios'' in the SAI
for more information with respect to the Trustees and officers of the Trust
and each Portfolio.
INVESTMENT ADVISER
The Trust has not retained the services of an investment adviser since the
Trust seeks to achieve the investment objective of each Fund by investing
all the Assets of the Fund in the corresponding Portfolio. Each Portfolio
has retained the services of Bankers Trust as investment adviser.
BANKERS TRUST COMPANY AND ITS AFFILIATES
Bankers Trust Company, a New York banking corporation with principal
offices at 280 Park Avenue, New York, New York 10017, is a wholly owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic
institutional market.
As of June 30, 1996, Bankers Trust New York Corporation was the seventh
largest bank holding company in the United States with total assets of
approximately $115 billion. Bankers Trust is a world wide merchant bank
dedicated to servicing the needs of corporations, governments, financial
institutions and private clients through a global network of over
120 offices in more than 40 countries. Investment management is a core
business of Bankers Trust, built on a tradition of excellence from its
roots as a trust bank founded in 1903. The scope of Bankers Trust's
investment management capability is unique due to its leadership positions
in both active and passive quantitative management and its presence in
major equity and fixed income markets around the world. Bankers Trust is
one of the nation's largest and most experienced investment managers with
approximately $215 billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the
past, these clients have been serviced through separate account and
commingled fund structures. Now, the BT Family of Funds brings Bankers
Trust's extensive investment management expertise -once available to only
the largest institutions in the U.S.- to individual investors. Bankers
Trust's officers have had extensive experience in managing investment
portfolios having objectives similar to those of each Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of each Portfolio, manages each Portfolio in accordance with the
Portfolio's investment objective and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who
provide research services to the Portfolio. Bankers Trust may utilize the
expertise of any of its world wide subsidiaries and affiliates to assist it
in its role as investment adviser. All orders for investment transactions
on behalf of a 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
fees not exceed usual and customary levels. The Portfolio will not invest
in obligations for which Bankers Trust or any of its affiliates is the
ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents and customers of Bankers Trust.
The Investment Advisory Agreement provides for each Portfolio to pay
Bankers Trust a fee, accrued daily and paid monthly, equal on an annual
basis to the following percentages of the average daily net assets of the
Portfolio for its then-current fiscal year: Global High Yield Securities
Portfolio, 0.80%; Capital Appreciation Portfolio, 0.65%; Small Cap
Portfolio, 0.65%; International Equity Portfolio, 0.65%; Pacific Basin
Equity Portfolio, 0.75%; and Latin American Equity Portfolio 1.00%. With
respect to Global High Yield Securities Portfolio, Pacific Basin Equity
Portfolio, and Latin American Equity Portfolio, the investment advisory fee
is higher than that of most funds, but not necessarily higher than that of
a typical international fund, due to the greater complexity, expense and
commitment of resources involved in international investing.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the
Portfolios described in this Prospectus and the SAI without violation of
the Glass-Steagall Act or other applicable banking laws or regulations.
State laws on this issue may differ from the interpretations of relevant
federal law, the banks and financial institutions may be required to
register as dealers pursuant to state securities law.
SUB-INVESTMENT ADVISER - PACIFIC BASIN EQUITY 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 registered investment
advisory subsidiary of Bankers Trust Australia Limited (`BTAL''). BTAL is
a wholly owned subsidiary of Bankers Trust New York Corporation. Under the
Sub-Advisory Agreement, Bankers Trust may receive investment advice and
research services with respect to companies 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 Pacific Basin Equity Portfolio. Under the
Sub-Advisory Agreement, BT Fund Managers International receives a fee from
Bankers Trust for providing investment advice and research services,
accrued daily and paid monthly, at the annual rate of 0.60% of the daily
assets of the Portfolio.
PORTFOLIO MANAGERS
Mr. Michael Levy has been the primary portfolio manager for the
International Equity Fund since August 1995. He also heads the
international active equity team, which is responsible for the day-to-day
management of the Portfolio. Mr. Levy has been the head of this team since
joining Bankers Trust in March, 1993, and is a Managing Director and
International Equity Strategist of Bankers Trust. The international active
equity team has provided input into the management of the Portfolio since
the Portfolio's commencement of operations. Prior to joining Bankers
Trust, Mr. Levy was an investment banker and an equity analyst with
Oppenheimer & Company. He has twenty-five years of business experience, of
which fifteen years have been in the investment industry.
Maria-Elena Carrion (CFA), Vice President of Bankers Trust, is primarily
responsible for the day-to-day management of the Latin American Equity
Portfolio. Ms. Carrion has been employed by Bankers Trust since April,
1993, and has managed the Portfolio's assets since the Portfolio's
commencement of operations. Prior to April, 1993, Ms. Carrion was employed
by Latin American Securities (London)(from June, 1991 to April, 1993).
Prior to June, 1991, Ms. Carrion was employed by U.S. Trust Company (from
September, 1986 to June, 1991).
David A. Reiss, Vice President of Bankers Trust and Stephen C. Freidheim,
Managing Director of Bankers Trust are responsible for the day-to-day
management of the Global High Yield Securities Portfolio. Mr. Reiss has
been employed by Bankers Trust since March, 1994, and has managed the
Portfolio's assets since March, 1994. From September, 1989 to March, 1994,
Mr. Reiss was a Portfolio Manager at Kidder Peabody Asset Management.
Prior to September, 1989, he was an associate in Mortgage Research at
Goldman, Sachs & Co. Mr. Freidheim has been employed by Bankers Trust
since August, 1993, and has managed the Portfolio's assets since December,
1993. From July, 1990 to July, 1993, he was a Senior Vice President and
Director of Research and Trading at Nomura Corporate Research and Trading
at Nomura Securities International. Mr. Freidheim was also on the Board of
Directors of Nomura Corporate Research and Asset Management. Prior to
July, 1990, he was Director of Research at Kidder, Peabody High Yield Asset
Management.
Paul Durham, Vice President of BTAL, is responsible for the day-to-day
management of the Pacific Basin Equity Portfolio. Mr. Durham has been
employed by Bankers Trust since January, 1988, and has managed the
Portfolio's assets since November, 1993.
Mr. Bluford Putnam (PhD), Managing Director of Bankers Trust and Chief
Investment Officer of Equity and Balanced Portfolios, is responsible for
the management oversight investment products specializing in small and
medium sized U.S. companies. The Small Cap and Capital Appreciation
Portfolios investment management includes seven investment professionals
headed by the team leader, Mr. Tim Woods (CFA), Vice President of Bankers
Trust.
Mr. Putnam has been employed by Bankers Trust since 1994. His previous
experience includes economist at the Federal Reserve Bank of New York,
principal at Morgan Stanley and Chief Economist at Kleinwort Benson, Ltd.
He was also a founding partner of Stern Stewart and Co., in 1982, a leading
corporate finance advisory firm and is the author of `the Blackwell Guide
to Wall Street,''which focused, in part, on equity valuation.
Ms. Mary P. Dugan (CFA), Vice President of Bankers Trust, and Mr.
Timothy Woods (CFA, Vice President of Bankers Trust, share senior portfolio
management responsibilities of the Small Cap Portfolio. Ms. Dugan joined
Bankers Trust in 1994. She has 13 years of investment analysis experience.
Previously, she worked at Fred Alger Management, Dean Witter, Integrated
Equitable Investment Management Corporation. Mr. Wood joined Bankers Trust
in 1992. He has twelve years of investment and financial experience.
Previously, he worked at Prudential Securities, Chase Manhattan bank and
Bank of Boston. Mr. Anthony Takazawa (CFA), Vice President of Bankers
Trust, has senior portfolio management responsibilities for the Capital
Appreciation Portfolio. Mr. Takazawa joined Bankers Trust in 1996. He has
eight years of investment and financial analysis experience. Previously, he
worked at Phoenix Mutual Life Insurance Company as an investment analyst,
portfolio manager and director of research.
Bankers Trust investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures of
personal investing and restricts certain transactions.
ADMINISTRATOR
Under its Administration and Services Agreement with the Trust, Bankers
Trust calculates the net asset value of each Fund and generally assists the
Board of Trustees of the Trust in all aspects of the administration and
operation of the Funds. The Administration and Services Agreement provides
for the Trust to pay Bankers Trust a fee, accrued daily and paid monthly,
equal on an annual basis to the following percentages of the average daily
net assets of the Fund for its then-current fiscal year: Global High Yield
Securities Fund, 0.95%; Capital Appreciation Fund, 0.65%; Small Cap Fund,
0.65%; International Equity Fund, 0.85%; Pacific Basin Equity Fund, 0.75%;
and Latin American Equity Fund 0.95%.
Under an Administration and Services Agreement with each Portfolio,
Bankers Trust calculates the value of the assets of the Portfolio and
generally assists the respective Board of Trustees in all aspects of the
administration and operation of the Portfolios. The Administration and
Services Agreement provides for each Portfolio to pay Bankers Trust a fee,
accrued daily and paid monthly, equal on an annual basis to the following
percentages of the Portfolio's average daily net assets for its then-
current fiscal year: Global High Yield Securities Portfolio, 0.20%;
Capital Appreciation Portfolio, 0.10%; Small Cap Portfolio, 0.10%;
International Equity Portfolio, 0.15%; Pacific Basin Equity Portfolio,
0.25%; and Latin American Equity Portfolio 0.20%. Under each
Administration and Services Agreement, Bankers Trust may delegate one or
more of its responsibilities to others, including affiliates of Edgewood,
at Bankers Trust's expense.
DISTRIBUTOR
Edgewood Services, Inc. (`Edgewood'') is the principal distributor for
shares of the Funds. In addition, Edgewood and its affiliates provide the
Trust with office facilities, and currently provide administration and
distribution services for other registered investment companies. The
principal business address of Edgewood and its affiliates is Clearing
Operations, P.O. Box 897, Pittsburgh, Pennsylvania 15230-0897.
DISTRIBUTION AND SERVICE PLANS
Pursuant to the terms of the Trust's Distribution and Service Plan pursuant
to Rule 12b-1 under the 1940 Act (the `Plan''), each Fund shall pay
Edgewood service fees equal on an annual basis up to 0.25% of each Fund's
average daily net assets as reimbursement for the costs of compensating
Investment Professionals for providing personal shareholder services and
maintaining shareholder accounts. In addition, each Fund shall pay
Edgewood a distribution fee equal on an annual basis to 0.25% (0.10% in the
case of Global High Yield Securities Fund) of each Fund's average daily net
assets as reimbursement for expenses incurred in connection with any
activities primarily intended to result in the sale of the Fund's shares,
including but not limited to: printing of prospectuses, statements of
additional information and reports for other than existing shareholders;
payment of asset-based sales charges or commissions to Investment
Professionals; costs of placing advertising in various media; services of
parties in formulating sales literature; and typesetting, printing and
distribution of sales literature. All costs and expenses in connection
with implementing and operating the Plan will be paid by each Fund, subject
to the 0.50% (0.35% in the case of Global High Yield Securities Fund) of
net assets limitation. All costs and expenses associated with preparing
the Prospectus and SAI including those in connection with printing and
distribution to existing shareholders and regulatory authorities, are costs
and expenses that are not considered distribution expenses for purposes of
the Plan, and will also be paid by the Funds. To the extent expenses of
Edgewood under the Plan in any fiscal year of the Trust exceed amounts
payable under the Plan during that year, those expenses may be reimbursed
in a succeeding fiscal year; however, no carrying charge or interest will
be added to the amount of the expense. Expenses incurred in connection
with distribution activities will be identified to each Fund or the other
series of the Trust involved, although it is anticipated that some
activities may be conducted in a Trust-wide basis, with the result that
those activities will not be identifiable to any particular series. In the
latter case, expenses will be allocated among the series of the Trust.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as custodian of the assets of the Trust and each
Portfolio and serves as the transfer agent (the `Transfer Agent'') for the
Trust and each Portfolio under the Administration and Services Agreement
with the Trust and each Portfolio.
ACCOUNT INFORMATION
TYPES OF ACCOUNTS
Read your Investment Professional's program materials in conjunction with
this Prospectus for details of services that may differ from those
described in the Prospectus and for additional fees that may apply. Some
of the services and features of this Prospectus may not be available to
you. Certain features of the Funds, such as minimum initial or subsequent
investment amounts, may be modified in these programs, and administrative
charges may be imposed for the services rendered.
The different ways to set up (register) your account with BT Advisor Funds
are listed below.
The account guidelines that follow may not apply to certain Funds or to
certain retirement accounts. If your employer offers a Fund through a
retirement program, contact your employer for more information. Otherwise,
call your Investment Professional directly,
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two
or more owners (tenants). Joint accounts by be joint tenants in common or
joint tenants with rights of survivorship.
RETIREMENT
TO SHELTER YOUR RETIREMENT SAVINGS FROM TAXES
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may
be tax deductible. Retirement accounts require special applications and
typically have lower minimums.
INDIVIDUAL RETIREMENT ACCOUNTS (`IRAS'') allow anyone of legal age under
70 1/2 with earned income to invest up to $2,000 per tax year. Individuals
can also invest in a spouse's IRA if the spouse has earned income of less
than $250.
ROLLOVER IRAS retain special tax advantages for certain distributions from
employer sponsored retirement plans.
SIMPLIFIED EMPLOY PENSION PLANS (`SEP-IRAS'') provide small business
owners or those with self-employed income (and their eligible employees)
with many of the same advantages as a Keogh Plan, but with fewer
administrative requirements.
401(K) PLANS allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax deferred basis. These accounts need to
be established by the trustee of the plan.
MONEY PURCHASE/PROFIT SHARING PLANS (`KEOGH PLANS'') are tax deferred
pension accounts designated for employees of unincorporated businesses or
for persons who are self-employed.
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child
without paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA). Contact your Investment
Professional.
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Contact your Investment Professional.
HOW TO BUY SHARES
Once each business day, two share prices are calculated for shares of
each Fund: the offering price and the Net Asset Value (`NAV''). The
offering price includes a front-end sales charge, which you pay when you
buy shares of a Fund, unless you qualify for a reduction or waiver as
described herein. When you buy shares at the offering price, the Transfer
Agent deducts the applicable sales charge and invests the rest at NAV.
Shares are purchased at the next offering price or NAV, as applicable,
calculated after your investment is received and accepted. The offering
price and NAV are normally calculated at 4:00 p.m. Eastern time.
If you are placing your order through an Investment Professional, it is the
responsibility of your Investment Professional to transmit your order to
buy Shares to the Transfer Agent before 4:00 p.m. Eastern time.
The Transfer Agent must receive payment within three business days after an
order for Shares is placed; otherwise, your purchase order may be canceled
and you could be held liable for resulting fees and/or losses.
Share certificates are not available for Shares of the Funds.
IF YOU ARE NEW TO BT ADVISOR FUNDS, complete and sign an account
application and mail it along with you check. If there is no account
application accompanying this Prospectus, call your Investment
Professional.
IF YOU ALREADY HAVE MONEY INVESTED IN A FUND IN THE BT FAMILY OF FUNDS, you
can:
Mail an account application with a check,
Wire money into your account,
Open an account by exchanging from another fund in the BT Family of Funds,
or
Contact your Investment Professional.
If you are investing through a tax-sheltered retirement plan, such as an
IRA, for the first time, you will need a special application. Contact your
Investment Professional for more information and a retirement account
application.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500
For retirement accounts 500
Through automatic investment plans 1,000
TO ADD TO AN ACCOUNT $250
For retirement accounts 100
Through automatic investment plan 100
MINIMUM BALANCE $1,000
For retirement accounts None
For further information on opening an account, please consult your
Investment Professional or refer to the account application.
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
PHONE YOUR
INVESTMENT PROFESSIONAL Contact your Investment Professional. Contact
your Investment Professional or call
If you are an existing Shareholder, you 1-(800)-730-1313. You may exchange
from may exchange from another BT account another BT Advisor Funds account
(or a with the same registration, including, fund in the BT Family of
Funds) with the name address, and taxpayer ID number. same registration,
including name, address and taxpayer ID number.
MAIL Complete and sign the account Make your check payable to the
complete application. Make your check name of the Fund of your choice.
Indicate payable to the complete name of the your Fund account number on
your check Fund of your choice. Mail to the and mail to the address
printed on your appropriate address indicated on the account statement.
application.
Exchange by mail: Call your Investment
Professional for instructions.
IN PERSON Take your account application and Take your check to your
Investment
check to your Investment Professional.
Professional.
WIRE Not available. Call your Investment Professional or wire to:
ROUTING NO.: 021001033
ATTN: Bankers Trust/IFTC Deposit
DDA NO.: 00-226-296
FBO: (Account name)
(Account number)
CREDIT: Fund Number
Global High Yield Securities Fund - 506
Capital Appreciation Fund - 501
Small Cap Fund - 502
International Equity Fund - 503
Pacific Basin Equity Fund - 504
Latin American Equity Fund - 505
Specify the complete name of the fund of
your choice, and include your account
number and your name.
AUTOMATICALLY Not available. Use the Systematic Investment Program.
Sign up for this service when opening your
account on your application, or call your
Investment Professional to begin the
program. The initial minimum investment
in this program is $1,000.
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your Shares. Your Shares shall be sold
at the next NAV calculated after an order is received by the Transfer
Agent. NAV is normally calculated at 4:00 p.m. Eastern time.
TO SELL SHARES IN A RETIREMENT ACCOUNT, your request must be made in
writing, except for exchanges to other eligible funds in the BT Family of
Funds, which can be requested by phone or in writing. For information on
retirement distributions, contact your Investment Professional or call 1-
800-677-7596.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR NON-RETIREMENT ACCOUNT SHARES,
leave at least $1,000 worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE you will need to sign up for these services in
advance when completing your account application.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Bankers Trust from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
You wish to redeem more than $100,000 worth of Shares,
Your account registration has changed within the last 30 days,
The check is being mailed to a different address than the one on your
account (record address),
The check is being made payable to someone other than the account owner,
The redemption proceeds are being transferred to a BT account with a
different
registration, or
You wish to have redemption proceeds wired to a non-predesignated bank
account.
You should be able to obtain a signature guarantee from a bank, broker,
dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency, or savings association. A notary public
cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a `letter of instruction'' with:
Your name,
The Fund's name and Fund's number,
Our Fund account number,
The dollar amount or number of Shares to be redeemed and
Any other applicable requirements listed in the following table.
Deliver your letter to your Investment Professional, or mail it to the
following address:
Bankers Trust Company
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
Bankers Trust Company
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
Unless otherwise instructed, the Transfer Agent will send a check to the
record address.
ADDITIONAL INFORMATION ABOUT SELLING SHARES
ACCOUNT TYPE SPECIAL REQUIREMENTS
PHONE YOUR INVESTMENT
PROFESSIONAL All account types except retirement Maximum check
request: $100,000
All account types You may exchange to other BT Advisor
Funds (or other funds in the BT Family
of Funds) if both accounts are registered
with the same name(s), address, and
taxpayer ID number.
MAIL OR IN PERSON Individual, Joint Tenant, Sale The letter of
instruction (with signature
Proprietorship, UGMA, UTMA guaranteed, if required) must be signed
by
all persons required to sign for transactions,
exactly as their names appear on the account
and sent to your Investment Professional or
the Transfer Agent.
Retirement account The account owner should complete a
retirement distribution form. Contact your
Investment Professional or call
1-800-677-7596.
Trust The trustee must sign the letter indicating
capacity as trustee. If the trustee's name is
not on the account registration, provide a
copy of the trust document certified within
the last 60 days.
Business or Organization At least one person authorized by corporate
resolution to act on the account must sign
the letter.
Executor, Administrator, For instructions contact your Investment
Conservator/Guardian Professional or call 1-800-730-1313.
WIRE All account types except retirement You must sign up for the wire
feature before
using it. To verify that it is in place, contact
your Investment Professional or call
1-800-730-1313. Minimum wire: $1,000.
Your wire redemption request must be
received by the Transfer Agent before
4:00 p.m. Eastern time for money to be
wired on the next business day.
INVESTOR SERVICES
BT Advisor Funds provide a variety of services to help you manage your
account.
INFORMATION SERVICES
STATEMENTS AND REPORTS that your Investment Professional or the Transfer
Agent will send to you include the following:
Confirmation statements (after every transaction that affects your account
balance, including distributions or your account registration)
Account statements (quarterly)
Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed,
even if you have more than one account in the Fund. Call your Investment
Professional if you need additional copies of financial reports.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your Shares and buy Shares of other funds
in the BT Family of Funds by telephone or in writing. The shares you
exchange will carry credit for any front-end sales charge you previously
paid in connection with their purchase. If you are exchanging from the
Global High Yield Securities Fund to another Fund, no incremental sales
charge will be assessed.
Note that exchanges out of a Fund may be limited to four per calendar
year and that they may have tax consequences for you. For detail on
policies and restrictions governing exchanges, including circumstances
under which a shareholder's exchange privilege may be suspended or revoked,
see `Exchange Limitations'' herein.
REGULAR INVESTMENT PLANS
SYSTEMATIC INVESTMENT PROGRAM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO BT ADVISOR FUNDS
MINIMUM MINIMUM
INITIAL SUBSEQUENT FREQUENCY SETTING UP OR CHANGING
$1,000 $100 Monthly, bimonthly, For a new account, complete the
appropriate section
quarterly or semi- on the application.
annually
For existing accounts, call your Investment
Professional for an application.
To change the amount or frequency of your
investment, contact your Investment
Professional directly or call 1-800-730-1313.
Call at least 10 business days prior to your next
scheduled investment date.
SYSTEMATIC WITHDRAWAL PROGRAM lets you set up periodic redemptions from
your account. Because of the Shares' front-end sales charge, you may not
want to set up a systematic withdrawal plan during a period when you are
buying Shares on a regular basis.
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, quarterly, semi-annually or To establish, call your
Investment Professional or call
annually 1-800-730-1313 after your account is open. The accounts
from which the withdrawals be processed must have a
minimum balance of $10,000.
One easy way to pursue your financial goals is to invest money regularly.
BT Advisor Funds offer convenient services that let you transfer money into
your fund account, or between fund accounts automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for
retirement, a home, educational expenses, and other long-term financial
goals. Certain restrictions apply for retirement accounts. Call your
Investment Professional for more information.
SYSTEMATIC EXCHANGE PROGRAM
TO MOVE MONEY FROM ONE FUND IN THE BT FAMILY OF FUNDS TO ANOTHER
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, quarterly, semi-annually or To establish, call your
Investment Professional after
annually both accounts are open.
To change the amount or frequency of your investment,
contact your Investment Professional directly or call
1-800-730-1313. Call at least two business days prior
to your next scheduled exchange date.
The account for which the exchanges are to be processed
must have a minimum balance of $10,000. The account
into which the exchange is being processed must have a
minimum of $1,000.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each Fund distributes substantially all of its net income and capital gains
to shareholders each year. Each Fund distributes capital gains annually.
Normally, income dividends for the Global High Yield Securities Fund and
the Capital Appreciation Fund are distributed quarterly; income dividends
for the Small Cap Fund, International Equity Fund, Pacific Basin Equity
Fund and the Latin American Equity Fund are distributed annually.
DISTRIBUTION OPTIONS
When you open an account, specify on your account application how you want
to receive distributions. The Trust offers four options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional Shares of the Fund. If you do
not indicate a choice on your application you will be assigned this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested in additional Shares of the Fund, but you will be
sent a check for each dividend distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital
gain distributions.
4. AUTOMATIC DIVIDENDS PROGRAM. Your dividend and capital gain
distributions will be automatically invested in Shares of another fund in
the BT Family of Funds as long as minimums for that account are met.
If you select distribution option 2 or 3 and the U.S. Postal Service cannot
deliver your checks, or if your checks remain uncashed for six months,
those checks will be reinvested in your account at the current NAV and your
election may be converted to the Reinvestment Option. You may change
distribution option at any time by notifying the Transfer Agent in writing.
FOR RETIREMENT ACCOUNTS, all distributions are automatically reinvested.
When you are over 59 1/2 years old, you can receive distributions in cash.
If distributions from a retirement account for any taxable year following
the year in which the participant reaches age 70 1/2 are less than the
`minimum required distribution'' for that taxable year, an excise tax
equal to 50% of the deficiency may be imposed by the Internal Revenue
Service (the `IRS''). The administrator, trustee or custodian of such a
retirement account will be responsible for reporting distributions from
such accounts to the IRS.
Shares purchased through reinvestment of dividend and capital gain
distributions are not subject to a sales charge.
When each of the Funds deducts a distribution from its NAV, the
reinvestment price is the applicable Fund's NAV at the close of business
that day. Distribution checks will be mailed within seven days, or longer
for a December ex-dividend date.
TAXES
As with any investment, you should consider how an investment in the Funds
could affect you. Below are some of the Funds' tax implications. If your
account is not a tax-deferred retirement account beware of these tax
implications.
TAXES ON DISTRIBUTIONS. Distributions from the Funds are subject to
federal income tax and may also be subject to state or local taxes. Annual
statements as to the federal tax status of distributions, and distributions
that are attributable to state and local income and personal taxes, if
applicable, will be mailed to shareholders shortly after the end of the
year. If living outside the United States, your distributions from the
Funds could also be taxed by the country in which you reside.
For federal tax purposes, income and short-term capital gain distributions
from each of the Funds are taxed as dividends; long-term capital gain
distributions are taxed as long-term capital gains.
Mutual fund dividends from U.S. government securities are generally free
from state and local income taxes. However, particular states may limit
this benefit, and some types of securities, such as repurchase agreements
and some agency-backed securities, may not qualify for the benefit. In
addition, some states may impose intangible property taxes. You should
consult your own tax advisor for details and up-to-date information on the
tax laws in your state.
Distributions are taxable when they are paid, whether you take them in cash
or reinvest them. However, distributions declared in December and paid in
January are taxable as if they were paid on December 31.
Every January, the Transfer Agent will send the IRS a statement showing the
taxable distributions paid to you in the previous year.
TAXES ON TRANSACTIONS. Your redemptions, including exchanges, are subject
to capital gains tax. A capital gain or loss is the difference between the
cost of your Shares and the price you receive when you sell them.
Whenever you sell Shares of a Fund, the Transfer Agent will send you or
your Investment Professional a confirmation statement showing how many
Shares you sold and at what price. You also receive a consolidated
transaction statement at least quarterly. However, it is up to you or your
tax preparer to determine whether this sale resulted in a capital gain and,
if so, the amount of tax to be paid. BE SURE TO KEEP YOUR REGULAR ACCOUNT
STATEMENTS; the information they contain will be essential in calculating
the amount of your capital gains.
`BUYING A DIVIDEND.'' If you buy Shares just before a Fund deducts a
capital gain distribution or dividend distribution, as applicable, from its
NAV, you will pay the full price for the Shares and then receive a portion
of the price back in the form of a taxable distribution.
CURRENCY CONSIDERATIONS. If a Fund's dividends exceed its taxable income
in any year, which is sometimes the result of currency-related losses, all
or a portion of the Fund's dividends may be treated as a return of capital
to shareholders for tax purposes. To minimize the risk of a return of
capital, each of the Funds may adjust its dividends to take currency
fluctuations into account, which may cause the dividends to vary. Any
return of capital will reduce the cost basis of your Shares, which will
result in a higher reported capital gain or a lower reported capital loss
when you sell your Shares. The statement you receive in January will
specify whether any distributions included a return of capital.
Undistributed net gains from currency transactions, if any, will generally
be distributed as a separate dividend in December.
There are tax requirements that all Funds must follow in order to avoid
federal taxation. In its effort to adhere to these requirements, a Fund
may have to limit its investment activity in some types of instruments.
VALUATION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(`NYSE'') is open. Each Fund's NAV and offering price, as applicable, is
calculated as of the close of regular trading on the NYSE, currently 4:00
p.m. Eastern time.
A FUND'S NAV is the net asset value of a single Share. The NAV of each
Fund is computed by dividing the value of the Fund's Assets (i.e., the
value of its investment in the Portfolio and other assets), less all
liabilities, by the total number of its Shares outstanding. Each
Portfolio's securities and other assets are valued primarily on the basis
of market quotations or, if quotations are not readily available, by
Bankers Trust pursuant to procedures adopted by the Portfolio's Board of
Trustees. These procedures require Bankers Trust to value such a security
at the same value as an equivalent security which is readily marketable
and, in making such comparisons, to consider all relevant factors under
applicable guidelines of the SEC.
THE OFFERING PRICE (price to buy one Share) is the applicable Fund's NAV,
plus a sales charge. The Funds have a maximum sales charge of 4.75% of the
offering price (3.75% for the Global High Yield Securities Fund).
SALES CHARGE AND INVESTMENT PROFESSIONAL CONCESSIONS
(FOR EACH FUND EXCEPT THE GLOBAL HIGH YIELD SECURITIES FUND)
INVESTMENT
SALES CHARGE AS A PROFESSIONAL
% OF CONCESSION AS
OFFERING NET AMOUNT % OF OFFERING
AMOUNT INVESTED PRICE INVESTED PRICE
Less than $50,000 4.75% 4.99% 4.00%
$50,000 to less than $100,000 4.50 4.71 4.00
$100,000 to less than $250,000 3.50 3.63 3.00
$250,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1 million 2.00 2.04 1.75
$1 million or more None None See below(a)
GLOBAL HIGH YIELD SECURITIES FUND
INVESTMENT
SALES CHARGE AS A PROFESSIONAL
% OF CONCESSION AS
OFFERING NET AMOUNT % OF OFFERING
AMOUNT INVESTED PRICE INVESTED PRICE
Less than $50,000 3.75% 3.90% 3.00%
$50,000 to less than $100,000 3.50 3.63 3.00
$100,000 to less than $250,000 2.50 2.56 2.00
$250,000 to less than $500,000 1.50 1.52 1.00
$500,000 to less than $1 million 1.00 1.01 0.75
$1 million or more None None See below(a)
(a) Investment Professionals will be compensated with a fee (based on
average assets) of 1.00% for purchase amounts of $1 million to $3 million
of assets, 0.50% on the next $3 million to $20 million of assets and 0.15%
for assets over $20 million. Assets must remain in the Fund(s) for a
period of 18 uninterrupted months, or the Investment Professional will be
required to refund this fee to Edgewood. If the assets are exchanged into
a BT Advisor Fund which does not have a sales charge within the 18 month
period, the Investment Professional will be required to refund this fee.
REINSTATEMENT PRIVILEGE. If an investor sold all or part of their Shares
of a Fund, they may reinvest an amount equal to all or a portion of the
redemption proceeds in the same Fund or another BT Advisor Fund, without
paying any sales charge, at the NAV next determined after receipt of the
investment order, provided that such reinvestment is made within 30 days of
redemption. An investor must reinstate their Shares into an account with
the same registration. This privilege may be exercised only once by a
shareholder with respect to a Fund and certain restrictions may apply.
WHEN AN INVESTOR SIGNS AN ACCOUNT APPLICATION, they will be asked to
certify that their social security or taxpayer identification number is
correct and that they are not subject to 31% backup withholding for failing
to report income to the IRS. If they violate IRS regulations, the IRS can
require a Fund to withhold 31% of the investor's taxable distributions and
redemptions.
AN INVESTOR MAY INITIATE MANY TRANSACTIONS BY TELEPHONE: An Investment
Professional or the Transfer Agent may only be liable for losses resulting
from unauthorized transactions if they do not follow reasonable procedures
designed to verify the identity of the caller. An Investment Professional
or the Transfer Agent will request personalized security codes or other
information, and may also record calls. An investor should verify the
accuracy of the confirmation statements immediately after receipt. If
investors do not want the ability to redeem and exchange by telephone, they
should call their Investment Professional or the Transfer Agent for
instructions. Additional documentation may be required from corporations,
associations, and certain fiduciaries.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. Purchase orders may be
refused if, in Bankers Trust's opinion, they would disrupt management of a
Fund.
WHEN INVESTORS PLACE AN ORDER TO BUY SHARES, their Shares will be purchased
at the next NAV or offering price, as applicable, calculated after the
order is received and accepted by the Transfer Agent. Note the following:
All checks should be made payable to the specific Fund.
All purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks.
The Funds do not accept third-party checks, except those payable to an
existing shareholder who is a natural person (not a corporation or
partnership), credit cards or cash.
When making a purchase with more than one check, each check must have a
value of at least $50.
Each Fund reserves the right to limit the number of checks processed at one
time.
If a check does not clear, the purchase will be canceled and the investor
could be liable for any losses or fees a Fund or the Transfer Agent has
incurred.
When purchase orders are made by check or periodic automatic investment,
redemptions will not be allowed until the investment being redeemed has
been in the account for 15 business days.
Direct Purchases: Investors begin to earn dividends as of the first
business day following the day the Fund receives payment.
Automated Order Purchases: Investors begin to earn dividends as of the
business day your order is received and accepted.
AUTOMATED ORDERS PURCHASE. Shares of the Funds can be purchased or sold
through Investment Professionals utilizing an automated order placement and
settlement system that guarantees payment for orders on a specified date.
TO AVOID THE COLLECTION PERIOD associated with check purchases, consider
buying Shares by bank wire, U.S. Postal money order, U.S. Treasury check,
or Federal Reserve check.
WHEN INVESTORS PLACE AN ORDER TO SELL SHARES, Shares will be sold at the
next NAV calculated after the order is received and accepted. Note the
following:
Normally, redemption proceeds will be mailed on the next business day, but
if making immediate payment could adversely affect a Fund it may take up to
seven days to pay you.
Shares of the Funds will earn dividends through the date of redemption;
however, Shares redeemed on a Friday or prior to a holiday will continue to
earn dividends until the next business day.
Each Fund may hold payment on redemptions until it is reasonably satisfied
that investments made by check have been collected which can take up to
seven business days.
Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
THE TRANSFER AGENT RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE
of $12.00 from accounts with a value of less than $2,500 (including any
amount paid as a sales charge). The fee, which is payable to the Transfer
Agent, is designed to offset in part the relatively higher costs of
servicing smaller accounts.
IF A NON-RETIREMENT ACCOUNT BALANCE FALLS BELOW $1,000, the investor will
be given 30 days' notice to reestablish the minimum balance. If the
investor does not increase their balance, the Transfer Agent reserves the
right to close the account and send the proceeds to the investors. Shares
will be redeemed at the NAV on the day the account is closed.
THE TRANSFER AGENT MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
EXCHANGE LIMITATIONS
As a shareholder, you have the privilege of exchanging Shares of a Fund for
Shares of other funds in the BT Family of Funds. However, investors should
note the following:
The Fund an investor exchanges into must be registered for sale in their
state.
Investors may only exchange between accounts that are registered in the
same name, address, and taxpayer identification number.
Before exchanging into a Fund, investors should read its Prospectus.
Exchanges between the Funds described in this Prospectus and Funds
described in other BT Funds' prospectuses are restricted during the 90 days
following purchase. Exchanges among the Funds described in this Prospectus
are permitted at any time after purchase.
Exchanges may have tax consequences for you.
Because excessive trading can hurt Fund performance and shareholders, each
Fund reserves the right to temporarily or permanently terminate the
exchange privilege of any investor who makes more than four exchanges out
of the Fund per calendar year. Accounts under common ownership or control,
including accounts with the same taxpayer identification number, will be
counted together for purposes of the four exchange limit.
Each Fund reserves the right to refuse exchange purchases by any person or
group if, in Bankers Trust's judgment, the Fund would be unable to invest
the money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
Exchanges may be restricted or refused if a Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets.
In particular, a pattern of exchanges that coincide with a `market
timing''strategy may be disruptive to a Fund.
Although the Funds will attempt to give prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The Funds reserve the right to terminate or modify the exchange privilege
in the future on 60 days' notice to shareholders.
SALES CHARGE REDUCTIONS AND WAIVERS
The front-end sales charge will be reduced for purchases of shares
according to the Sales Charge Schedule shown herein if your purchase
qualifies for one of the following reduction plans.
The following programs are available for front-end sales charge reduction.
QUANTITY DISCOUNTS apply to purchases of Shares of a single Fund or to
combined purchases of Shares of other BT Advisor Funds, including Funds in
this Prospectus and in any other BT Advisor Funds' prospectus. (Minimum
investment is $50,000).
To qualify for a Quantity Discount, investing in a Fund's Shares for
several accounts at the same time will be considered a single transaction
(Combined Purchase) as long as Shares are purchased through one Investment
Professional and the total is at least $50,000.
RIGHTS OF ACCUMULATION let you determine your front-end sales charge on a
Fund's Shares by adding to your new purchase the value of all of BT Advisor
Fund Shares including Funds in this Prospectus and in any other BT Advisor
Funds' prospectus held by you, your spouse, and your children under age 21.
A LETTER OF INTENT lets you receive the same reduced front-end sales charge
on purchases of Shares made during a 13-month period as if the total amount
invested during the period in BT Advisor Funds in this Prospectus and in
any BT Advisor Funds' prospectus had been invested in a single lump sum
(see `Quantity Discounts'' above). You must file your non-binding Letter
within 90 days of the start of your purchases. Your initial investment
must be at least 5% of the amount you plan to invest. Out of the initial
investment, 5% of the dollar amount specified in the Letter will be
registered in your name and held in escrow. You will earn income dividends
and capital gain distributions on escrowed Shares. Neither income
dividends nor capital gain distributions reinvested in additional Shares
will apply toward completion of the Letter. The escrow will be released
when your purchase of the total amount has been completed. You are not
obligated to complete the Letter, and in such a case, sufficient escrowed
Shares will be redeemed to pay any applicable front-end sales charges.
A front-end sales charge will not apply to the following Shares:
Purchased by an existing Bankers Trust investment management client;
Purchased by a bank trust officer, registered representative, or other
employee (or a member of one of their immediate families) of Investment
Professionals having agreements with Edgewood or Bankers Trust;
Purchased by a current or former trustee or officer of a BT Fund or a
current or retired officer, director or regular employee of Bankers Trust
or its direct or indirect subsidiaries (a Bankers Trust trustee or
employee), the spouse of a Bankers Trust trustee or employee, a Bankers
Trust trustee or employee acting as custodian for a minor child, or a
person acting as trustee of a trust for the sole benefit of the minor child
of a Bankers Trust trustee or employee;
Purchased by a charitable organization (as defined in Section 501(c)(3) of
the Internal Revenue Code) investing $100,000 or more;
Purchased for a charitable remainder trust or life income pool established
for the benefit of a charitable organization (as defined in Section 501
(c)(3) of the Internal Revenue Code);
Purchased by a trust institution or bank trust department investing on its
own behalf or on behalf of its clients;
Purchased in an account for which an Investment Professional, bank,
broker-dealer or financial advisor charges an asset management fee,
provided the Investment Professional's bank, broker-dealer or financial
advisor has an agreement with Edgewood or Bankers Trust;
Purchased as part of an employee benefit plan having more than 200 eligible
employees or a minimum of $1 million of plan assets;
Purchased for any state, county, or city, or any governmental
instrumentality, department, authority or agency; or
Purchased with redemption proceeds from other mutual fund complexes on
which you have previously paid a front-end sales charge;
Purchased as an exchange from any Fund in this Prospectus or in any other
BT Funds' prospectus.
ADDITIONAL INFORMATION ABOUT THE TRUST AND PORTFOLIOS
A mutual fund is an investment that pools shareholders' money and
invests it toward a specified goal. Each Fund (with the exception of the
Global High Yield Securities Fund) is a separate diversified series of BT
Advisor Funds, a Massachusetts business trust. The Global High Yield
Securities Fund is a non-diversified series of BT Advisor Funds. Each of
the Small Cap Portfolio, Pacific Basin Equity Portfolio, and Latin American
Equity Portfolio is a separate diversified subtrust of BT Investment
Portfolios, a New York master trust fund. The Global High Yield Securities
Portfolio is a non-diversified subtrust of BT Investment Portfolios. Each
of the Capital Appreciation Portfolio and International Equity Portfolio is
a New York trust.
Each of the Trust and BT Investment Portfolios reserves the right to add
additional series in the future. The Trust also reserves the right to
issue more than one class of shares of each Fund.
The Trust or a Portfolio may hold special meetings and mail proxy
materials. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a Portfolio's investment advisory
agreement, or for other purposes. Shareholders not attending these
meetings are encouraged to vote by proxy. The Trust's Transfer Agent will
mail proxy materials in advance, including a voting card and information
about the proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of each Fund
will have one vote for each full share held and proportionate, fractional
votes for fractional shares held. A separate vote of one of the Funds is
required on any matter affecting only that Fund on which shareholders are
entitled to vote. Shareholders of a Fund are not entitled to vote on Trust
matters that do not affect that Fund and do not require a separate vote of
the Fund. All series of the Trust will vote together on certain matters,
such as electing trustees or approving independent public auditors. There
normally will be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of Trustees
holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election
of Trustees. Any Trustee may be removed from office upon the vote of
shareholders holding at least two-thirds of the Trust's outstanding shares
at a meeting called for that purpose. The Trustees are required to call
such a meeting upon the written request of shareholders holding at least
10% of the Trust's outstanding shares. The Trust will also assist
shareholders in communicating with one another as provided for in the 1940
Act.
Each series of the Trust will vote separately on any matter involving the
corresponding Portfolio. Shareholders of all of the series of the Trust
will, however, vote together to elect Trustees of the Trust and for certain
other matters. Under certain circumstances, the shareholders of one or
more series could control the outcome of these votes. The series of BT
Investment Portfolios will vote together or separately on matters in the
same manner, and in the same circumstances, as do the series of the Trust.
As with the Trust, the investors in one or more series of BT Investment
Portfolios could control the outcome of these votes.
The Trust is an entity of the type commonly known as a `Massachusetts
business trust.'' Under Massachusetts law, shareholders of such a business
trust may, under certain circumstances, be held personally liable as
partners for its obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and the Trust
itself was unable to meet its obligations.
Each Portfolio was organized as a trust under the laws of the State of
New York. Each Portfolio's Declaration of Trust provides that each Fund
and other entities investing in a Portfolio (e.g., other investment
companies, insurance company separate accounts and common and commingled
trust funds) will each be liable for all obligations of that Portfolio.
However, the risk of a Fund incurring financial loss as a result of such
liability is limited to circumstances in which both inadequate insurance
existed and a Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Funds nor
their shareholders will be adversely affected by reason of the Funds'
investing in the Portfolios. No series of BT Investment Portfolios has any
preference over any other series.
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 refereed 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.
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&P CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by S&P 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 rated 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.
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.
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
favourable 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.
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 BankWatch 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 is 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.)
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.
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
COUNSEL
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statements of Additional Information or the Trust's official sales
literature in connection with the offering of the Trust's shares and, if
given or made, such other information or representations must not be relied
on as having been authorized by the Trust. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such
offer may not lawfully be made.
CUSIPS: 05576L106
05576L205
05576L304
05576L403
05576L502
05576L601
G01886-01 (11/96)
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 30, 1996
BT ADVISOR FUNDS
GLOBAL HIGH YIELD SECURITIES FUND
CAPITAL APPRECIATION FUND
SMALL CAP FUND
INTERNATIONAL EQUITY FUND
LATIN AMERICAN EQUITY FUND
PACIFIC BASIN EQUITY FUND
BT Advisor Funds (the "Trust") is currently comprised of ten funds.
The shares of six of the funds -- Global High Yield Securities Fund,
Capital Appreciation Fund, Small Cap Fund, International Equity Fund, Latin
American Equity Fund and Pacific Basin Equity Fund, (each, a "Fund") -- are
described herein.
Table of Contents
Risk Factors and Certain Securities and Investment Practices 3
Performance Information 24
Valuation of Securities; Redemptions and Purchases in Kind 27
Management of the Trust and the Portfolios 30
Organization of the Trust 36
Taxation 36
Financial Statements 39
As described in the Prospectus, the Trust seeks to achieve the
investment objectives of each Fund by investing all the investable assets
("Assets") of the Fund (with the exception of the Global High Yield
Securities Fund) in a diversified open-end management investment company
(or a series thereof) having the same investment objectives as such Fund.
The Global High Yield Securities Fund invests its Assets in a non-
diversified open-end management investment company (or series thereof).
These investment companies (or a series thereof) are, respectively,
International Equity Portfolio, Capital Appreciation Portfolio and BT
Investment Portfolios. Global High Yield Securities Portfolio, Small Cap
Portfolio, Latin American Equity Portfolio and Pacific Basin Equity
Portfolio are each a series of BT Investment Portfolios.
Since the investment characteristics of the Funds will correspond
directly to those of the respective Portfolio in which the Fund invests all
of its Assets, the following is a discussion of the various investments of
and techniques employed by the Portfolios.
Shares of the Funds are sold by Edgewood Services, Inc.
("Edgewood"), the Trust's Distributor, to clients and customers (including
affiliates and correspondents) of Bankers Trust Company ("Bankers Trust"),
the Portfolios' Adviser, and to clients and customers of other
organizations.
The Trust's Prospectus for the Funds is dated November 30, 1996. The
Prospectus provides the basic information investors should know before
investing and may be obtained without charge by calling the Trust at the
telephone number listed below or by contacting any Investment Professional.
This Statement of Additional Information, which is not a Prospectus, is
intended to provide additional information regarding the activities and
operations of the Trust and should be read in conjunction with the Funds'
Prospectus. This Statement of Additional Information is not an offer of
any Fund for which an investor has not received a Prospectus. Capitalized
terms not otherwise defined in this Statement of Additional Information
have the meanings accorded to them in the Fund's Prospectus.
BANKERS TRUST COMPANY
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
EDGEWOOD SERVICES, INC.
DISTRIBUTOR
Clearing Operations
P.O. Box 897 Pittsburgh, Pennsylvania 15230-8097 (800)
730-1313
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
INVESTMENT OBJECTIVES
The investment objective(s) of each Fund is described in that Fund's
Prospectus. There can, of course, be no assurance that any Fund will
achieve its investment objective(s).
INVESTMENT PRACTICES
Each Fund seeks to achieve its investment objective by investing all
of its Assets in the corresponding Portfolio. The Trust may withdraw a
Fund's investment from the corresponding Portfolio at any time if the Board
of Trustees of the Trust determines that it is in the best interests of the
Fund to do so.
Since the investment characteristics of each Fund will correspond
directly to those of the corresponding Portfolio, the following is a
discussion of the various investments of and techniques employed by each
Portfolio.
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the
certificate. The certificate usually can be traded in the secondary market
prior to maturity. Bankers' acceptances typically arise from short-term
credit arrangements designed to enable businesses to obtain funds to
finance commercial transactions. Generally, an acceptance is a time draft
drawn on a bank by an exporter or an importer to obtain a stated amount of
funds to pay for specific merchandise. The draft is then "accepted" by a
bank that, in effect, unconditionally guarantees to pay the face value of
the instrument on its maturity date. The acceptance may then be held by
the accepting bank as an earning asset or it may be sold in the secondary
market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances
have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually
from 1 to 270 days) unsecured promissory notes issued by corporations in
order to finance their current operations. A variable amount master demand
note (which is a type of commercial paper) represents a direct borrowing
arrangement involving periodically fluctuating rates of interest under a
letter agreement between a commercial paper issuer and an institutional
lender pursuant to which the lender may determine to invest varying
amounts.
For a description of commercial paper ratings, see the Appendix to the
Prospectus.
Short-Term Instruments. 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 S&P or Aa or higher
by Moody's or, if unrated, of comparable quality in the opinion of Bankers
Trust; (iii) commercial paper; (iv) bank obligations, including negotiable
certificates of deposit, time deposits and banker's acceptances; and (v)
repurchase agreements. At the time the Portfolio invests in commercial
paper, bank obligations or repurchase agreements, the issuer of the
issuer's parent must have outstanding debt rated AA or higher by S&P or Aa
or higher by Moody's or outstanding commercial paper or bank obligations
rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instruments may be denominated in U.S dollars or in
foreign currencies.
Lower-Rated Debt Securities ("Junk Bonds"). 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 the Global High Yield Securities Portfolio's ability to
dispose of these securities.
Since the risk of default is higher for lower-rated debt securities,
Bankers Trust's research and credit analysis are an especially important
part of managing securities of this type held by the Portfolio. In
considering investments for the Portfolio, Bankers Trust 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.
The 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 the
Global High Yield Securities Fund.
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 Adviser will monitor the liquidity of Rule 144A securities in each
Portfolio's portfolio under the supervision of the Portfolio's Board of
Trustees. In reaching liquidity decisions, the Adviser will consider,
among other things, the following factors: (i) the frequency of trades and
quotes for the security; (ii) the number of dealers and other potential
purchasers wishing to purchase or sell the security; (iii) dealer
undertakings to make a market in the security and (iv) the nature of the
security and of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer).
Lending of Portfolio Securities. Each Portfolio has the authority to
lend portfolio securities to brokers, dealers and other financial
organizations. The Portfolio will not lend securities to Bankers Trust,
Edgewood or their affiliates. By lending its securities, a Portfolio can
increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid by the borrower
when U.S. Government obligations are used as collateral. There may be
risks of delay in receiving additional collateral or risks of delay in
recovery of the securities or even loss of rights in the collateral should
the borrower of the securities fail financially. A Portfolio will adhere
to the following conditions whenever its securities are loaned: (i) the
Portfolio must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the securities including accrued
interest rises above the level of the collateral; (iii) the Portfolio must
be able to terminate the loan at any time; (iv) the Portfolio must receive
reasonable interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities, and any increase in market
value; (v) the Portfolio may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on the loaned securities
may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees of the
Portfolio must terminate the loan and regain the right to vote the
securities.
When-Issued and Delayed Delivery Securities. Each Portfolio may
purchase securities on a when-issued or delayed delivery basis. For
example, delivery of and payment for these securities can take place a
month or more after the date of the purchase commitment. The purchase
price and the interest rate payable, if any, on the securities are fixed on
the purchase commitment date or at the time the settlement date is fixed.
The value of such securities is subject to market fluctuation and no
interest accrues to a Portfolio until settlement takes place. At the time
a Portfolio makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction, reflect the value
each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity
from that date. At the time of settlement a when-issued security may be
valued at less than the purchase price. To facilitate such acquisitions,
each Portfolio will maintain with the Custodian a segregated account with
liquid assets, consisting of cash, U.S. Government securities or other
appropriate securities, in an amount at least equal to such commitments.
On delivery dates for such transactions, each Portfolio will meet its
obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If a Portfolio chooses to
dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. It is the
current policy of each Portfolio not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Portfolio's total
assets, less liabilities other than the obligations created by when-issued
commitments.
Additional U.S. Government Obligations. Each Portfolio may invest in
obligations issued or guaranteed by U.S. government agencies or
instrumentalities. These obligations may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not
backed by the full faith and credit of the United States, each Portfolio
must look principally to the federal agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim
against the United States itself in the event the agency or instrumentality
does not meet its commitments. Securities in which each Portfolio may
invest that are not backed by the full faith and credit of the United
States include, but are not limited to, obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation and the U.S. Postal
Service, each of which has the right to borrow from the U.S. Treasury to
meet its obligations, and obligations of the Federal Farm Credit System and
the Federal Home Loan Banks, both of whose obligations may be satisfied
only by the individual credits of each issuing agency. Securities which
are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers
Home Administration, and the Export-Import Bank.
Reverse Repurchase Agreements. The Portfolios may borrow funds for
temporary or emergency purposes, such as meeting larger than anticipated
redemption requests, and not for leverage, by among other things, agreeing
to sell portfolio securities to financial institutions such as banks and
broker-dealers and to repurchase them at a mutually agreed date and price
(a "reverse repurchase agreement"). At the time a Portfolio enters into a
reverse repurchase agreement it will place in a segregated custodial
account cash, U.S. Government Obligations or high-grade 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 a Portfolio may decline below the repurchase price of
those securities. Reverse repurchase agreements are considered to be
borrowings by a Portfolio.
Foreign Securities: Special Considerations Concerning Eastern Europe.
Global High Yield Securities 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 consisting of
the states of the former Union of Soviet Socialist Republics.
The economic situation remains difficult for Eastern European
countries in transition from central planning, following what has already
been a sizable decline in output. The contraction now appears to be
bottoming out in parts of Eastern Europe, 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 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 the Fund's shareholders.
Brady Bonds. Latin American Equity Portfolio and Global High Yield
Securities Portfolio may invest in "Brady bonds," which have been issued by
the governments of Argentina, Brazil, Costa Rica, Mexico, Nigeria, the
Philippines, 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.
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 by any country, 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.
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 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.
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.
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. Criteria for determining the appropriate distribution of
investments among various countries and regions include the prospects for
relative growth among the 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.
Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk
that certain Latin American countries may restrict the free conversion of
their currencies into other currencies. Further, certain Latin American
currencies may not be internationally traded. Certain of these currencies
have experienced a steep devaluation relative to the U.S. dollar. Any
devaluations in the currencies in which the Portfolio's securities are
denominated may have a detrimental impact on the Fund's net asset value.
The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate
of growth of gross domestic product, the rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Certain Latin American countries have experienced high levels of inflation
which can have a debilitating effect on an economy. Furthermore, certain
Latin American countries may impose withholding taxes on dividends payable
to the Portfolio at a higher rate than those imposed by other foreign
countries. This may reduce the Fund's investment income available for
distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared
moratoria on the payment of principal and/or interest on outstanding debt.
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not
be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's
willingness or ability to repay principal and interest due in a timely
manner may be affected by, among other factors, its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to
which a governmental entity may be subject. Governmental entities may also
be dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and interest
arrearages 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 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 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 a 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 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
Gross Domestic Product (`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 shooting of anti-government 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 the highest in Asia. Singapore holds a position as a
major oil refining and services center.
Foreign Securities: Special Considerations Concerning China and China
Region. China's economic reform plan was designed to bring in foreign
investment capital and technological skills. The result has been a move
towards a more mixed economy away from the previous centrally planned
economy. The process of devolving responsibility for all aspects of
enterprise to local management and authorities continues, even though the
system of socialism with Chinese characteristics involves considerable
influence by the central government on production and marketing.
In order to attract foreign investment, China has since 1978
designated certain areas of the country where overseas investors can
receive special investment incentives and tax concessions. There are five
Special Economic Zones (Shenzhen, Shantou and Zhuhai in Guangdong Province,
Xiamen in Fujian Province and Hainan Island, which itself is a province).
Fourteen coastal cities have been designated as `open cities'' and certain
Open Economic Zones have been established in coastal areas. Shanghai has
established the Pudong New Area. Twenty-seven High and New Technology
Industrial Development Zones have been approved where preferential
treatment is given to enterprises which are confirmed as technology
intensive.
China has had for many centuries a well deserved reputation for being
closed to foreigners, with trade with the outside world being carried on
under terms of extreme restriction and under central control. Such
conditions were maintained in the first thirty years of the Communist
regime which began in 1949; however there have been several stages of
evolution, from the institution of an industrialization program in the
1950s to a modernization policy commencing in 1978 which combined economic
development with the beginnings of opening the country.
The securities markets in the China Region are substantially smaller,
less liquid and more volatile than the major securities markets in the
United States. A high proportion of the shares of many Chinese issuers may
be held by a limited number of persons and financial institutions, which
may limit the number of shares available for investment by the Portfolio.
Similarly, volume and liquidity in the bond markets in China are less than
in the United States and, at times, price volatility can be greater than in
the United States. A limited number of issuers in Chinese securities
markets may represent a disproportionately large percentage of market
capitalization and trading value. The limited liquidity of securities
markets in China may also affect the Portfolio's ability to acquire or
dispose of securities at the price and time it wishes to do so.
Accordingly, during periods of rising securities prices in the more
illiquid Chinese securities markets, the Portfolio's ability to participate
fully in such price increases may be limited by its investment policy of
investing not more than 15% of its net assets in illiquid securities.
Conversely, the Portfolio's inability to dispose fully and promptly of
positions in declining markets will cause the Portfolio's net asset value
to decline as the value of the unsold positions is marked to lower prices.
In addition, the Chinese securities markets are susceptible to being
influenced by large investors trading significant blocks of securities.
The Chinese, Hong Kong and Taiwan stock markets are undergoing a
period of growth and change which may result in trading volatility and
difficulties in the settlement and recording of transactions, and in
interpreting and applying the relevant law and regulations.
China governmental actions can have a significant effect on the
economic conditions in China, which could adversely affect the value and
liquidity of the Portfolio's investments. Although the Chinese Government
has recently begun to institute economic reform policies, there can be no
assurances that it will continue to pursue such policies or, if it does,
that such policies will succeed.
The securities industry in China is not well developed. China has no
securities laws of nationwide applicability. The municipal securities
regulations adopted by Shanghai and Shenzhen municipalities are very new,
as are their respective securities exchanges and other self-regulatory
organizations. In addition, Chinese stockbrokers and other intermediaries
may not perform as well as their counterparts in the United States and
other more developed securities markets. The prices at which the Portfolio
may acquire investments may be affected by trading by persons with material
non-public information and by securities transactions by brokers in
anticipation of transactions by the Portfolio in particular securities.
China does not have a comprehensive system of laws, although
substantial changes have occurred in this regard in recent years. The
corporate form of organization has only recently been permitted in China
and national regulations governing corporations were introduced only in
May, 1992. Prior to the introduction of such regulations, Shanghai had
adopted a set of corporate regulations applicable to corporations located
or listed in Shanghai, and the relationship between the two sets of
regulations is not clear. Consequently, until a firmer legal basis is
provided, even such fundamental corporate law tenets as the limited
liability status of Chinese issuers and their authority to issue shares
remain open to question. Laws regarding fiduciary duties of officers and
directors and the protection of shareholders are not well developed.
China's judiciary is relatively inexperienced in enforcing the laws that
exist, leading to a higher than usual degree of uncertainty as to the
outcome of any litigation. Even where adequate law exists in China, it may
be impossible to obtain swift and equitable enforcement of such law, or to
obtain enforcement of the 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.
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 calculated in RMB but payable in Hong Kong dollars, the rate of
exchange being the average rate published by Shenzhen Foreign Exchange
Adjustment Centre.
There are no foreign exchange restrictions on the repatriation of
gains made on or income derived from `B'' Shares, subject to the payment
of taxes imposed by China thereon.
Company law relating to companies limited by shares and regulations
regarding the issuing of shares by equity joint ventures have not yet been
developed on a national basis. The Shenzhen municipality issued regulations
in 1992 relating to joint stock companies, and the Shanghai municipality
has a draft joint stock company law under review. Regulations governing the
trading of securities on both the Shenzhen and the Shanghai stock exchanges
have been issued by each municipality; there is no national securities
legislation as yet.
Economies of countries in the China Region may differ favorably or
unfavorably from the U.S. economy in such respects as rate of growth of
gross 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 dependence on foreign sources for
certain raw materials and economic vulnerability to global fluctuations of
price and supply.
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.
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 in 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.
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 (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 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 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 the requirement
that futures contracts and options on futures contracts be used only as a
hedge and not for speculation. In addition to this requirement, the Board
of Trustees of each Portfolio has also adopted a restriction that the
Portfolio will not enter into any futures contracts or options on futures
contracts if immediately thereafter the amount of margin deposits on all
the futures contracts of the Portfolio and premiums paid on outstanding
options on futures contracts owned by the Portfolio 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, 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-the-counter. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no
daily price fluctuation limits, and adverse market movements could
therefore continue to an unlimited extent over a period of time. Although
the purchaser of an option cannot lose more than the amount of the premium
plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose
amounts substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders
on organized exchanges will be available with respect to such transactions.
In particular, all foreign currency option positions entered into on a
national securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of counterparty
default. Further, a liquid secondary market in options traded on a
national securities exchange may be more readily available than in the
over-the-counter market, potentially permitting a Portfolio to liquidate
open positions at a profit prior to exercise or expiration, or to limit
losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-traded
options on foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As
a result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign
currency option exercises, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the
fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit
risks which may not be present in the case of exchange-traded currency
options. A Portfolio's ability to terminate over-the-counter options will
be more limited than with exchange-traded options. It is also possible
that broker-dealers participating in over-the-counter options transactions
will not fulfill their obligations. Until such time as the staff of the
SEC changes its position, each Portfolio will treat purchased over-the-
counter options and assets used to cover written over-the-counter options
as illiquid securities. With respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign
exchanges. Such transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected
by: (i) other complex foreign political and economic factors; (ii) lesser
availability than in the United States of data on which to make trading
decisions; (iii) delays in the Portfolio's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in the United
States; (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States; and
(v) lesser trading volume.
Options on Securities. 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'' 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.
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 Portfolios'
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."
International Equity Portfolio and 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 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
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 rating services represent their opinions as to the
quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial
criterion for selection of portfolio investments, Bankers Trust also makes
its own evaluation of these securities, subject to review by the Board of
Trustees. After purchase by 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 a Fund to eliminate the
obligation from its portfolio, but Bankers Trust will consider such an
event in its determination of whether a Fund should continue to hold the
obligation. A description of the ratings used herein and in the Funds'
Prospectus is set forth in the Appendix to the Prospectus.
Investment Restrictions
The following investment restrictions are "fundamental policies" of
each Fund and each Portfolio and may not be changed with respect to the
Fund or the Portfolio without the approval of a "majority of the
outstanding voting securities" of the Fund or the Portfolio, as the case
may be. "Majority of the outstanding voting securities" under the
Investment Company Act of 1940, as amended (the "1940 Act"), and as used in
this Statement of Additional Information and the Prospectus, means, with
respect to the Fund (or the Portfolio), the lesser of (i) 67% or more of
the outstanding voting securities of the Fund (or of the total beneficial
interests of the Portfolio) present at a meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund or of the total
beneficial interests of the Portfolio) are present or represented by proxy
or (ii) more than 50% of the outstanding voting securities of the Fund (or
of the total beneficial interests of the Portfolio). Whenever the Trust is
requested to vote on a fundamental policy of a Portfolio, the Trust will
hold a meeting of the corresponding Fund's shareholders and will cast its
vote as instructed by that Fund's shareholders. Fund shareholders who do
not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting
will be voted by the Trustees of the Trust in the same proportion as the
Fund shareholders who do, in fact, vote.
As a matter of fundamental policy, no Portfolio (or Fund) may (except
that no investment restriction of a Fund shall prevent a Fund from
investing all of its Assets in an open-end investment company with
substantially the same investment objectives):
(1) borrow money or mortgage or hypothecate assets of the Portfolio
(Fund), except that in an amount not to exceed 1/3 of the current value of
the Portfolio's (Fund's) assets, it may borrow money as a temporary measure
for extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks and
only either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) 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 Portfolios (Trust or the Funds) may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans
not exceed 30% of the Portfolio's (Fund'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 (Fund's) fundamental policy with respect to
20% risk weighing for financial institutions prevent the Portfolio (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 (except that the Portfolio (Trust) may hold and sell, for the
Portfolio's (Fund's) portfolio, real estate acquired as a result of the
Portfolio's (Fund'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 a Portfolio's (Fund's) investment objective(s), up to 25% of
its total assets may be invested in any one industry; and
(6) issue any senior security (as that term is defined in the
1940 Act) if such issuance is specifically prohibited by the 1940 Act or
the rules and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the issuance
of a senior security for purposes of this restriction.
State and Federal Restrictions. In order to comply with certain state
and Federal statutes and policies each Portfolio (or the Trust, on behalf
of each Fund) will not as a matter of operating policy (except that no
operating policy shall prevent a Fund from investing all of its Assets in
an open-end investment company with substantially the same investment
objectives):
(i) borrow money (including through reverse repurchase or
forward roll transactions) for any purpose in excess of 5% of the
Portfolio's (Fund's) total assets (taken at cost), except that the
Portfolio (Fund) 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 (Fund'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 (Fund), and the value of securities of any one issuer in which
the Portfolio (Fund) is short exceeds the lesser of 2.0% of the value of
the Portfolio's (Fund'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 (Fund) contemporaneously owns or has the right to obtain,
without the payment of additional consideration, securities equivalent in
kind and amount to those sold, i.e., short sales against the box.) (the
Portfolios (Funds) have no current intention to engage in short selling);
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except
by purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided, however,
that securities of any investment company will not be purchased for the
Portfolio (Fund) if such purchase at the time thereof would cause: (a) more
than 10% of the Portfolio's (Fund'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 (Fund'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 (Fund); provided further that,
except in the case of a merger or consolidation, the Portfolio (Fund) shall
not purchase any securities of any open-end investment company unless the
Portfolio (Fund) (1) waives the investment advisory fee with respect to
assets invested in other open-end investment companies and (2) incurs no
sales charge in connection with the investment;
(vii) invest more than 10% of the Portfolio's (Fund'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 (Fund'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 (Fund'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 Global High Yield Securities Portfolio
(Fund), with respect to 75% of the Portfolio's (Fund's) total assets,
purchase securities of any issuer if such purchase at the time thereof
would cause the Portfolio (Fund) 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;
(x) with the exception of Global High Yield Securities Portfolio
(Fund), with respect to 75% of its assets, invest more than 5% of its total
assets in the securities (excluding U.S. government securities) of any one
issuer;
(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 partner of the Adviser, if
after the purchase of the securities of such issuer for the Portfolio
(Fund) 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 (Fund) 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 (Fund's) net assets
(with the exception of the Pacific Basin Equity Portfolio (Fund) which may
invest up to 10% of its net assets in warrants) or if, as a result, more
than 2% of the Portfolio's (Fund'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 (Fund) 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 (Fund's) net assets; (c) the securities subject to the exercise
of the call written by the Portfolio (Fund) must be owned by the Portfolio
(Fund) at the time the call is sold and must continue to be owned by the
Portfolio (Fund) until the call has been exercised, has lapsed, or the
Portfolio (Fund) has purchased a closing call, and such purchase has been
confirmed, thereby extinguishing the Portfolio's (Fund's) obligation to
deliver securities pursuant to the call it has sold; and (d) at the time a
put is written, the Portfolio (Fund) 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 (Fund) 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 (Fund) has purchased a closing
put, which is a put of the same series as the one previously written); and
(xiv) buy and sell puts and calls on securities, stock index
futures or options on stock index futures, or financial futures or options
on financial futures unless such options are written by other persons and:
(a) the options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all such options which are held at any time do
not exceed 20% of the Portfolio's (Fund'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 (Fund'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.
Each Fund will comply with the state securities laws and regulations
of all states in which it is registered. Each Portfolio will comply with
the permitted investments and investment limitations in the securities laws
and regulations of all states in which the corresponding Fund, or any other
registered investment company investing in the Portfolio, is registered.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for 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.
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, 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.
For the fiscal year ended September 30, 1996, the period from
January 1, 1995 through September 30, 1995, and the fiscal year ended
December 31, 1994, International Equity Portfolio paid brokerage
commissions in the amount of $603,995, $132,894, and $110,580,
respectively.
For the fiscal years ended September 30, 1996, 1995, and the period
from October 25, 1993 (commencement of operations) through September 30,
1994, Latin American Equity Portfolio paid brokerage commissions in the
amount of $164,049, $202,130 and $188,008, respectively.
For the fiscal years ended September 30, 1996, 1995, and the period
from December 14, 1993 (commencement of operations) through September 30,
1994, Global High Yield Securities Portfolio paid brokerage commissions in
the amount of $3,538, $5,655 and $0, respectively.
For the fiscal years ended September 30, 1996, 1995, and the period
from November 1, 1993 (commencement of operations) through September 30,
1994, Pacific Basin Equity Portfolio paid brokerage commissions in the
amount of $323,958, $192,123 and $139,363, respectively.
For the fiscal year ended September 30, 1996, the period from January
1, 1995, through September 30, 1995, the fiscal year ended December 31,
1994 Capital Appreciation Portfolio paid brokerage commissions in the
amount of $648,897, $247,868, and $162,941, respectively.
For the fiscal years ended September 30, 1996, 1995, and the period
from October 21, 1993 (commencement of operations) through September 30,
1994, Small Cap Portfolio paid brokerage commissions in the amount of
$238,092, $70,603 and $20,835, respectively.
{PRIVATE }PERFORMANCE INFORMATION{TC "PERFORMANCE INFORMATION"}
STANDARD PERFORMANCE INFORMATION
From time to time, quotations of a Fund's performance may be included
in advertisements, sales literature or shareholder reports. These
performance figures are calculated in the following manner:
YIELD: Yields for a Fund used in advertising are computed by dividing
the Fund's interest and dividend income for a given 30-day or one-month
period, net of expenses, by the average number of shares entitled to
receive distributions during the period, dividing this figure by the Fund's
net asset value per share at the end of the period, and annualizing the
result (assuming compounding of income) in order to arrive at an annual
percentage rate. Income is calculated for purpose of yield quotations in
accordance with standardized methods applicable to all stock and bond
mutual funds. Dividends from equity investments are treated as if they
were accrued on a daily basis, solely for the purpose of yield
calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to
bonds trading at a discount by adding a portion of the discount to daily
income. Capital gains and losses generally are excluded from the
calculation.
Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding
assumed in yield calculations, the yield quoted for a Fund may differ from
the rate of distributions of the Fund paid over the same period or the rate
of income reported in the Fund's financial statements.
The Global High Yield Securities Fund's yield for the 30-day period
ended September 30, 1996 was 6.69%.
TOTAL RETURN: A Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000 (made at
the maximum public offering price with all distributions reinvested) to
reach the value of that investment at the end of the periods. A Fund may
also calculate total return figures which represent aggregate performance
over a period or year-by-year performance.
PERFORMANCE RESULTS: Any total return quotation provided for a Fund
should not be considered as representative of the performance of the Fund
in the future since the net asset value and public offering price of shares
of the Fund will vary based not only on the type, quality and maturities of
the securities held in the corresponding Portfolio, but also on changes in
the current value of such securities and on changes in the expenses of the
Fund and the corresponding Portfolio. These factors and possible
differences in the methods used to calculate total return should be
considered when comparing the total return of a Fund to total returns
published for other investment companies or other investment vehicles.
Total return reflects the performance of both principal and income.
COMPARISON OF FUND PERFORMANCE
Comparison of the quoted nonstandardized performance of various
investments is valid only if performance is calculated in the same manner.
Since there are different methods of calculating performance, investors
should consider the effect of the methods used to calculate performance
when comparing performance of a Fund with performance quoted with respect
to other investment companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management
costs. The Funds may include comparisons of their investment results to
the following unmanaged indices: Global High Yield Securities Fund - JP
Morgan Emerging Markets Bonds Index, Merrill Lynch High Yield Master Index
or Lipper World Income Funds Average; Capital Appreciation Fund - Standard
& Poor's 500 Composite Stock Price Index, Standard & Poor's MidCap 400
Index, Lipper General Equity Averages or Lipper MidCap Average; Small Cap
Fund - Russell 2000 Index or Lipper Small Companies Growth Funds Average;
International Equity Fund - MSCI GDP Weighted EAFE Index, MSCI EAFE Index
or Lipper International Average; Latin American Equity Fund - IFCG Latin
America Index, IFCI Latin America Index or Lipper Latin American Funds
Average; and Pacific Basin Equity Fund - MSCI Combined Far East Free
Excluding Japan Index or Lipper Pacific Region Funds Ex-Japan Average.
Evaluations of a Fund's performance made by independent sources may
also be used in advertisements concerning the Fund. Sources for a Fund's
performance information could include the following:
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing
abroad.
Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
Consumer Digest, a monthly business/financial magazine that includes a
"Money Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to
time articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a
"Market Watch" department reporting on activities in the mutual fund
industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the
performance of a variety of mutual funds.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
Investor's Daily, a daily newspaper that features financial, economic and
business news.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific
funds and the mutual fund industry as a whole.
Morningstar Inc., a publisher of financial information and mutual fund
research.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes
a "Mutual Funds Outlook" section reporting on mutual fund performance
measures, yields, indices and portfolio holdings.
Success, a monthly magazine targeted to the world of entrepreneurs and
growing business, often featuring mutual fund performance data.
U.S. News and World Report, a national business weekly that periodically
reports mutual fund performance data.
Value Line, a biweekly publication that reports on the largest 15,000
mutual funds.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
Weisenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient
features, management results, income and dividend records, and price
ranges.
Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities
for which price quotations are available, will normally be valued on the
basis of market valuations furnished by a pricing service. Short-term debt
obligations and money market securities maturing in 60 days or less are
valued at amortized cost, which approximates market.
Securities for which market quotations are not available are valued by
Bankers Trust pursuant to procedures adopted by each Portfolio's Board of
Trustees. It is generally agreed that securities for which market
quotations are not readily available should not be valued at the same value
as that carried by an equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value
are recognized in the codification effected by SEC Financial Reporting
Release No. 1 ("FRR 1" (formerly Accounting Series Release No. 113)) which
concludes that there is "no automatic formula" for calculating the value of
restricted securities. It recommends that the best method simply is to
consider all relevant factors before making any calculation. According to
FRR 1 such factors would include consideration of the:
type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of unrestricted
securities of the same class at the time of purchase, special reports
prepared by analysts, information as to any transactions or offers with
respect to the security, existence of merger proposals or tender offers
affecting the security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other relevant
matters.
To the extent that a Portfolio purchases securities which are
restricted as to resale or for which current market quotations are not
available, the Adviser of the Portfolio will value such securities based
upon all relevant factors as outlined in FRR 1.
The Trust, on behalf of each Fund, and each Portfolio reserve the
right, if conditions exist which make cash payments undesirable, to honor
any request for redemption or repurchase order by making payment in whole
or in part in readily marketable securities chosen by the Trust, or the
Portfolio, as the case may be, and valued as they are for purposes of
computing the Fund's or the Portfolio's net asset value, as the case may be
(a redemption in kind). If payment is made to a Fund shareholder in
securities, an investor, including the Fund, the shareholder may incur
transaction expenses in converting these securities into cash. The Trust,
on behalf of each Fund, and each Portfolio have elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which each Fund
and each Portfolio are obligated to redeem shares or beneficial interests,
as the case may be, with respect to any one investor during any 90-day
period, solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Fund or the Portfolio, as the case may be, at the beginning of
the period.
Each Portfolio has agreed to make a redemption in kind to the
corresponding Fund whenever the Fund wishes to make a redemption in kind
and therefore shareholders of the Fund that receive redemptions in kind
will receive portfolio securities of the corresponding Portfolio and in no
case will they receive a security issued by the Portfolio. The Portfolio
has advised the Trust that the Portfolio will not redeem in kind except in
circumstances in which the Fund is permitted to redeem in kind or unless
requested by the Fund.
Each investor in a Portfolio, including the corresponding Fund, may
add to or reduce its investment in the Portfolio on each day the Portfolio
determines its net asset value. At the close of each such business day,
the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share
of the aggregate beneficial interests in the Portfolio. Any additions or
withdrawals which are to be effected as of the close of business on that
day will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio will then be recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the close of business on
such day plus or minus, as the case may be, the amount of net additions to
or withdrawals from the investor's investment in the Portfolio effected as
of the close of business on such day, and (ii) the denominator of which is
the aggregate net asset value of the Portfolio as of the close of business
on such day plus or minus, as the case may be, the amount of net additions
to or withdrawals from the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio
as the close of business on the following business day.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in payment for shares are valued by the
method described under "Net Asset Value" as of the day the Fund receives
the securities. This is a taxable transaction to the shareholder.
Securities may be accepted in payment for shares only if they are, in the
judgment of Bankers Trust, appropriate investments for the Fund's
corresponding Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the
acquiring Fund's corresponding Portfolio; (ii) be acquired by the
applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); (iii) be liquid securities which are
not restricted as to transfer either by law or liquidity of market; and
(iv) if stock, have a value which is readily ascertainable as evidenced by
a listing on a stock exchange, over-the-counter market or by readily
available market quotations from a dealer in such securities. Each Fund
reserves the right to accept or reject at its own option any and all
securities offered in payment for its shares.
{PRIVATE }MANAGEMENT OF THE TRUST AND THE PORTFOLIOS{TC "MANAGEMENT OF
THE TRUST AND THE PORTFOLIOS"}
Each Board of Trustees is composed of persons experienced in
financial matters who meet throughout the year to oversee the activities of
the Funds or Portfolios they represent. In addition, the Trustees review
contractual arrangements with companies that provide services to the
Funds/Portfolios and review the Funds' performance.
The Trustees and officers of the Trust and Portfolios and their
principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Unless otherwise
indicated, the address of each officer is Clearing Operations, P.O. Box
897, Pittsburgh, Pennsylvania 15230-0897.
TRUSTEES OF THE TRUST
HARRY VAN BENSCHOTEN -- Trustee; retired (since 1987); Corporate Vice
President, Newmont Mining Corporation (prior to 1987). His address is
105 Seminary Street, New Canaan, Connecticut 06840.
PHILIP W. COOLIDGE* -- Trustee; Chairman, Chief Executive Officer and
President, Signature Financial Group, Inc. ("SFG") (since December, 1988)
and Signature (since April, 1989). His address is 6 St. James Avenue,
Boston, Massachusetts 02116.
MARTIN J. GRUBER -- Trustee; Chairman of the Finance Department and
Nomura Professor of Finance, Leonard N. Stern School of Business, New York
University (since 1964).
BRUCE E. LANGTON -- Trustee; Retired; Director, Adela Investment Co.
and University Patents, Inc.; formerly Assistant Treasurer of IBM
Corporation (until 1986). His address is 99 Jordan Lane, Stamford,
Connecticut 06903.
RICHARD J. HERRING -- Trustee; Professor, Finance Department, The
Wharton School, University of Pennsylvania. His address is The Wharton
School, University of Pennsylvania Finance Department, 3303 Steinberg
Hall/Dietrich Hall, Philadelphia, Pennsylvania 19104.
TRUSTEES OF THE PORTFOLIOS
CHARLES P. BIGGAR -- Trustee; Retired; Director of Chase/NBW Bank
Advisory Board; Director, Batemen, Eichler, Hill Richards Inc.; formerly
Vice President of International Business Machines and President of the
National Services and the Field Engineering Divisions of IBM. His address
is 12 Hitching Post Lane, Chappaqua, New York 10514.
S. LELAND DILL -- Trustee; Retired; Director, Coutts & Co. 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 W. COOLIDGE* -- Trustee; Chairman, Chief Executive Officer and
President, SFG (since December, 1988) and Signature (since April, 1989).
His address is 6 St. James Avenue, Boston, Massachusetts 02116.
PHILIP SAUNDERS, JR. -- Trustee; Principal, Philip Saunders Associates
(Consulting); former Director of Financial Industry Consulting, Wolf &
Company; President, John Hancock Home Mortgage Corporation; and Senior Vice
President of Treasury and Financial Services, John Hancock Mutual Life
Insurance Company, Inc. His address is 445 Glen Road, Weston,
Massachusetts 02193.
OFFICERS OF THE TRUST AND PORTFOLIOS
Unless otherwise specified, each officer listed below holds the same
position with the Trust and each Portfolio.
RONALD M. PETNUCH -- (Birthdate: February 27, 1960) -- President and
Treasurer; Senior Vice President, Federated Services Company (`FSC'');
formerly, Director of Proprietary Client Services, Federated Administrative
Services (`FAS''), and Associate Corporate Counsel, Federated Investors
(`FI'').
CHARLES L. DAVIS, JR. -- (Birthdate: March 23, 1960)-- Vice President
and Assistant Treasurer; Vice President, FAS.
JAY S. NEUMAN -- (Birthdate: April 22, 1950) -- Secretary; Corporate
Counsel, FI.
* Indicates an `interested person'' (as defined by the 1940 Act) of the
Trust.
Messrs. Coolidge, Petnuch, Davis, and Neuman also hold similar
positions for other investment companies for which Signature or Edgewood,
respectively, or an affiliate serves as the principal underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust or the Portfolio. No director, officer or employee
of Edgewood or any of its affiliates will receive any compensation from the
Trust or a Portfolio for serving as an officer or Trustee of the Trust or a
Portfolio.
TRUSTEES' COMPENSATION
NAME, AGGREGATE AGGREGATE TOTAL
POSITION WITH COMPENSATION COMPENSATION COMPENSATION
TRUST/PORTFOLIOS FROM TRUST*# FROM PORTFOLIOS* FROM FUND COMPLEX*
Harry Van Benschoten $10,000 N/A $23,000
Trustee of Trust
Philip W. Coolidge $0 $0 $0
Trustee of Trust and Portfolios
Martin J. Gruber $10,000 N/A $23,000
Trustee of Trust
Bruce E. Langton $10,000 N/A $23,000
Trustee of Trust
Richard J. Herring $10,000 N/A $23,000
Trustee of Trust
Charles P. Biggar N/A $13,000 $23,000
Trustee of Portfolios
S. Leland Dill N/A $13,000 $23,000
Trustee of Portfolios
Philip Saunders, Jr. N/A $10,000 $23,000
Trustee of Portfolios
*Information is furnished for the fiscal year ended September 30, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
10 funds.
Bankers Trust reimbursed the Funds and Portfolios for a portion of
their Trustees fees for the period above. See "Investment Adviser" and
"Administrator" below.
As of October 15, 1996, the Trustees and officers of the Trust and the
Portfolios owned in the aggregate less than 1% of the shares of any Fund or
the Trust (all series taken together).
As of October 15, 1996, the following shareholders of record owned 5% or
more of the shares of the Capital Appreciation Fund: Bankers Trust, New
York, New York, on behalf of its customers owned approximately 47,479
shares (56.57%); and SFG Investors II Limited Partnership, Boston,
Massachusetts, owned approximately 9,995 shares (11.91%).
As of October 15, 1996, the following shareholders of record owned 5% or
more of the shares of the Small Cap Fund: Bankers Trust, New York, New
York, on behalf of its customers owned approximately 34,195 shares
(13.90%); Southwest Securities, Inc., Dallas, Texas, owned approximately
15,231 shares (6.19%); and Melvin & Elaine Wolf Foundation, Denver
Colorado, owned approximately 13,263 shares (5.39%).
As of October 15, 1996, the following shareholders of record owned 5% or
more of the shares of the International Equity Fund: First Albany
Corporation, Albany, New York, owned approximately 94,162 shares (31.55%);
and Bankers Trust New York, New York, on behalf of its customers owned
approximately 33,782 shares (11.32%).
As of October 15, 1996, the following shareholders of record owned 5% or
more of the shares of the Pacific Basin Equity Fund: Katz Casey & Levine
PSP, Fort Lauderdale, Florida, owned approximately 8,531 shares (35.1%);
Bankers Trust, New York, New York, on behalf of its customers owned
approximately 6,507 shares (26.75%); The Carol Ironson Trust, Boynton
Beach, Florida, owned approximately 3,164 shares (13.00%); Prentice
International, Inc., Boca Raton, Florida owned approximately 2,845 shares
(11.70%); and NFSC for the exclusive benefit of its customers, Fort Lee,
New Jersey, owned approximately 2,604 shares (10.70%).
As of October 15, 1996, the following shareholders of record owned 5% or
more of the shares of the Latin American Equity Fund: Burnell R. Smith,
Dubuque, Iowa, owned approximately 1,000 shares (37.05%); Moses Siegel
Trust, Boca Raton, Florida, owned approximately 962 shares (35.66%); Carmen
Torres, Port Richey, Florida, owned approximately 360 shares (13.35%); and
Yoli Poropat, Toluca Lake, California, owned approximately 234 shares
(8.67%).
As of October 15, 1996, the following shareholders of record owned 5% or
more of the shares of the Global High Yield Securities Fund: Katz, Casey &
Levine PSP, Fort Lauderdale, Florida, owned approximately 13,182 shares
(73.64%); Donaldson Lufkin Jenrette Securities Corporation, Inc., Jersey
City, New Jersey, owned approximately 1,820 shares (10.17%); and Hanifen
Imhoff, Inc., Green Valley, Arizona, on behalf of its customers owned
approximately 1,174 shares (6.56%).
INVESTMENT ADVISER
Under the terms of each Portfolio's investment advisory agreement with
Bankers Trust (the "Advisory Agreement"), Bankers Trust manages the
Portfolio subject to the supervision and direction of the Board of Trustees
of the Portfolio. Bankers Trust will: (i) act in strict conformity with
each Portfolio's Declaration of Trust, the 1940 Act and the Investment
Advisers Act of 1940, as the same may from time to time be amended; (ii)
manage each Portfolio in accordance with the Portfolio's investment
objectives, restrictions and policies; (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.
Bankers Trust bears all expenses in connection with the performance of
services under each Advisory Agreement. The Trust and each Portfolio bears
certain other expenses incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of Trustees of the
Trust or the Portfolio who are not officers, directors or employees of
Bankers Trust, Edgewood or any of their affiliates; SEC fees and state Blue
Sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; certain insurance premiums; outside auditing and legal
expenses; costs of maintenance of corporate existence; costs attributable
to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports and
meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.
For the fiscal year ended September 30, 1996, the period from
January 1, 1995, through September 30, 1995, and for the fiscal year ended
December 31, 1994, Bankers Trust earned $759,552, $322,690, and $322,489
respectively, in compensation for investment advisory services provided to
International Equity Portfolio. During the same periods, Bankers Trust
reimbursed $229,297, $108,743, and $117,653, respectively, to that
Portfolio to cover expenses.
For the fiscal years ended September 30, 1996, 1995, and the period
from October 25, 1993 (commencement of operations) through September 30,
1994, Bankers Trust earned $151,004, $173,145 and $102,872, respectively,
in compensation for investment advisory services provided to Latin American
Equity Portfolio. During the same periods, Bankers Trust reimbursed
$46,928, $138,351 and $81,307, respectively, to that Portfolio to cover
expenses.
For the fiscal years ended September 30, 1996, 1995, and the period
from November 1, 1993 (commencement of operations) through September 30,
1994, Bankers Trust earned $211,122, $173,591 and $116,020, respectively,
in compensation for investment advisory services provided to Pacific Basin
Equity Portfolio. During the same periods, Bankers Trust reimbursed
$30,450, $47,338 and $40,461, respectively, to that Portfolio to cover
expenses.
For the fiscal years ended September 30, 1996, 1995, and the period
from December 14, 1993 (commencement of operations) through September 30,
1994, Bankers Trust earned $156,634, $141,692 and $66,073, respectively, in
compensation for investment advisory services provided to Global High Yield
Securities Portfolio. During the same periods, Bankers Trust reimbursed
$86,070, $78,840 and $48,741, respectively, to that Portfolio to cover
expenses.
For the fiscal year ended September 30, 1996, the period from January
1, 1995 through September 30, 1995, the fiscal year ended December 31,
1994, Bankers Trust earned $1,225,764, $482,453, and $329,399,
respectively, in compensation for investment advisory services provided to
Capital Appreciation Portfolio. During the same periods, Bankers Trust
reimbursed $319,524, $131,702, and $114,930, respectively, to that
Portfolio to cover expenses.
For the fiscal years ended September 30, 1996, 1995, and the period
from October 21, 1993 (commencement of operations) through September 30,
1994, Bankers Trust earned $1,293,449, $389,015 and $69,420, respectively,
in compensation for investment advisory services provided to Small Cap
Portfolio. During the same periods, Bankers Trust reimbursed $331,176,
$111,862 and $41,110, respectively, to that Portfolio to cover expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on
behalf of the Portfolios, including outstanding loans to such issuers which
could be repaid in whole or in part with the proceeds of securities so
purchased. Such affiliates deal, trade and invest for their own accounts
in such obligations and are among the leading dealers of various types of
such obligations. Bankers Trust has informed the Portfolios that, in
making its investment decisions, it does not obtain or use material inside
information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Portfolios,
Bankers Trust will not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by a Portfolio is a customer of
Bankers Trust, its parent or its subsidiaries or affiliates and, in dealing
with its customers, Bankers Trust, its parent, subsidiaries and affiliates
will not inquire or take into consideration whether securities of such
customers are held by any fund managed by Bankers Trust or any such
affiliate.
Each Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment advisory and administration and services fees, including
waivers thereof. Bankers Trust may not recoup any of its waived investment
advisory or administration and services fees. Such waivers by Bankers
Trust shall stay in effect for at least 12 months.
Sub-Investment Adviser
Bankers Trust has entered into a sub-investment advisory agreement
(the "Sub-Advisory Agreement") with BT Fund Managers International Limited
("BT Fund Managers International") a wholly owned subsidiary of Bankers
Trust Australia Limited ("BTAL") in Sydney. BTAL is a wholly owned
subsidiary of Bankers Trust New York Corporation. Under the Sub-Advisory
Agreement, Bankers Trust may receive investment advice and research
services with respect to companies 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.
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.
Administrator
Under the administration and services agreements, Bankers Trust is
obligated on a continuous basis to provide such administrative services as
the Board of Trustees of the Trust and each Portfolio reasonably deem
necessary for the proper administration of the Trust or a Portfolio.
Bankers Trust will generally assist in all aspects of the Funds' and
Portfolios' operations; supply and maintain office facilities (which may be
in Bankers Trust's own offices), statistical and research data, data
processing services, clerical, accounting, bookkeeping and recordkeeping
services (including without limitation the maintenance of such books and
records as are required under the 1940 Act and the rules thereunder, except
as maintained by other agents), internal auditing, executive and
administrative services, and stationery and office supplies; prepare
reports to shareholders or investors; prepare and file tax returns; supply
financial information and supporting data for reports to and filings with
the SEC and various state Blue Sky authorities; supply supporting
documentation for meetings of the Board of Trustees; provide monitoring
reports and assistance regarding compliance with Declarations of Trust,
by-laws, investment objectives and policies and with Federal and state
securities laws; arrange for appropriate insurance coverage; calculate net
asset values, net income and realized capital gains or losses; and
negotiate arrangements with, and supervise and coordinate the activities
of, agents and others to supply services.
Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement"), FSC performs such sub-administration duties for the Trust and
the Portfolios as from time to time may be agreed upon by Bankers Trust and
FSC. The Sub-Administration Agreement provides that FSC will receive such
compensation as from time to time may be agreed upon by FSC and Bankers
Trust. All such compensation will be paid by Bankers Trust.
For the fiscal year ended September 30, 1996, the period from January
1, 1995 through September 30, 1995, and the fiscal year ended December 31,
1994, Bankers Trust received $175,281, $74,468, and $74,420, respectively,
in compensation for administrative and other services provided to
International Equity Portfolio.
For the fiscal years ended September 30, 1996, 1995, and the period
from October 25, 1993 (commencement of operations) through September 30,
1994, Bankers Trust received $30,201, $34,629 and $20,574, respectively, in
compensation for administrative and other services provided to Latin
American Equity Portfolio.
For the fiscal years ended September 30, 1996, 1995, and the fiscal
from November 1, 1993 (commencement of operations) through September 30,
1994, Bankers Trust received $70,374, $57,864 and $38,673, respectively, in
compensation for administrative and other services provided to Pacific
Basin Equity Portfolio.
For the fiscal years ended September 30, 1996, 1995, and the period
from December 14, 1993 (commencement of operations) through September 30,
1994, Bankers Trust received $39,158, $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 30, 1996, the period from January
1, 1995 through September 30, 1995, and the fiscal year ended December 31,
1994, Bankers Trust received $188,579, $74,224, and $50,677, respectively,
in compensation for administrative and other services provided to Capital
Appreciation Portfolio.
For the fiscal years ended September 30, 1996, 1995, and the fiscal
period from October 21, 1993 (commencement of operations) through September
30, 1994, Bankers Trust received $198,992, $59,848 and $10,680,
respectively, in compensation for administrative and other services
provided to Small Cap Portfolio.
For the period from February 16, 1996, (commencement of operations) to
September 30, 1996, Bankers Trust received $9,755, in compensation for
administrative and other services provided to International Equity Fund.
For the period from May 24, 1996, (commencement of operations) to September
30, 1996, Bankers Trust received $41, in compensation for administrative
and other services provided to Latin American Equity Fund.
For the period from April 26, 1996, (commencement of operations) to
September 30, 1996, Bankers Trust received $482, in compensation for
administrative and other services provided to Pacific Basin Equity Fund.
For the period from April 26, 1996, (commencement of operations) to
September 30, 1996, Bankers Trust received $530, in compensation for
administrative and other services provided to Global High Yield Securities
Fund.
For the period from February 16, 1996, (commencement of operations) to
September 30, 1996, Bankers Trust received $2,789, in compensation for
administrative and other services provided to Capital Appreciation Fund.
For the period from February 16, 1996, (commencement of operations) to
September 30, 1996, Bankers Trust received $6,065, in compensation for
administrative and other services provided to Small Cap Fund.
Bankers Trust has agreed that if in any fiscal year the aggregate
expenses of any Fund and its respective Portfolio (including fees pursuant
to the Advisory Agreement, but excluding interest, taxes, brokerage and, if
permitted by the relevant state securities commissions, extraordinary
expenses) exceed the expense limitation of any state having jurisdiction
over a Fund, Bankers Trust will reimburse the Fund for the excess expense
to the extent required by state law. As of the date of this Statement of
Additional Information, the most restrictive annual expense limitation
applicable to any Fund is 2.50% of the Fund's first $30 million of average
annual net assets, 2.00% of the next $70 million of average annual net
assets and 1.50% of the remaining average annual net assets.
Custodian and Transfer Agent
Bankers Trust, 280 Park Avenue, New York, New York 10017, serves as
Custodian for the Trust and for each Portfolio pursuant to the
administration and services agreements. As Custodian, it holds the Funds'
and each Portfolio's assets. Bankers Trust also serves as transfer agent
of the Trust and of each Portfolio pursuant to the respective
administration and services agreement. Under its transfer agency agreement
with the Trust, Bankers Trust maintains the shareholder account records for
each Fund, handles certain communications between shareholders and the
Trust and causes to be distributed any dividends and distributions payable
by the Trust. Bankers Trust may be reimbursed by the Funds or the
Portfolios for its out-of-pocket expenses. Bankers Trust will comply with
the self-custodian provisions of Rule 17f-2 under the 1940 Act.
Use of Name
The Trust and Bankers Trust have agreed that the Trust may use "BT" as
part of its name for so long as Bankers Trust serves as investment adviser
to the Portfolios. The Trust has acknowledged that the term "BT" is used
by and is a property right of certain subsidiaries of Bankers Trust and
that those subsidiaries and/or Bankers Trust may at any time permit others
to use that term.
The Trust may be required, on 60 days' notice from Bankers Trust at
any time, to abandon use of the acronym "BT" as part of its name. If this
were to occur, the Trustees would select an appropriate new name for the
Trust, but there would be no other material effect on the Trust, its
shareholders or activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion
Bankers Trust may perform the services for the Portfolios contemplated by
the Advisory Agreements and other activities for the Funds and the
Portfolios described in the Prospectuses and this Statement of Additional
Information without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. However, counsel has pointed out that future
changes in either Federal or state statutes and regulations concerning the
permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and
future statutes and regulations, might prevent Bankers Trust from
continuing to perform those services for the Trust and the Portfolios.
State laws on this issue may differ from the interpretations of relevant
Federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. If the circumstances
described above should change, the Boards of Trustees would review the
relationships with Bankers Trust and consider taking all actions necessary
in the circumstances.
Counsel and Independent Accountants
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022-4669, serves as Counsel to the Trust and each
Portfolio. Coopers & Lybrand L.L.P., 1100 Main Street, Suite 900, Kansas
City, Missouri 64105 acts as Independent Accountants of the Trust and each
Portfolio.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of
Trustees can elect all Trustees. Shares are transferable but have no
preemptive, conversion or subscription rights. Shareholders generally vote
by Fund, except with respect to the election of Trustees and the
ratification of the selection of independent accountants.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of this
disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Trust or a Trustee. The Declaration of Trust
provides for indemnification from the Trust's property for all losses and
expenses of any shareholder held personally liable for the obligations of
the Trust. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations, a possibility that
the Trust believes is remote. Upon payment of any liability incurred by
the Trust, the shareholder paying the liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in a manner so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the
Trust.
TAXATION
TAXATION OF THE FUNDS
The Trust intends to qualify annually and to elect each Fund to be
treated as a regulated investment company under the Code.
To qualify as a regulated investment company, each Fund must, among
other things: (a) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stock, securities or
foreign currencies or other income derived with respect to its business of
investing in such stock, securities or currencies; (b) derive less than 30%
of its gross income from the sale or other disposition of certain assets
(namely, in the case of the Fund, (i) stock or securities; (ii) options,
futures, and forward contracts (other than those on foreign currencies);
and (iii) foreign currencies (including options, futures, and forward
contracts on such currencies) not directly related to the Fund's principal
business of investing in stock or securities (or options and futures with
respect to stocks or securities)) held less than three months (the 30%
Limitation"); (c) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash and cash items (including
receivables), U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of
any one issuer limited for the purposes of this calculation to an amount
not greater than 5% of the value of the Fund's total assets and not greater
than 10% of the outstanding voting securities of such issuer and (ii) not
more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies); and (d) distribute at
least 90% of its investment company taxable income (which includes, among
other items, dividends, interest and net short-term capital gains in excess
of net long-term capital losses) and its net tax-exempt interest income, if
any, each taxable year.
As a regulated investment company, each Fund will not be subject to
U.S. Federal income tax on its investment company taxable income and net
capital gains (the excess of net long-term capital gains over net short-
term capital losses), if any, that it distributes to shareholders. The
Fund intends to distribute to its shareholders, at least annually,
substantially all of its investment company taxable income and net capital
gains. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, the Fund must
distribute during each calendar year an amount equal to the sum of: (1) at
least 98% of its ordinary income (not taking into account any capital gains
or losses) for the calendar year; (2) at least 98% of its capital gains in
excess of its capital losses (adjusted for certain ordinary losses, as
prescribed by the Code) for the one-year period ending on October 31 of the
calendar year; and (3) any ordinary income and capital gains for previous
years that was not distributed during those years. A distribution will be
treated as paid on December 31 of the current calendar year if it is
declared by the Fund in October, November or December with a record date in
such a month and paid by the Fund during January of the following calendar
year. Such distributions will be taxable to shareholders in the calendar
year in which the distributions are declared, rather than the calendar year
in which the distributions are received. To prevent application of the
excise tax, the Fund intends to make its distributions in accordance with
the calendar year distribution requirement.
Each Fund shareholder will also receive, if appropriate, various
written notices after the close of the Fund's prior taxable year as to the
Federal income status of his dividends and distributions which were
received from the Fund during the Fund's prior taxable year. Shareholders
should consult their tax advisers as to any state and local taxes that may
apply to these dividends and distributions. The dollar amount of dividends
excluded from Federal income taxation and the dollar amount subject to such
income taxation, if any, will vary for each shareholder depending upon the
size and duration of each shareholder's investment in the Fund. To the
extent that the Fund earns taxable net investment income, the Fund intends
to designate as taxable dividends the same percentage of each dividend as
its taxable net investment income bears to its total net investment income
earned. Therefore, the percentage of each dividend designated as taxable,
if any, may vary.
International Equity Portfolio, Latin American Equity Portfolio, Pacific
Basin Equity Portfolio,
and Global High Yield Securities Portfolio
Foreign Securities. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to
determine the effective rate of foreign tax in advance since the amount of
the Portfolio's assets to be invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, it may make an
election pursuant to which certain foreign taxes paid by it would be
treated as having been paid directly by shareholders of the entities, such
as the corresponding Fund, which have invested in the Portfolio. Pursuant
to such election, the amount of foreign taxes paid will be included in the
income of the corresponding Fund's shareholders, and such Fund shareholders
(except tax-exempt shareholders) may, subject to certain limitations, claim
either a credit or deduction for the taxes. Each such Fund shareholder
will be notified after the close of the Portfolio's taxable year whether
the foreign taxes paid will "pass through" for that year and, if so, such
notification will designate (a) the shareholder's portion of the foreign
taxes paid to each such country and (b) the portion which represents income
derived from sources within each such country.
The amount of foreign taxes for which a shareholder may claim a credit
in any year will generally be subject to a separate limitation for "passive
income," which includes, among other items of income, dividends, interest
and certain foreign currency gains. Because capital gains realized by the
Portfolio on the sale of foreign securities will be treated as U.S. source
income, the available credit of foreign taxes paid with respect to such
gains may be restricted by this limitation.
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income
will be taxable to a U.S. shareholder as ordinary income. Distributions of
net capital gains, if any, designated as capital gain dividends are taxable
as long-term capital gains, regardless of how long the shareholder has held
the Fund's shares, and are not eligible for the dividends-received
deduction. Shareholders receiving distributions in the form of additional
shares, rather than cash, generally will have a cost basis in each such
share equal to the net asset value of a share of the Fund on the
reinvestment date. Shareholders will be notified annually as to the U.S.
Federal tax status of distributions.
TAXATION OF THE PORTFOLIOS
The Portfolios are not subject to Federal income taxation. Instead,
the Fund and other investors investing in a Portfolio must take into
account, in computing their Federal income tax liability, their share of
the Portfolio's income, gains, losses, deductions, credits and tax
preference items, without regard to whether they have received any cash
distributions from the Portfolio.
Distributions received by a Fund from the corresponding Portfolio
generally will not result in the Fund recognizing any gain or loss for
Federal income tax purposes, except that: (1) gain will be recognized to
the extent that any cash distributed exceeds the Fund's basis in its
interest in the Portfolio prior to the distribution; (2) income or gain may
be realized if the distribution is made in liquidation of the Fund's entire
interest in the Portfolio and includes a disproportionate share of any
unrealized receivables held by the Portfolio; and (3) loss may be
recognized if the distribution is made in liquidation of the Fund's entire
interest in the Portfolio and consists solely of cash and/or unrealized
receivables. A Fund's basis in its interest in the corresponding Portfolio
generally will equal the amount of cash and the basis of any property which
the Fund invests in the Portfolio, increased by the Fund's share of income
from the Portfolio, and decreased by the amount of any cash distributions
and the basis of any property distributed from the Portfolio.
SALE OF SHARES
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in
complete liquidation of a Fund, generally will be a capital gain or loss
which will be long-term or short-term, generally depending upon the
shareholder's holding period for the shares. Any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed of are
replaced (including shares acquired pursuant to a dividend reinvestment
plan) within a period of 61 days beginning 30 days before and ending 30
days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital
loss to the extent of any distributions of net capital gains received by
the shareholder with respect to such shares.
FOREIGN WITHHOLDING TAXES
Income received by a Portfolio from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING
A Fund may be required to withhold U.S. Federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to
make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code generally
are exempt from such backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the
shareholder's U.S. Federal income tax liability.
FOREIGN SHAREHOLDERS
The tax consequences to a foreign shareholder of an investment in a
Fund may be different from those described herein. Foreign shareholders
are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor any Fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M
of the Code. The investment by each Fund in the corresponding Portfolio
does not cause the Fund to be liable for any income or franchise tax in the
State of New York.
Each of International Equity Portfolio and Capital Appreciation
Portfolio is organized as a New York trust. BT Investment Portfolios is a
New York master trust fund. Each Portfolio is not subject to any income or
franchise tax in the State of New York or the Commonwealth of
Massachusetts.
Fund shareholders may be subject to state and local taxes on their
Fund distributions. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund.
FINANCIAL STATEMENTS
Each Portfolio's financial statements for the fiscal year ended
September 30, 1996, are incorporated herein by reference to the combined
Annual Report of the Portfolios dated September 30, 1996 (File Nos. 33-
62103 and 811-7347). A copy of this report may be obtained without charge
by contacting the Trust.
DISTRIBUTOR
Edgewood Services, Inc. BT ADVISOR FUNDS
Clearing Operations
P.O. Box 897 GLOBAL HIGH YIELD SECURITIES FUND
Pittsburgh, PA 15230-0897 CAPITAL APPRECIATION FUND
SMALL CAP FUND
INTERNATIONAL EQUITY FUND
INVESTMENT ADVISER OF EACH PORTFOLIO PACIFIC BASIN EQUITY FUND
LATIN AMERICAN EQUITY FUND
Bankers Trust Company
280 Park Avenue
New York, NY 10017
TRANSFER AGENT
Bankers Trust Company
280 Park Avenue
New York, NY 10017
CUSTODIAN
Bankers Trust Company STATEMENT OF
280 Park Avenue ADDITIONAL INFORMATION
New York, NY 10015 NOVEMBER 30, 1996
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105
LEGAL COUNSEL
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4669
CUSIPS: 05576L106
05576L205
05576L304
05576L403
05576L502
05576L601
G01886-02 (11/96)
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Incorporated by reference to the Annual Report to
Shareholders of BT Advisor Funds dated September 30, 1996,
pursuant to Rule 411 under the Securities Act of 1933. (File
Nos. 33-62103 and 811-7347)
(b) Exhibits:
(l) (i) Declaration of Trust of the Trust; (1)
(ii) Amendment to the Declaration of Trust; (2)
(iii) Designation of Series relating to addition of Growth
Fund and Growth and Income Fund; (5)
(iv) First Amended and Restated Establishment and
Designation of Series and Classes of Shares; (6)
(2) By-Laws of the Trust; (1)
(3) Not Applicable
(4) Not Applicable
(5) Investment Advisory Contract; (To be filed by Amendment)
(6) Distribution Agreement; (2)
(7) Not Applicable
(8) Custodian Agreement; (4)
(9) (i) Administration and Services Agreement; (2)
(ii) Transfer Agency Agreement; (4)
(10) Opinion and Consent of counsel; (5)
(11) Conformed copy of Consent of Independent Auditors; +
(12) Not Applicable
(13) Copy of Initial Capital Understanding (4)
(14) Not Applicable
(15) Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940; (2)
(16) Copy of Schedule for computation of Fund Performance; +
(17) Copy of Financial Data Schedules; +
(18) Rule 18f-3 Plan; (5)
(19) Conformed copy of Power of Attorney of Registrant and BT
Investment Portfolios; +
+ All exhibits have been filed electronically.
(1) Incorporated by reference to the Registrant's registration statement
on Form N-lA ("Registration Statement") as filed with the Commission on
August 24, 1995.
(2) Incorporated by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement as filed with the Commission
on January 3, 1996.
(3) Incorporated by reference to Pre-Effective Amendment No. 3 to
Registrant's Registration Statement as filed with the Commission
on January 12, 1996.
(4) Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement as filed with the Commission
on April 29, 1996.
(5) Incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement as filed with the Commission
on August 1, 1996.
(6) Incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement as filed with the Commission
on September 19, 1996.
ITEM 25. Persons Controlled by or Under Common Control with Registrant:
Not Applicable
ITEM 26. Number of Holders of Securities.
Title of Class Number of Record Holders
as of October 23, 1996
International Equity Fund 106
Latin American Equity Fund 12
Pacific Basin Equity Fund 14
Global High Yield Securities Fund 16
Capital Appreciation Fund 36
Small Cap Fund 115
Equity 500 Equal Weighted Index Fund 0
U.S. Bond Index Fund 0
EAFE(R) Equity Index Fund 39
Small Cap Index Fund 20
Growth Fund 0
Growth and Income Fund 0
ITEM 27. Indemnification; (5)
ITEM 28. Business and Other Connections of Investment Adviser:
Bankers Trust serves as investment adviser to each Fund. Bankers Trust, a
New York banking corporation, is a wholly owned subsidiary of Bankers Trust
New York Corporation. Bankers Trust conducts a variety of commercial
banking and trust activities and is a major wholesale supplier of financial
services to the international institutional market. To the knowledge of the
Trust, none of the directors or
officers of Bankers Trust, except those set forth below, is or has been at
anytime during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that
certain directors and officers also hold various positions with and engage
in business for Bankers Trust New York Corporation. Set forth below are the
names and principal businesses of the directors and officers of Bankers
Trust who are or during the past two fiscal years have been engaged in any
other business, profession, vocation or employment of a substantial nature.
These persons may be contacted c/o Bankers Trust Company, 130 Liberty
Street, New York, New York 10006.
George B. Beitzel, 29 King Street, Chappaqua, NY 10514-3432. Retired
Senior Vice President and Director of International Business Machines
Corporation. Director of Bankers Trust and Bankers Trust New York
Corporation. Director of Computer Task Group, FlightSafety International,
Inc., Phillips Gas Company, Phillips Petroleum Company, Caliber Systems,
Inc. (formerly Roadway Services, Inc.), Rohm and Hass Company and TIG
Holdings, Chairman Emeritus of Amherst College, and Chairman of the
Colonial Williamsburg Foundation.
(5) Incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement as filed with the Commission on
August 1, 1996.
Phillip A. Griffiths, Director, Institute for Advanced Study, Olden Lane,
Princeton, NJ 08540. Director of Bankers Trust Company. Chairman, Committee
on Science, Engineering and Public Policy of the National Academies of
Sciences and Engineering & the Institute of Medicine; member, National
Academy of Sciences, American Academy of Arts and Sciences, American
Philosophical Society, member and chairman of the Nominations Committee and
Committee on Science and Engineering Indicators, National Science Board,
and trustee of North Carolina School of Science and Mathematics and the
Woodward Academy. Former member of the board of directors, Research
Triangle Institute.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Dallas, TX
75301-0001. Chairman of the Board and Chief Executive Officer, J.C. Penney
Company, Inc. Director of Bankers Trust and Bankers Trust New York
Corporation. Also a Director of Exxon Corporation, Halliburton Company,
Warner-Lambert Corporation, National Urban League, Inc. and the National
Retail Federation.
Jon M. Huntsman, Huntsman Corporation, 500 Huntsman Way, Salt Lake City, UT
84108. Chairman and Chief Executive Officer, Huntsman Corporation and
other affiliated companies. Director of Bankers Trust and Bankers Trust
New York Corporation. Chairman, chief executive officer and director of
Sunstar Corporation and JK Corp. Chairman and director of Co-Ex Plastics
Inc. and Global Polymers Corporation. Chairman of Constar Corporation and
Petrostar Corporation. President of Autostar Corporation and Restar
Corporation. Director of Airstar Corporation, Consolidated Press
International (Australia), Razzleberry Foods Corporation and Thiokol
Corporation. General Partner of Huntsman Group Ltd., McLeod Creek
Partnership and Trustar Ltd. Chairman of Primary Children's Medical Center
Foundation, an overseer, The Wharton School, University of Pennsylvania, an
advisor, University of Utah, Eccles Business School, founder of Huntsman
Cancer Institute, University of Utah, chairman and director of the Huntsman
Cancer Foundation, and a trustee and president of the Jon and Karen
Huntsman Foundation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Suite 400, Washington, DC 20036. Senior Partner,
Akin, Gump, Strauss, Hauer & Feld, LLP. Director of Bankers Trust and
Bankers Trust New York Corporation. Also a Director of American Express
Company, Corning Incorporated, Dow Jones, Inc., J.C. Penney Company, Inc.,
Revlon Group Incorporated, Ryder System, Inc., Sara Lee Corporation, Union
Carbide Corporation and Xerox Corporation, a trustee of Brookings
Institution, The Ford Foundation and Howard University, and governor of the
Joint Center for Political and Economic Studies.
Hamish Maxwell, Philip Morris Companies Inc., 100 Park Avenue, 10th Floor,
New York, NY 10017. Retired Chairman and Chief Executive Officer, Philip
Morris Companies Inc. Director of Bankers Trust and Bankers Trust New York
Corporation. Director of The New Corporation Limited and Sola
International Inc.
Frank N. Newman, President and Chief Executive Officer of Bankers Trust
Company and Bankers Trust New York Corporation, 130 Liberty Street, New
York, NY 10006. Director of Bankers Trust Company. Former Deputy Secretary
of the United States Treasury and former vice chairman of the board and
director of BankAmerica Corporation and Bank of America. Also a director of
Carnegie Hall.
N.J. Nicholas Jr., 15 West 53rd Street, New York, NY 10019. Former
President, Co-Chief Executive Officer and Director of Time Warner Inc.
Director of Bankers Trust and Bankers Trust New York Corporation. Also a
Director of Boston Scientific Corporation and Xerox Corporation.
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer of The Palmer
Group. Director of Bankers Trust and Bankers Trust New York Corporation.
Former Dean of The Wharton School, University of Pennsylvania and former
chief executive officer of Touche Ross & Co. (now Deloitte and Touche).
Also Director of Allied-Signal Inc., Contel Cellular, Inc., Federal Home
Loan Mortgage Corporation, GTE Corporation, Goodyear Tire & Rubber Company,
Imasco Limited, The May Department Stores Company and Safeguard
Scientifics, Inc. Member, Radnor Venture Partners Advisory Board, advisory
board of the Controller General of the United States, and a trustee, the
University of Pennsylvania.
Donald L. Stahelli, Chairman of the Board and Chief Executive Officer,
Continental Grain Company, 277 Park Avenue, 50th Floor, New York, NY 10172.
Director of Bankers Trust Company. Also a director of ContiFinancial
Corporation, Prudential Life Insurance Company of America, National
Committee on United States-China Relations, America-China Society, U.S.-
Russia Trade Council, The Points of Light Foundation and New York City
Partnership, Vice Chairman of the U.S.-China Business Council, member of
the Advisory Board of Rabobank Nederland (Utrecht, The Netherlands),
Council on Foreign Relations and the Executive Committee of the National
Advisory Council of Brigham Young University's Marriott School of
Management and a trustee of the American Graduate School of International
Management.
Patricia Carry Stewart, c/o Office of the Secretary, 280 Park Avenue - 17W,
New York, NY 10017. Former Vice President, The Edna McConnell Clark
Foundation. Director of Bankers Trust and Bankers Trust New York
Corporation. Director, Borden Inc., Continental Corp. and Melville
Corporation, director and vice chair of Community Foundation for Palm Beach
and Martin Counties, and a trustee emerita of Cornell University.
George J. Vojta, Bankers Trust Company, 130 Liberty Street, New York, NY
10006. Vice Chairman of the Board of Bankers Trust and Bankers Trust New
York Corporation. Director of Northwest Airlines and Private Export
Funding Corp., the New York State Banking Board and St. Lukes-Roosevelt
Hospital Center, a partner of New York City Partnership and chairman,
Wharton Financial Services Center.
ITEM 29. Principal Underwriters
(a) Edgewood Services, Inc., (`Edgewood'') the Distributor for shares of
the Registrant, also acts as principal underwriter for the following open-
end investment companies: FTI Funds, Excelsior Institutional Trust
(formerly, UST Master Funds, Inc.), Excelsior Tax-Exempt Funds, Inc.
(formerly, UST Master Tax-Exempt Funds, Inc.), Excelsior Institutional
Trust, Marketvest Funds, Marketvest Funds, Inc., BT Advisor Funds, BT
Investment Funds, and BT Pyramid Mutual Funds.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
R. Jeffrey Niss Senior Vice President and --
Federated Investors Tower Trustee, Edgewood Services,
Pittsburgh, PA 15222-3779 Inc.
Douglas L. Hein Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Frank E. Polefrone Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Newton Heston, III Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas J. Ward Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
(c) Not Applicable.
ITEM 30. Location of Accounts and Records:
BT ADVISOR FUNDS:. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
BANKERS TRUST COMPANY: 130 Liberty Street, New York, NY 10006.
INVESTORS FIDUCIARY TRUST COMPANY: 127 West 10th Street,
Kansas City, MO 64105.
EDGEWOOD SERVICES, INC.: Clearing Operations, P.O. Box 897,
Pittsburgh, Pennsylvania 15230-0897.
ITEM 31. Management Services:
Not applicable.
ITEM 32. Undertakings
The Registrant undertakes to comply with Section 16(c) of the 1940
Act as though such provisions of the Act were applicable to the
Registrant except that the request referred to in the third full
paragraph thereof may only be made by shareholders who hold in the
aggregate at least 10% of the outstanding shares of the
Registrant, regardless of the net asset value or values of shares
held by such requesting shareholders.
If the information called for by Item 5A of Form N-lA is contained
in the latest annual report to shareholders, the Registrant shall
furnish each person to whom a prospectus is delivered with a copy
of the Registrant's latest annual report to shareholders upon
request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, the Registrant, BT ADVISOR
FUNDS (formerly, BT Global Investors), certifies that it meets all of the
requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities act of 1933, and has
duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and the Commonwealth of Pennsylvania on the 30th day of October,
1996.
BT ADVISOR FUNDS
(formerly, BT Global Investors)
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
October 30, 1996
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Jay S. Neuman Attorney in Fact October 30, 1996
Jay S. Neuman For the Persons
SECRETARY Listed Below
/s/RONALD M. PETNUCH* President and Treasurer
Ronald M. Petnuch (Chief Executive Officer,
Principal Financial and Accounting
Officer)
/S/PHILIP W. COOLIDGE* Trustee
Philip W. Coolidge
/S/HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten
/S/MARTIN J. GRUBER* Trustee
Martin J. Gruber
/S/BRUCE E. LANGTON* Trustee
Bruce E. Langton
/S/RICHARD J. HERRING* Trustee
Richard J. Herring
* By Power of Attorney
SIGNATURES
BT INVESTMENT PORTFOLIOS has duly caused the Registration Statement on
Form N-1A of BT Advisor Funds to be signed on its behalf by the
undersigned, thereto authorized in the City of Pittsburgh and the
Commonwealth of Pennsylvania on the 30th day of October, 1996.
BT INVESTMENT PORTFOLIOS
By: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
October 30, 1996
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Jay S. Neuman Attorney in Fact October 30, 1996
Jay S. Neuman For the Persons
SECRETARY Listed Below
/s/RONALD M. PETNUCH* President and Treasurer
Ronald M. Petnuch (Chief Executive Officer,
Principal Financial and Accounting
Officer)
/S/PHILIP W. COOLIDGE* Trustee
Philip W. Coolidge
/s/CHARLES P. BIGGAR Trustee
Charles P. Biggar
/s/S. LELAND DILL Trustee
S. Leland Dill
/s/PHILIP SAUNDERS, JR. Trustee
Philip Saunders, Jr.
* By Power of Attorney
EXHIBIT 11 UNDER FORM N-1A
EXHIBIT 23 UNDER ITEM 601/REG. S-K
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment
No. 8 to the Registration Statement of the BT Advisor Funds (comprised of
the Capital Appreciation, Global High Yield Securities, International
Equity, Latin American Equity, Pacific Basin Equity and Small Cap Funds) on
Form N-1A of our report dated October 29, 1996 on our audit of the
financial statements and financial highlights of the International Equity
Portfolio, which report is included in the Annual Report to Shareholders
for the year ended September 30, 1996 which is incorporated by reference in
the Post-Effective Amendment to the Registration Statement. We also consent
to the reference in the Statement of Additional Information to our Firm
under the caption `Counsel and Independent Accountant.''
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
October 30, 1996
POWER OF ATTORNEY
The undersigned Trustees and officers, as indicated respectively below, of
BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, The
Leadership Trust, and BT Advisor Funds (each, a `Trust'') and, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, International Equity Portfolio, Utility Portfolio, Short/Intermediate
U.S. Government Securities Portfolio, Equity 500 Index Portfolio, Asset
Management Portfolio, Capital Appreciation Portfolio, Intermediate Tax Free
Portfolio, and BT Investment Portfolios (each, a `Portfolio Trust'') each
hereby constitutes and appoints the Secretary and each Assistant Secretary of
each Trust and each Portfolio Trust and the Deputy General Counsel of Federated
Investors, each of them with full powers of substitution, as his true and lawful
attorney-in-fact and agent to execute in his name and on his behalf in any and
all capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, and all other documents, filed by a Trust or a Portfolio
Trust with the Securities and Exchange Commission (the `SEC'') under the
Investment Company Act of 1940, as amended, and (as applicable) the Securities
Act of 1933, as amended, and any and all instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Trust or
Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has,
and may exercise, all of the powers hereby conferred. The undersigned each
hereby revokes any Powers of Attorney previously granted with respect to any
Trust or Portfolio Trust concerning the filings and actions described herein.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of
the 30th day of September, 1996.
SIGNATURES TITLE
/s/ Ronald M. Petnuch President and Treasurer (Chief Executive Officer,
Ronald M. Petnuch Principal Financial and Accounting Officer)
of each Trust and Portfolio Trust
/s/ Philip W. Coolidge Trustee of each Trust and
Philip W. Coolidge Portfolio Trust
/s/ Charles P. Biggar Trustee of each Portfolio Trust
Charles P. Biggar and BT Institutional Funds
SIGNATURES TITLE
/s/ S. Leland Dill Trustee of each Portfolio Trust
S. Leland Dill and BT Investment Funds
/s/ Philip Saunders, Jr. Trustee of each Portfolio Trust
Philip Saunders, Jr. and BT Investment Funds
2
/s/ Richard J. Herring Trustee of BT Institutional Funds
Richard J. Herring and BT Advisor Funds
/s/ Bruce E. Langton Trustee of BT Institutional Funds
Bruce E. Langton and BT Advisor Funds
/s/ Martin J. Gruber Trustee of BT Pyramid Mutual Funds,
Martin J. Gruber The Leadership Trust, and BT Advisor Funds
/s/ Harry Van Benschoten Trustee of BT Pyramid Mutual Funds,
Harry Van Benschoten The Leadership Trust, and BT Advisor Funds
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> Capital Appreciation Fund
<PERIOD-TYPE> From Inception (2/16/96)
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-END> Sep-30-1996
<INVESTMENTS-AT-COST> 837,428
<INVESTMENTS-AT-VALUE> 907,028
<RECEIVABLES> 30,068
<ASSETS-OTHER> 10,504
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 947,600
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,479
<TOTAL-LIABILITIES> 23,479
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 824,401
<SHARES-COMMON-STOCK> 81,418
<SHARES-COMMON-PRIOR> 9,995
<ACCUMULATED-NII-CURRENT> (4,203)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34,323
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 69,600
<NET-ASSETS> 924,121
<DIVIDEND-INCOME> N/A
<INTEREST-INCOME> N/A
<OTHER-INCOME> (341)
<EXPENSES-NET> 3,862
<NET-INVESTMENT-INCOME> (4,203)
<REALIZED-GAINS-CURRENT> 34,323
<APPREC-INCREASE-CURRENT> 69,600
<NET-CHANGE-FROM-OPS> 99,720
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 774,451
<NUMBER-OF-SHARES-REDEEMED> 50,000
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 824,171
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27,196
<AVERAGE-NET-ASSETS> 701,096
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.050)
<PER-SHARE-GAIN-APPREC> 1.400
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.350
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE>
<SERIES>
<NUMBER>
<NAME> Global High Yield Securities Fund
<PERIOD-TYPE> From Inception (4/26/96)
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-END> Sep-30-1996
<INVESTMENTS-AT-COST> 173,784
<INVESTMENTS-AT-VALUE> 176,855
<RECEIVABLES> 16,496
<ASSETS-OTHER> 10,255
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 203,606
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,124
<TOTAL-LIABILITIES> 21,124
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,927
<SHARES-COMMON-STOCK> 16,851
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 4,440
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,044
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,071
<NET-ASSETS> 182,482
<DIVIDEND-INCOME> N/A
<INTEREST-INCOME> N/A
<OTHER-INCOME> 6,032
<EXPENSES-NET> 419
<NET-INVESTMENT-INCOME> 5,613
<REALIZED-GAINS-CURRENT> 4,044
<APPREC-INCREASE-CURRENT> 3,071
<NET-CHANGE-FROM-OPS> 12,728
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,173
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 171,745
<NUMBER-OF-SHARES-REDEEMED> 2,000
<SHARES-REINVESTED> 1,172
<NET-CHANGE-IN-ASSETS> 182,472
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,445
<AVERAGE-NET-ASSETS> 128,956
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.450
<PER-SHARE-GAIN-APPREC> 0.490
<PER-SHARE-DIVIDEND> (0.110)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.830
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE>
<SERIES>
<NUMBER>
<NAME> International Equity Fund
<PERIOD-TYPE> From Inception (2/16/96)
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-END> Sep-30-1996
<INVESTMENTS-AT-COST> 3,081,608
<INVESTMENTS-AT-VALUE> 3,134,895
<RECEIVABLES> 27,450
<ASSETS-OTHER> 10,503
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,172,848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,798
<TOTAL-LIABILITIES> 28,798
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,032,159
<SHARES-COMMON-STOCK> 287,664
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 11,384
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 47,220
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,287
<NET-ASSETS> 3,144,050
<DIVIDEND-INCOME> N/A
<INTEREST-INCOME> N/A
<OTHER-INCOME> 23,434
<EXPENSES-NET> 12,050
<NET-INVESTMENT-INCOME> 11,384
<REALIZED-GAINS-CURRENT> 47,220
<APPREC-INCREASE-CURRENT> 53,287
<NET-CHANGE-FROM-OPS> 111,891
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,082,149
<NUMBER-OF-SHARES-REDEEMED> 50,000
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,144,040
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 39,734
<AVERAGE-NET-ASSETS> 1,875,149
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.890
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.930
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE>
<SERIES>
<NUMBER>
<NAME> Latin American Equity Fund
<PERIOD-TYPE> From Inception (5/24/96)
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-END> Sep-30-1996
<INVESTMENTS-AT-COST> 18,549
<INVESTMENTS-AT-VALUE> 18,523
<RECEIVABLES> 15,653
<ASSETS-OTHER> 10,398
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44,574
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,119
<TOTAL-LIABILITIES> 20,119
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,490
<SHARES-COMMON-STOCK> 2,465
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> (40)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (26)
<NET-ASSETS> 24,455
<DIVIDEND-INCOME> N/A
<INTEREST-INCOME> N/A
<OTHER-INCOME> 14
<EXPENSES-NET> 54
<NET-INVESTMENT-INCOME> (40)
<REALIZED-GAINS-CURRENT> 31
<APPREC-INCREASE-CURRENT> (26)
<NET-CHANGE-FROM-OPS> (35)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,480
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 24,445
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,748
<AVERAGE-NET-ASSETS> 12,306
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.020)
<PER-SHARE-GAIN-APPREC> (0.060)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.920
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE>
<SERIES>
<NUMBER>
<NAME> Pacific Basin Equity Fund
<PERIOD-TYPE> From Inception (4/26/96)
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-END> Sep-30-1996
<INVESTMENTS-AT-COST> 205,043
<INVESTMENTS-AT-VALUE> 199,545
<RECEIVABLES> 45,827
<ASSETS-OTHER> 10,255
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 255,627
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,554
<TOTAL-LIABILITIES> 25,554
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 234,460
<SHARES-COMMON-STOCK> 23,974
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 307
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,704
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,398)
<NET-ASSETS> 230,073
<DIVIDEND-INCOME> N/A
<INTEREST-INCOME> N/A
<OTHER-INCOME> 852
<EXPENSES-NET> 545
<NET-INVESTMENT-INCOME> 307
<REALIZED-GAINS-CURRENT> 1,704
<APPREC-INCREASE-CURRENT> (6,398)
<NET-CHANGE-FROM-OPS> (4,387)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 243,978
<NUMBER-OF-SHARES-REDEEMED> 9,528
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 230,063
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21,853
<AVERAGE-NET-ASSETS> 148,727
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.010
<PER-SHARE-GAIN-APPREC> (0.410)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.600
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE>
<SERIES>
<NUMBER>
<NAME> Small Cap Fund
<PERIOD-TYPE> From Inception (2/16/96)
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-END> Sep-30-1996
<INVESTMENTS-AT-COST> 2,680,588
<INVESTMENTS-AT-VALUE> 2,805,623
<RECEIVABLES> 22,709
<ASSETS-OTHER> 10,508
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,838,840
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,120
<TOTAL-LIABILITIES> 26,120
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,699,434
<SHARES-COMMON-STOCK> 245,336
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> (9,427)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,322)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 125,035
<NET-ASSETS> 2,812,720
<DIVIDEND-INCOME> N/A
<INTEREST-INCOME> N/A
<OTHER-INCOME> (1,029)
<EXPENSES-NET> 8,398
<NET-INVESTMENT-INCOME> (9,427)
<REALIZED-GAINS-CURRENT> (2,322)
<APPREC-INCREASE-CURRENT> 125,035
<NET-CHANGE-FROM-OPS> 113,286
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,750,190
<NUMBER-OF-SHARES-REDEEMED> 50,766
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,812,710
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33,028
<AVERAGE-NET-ASSETS> 1,498,303
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.040)
<PER-SHARE-GAIN-APPREC> 1.500
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.460
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
