AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 1995
File Nos. 33-7404 and 811-4760
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 35
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 36
BT INVESTMENT FUNDS
(Exact Name of Registrant as Specified in Charter)
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 617-423-0800
Copies to:
PHILIP W. COOLIDGE Burton M. Liebert
SIGNATURE BROKER-DEALER SERVICES, INC. Willkie Farr & Gallagher
6 ST. JAMES AVENUE One Citicorp Center
BOSTON, MASSACHUSETTS 02116 153 East 53rd Street
New York, New York 10022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[X] on 1/28/96 pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) 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.
GLOBAL HIGH YIELD SECURITIES PORTFOLIO HAS ALSO EXECUTED THIS REGISTRATION
STATEMENT.
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF BENEFICIAL
INTEREST PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940.
REGISTRANT FILED THE NOTICE REQUIRED BY RULE 24F-2 ON NOVEMBER 30, 1994 FOR
REGISTRANT'S FISCAL YEAR ENDED SEPTEMBER 30, 1994. REGISTRANT FILED THE NOTICE
REQUIRED BY RULE 24F-2 ON FEBRUARY 28, 1995 FOR REGISTRANT'S FISCAL YEAR ENDED
DECEMBER 31, 1994. REGISTRANT FILED THE NOTICE REQUIRED BY RULE 24F-2 ON MAY 26,
1995 FOR REGISTRANT'S FISCAL YEAR ENDED MARCH 31, 1995.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 35 (the "Amendment") to the
Registrant's Registration Statement on Form N-1A is being filed with respect to
the Global High Yield Securities Fund (the "Fund"), a series of
shares of the Registrant.
The series of shares of the Registrant are listed below and are offered
by Prospectuses in the respective Part A of the Post-Effective Amendments to the
Registrant's Registration Statement as identified. Each of the following is a
separate series of shares of the Registrant. This Amendment does not relate to,
amend or otherwise affect the Prospectuses contained in prior Post-Effective
Amendments, and, therefore, pursuant to Rule 485(d) under the Securities Act of
1933, as amended (the "1933 Act"), does not affect the effectiveness of such
Post-Effective Amendments.
POST-EFFECTIVE
AMENDMENT NO.
BT Investment Lifecycle Short Range Fund 34
BT Investment Lifecycle Mid Range Fund 34
BT Investment Lifecycle Long Range Fund 34
Short/Intermediate U.S. Government Securities Fund 33
Capital Appreciation Fund 33
International Equity Fund 33
Cash Management Fund 33
Treasury Money Fund 33
100% Treasury Fund 33
Intermediate Tax Free Fund 33
Utility Fund 33
Tax Free Money Fund 33
NY Tax Free Money Fund 33
Pacific Basin Equity Fund 32
Latin American Equity Fund 32
Global High Yield Securities Fund 32
Small Cap Fund 32
International Bond Fund 29
European Equity Fund 26
<PAGE>
BT0329G
BT INVESTMENT FUNDS
GLOBAL HIGH YIELD SECURITIES FUND
FORM N-1A
CROSS REFERENCE SHEET
Part A
ITEM NO. HEADINGS IN PROSPECTUS
1. Cover Page . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . Summary of Fund Expenses
3. Condensed Financial
Information . . . . . . . Fund's Financial Highlights
4. General Description of
Registrant . . . . . . . . Cover Page; Investment Objective,
Policies and Risks; Management of the
Trust and Portfolios
5. Management of the Fund . . Management of the Trust and Portfolios
6. Capital Stock and Other
Securities . . . . . . . . Cover Page; Purchase and Redemption
of Shares; Dividends, Distributions
and Taxes; Management of the Trust
and Portfolios; Performance
Information and Reports
7. Purchase of Securities
Being Offered . . . . . . Purchase and Redemption of Shares;
Net Asset Value
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Pending Legal Proceedings Not applicable
Part B
HEADINGS IN STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION
10. Cover Page . . . . . . . . Cover Page
11. Table of Contents . . . . Contents
12. General Information and
History . . . . . . . . . Not applicable
13. Investment Objectives and
Policies . . . . . . . . . Investment Objective, Policies and Risks
14. Management of the Fund . . Management of the Trust and Portfolios
15. Control Persons and
Principal Holders of
Securities . . . . . . See Prospectus -- "Organization of
the Trust"
16. Investment Advisory
and Other Services . . . . Management of the Trust and Portfolios
17. Brokerage Allocation and
Other Practices . . . . . Investment Objective, Policies and Risks
18. Capital Stock and Other
Securities . . . . . . . . Organization of the Trust; see
Prospectus -- "Dividends,
Distributions and Taxes" and
"Organization of the Trust"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . . Purchase and Redemption Information;
Net Asset Value
20. Tax Status . . . . . . . . Taxes; see Prospectus -- "Dividends,
Distributions and Taxes"
21. Underwriters . . . . . . . See Prospectus -- "Management of the
Trust and Portfolios"
22. Calculations of Yield
Quotations of Money Market
Funds . . . . . . . . . . Performance Information
23. Financial Statements . . . Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
BT0437A
B T I N V E S T M E N T F U N D S
PROSPECTUS: JANUARY 30, 1996
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Fund that you should know
and can refer to in deciding whether the Fund's goals match your own.
A Statement of Additional Information (SAI) with the same date has been filed
with the Securities and Exchange Commission, and is incorporated herein by
reference. You may request a free copy of the Statement by calling the Fund's
Service Agent at 800-422-6577.
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE PORTFOLIO WHICH IS A SEPARATE FUND
WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE "SPECIAL INFORMATION CONCERNING
MASTER-FEEDER FUND STRUCTURE" ON PAGE 17. THE PORTFOLIO MAY BORROW MONEY FOR
INVESTMENT IN SECURITIES. SUCH LEVERAGE WILL EXAGGERATE ANY INCREASE OR DECREASE
IN THE VALUE OF SHARES IN THE FUND. BORROWING ALSO INVOLVES COSTS TO THE
PORTFOLIO. SEE "LEVERAGE" ON PAGE 11 HEREIN.
THIS PORTFOLIO INVESTS PRIMARILY IN LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK
BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF
PRINCIPAL AND INTEREST. PURCHASERS OF SHARES OF THE FUND SHOULD CAREFULLY ASSESS
THE RISK ASSOCIATED WITH AN INVESTMENT IN THE FUND. THE FUND MAY BE CONSIDERED A
SPECULATIVE INVESTMENT AND IS DESIGNED FOR AGGRESSIVE INVESTORS. SHARES OF THE
FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. SHARES OF THE
FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, BANKERS
TRUST COMPANY AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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.
Global
High Yield
Securities Fund
Seeks high current income, through investment in a non-diversified portfolio of
high yield, non-investment grade debt securities issued in many of the world's
securities markets.
BANKERS TRUST COMPANY
Investment Adviser of the
Portfolio and Administrator
SIGNATURE BROKER-
DEALER SERVICES, INC.
Distributor
6 St. James Avenue
Boston, Massachusetts 02116
<PAGE>
<TABLE>
<S> <C>
T A B L E O F C O N T E N T S
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PAGE
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Summary of Fund Expenses 3
Fund Financial Highlights 4
Investment Objective, Policies and Risks 4
Risk Factors; Matching the Fund to Your Investment Needs 13
Net Asset Value 19
Purchase and Redemption of Shares 19
Dividends, Distributions and Taxes 22
Performance Information and Reports 23
Management of the Trust and BT Investment Portfolios 24
Additional Information 29
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S U M M A R Y O F F U N D E X P E N S E S
The following table provides (i) a summary of expenses relating to purchases and
sales of the shares of Global High Yield Securities Fund (the "Fund") and the
annual operating expenses of the Fund and the expenses of Global High Yield
Securities Portfolio (the "Portfolio"), in the aggregate, as a percentage of
average net assets of the Fund and (ii) an example illustrating the dollar cost
of such expenses on a $1,000 investment in the Fund. The Trustees of the BT
Investment Funds (the "Trust") believe that the aggregate per share expenses of
the Fund and the 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 investable assets ("Assets") of the Fund were
invested directly in the type of securities being held by the Portfolio.
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</TABLE>
<TABLE>
<S> <C>
ANNUAL OPERATING EXPENSES
(as a percentage of the average daily net assets of the Fund)
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Investment advisory fee (after reimbursement or waiver) 0.41%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 1.34
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Total operating expenses (after reimbursements or waivers) 1.75%
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</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
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You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end
of each time period $18 $55 $95 $206
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</TABLE>
The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. While
reimbursement of distribution expenses in amounts up to 0.20% of average net
assets are authorized to be made pursuant to the Plan of Distribution under Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act") it
is not expected that any payments will actually be made under that plan in the
foreseeable future. Bankers Trust Company ("Bankers Trust") has voluntarily
agreed to waive a portion of its investment advisory fee. Without such waiver,
the Portfolio's investment advisory fee would be equal to 0.80%. The expense
table and the example reflect a voluntary undertaking by Bankers Trust or
Signature Broker-Dealer Services, Inc. ("Signature") to waive or reimburse
expenses such that the total operating expenses will not exceed 1.75% of the
Fund's average net assets annually. In the absence of this undertaking, for the
fiscal year ended September 30, 1995, the total operating expenses would have
been equal to approximately [ ]% of the Fund's average net assets annually. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
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%.
<PAGE>
The Fund is sold by Signature as the Trust's distributor (the "Distributor") to
customers of Bankers Trust or to customers of another bank or a dealer or other
institution that has a sub- shareholder servicing agreement with Bankers Trust
(along with Bankers Trust, a "Servicing Agent"). Some Service Agents may impose
certain conditions on their customers in addition to or different from those
imposed by the Fund and may charge their customers a direct fee for their
services. Each Service Agent has agreed to transmit to shareholders who are its
customers appropriate disclosures of any fees that it may charge them directly.
For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and Portfolio" herein.
F U N D F I N A N C I A L H I G H L I G H T S
The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data of
the Fund for the periods indicated and has been audited by Coopers & Lybrand
L.L.P., the Fund's independent accountants, whose report thereon appears in the
Fund's Annual Report which is incorporated by reference in the Fund's Statement
of Additional Information.
<TABLE>
<S> <C> <C>
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FOR THE PERIOD
DECEMBER 14, 1993
FOR THE YEAR (COMMENCEMENT
ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
- -------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $[] $ 10.00
Income from Investment Operations
Net Investment Income [] 0.31
Net Realized and Unrealized (Loss) on Securities and Foreign Currency [] (0.02)
- -------------------------------------------------------------------------------------------------------------------
Total from Investment Operations [] 0.29
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Net Asset Value, End of Period $[] $ 10.29
Total Investment Return []% 3.66 %*
Ratios and Supplemental Data
Ratio of Net Investment Income to Average Net Assets []% 5.44 %*
Ratio of Expenses to Average Net Assets, Including Expenses
of the Global High Yield Securities Portfolio []% 1.75 %*
Decrease Reflected in Above Expense Ratio Due to Absorption
of Expenses by Bankers Trust []% 1.08 %*
Net Assets, End of Period (000's omitted) $[] $14,738
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<FN>
*Annualized
</FN>
</TABLE>
I N V E S T M E N T O B J E C T I V E , P O L I C I E S A N D R I S K S
The 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. The Portfolio intends to invest in high risk, lower quality debt
securities commonly referred to as "junk bonds" and regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation as well as in the debt
securities of issuers located in emerging markets, Brady bonds and other
sovereign debt. The Portfolio may borrow money for investment purposes and
invest up to 10% of its assets in restricted securities (including 144A
securities) which may involve greater risk and increased Fund expenses.
The Trust seeks to achieve the investment objective of the Fund by investing all
the Assets of the Fund in the Global High Yield Securities Portfolio, which has
the same investment objective as the Fund. The Trust may withdraw the investment
of the Fund from the 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. 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 objective as the
Fund or the retaining of an investment adviser to manage the Fund's Assets in
accordance with the investment
<PAGE>
policies described below with respect to the Portfolio.
The Portfolio is classified as a "non-diversified" investment company under the
1940 Act and may invest a greater portion of its assets in a single issuer than
a diversified fund. As a result, the Portfolio may be more susceptible to any
single economic, political or regulatory occurrence than a diversified fund.
Since the investment characteristics of the Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of and techniques employed by the Portfolio. Additional information about the
investment policies of the Portfolio appears in the Statement of Additional
Information of the Fund. There can be no assurance that the investment objective
of either the Fund or the Portfolio will be achieved.
GLOBAL HIGH YIELD SECURITIES PORTFOLIO
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." The world's industrialized markets generally
include but are not limited to the following: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Luxembourg, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States; the world's emerging
markets generally include but are not limited to the following: Argentina,
Bolivia, Brazil, Chile, China, Colombia, Costa Rica, the Czech Republic,
Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, the Ivory Coast,
Jordan, Malaysia, Mexico, Morocco, Nicaragua, Nigeria, Pakistan, Peru, the
Philippines, Poland, Portugal, Russia, Slovenia, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela and Zimbabwe. The Portfolio may also invest
in securities of issuers located in Eastern Europe which may at any time revert
back to Communist governments and nationalized industries. Higher risk is
associated with investing in developing countries such as expropriation and
withholding dividends at the source.
Although Bankers Trust considers each of the above countries, both
industrialized and emerging, eligible for investment pursuant to the Portfolio's
objective, the Portfolio will not be invested in all such markets at all times.
Furthermore, investing in some of these markets may be neither feasible nor
desirable from time to time, due to the lack of adequate custodial arrangements
for the Portfolio's assets, exchange contracts and overly burdensome
repatriation, the lack of organized and liquid securities markets, and
unacceptable political risks. Under normal circumstances, the Portfolio will
invest in at least three of the emerging markets listed above.
The Portfolio generally invests in securities which are rated BBB or lower by
Standard & Poor's Corporation ("S&P") or Baa or lower by Moody's Investors
Service, Inc. ("Moody's") or, if unrated, of comparable quality in the opinion
of Bankers Trust. Securities which are rated BBB by S&P or Baa by Moody's
possess some speculative characteristics. A description of the rating categories
is contained in the y. THERE IS NO LOWER LIMIT WITH RESPECT TO THE RATING
CATEGORIES FOR SECURITIES IN WHICH THE PORTFOLIO MAY INVEST. See "Risk Factors:
Matching the Fund to Your Investment Needs -- Risks of Investing in High Yield
Securities ("Junk Bonds")."
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments. This
is because of the reduced creditworthiness and increased risk of default that
these securities carry. Lower-rated securities generally tend to reflect
short-term corporate and market developments to a greater extent than
higher-rated securities which react primarily to fluctuations in the general
level of interest rates. Short-term corporate and market developments affecting
the prices and liquidity of lower-rated securities could include adverse news
impacting major issues, and underwriters or dealers in lower-rated or unrated
securities. In addition, since there are fewer investors in lower-rated
securities, it may be harder to sell securities at an optimum time.
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
<PAGE>
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.
ASSET ALLOCATION. 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. Bankers Trust will allocate the assets of the
Portfolio in securities of issuers in countries and currency denominations where
the combination of fixed income market returns, the price appreciation potential
of fixed income securities and currency exchange rate movements will present
opportunities primarily for high current income and secondarily for capital
appreciation. In so doing, Bankers Trust intends to take full advantage of the
different yield, risk and return characteristics that investment in the fixed
income markets of different countries can provide. Fundamental economic
strength, credit quality, currency and interest rate trends and diversification
to manage risk will be the principal determinants of the emphasis given to
various country, geographic and industry sectors within the Portfolio.
Securities held by the Portfolio may be invested without limitation as to
maturity and are summarized according to the following general classifications;
emerging market debt securities, Brady bonds, loan participations and
assignments, convertible bonds, preferred stock and industrialized market debt
securities.
EMERGING MARKETS DEBT SECURITIES. In addition to the risks inherent in
investment in debt securities of U.S. issuers, investments in debt securities
denominated in foreign currencies involve certain other risks. Less public
information may be available concerning non-U.S. issuers as compared to U.S.
issuers. Non-U.S. issuers are generally not subject to accounting, auditing and
financial practices comparable to those applicable to U.S. issuers.
In investing in bonds denominated in non-U.S. currencies, the Portfolio will be
subject to the risk of currency fluctuations. Non-U.S. currencies may be
affected by devaluation, adverse political and economic developments, and
governmental restrictions. The values of foreign investments and the investment
income derived from them may also be affected adversely by changes in currency
exchange control regulations. Although the Portfolio will invest primarily in
securities denominated in U.S. dollars or in currencies that are fully
convertible into U.S. dollars, it is a possibility that individual securities
might suffer loss of value or liquidity due to foreign government imposition of
currency exchange controls.
Securities denominated in foreign currencies of U.S. or non-U.S. issuers may be
less liquid and their prices more volatile than securities issued by U.S.
issuers and denominated in U.S. dollars. In addition, investing in non-U.S.
securities and securities denominated in non-U.S. currencies often entails costs
not associated with investments in U.S. dollar-denominated securities of U.S.
issuers such as the cost of converting U.S. dollars to foreign currency, higher
brokerage commissions, custodial expenses and other fees. Non-U.S. dollar
denominated securities may be subject to withholding or other taxes in the
relevant jurisdiction, which may reduce the yield on the securities to the
Portfolio and which may not be recoverable by the Fund or its investors.
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
<PAGE>
or rescheduling of debt payments. In addition, prospects for repayment of
principal and interest may depend on political as well as economic factors.
BRADY BONDS. The Portfolio will also invest in "Brady bonds," which have
recently been issued by the governments of Argentina, Costa Rica, Mexico,
Nigeria, Uruguay and Venezuela and are expected to be issued by 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.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Portfolio may invest in fixed and
floating rate loans ("loans") arranged through private negotiations between a
borrower and one or more institutions ("lenders"). The majority of the
Portfolio's investments in loans in emerging markets is expected to be in the
form of participations in loans ("participations") and assignments of portions
of loans from third parties ("assignments"). The Portfolio may also invest in
loans, participations or assignments of loans to borrowers located in the
industrialized world. Participations typically will result in the Portfolio
having a contractual relationship only with the lender, not the borrower. The
Portfolio will have the right to receive payments of 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 total assets.
CONVERTIBLE BONDS. A convertible security is a fixed income security, such as a
bond or preferred stock, which may be converted at a stated price within a
specific period of time into a specified number of shares of common stock of the
same or different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed income stream -- generally higher in
yield than in the income derivable from a common stock but lower than that
afforded by a non-convertible debt security -- a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of common stock into which it is
convertible.
<PAGE>
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. The Portfolio may also invest in preferred stock of U.S. and
non-U.S. issuers. Preferred stock has a preference in liquidation (and,
generally dividends) over common stock but is subordinated in liquidation to
debt. As a general rule the market value of preferred stocks with fixed dividend
rates and no conversion rights varies inversely with interest rates and
perceived credit risk, with the price determined by the dividend rate. Some
preferred stocks are convertible into other securities, for example common
stock, at a fixed price and ratio or upon the occurrence of certain events. The
market price of convertible preferred stocks generally reflects an element of
conversion value. Because many preferred stocks lack a fixed maturity date,
these securities generally fluctuate substantially in value when interest rates
change; such fluctuations often exceed those of long-term bonds of the same
issuer. Some preferred stocks pay an adjustable dividend that may be based on an
index, formula, auction procedure or other dividend rate reset mechanism. In the
absence of credit deterioration, adjustable rate preferred stocks tend to have
more stable market values than fixed rate preferred stocks.
All preferred stocks are also subject to the same types of credit risks of the
issuer as those described above for corporate bonds. In addition, because
preferred stock is junior to debt securities and other obligations of an issuer,
deterioration in the credit rating of the issuer will cause greater changes in
the value of a preferred stock than in more senior debt security with similar
yield characteristics. Preferred stocks may be rated by S&P and Moody's although
there is no minimum rating which a preferred stock must have (and a preferred
stock may not be rated) to be an eligible investment for the Portfolio. Bankers
Trust expects, however, that generally the preferred stocks in which the
Portfolio invests will be rated at least CCC by S&P or Caa by Moody's or, if
unrated, of comparable quality in the opinion of Bankers Trust Preferred stocks
rated CCC by S&P are regarded as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations and represent the highest
degree of speculation among securities rated between BB and CCC; preferred
stocks rated Caa by Moody's are likely to be in arrears on dividend payments.
Moody's rating with respect to preferred stocks does not purport to indicate the
future status of payments of dividends.
INDUSTRIALIZED MARKET DEBT SECURITIES. Under normal market conditions, the
Portfolio will invest in certain securities that are issued by corporate or
guaranteed borrowers located in the world's industrialized markets. These debt
securities may pay interest in cash or in additional securities, at fixed or
adjustable rates or may be zero coupon securities and may be convertible into
common stock or other securities. Bankers Trust selects securities for the
Portfolio by considering, among other factors, price and yield, interest
coverage and financial resources, the liquidity of the secondary trading market
in the security, factors relating to the issuer's industry in general and its
sensitivity to economic conditions, its operating history and quality of
management, and regulatory matters.
The Portfolio will invest in higher-yielding, lower-rated U.S.
dollar-denominated debt securities, which may involve high risk and are
predominantly speculative in character. These securities are commonly known as
"junk bonds." Investments in lower-rated long-term debt obligations, including
securities rated from BB to D by S&P or Ba to C by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust involve special risks as
compared with investments in higher-rated debt obligations, including greater
sensitivity to general economic downturns and significant increases in interest
rates, greater market price volatility, and less liquid secondary trading
markets. See "Risk Factors; Matching the Fund to Your Investment Needs." The net
asset value per share of the Fund can be expected to increase or decrease
depending on real or perceived changes in the credit risks associated with the
Portfolio's investments, changes in interest rates and other factors generally
affecting the credit markets.
<PAGE>
Most of the debt securities in which the Portfolio invests are rated, at the
time of investment, at least CCC by S&P or Caa by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust. Such securities are regarded
by S&P as predominantly speculative with respect to the capacity to pay interest
and repay principal in accordance with the terms of the contract. Debt rated Caa
by Moody's is regarded as being of poor standing and may be in default or there
may be present elements of danger with respect to the payment of principal or
interest.
Certain of the debt securities in which the Portfolio invests are rated, at the
time of investment, or may be downgraded while held by the Portfolio, to ratings
below CCC by S&P or Caa by Moody's or, if unrated, their credit quality may be
or may decline to levels less than equivalent to such ratings in the opinion of
Bankers Trust. Such debt securities are highly speculative and may be in default
or payment of interest or principal may be in arrears. The issuers of such
securities may be involved in bankruptcy or reorganization proceedings or may be
restructuring outstanding debt. Defaulted debt securities may never resume
interest payments or repay principal. Investing in bankrupt and troubled
companies involves special risk. The Portfolio will not invest more than 10% of
its assets in debt securities rated below CCC by S&P or Caa by Moody's or, if
unrated, of comparable quality in the opinion of Bankers Trust.
The Portfolio is not required to dispose of debt securities whose credit quality
declines at some point after the security is purchased; however, no more than
25% of the Portfolio's assets will be invested at any time in securities rated
less than CCC by S&P or Caa by Moody's or, if unrated, of comparable quality in
the opinion of Bankers Trust. S&P's lowest rating for bonds is CI, which is
reserved for income bonds on which no interest is being paid and D, which is
reserved for debt in default and in respect of which payment of interest or
repayment of principal is in arrears. Moody's lowest rating is C, which is
applied to bonds which have extremely poor prospects for ever attaining any real
investment standing. Other than as set forth above, there is no restriction on
the percentage of the Portfolio's assets which may be invested in bonds of a
particular rating.
LEVERAGE. The Portfolio may borrow up to one-third of the value of its total
assets, from banks or through the use of reverse repurchase agreements, to
increase its holdings of portfolio securities. Under the 1940 Act, the Portfolio
is required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Portfolio's holdings
may be disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of the Portfolio securities and the Fund's net asset value
and money borrowed by the Portfolio will be subject to interest and other costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement the Portfolio
agrees to sell portfolio securities to financial institutions such as banks and
broker-dealers and to repurchase them at a mutually agreed date and price. At
the time the Portfolio enters into a reverse repurchase agreement, it will place
in a segregated custodial account the following: cash; U.S. Government
securities; or high grade liquid debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Portfolio
may decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by the Portfolio for purposes of the
limitations described in "Leverage" above.
SHORT-TERM INSTRUMENTS. The Portfolio intends to stay invested in the securities
described above to the extent practical in light of its objective and long-term
investment perspective. However, the Portfolio's assets may be invested in
short-term instruments with remaining maturities of 397 days or less to meet
anticipated redemptions and expenses or for day-to-day operating purposes and
may be invested without limit in such
<PAGE>
obligations when, in Bankers Trust's opinion, it is advisable to adopt a
temporary defensive position because of unusual and adverse conditions affecting
the world's high yield debt markets. In addition, when the Portfolio experiences
large cash inflows and investments that are consistent with the Portfolio's
investment objective are unavailable in sufficient quantities or at attractive
prices, the Portfolio may hold short-term investments for a limited time pending
availability of such 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; (iii) commercial paper; (iv) bank obligations, including
negotiable certificates of deposit, time deposits and bankers' acceptances; and
(v) repurchase agreements. These instruments may be denominated in U.S. dollars
or in foreign currencies.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with banks and governmental securities dealers approved by the
Trustees of the Portfolio. Under the terms of a typical repurchase agreement,
the Portfolio would acquire an underlying debt obligation of a kind in which the
Portfolio could invest for a relatively short period (usually not more than one
week) subject to an obligation of the seller to repurchase, and the Portfolio to
resell, the obligation at an agreed price and time, thereby determining the
yield during the Portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Portfolio's
holding period. The value of the underlying securities will be at least equal at
all time to the total amount of the repurchase obligations, including interest.
The Portfolio bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Portfolio is delayed in
or prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which the Portfolio seeks to assert these
rights. Bankers Trust, acting under the supervision of the Board of Trustees of
BT Investment Portfolios, reviews the creditworthiness of those banks and
dealers with which the Portfolio enters in repurchase agreements and monitors on
an ongoing basis the value of the securities subject to repurchase agreements to
ensure that it is maintained at the required level. Repurchase agreements are
considered collateralized loans under the 1940 Act.
ZERO COUPON SECURITIES. The Portfolio may purchase zero coupon securities which
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. The Portfolio may purchase floating rate bonds which may
have interest rates that move in tandem with a benchmark, helping to stabilize
their prices.
NON-DIVERSIFIED COMPANY
The Portfolio is as a "non-diversified" investment company so that with respect
to 50% of its 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.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
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The Portfolio may also utilize the following investments and investment
techniques and practices: foreign currency exchange transactions, options on
foreign currencies, options on foreign bond indexes, futures contracts on
foreign bond indexes, options on futures contracts, when-issued or delayed
delivery securities and securities lending. See "Additional Information" for
further information.
ADDITIONAL INVESTMENT LIMITATIONS
No more than 15% of the Portfolio's net assets may be invested in illiquid or
not readily marketable securities (including assignments, participations,
repurchase agreements and time deposits maturing in more than seven days).
Additional investment policies of the Portfolio are contained in the Statement
of Additional Information.
R I S K F A C T O R S; M A T C H I N G T H E F U N D T O Y O U R
I N V E S T M E N T N E E D S
Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Fund, nor can
there be any assurance that the Fund's investment objective will be attained. As
with any investment in securities, the value of, and income from, an investment
in the Fund can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Portfolio's securities,
including general economic conditions, market factors and currency exchange
rates. Additionally, investment decisions made by Bankers Trust will not always
be profitable or prove to have been correct.
By itself, the Fund does not constitute a balanced investment plan; the Fund and
the Portfolio seek high current income from investments described above. Changes
in domestic and foreign interest rates may affect the value of the Portfolio's
investments, and rising interest rates can be expected to reduce the Fund's
share value. A description of a number of investments and investment techniques
available to the Portfolio, including foreign investments and the use of options
and futures, and certain risks associated with these investments and techniques
is included under "Additional Information." The Fund's share price, yield and
total return fluctuate and your investment may be worth more or less than your
original cost when you redeem your shares.
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 the Portfolio's investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations in
foreign countries. In addition, changes in government administrations or
economic or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Portfolio's operations. Furthermore, the economies of
individual foreign nations may differ from the U.S. economy, whether favorably
or unfavorably, in areas such as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position; it may also be more difficult to obtain and enforce a
judgment against a foreign issuer. In general, less information is publicly
available with respect to foreign issuers than is available with respect to U.S.
companies. Most foreign companies are also not subject to the uniform accounting
and financial reporting requirements applicable to issuers in the United States.
Any foreign investments made by the Portfolio must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
** 1 Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the
<PAGE>
Portfolio as measured in U.S. dollars will be affected favorably or unfavorably
by changes in exchange rates. In order to protect against uncertainty in the
level of future foreign currency exchange rates, the Portfolio is authorized to
enter into certain foreign currency exchange transactions. See "Additional
Information." Furthermore, the Portfolio's foreign investments may be less
liquid and their prices may be more volatile than comparable investments in
securities of U.S. companies. The settlement periods for foreign securities,
which are often longer than those for securities of U.S. issuers, may affect
portfolio liquidity. Finally, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
EMERGING MARKETS
The Portfolio will invest in the securities of issuers based in some of the
world's underdeveloped emerging markets, including those in Eastern Europe.
Investment in securities of issuers based in underdeveloped countries entails
all of the risks of investing in securities of foreign issuers outlined in this
section to a heightened degree. These heightened risks include: (i) greater
risks of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability; (ii) the smaller size of the market for such
securities and a low or nonexistent volume of trading, resulting in lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict the Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) in the case of Eastern Europe, the absence of developed
capital market and legal structures governing private or foreign investment and
private property and the possibility that recent favorable economic and
political developments could be slowed or reversed by unanticipated events.
So long as the Communist Party continues to exercise a significant or, in some
countries, dominant role in Eastern European countries, investments in such
countries will involve risks of nationalization, expropriation and confiscatory
taxation. The Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in many cases
without adequate compensation, and there may be no assurance that such
expropriation will not occur in the future. In the event of such expropriation,
the Portfolio could lose a substantial portion of any investments it has made in
the affected countries. Further, no accounting standards exist in Eastern
European countries. Finally, even though certain 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.
** 2 In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the Portfolio to make intended security purchases due to settlement
problems could cause the Portfolio to miss attractive investment opportunities.
Inability to dispose of a security due to settlement problems could result
either in losses to the Portfolio due to subsequent declines in the value of the
security or, if the Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser.
RISKS OF INVESTING IN HIGH YIELD SECURITIES ("JUNK BONDS")
Under normal circumstances, a majority of the Portfolio's assets will be
invested in fixed income securities offering high current income. Such high
yield, fixed income securities are ordinarily in the lower rating categories of
recognized rating agencies or will be non-rated and of equivalent quality in the
opinion of Bankers Trust. They are commonly known as "junk bonds." The market
value for such securities tends to be less sensitive to changes in prevailing
interest rates than higher-rated securities but more sensitive to individual
corporate developments than higher-rated securities. Such lower-rated securities
also tend to be more sensitive to economic conditions than are higher-rated
securities. Accordingly, these securities are considered predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation and will generally
involve more credit risk than securities in the higher-rated categories. Even
securities rated BBB or Baa by S&P and Moody's, respectively, possess some
speculative characteristics. There are risks involved in applying credit ratings
as a method for evaluating
<PAGE>
high yield obligations in that credit ratings evaluate the safety of principal
and interest payments, not market value risk. In addition, credit rating
agencies may not change credit ratings on a timely basis to reflect changes in
economic or company conditions that affect a security's market value. The
Portfolio will rely on Bankers Trust's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, Bankers Trust
will take into consideration, among other things, the issuer's ability to cover
interest and fixed charges, factors relating to the issuer's industry and its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.
The Portfolio is authorized to invest in high risk, lower quality debt
securities without limit. Investments in lower-rated long-term obligations,
including securities rated from BB to D by S&P or Ba to C by Moody's or, if
unrated, of comparable quality in the opinion of Bankers Trust, involve special
risks as compared with investments in higher-rated debt obligations, including
greater sensitivity to general economic downturns and significant increases in
interest rates, greater market price volatility, and less liquid secondary
trading markets. Regardless of rating levels, all debt securities considered for
purchase (whether rated or unrated) will be carefully analyzed by Bankers Trust
to insure, to the extent possible, that the planned investment is sound. The
Portfolio may, from time to time, purchase defaulted debt securities if, in the
opinion of Bankers Trust, the issuer may resume interest payments in the near
future. The Fund will not invest more than 10% of its total assets (at the time
of purchase) in defaulted debt securities, which may be illiquid.
The risk of loss due to default by the issuer is significantly greater for the
holders of high yield securities because such securities are generally unsecured
and are often subordinated to other obligations of the issuer. During an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience financial stress and
may not have sufficient revenues to meet their interest payment obligations. An
issuer's ability to service its debt obligations may also be adversely affected
by specific corporate developments, its inability to meet specific projected
business forecasts, or the unavailability of additional financing.
Factors adversely affecting the market value of high yield and other securities
will adversely affect the Fund's net asset value per share. In addition, the
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal of or interest on its
portfolio holdings.
Futures contracts and related option transactions are discussed under
"Additional Information." Successful use of futures contracts and related
options is subject to special risk considerations. A liquid secondary market for
any futures or options contract may not be available when a futures or options
position is sought
<PAGE>
to be closed. In addition, there may be an imperfect correlation between
movements in the securities or foreign currency on which the futures or options
contract is based and movements in the securities or currency of the Portfolio.
Successful use of futures or options contracts is further dependent on Bankers
Trust's ability to correctly predict movements in the securities or foreign
currency markets and no assurance can be given that its judgment will be
correct. Successful use of options on securities or stock indices is subject to
similar risk considerations. In addition, by writing covered call options, the
Portfolio gives up the opportunity, which the option is in effect, to profit
from any price increase in the underlying securities above the option exercise
price.
There are further risk factors, including possible losses through the holding of
securities in domestic and foreign custodian banks and depositories, described
elsewhere in the Prospectus and in the Statement of Additional Information.
The frequency of portfolio transactions -- the Portfolio's turnover rate -- will
vary from year to year depending on market conditions. The Portfolio's turnover
rate for the year ended September 30, 1995 and for the period from December 14,
1993 (commencement of operations) through September 30, 1994, was []% and 347%,
respectively. Because a higher turnover rate increases transaction costs and may
increase taxable capital gains, Bankers Trust carefully weighs the anticipated
benefits of short-term investment against these consequences.
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and for cash management purposes as a low cost method of gaining
exposure to a particular securities market without investing directly in those
securities. However, some derivatives are used for leverage, which tends to
magnify the effects of an instrument's price changes as market conditions
change. Leverage involves the use of a small amount of money to control a large
amount of financial assets, and can in some circumstances, lead to significant
losses. The Adviser will use derivatives only in circumstances where the Adviser
believes they offer the most economic means of improving the risk/reward profile
of the Portfolio . Derivatives will not be used to increase portfolio risk above
the level that could be achieved using only traditional investment securities or
to acquire exposure to changes in the value of assets or indexes that by
themselves would not be purchased for the Portfolio. The use of derivatives for
non- hedging purposes may be considered speculative. A description of the
derivatives that the Portfolio may use and some of their associated risks is
found under "Additional Information."
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfolio
securities, the Fund seeks to achieve its investment objective by investing all
of its Assets in the 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, like investments in other investment
companies and pooled investment vehicles. In addition to selling a beneficial
interest to the Fund, the Portfolio may sell beneficial interests to other
mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, the other investors investing in the
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 the 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
<PAGE>
structures. Information concerning other holders of interests in the Portfolio
is available from Bankers Trust at 800-422-6577.
The master-feeder structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the 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, the Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in the
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 the 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 Fund shareholders not voting will be voted by the
Trustees 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.
The 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 below with respect to the Portfolio.
The 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 the 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 the Portfolio is also not a
fundamental policy. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund or the
Portfolio. See "Investment Objective, Policies and Risks" for a description of
the fundamental policies of the Portfolio that cannot be changed without
approval by the holders 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 the
Portfolio, see "Investment Objective, Policies and Risks." For descriptions of
the management of the Portfolio, see "Management of the Trust and BT Investment
Portfolios" herein and "Management of the Trust and Portfolios" in the Statement
of Additional Information. For descriptions of the expenses of the Portfolio,
see "Management of the Trust and BT Investment Portfolios" herein.
N E T A S S E T V A L U E
The net asset value per share of the Fund is calculated on each day on which the
New York Stock Exchange Inc. (the "NYSE") is open (each such day being a
"Valuation Day"). The NYSE is currently open on each day, Monday through Friday,
except: (a) January 1st, Presidents' Day (the third Monday in February), Good
Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the first
Monday in September), Thanksgiving Day (the last Thursday in November) and
December 25th; and (b) the preceding Friday or the
<PAGE>
subsequent Monday when one of the calendar-determined holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of the Fund is calculated once on each Valuation
Day as of the close of regular trading on the NYSE (the "Valuation Time"), which
is currently 4:00 p.m., New York time. The net asset value per share of the 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. The 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 Securities and Exchange Commission
(the "SEC"). See "Valuation of Securities" in the Statement of Additional
Information for more information.
P U R C H A S E A N D R E D E M P T I O N O F S H A R E S
PURCHASE OF SHARES
The Trust accepts purchase orders for shares of the Fund at the net asset value
per share of the Fund next determined on each Valuation Day. See "Net Asset
Value" above. There is no sales charge on the purchase of shares, but costs of
distributing shares of the Fund may be reimbursed from its assets, as described
herein. Excluding retirement plans, the minimum initial investment in the Trust
is $20,000, which may be allocated in amounts not less than $5,000 per fund in
certain funds in the BT Family of Funds. The subsequent minimum investment in
the Fund is $5,000 (excluding retirement plans). Service Agents may impose
initial and subsequent investment minimums that differ from these amounts.
Shares of the Fund may be purchased in only those states where they may be
lawfully sold.
Purchase orders for shares of the Fund that are received by a Service Agent and
transmitted to Bankers Trust, as the Trust's transfer agent (the "Transfer
Agent"), prior to the Valuation Time (currently 4:00 p.m., New York time) on any
Valuation Day will be effective at that day's Valuation Time. The Trust and
Signature reserve the right to reject any purchase order.
Shares must be purchased in accordance with procedures established by the
Transfer Agent and Service Agents, including Bankers Trust, in connection with
customers' accounts. It is the responsibility of each Service Agent to transmit
to the Transfer Agent purchase and redemption orders and to transmit to Bankers
Trust as the Trust's custodian (the "Custodian") purchase payments on behalf of
its customers in a timely manner, and a shareholder must settle with the Service
Agent his or her entitlement to an effective purchase or redemption order as of
a particular time. Because Bankers Trust is the Custodian and Transfer Agent of
the Trust, funds may be transferred directly from or to a customer's account
with Bankers Trust to or from the Fund without incurring the additional costs or
delays associated with the wiring of Federal funds.
Certificates for shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or the Transfer Agent.
SYSTEMATIC INVESTMENT PLAN. The Fund may offer shareholders a systematic
investment plan under which shareholders may authorize some Service Agents to
place a purchase order each month or quarter for Fund shares in an amount not
less than $100. For further information regarding the systematic investment
plan, shareholders should contact their Service Agent.
REDEMPTION OF SHARES
Shareholders may redeem shares at the net asset value per share next determined
on each Valuation Day. Redemption requests should be transmitted by customers in
accordance with procedures established by the Transfer Agent and the
shareholder's Service Agent. Redemption requests for shares of the Fund received
by the Service Agent and transmitted to the Transfer Agent prior to the
Valuation Time (currently 4:00 p.m.,
<PAGE>
New York time) on each Valuation Day will be effective at that day's Valuation
Time and the redemption proceeds normally will be delivered to the shareholder's
account with the Service Agent on the next day, but in any event within seven
days following receipt of the request.
Service Agents may allow redemptions or exchanges by telephone and may disclaim
liability for following instructions communicated by telephone that the Service
Agent reasonably believes to be genuine. The Service Agent must provide the
investor with an opportunity to choose whether or not to utilize the telephone
redemption or exchange privilege. The Service Agent must employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If the Service Agent does not do so, it may be liable for any losses due to
unauthorized or fraudulent instructions. Such procedures may include, among
others, requiring some form of personal identification prior to acting upon
instructions received by telephone, providing written confirmation of such
transactions and/or tape recording of telephone instructions.
Redemption orders are processed without charge by the Trust. A Service Agent may
on at least 30 days' notice involuntarily redeem a shareholder's account with
the Fund having a current value of less than $5,000 (excluding retirement
plans), but not if an account is below $5,000 due to a change in market value.
AUTOMATIC CASH WITHDRAWAL PLAN. The Fund may offer shareholders an automatic
cash withdrawal plan, under which shareholders who own shares of the Fund may
elect to receive periodic cash payments. Retirement plan accounts are eligible
for automatic cash withdrawal plans only where the shareholder is eligible to
receive qualified distributions. For further information regarding the automatic
cash withdrawal plan, shareholders should contact their Service Agent.
EXCHANGE PRIVILEGE
Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered in their state. The Fund reserves the right to
terminate or modify the exchange privilege in the future. To make an exchange,
follow the procedures indicated in "Purchase of Shares" and "Redemption of
Shares" in that fund's prospectus. Before making an exchange, please note the
following:
o Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.
o Complete and sign an application, taking care to register your new
account in the same name, address and taxpayer identification number as
your existing account(s).
o Each exchange represents the sale of shares of one fund and the
purchase of shares of another, which may produce a gain or loss for tax
purposes. Your Service Agent will send a written confirmation of each
exchange transaction.
TAX-SAVING RETIREMENT PLANS
Retirement plans offer significant tax savings and are available to individuals,
partnerships, small businesses, corporations, nonprofit organizations and other
institutions. Contact your Service Agent or Bankers Trust for further
information. Bankers Trust can set up your new account in the Fund under a
number of several tax-sheltered plans. These plans contain special tax
advantages and let you invest for retirement while sheltering your investment
income from current taxes. Minimums may differ from those listed elsewhere in
the Prospectus.
o INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): personal savings plans that
offer tax advantages for individuals to set aside money for retirement
and allow new contributions of $2,000 per tax year.
o ROLLOVER IRAS: tax-deferred retirement accounts that retain the special
tax advantages of lump sum distributions from qualified retirement
plans and transferred IRA accounts.
<PAGE>
o SIMPLIFIED EMPLOYEE PENSION PLANS (SEP): a relatively easy and
inexpensive alternative to retirement planning for sole proprietors,
partnerships and corporations. Under a SEP, employers make
tax-deductible contributions to their own and to eligible employees'
IRA accounts. Employee contributions are available through a "Salary
Deferral" SEP for businesses with fewer than 25 eligible employees.
o KEOGH PLANS: defined contribution plans available to individuals with
self-employed income and nonincorporated businesses such as sole
proprietors, professionals and partnerships. Contributions are tax-
deductible to the employer and earnings are tax-sheltered until
distribution.
o CORPORATE PROFIT-SHARING AND MONEY-PURCHASE PLANS: defined contribution
plans available to corporations to benefit their employees by making
contributions on their behalf and in some cases permitting their
employees to make contributions.
o 401(K) PROGRAMS: defined contribution plans available to corporations
allowing tax-deductible employer contributions and permitting employees
to contribute a percentage of their wages on a tax-deferred basis.
o 403(B) CUSTODIAN ACCOUNTS: defined contribution plans open to employees
of most nonprofit organizations and educational institutions.
o DEFERRED BENEFIT PLANS: plan sponsors may invest all or part of their
pension assets in the Fund.
D I V I D E N D S , D I S T R I B U T I O N S A N D T A X E S
DISTRIBUTIONS.The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends are
distributed on the first business day in April, July and October. In December,
another income dividend will be distributed plus any net capital gains. Unless a
shareholder instructs the Trust to pay such dividends and distributions in cash,
they will be automatically reinvested in additional shares of the Fund.
FEDERAL TAXES. Distributions from the Fund's income and short-term capital gains
are taxed as dividends, and long-term capital gain distributions are taxed as
long-term capital gains. The Fund's distributions are taxable when they are
paid, whether you take them in cash or reinvest them in additional shares.
Distributions declared to shareholders of record in November and December and
paid in January are taxable as if paid on December 31. The Fund will send each
shareholder a tax statement by January 31 showing the tax status of the
distributions received in the past year.
CAPITAL GAINS. You may realize a capital gain or loss when you redeem (sell) or
exchange shares. Because the tax treatment also depends on your purchase price
and your personal tax position, you should keep your regular account statements
to use in determining your tax.
"BUYING A DIVIDEND." On the ex-date for a distribution from income and/or
capital gains, the Fund's share value is reduced by the amount of the
distribution. If you buy shares just before the ex-date ("buying a dividend"),
you will pay the full price for the shares and then receive a portion of the
price back as a taxable distribution.
OTHER TAX INFORMATION. In addition to Federal taxes, you may be subject to state
or local taxes on your investment, depending on the laws in your area.
Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. 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.
<PAGE>
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
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 Fund, which have invested in the
Portfolio. Pursuant to such election, the amount of foreign taxes paid will be
included in the income of Fund shareholders, and Fund shareholders (except
tax-exempt shareholders) may, subject to certain limitations, claim either a
credit or deduction for the taxes. Each 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.
P E R F O R M A N C E I N F O R M A T I O N A N D R E P O R T S
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indices such
as the JP Morgan Emerging Markets Bonds Index and the Merrill Lynch High Yield
Master Index or results of other mutual funds or investment or savings vehicles.
The Fund will compare its performance to the results of a blending of these
Indexes. The Fund's investment results as used in such communications will be
calculated on a yield or total rate of return basis in the manner set forth
below. From time to time, fund rankings may be quoted from various sources, such
as Lipper Analytical Services, Inc., Value Line and Morningstar, Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
quotations may be annualized. An annualized total return is a compounded total
return which assumes that the period total return is generated over a one-year
period, and that all dividends and capital gain distributions are reinvested. An
annualized total return will be higher than a period total return if the period
is shorter than one year because of the compounding effect.
The Trust may provide annualized "yield" quotations for the Fund. The "yield" of
the Fund refers to the income generated by an investment in the Fund over a
30-day or one-month period (which period shall be stated in any such
advertisement or communications). This income is then annualized; that is, the
amount generated by the investment over the period is assumed to be generated
over a one-year period and is shown as a percentage of investment.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Portfolio
and changes in the Fund's expenses. In addition, during certain periods for
which total return or yields may be provided, Bankers Trust, as Adviser, Service
Agent or Administrator, or Signature, as Distributor, may have voluntarily
agreed to waive portions of their fees on a month-to-month basis. Such waivers
will have the effect of increasing the Fund's net income (and therefore its
total rate of return or yield) during the period such waivers are in effect.
Shareholders will receive financial reports semi-annually that include the
Portfolio's financial statements, including listings of investment securities
held by the Portfolio at those dates. Annual reports are audited by
<PAGE>
independent accountants.
M A N A G E M E N T O F T H E T R U S T A N D B T I N V E S T M E N T
P O R T F O L I O S
BOARD OF TRUSTEES
The affairs of the Trust and BT Investment Portfolios are managed under the
supervision of their respective Boards of Trustees. By virtue of the
responsibilities assumed by Bankers Trust, as the Administrator of the Trust and
BT Investment Portfolios, neither the Trust nor BT Investment Portfolios
requires employees other than its officers. None of the Trust's or BT Investment
Portfolios' officers devotes full time to the affairs of the Trust or BT
Investment Portfolios.
The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) of the Trust or of the BT Investment Portfolios, as the case may be,
(the "Independent Trustees") have adopted written procedures reasonably
appropriate to deal with potential conflicts of interest, up to and including
creating separate boards of trustees, arising from the fact that several of the
same individuals are trustees of the Trust and BT Investment Portfolios. For
more information with respect to the Trustees of both the Trust and BT
Investment Portfolios, see "Management of the Trust and the Portfolios" in the
Statement of Additional Information.
INVESTMENT ADVISER
The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
Assets of the Fund in the Portfolio. BT Investment Portfolios has retained the
services of Bankers Trust, as investment adviser. 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 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 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.
Bankers Trust, a New York banking corporation with principal offices at 280 Park
Avenue, New York, New York 10017, is a wholly owned subsidiary of Bankers Trust
New York Corporation. Bankers Trust conducts a variety of general banking and
trust activities and is a major wholesale supplier of financial services to the
international and domestic institutional markets. As of September 30, 1995,
Bankers Trust New York Corporation was the ninth largest bank holding company in
the United States with total assets of approximately $104 billion. Bankers Trust
is a worldwide merchant bank dedicated to servicing the needs of corporations,
governments, financial institutions and private clients through a global network
of 120 offices in 40 countries. Investment management is a core business of
Bankers Trust, built on a tradition of excellence from its roots as a trust bank
founded in 1903. The scope of Bankers Trust's investment management capability
is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. Bankers Trust is one of the nation's largest and most
experienced investment managers with approximately $200 billion in assets under
management.
Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. In the past, these
clients have been serviced through separate account and commingled fund
structures. 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 for the first time. Bankers
Trust's officers have had extensive experience in managing investment portfolios
<PAGE>
having objectives similar to those of the Portfolio. Bankers Trust has been
advised by its counsel that, in counsel's opinion, Bankers Trust currently may
perform the services for the Trust and the Portfolio described in this
Prospectus and the Statement of Additional Information without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretations of relevant Federal law and
banks and financial institutions may be required to register as dealers pursuant
to state securities law.
Bankers Trust, subject to the supervision and direction of the Board of Trustees
of BT Investment Portfolios, manages the Portfolio in accordance with the
Portfolio's investment objective and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who provide
research services to the Portfolio. Bankers Trust may utilize the expertise of
any of its worldwide subsidiaries and affiliates to assist it in its role as
investment adviser.
All orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels. The Portfolio will
not invest in obligations for which Bankers Trust or any of its affiliates is
the ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents or customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio computed daily and paid monthly at the annual rate of 0.80% of the
average daily net assets of the Portfolio.
ADMINISTRATOR
Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee computed daily and paid monthly at the rate of 0.95% of the
average daily net assets of the Fund.
Under an Administration and Services Agreement with BT Investment Portfolios,
Bankers Trust calculates the value of the assets of the Portfolio and generally
assists the Board of Trustees of BT Investment Portfolios in all aspects of the
administration and operation of BT Investment Portfolios. The Administration and
Services Agreement provides for the Portfolio to pay Bankers Trust a fee
computed daily and paid monthly at the rate of 0.20% of the average daily net
assets of the Portfolio. Under the Administration and Services Agreement,
Bankers Trust may delegate one or more of its responsibilities to others,
including Signature, at Bankers Trust's expense. For more information, see the
Statement of Additional Information.
DISTRIBUTOR
Under its Distribution Agreement with the Trust, Signature, as Distributor,
serves as the Trust's principal underwriter on a best efforts basis. In
addition, Signature provides the Trust with office facilities. Signature is a
wholly owned subsidiary of Signature Financial Group, Inc. ("SFG"). SFG and its
affiliates currently provide administration and distribution services for other
registered investment companies. The principal business address of SFG and
Signature is 6 St. James Avenue, Boston, Massachusetts 02116.
Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), Signature may seek reimbursement in an amount
not exceeding 0.20% of the Fund's average daily net assets annually 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: compensation to and
expenses (including overhead and telephone expenses) of account executives or
other employees of Signature who, as their primary activity, engage in or
support the distribution of shares; printing of
<PAGE>
prospectuses, statements of additional information and reports for other than
existing Fund shareholders in amounts in excess of that typically used in
connection with the distribution of shares of the Fund; costs of placing
advertising in various media; services of parties other than Signature or its
affiliates 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 the Fund, subject to the
0.20% of net assets limitation. All costs and expenses associated with preparing
the Fund's prospectus and statement of additional information and in connection
with printing them for and distributing them to existing shareholders and
regulatory authorities, which costs and expenses would not be considered
distribution expenses for purposes of the Plan, will also be paid by the Fund.
To the extent expenses of Signature under the Plan in any fiscal year of the
Trust exceed amounts payable under the Plan during that year, those expenses
will not be reimbursed in any succeeding fiscal year. Expenses incurred in
connection with distribution activities will be identified to the Fund or the
other series of the Trust involved, although it is anticipated that some
activities may be conducted on 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 on the basis of
their relative net assets. It is not expected that any payment will be made
under the Plan in the foreseeable future.
SERVICE AGENT
All shareholders must be represented by a Service Agent. Bankers Trust acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agents, including
broker-dealers, will be paid by Bankers Trust from its fees. The services
provided by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Trust, assisting clients in changing dividend options, account
designations and addresses, providing periodic statements showing the client's
account balance, transmitting proxy statements, periodic reports, updated
prospectuses and other communications to shareholders and, with respect to
meetings of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may separately
charge their clients additional fees only to cover provision of additional or
more comprehensive services not already provided under the Administration and
Services Agreement with Bankers Trust, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. Each Service Agent has agreed to transmit to
shareholders, who are its customers, appropriate disclosures of any fees that it
may charge them directly.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust acts as Custodian of the assets of the Trust and BT Investment
Portfolios and serves as the Transfer Agent for the Trust and BT Investment
Portfolios under the Administration and Services Agreement with the Trust and BT
Investment Portfolios.
ORGANIZATION OF THE TRUST
The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust and was established
and designated as a separate series of the Trust on August 6, 1993. The Trust
offers shares of beneficial interest of separate series, par value $0.001 per
share. The shares of the other series of the Trust are offered through separate
prospectuses. No series of shares has any preference over any other series.
The Trust is an entity 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.
<PAGE>
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of the Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote. Shareholders of
the Fund are not entitled to vote on Trust matters that do not affect the Fund .
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 Portfolio is a series of BT Investment Portfolios, an open-end management
investment company. BT Investment Portfolios was organized as a trust under the
laws of the State of New York. BT Investment Portfolios' Declaration of Trust
provides that the Fund and other entities investing in the Portfolio (e.g.,
other investment companies, insurance company separate accounts and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio. The interests in BT Investment Portfolios are divided into separate
series, such as the Portfolio. No series of BT Investment Portfolios has any
preference over any other series.
Each series of the Trust will not be involved in any vote involving a portfolio
in which it does not invest its Assets. 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 Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Signature,
including administration and service fees, fees for necessary professional
services, amortization of organizational expenses, and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
Bankers Trust and Signature have agreed to reimburse the Fund to the extent
required by applicable state law for certain expenses that are described in the
Statement of Additional Information. The Portfolio bears its own expenses.
Operating expenses for the Portfolio generally consist of all costs not
specifically borne by Bankers Trust or Signature, including investment advisory
and administration and service fees, fees for necessary professional services,
amortization of organizational expenses, the costs associated with regulatory
compliance and maintaining legal existence and investor relations.
A D D I T I O N A L I N F O R M A T I O N
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.
<PAGE>
RULE 144A SECURITIES. The Portfolio may purchase securities in the United States
that are not registered for sale under Federal securities laws but which can be
resold to institutions under the 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 Portfolio's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees of the Portfolio,
Bankers Trust determined the liquidity of restricted securities and, through
reports from Bankers Trust, the Board will monitor trading activity in
restricted securities. Because Rule 144A is relatively new, it is not possible
to predict how these markets will develop. If institutional trading in
restricted securities were to decline, the liquidity of the Portfolio could be
adversely affected. No more than 10% of the Portfolio's assets may be invested
in securities restricted as to transfer or re-sale, including Rule 144A
securities.
SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of the total
value of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. In lending securities to brokers, dealers and other organizations,
the Portfolio is subject to risk which, like those associated with other
extensions of credit, include delays in recovery and possible loss of rights in
the collateral should the borrower fail financially.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Portfolio either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolio maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an attempt
to protect against changes in foreign currency exchange rates between the trade
and settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date
<PAGE>
it matures. The projection of currency market movements is extremely difficult,
and the successful execution of a hedging strategy is highly uncertain.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Portfolio
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge up
to the amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. In addition, the Portfolio
may purchase call options on currency when the investment adviser anticipates
that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange will
exist for any particular option, or at any particular time. If the Portfolio is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Portfolio will not be able to sell the underlying currency
or dispose of assets held in a segregated account until the options expire or
are exercised. Similarly, if the Portfolio is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying currency. The Portfolio pays brokerage
commissions or spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. The Portfolio's ability
to terminate over-the-counter options ("OTC Options") will be more limited than
with exchange-traded options. It is also possible that broker-dealers
participating in OTC Options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Portfolio will
treat purchased OTC Options and assets used to cover written OTC Options as
illiquid securities. With respect to options written with primary dealers in
U.S. Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the repurchase formula.
OPTIONS ON FOREIGN BOND INDEXES. The Portfolio may purchase and write put and
call options on foreign indexes listed on domestic and foreign exchanges. A bond
index fluctuates with changes in the market values of the bonds included in the
index.
Options on bond indexes are generally similar to options on securities except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of securities at a specified price, an option on a bond
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of a bond index upon which the option is based being greater than,
in the case of a call, or less than, in the case of a put, the exercise price of
the option. The amount of cash received will be equal to such difference between
the closing price of the index and the exercise price of the option expressed in
dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. The writer may offset its position in index
options prior to expiration by entering into a closing transaction on an
exchange or the option may expire unexercised.
To the extent permitted by U.S. Federal or state securities laws, the Portfolio
may invest in options on
<PAGE>
foreign bond indexes in lieu of direct investment in foreign bonds. The
Portfolio may also use foreign bond index options for hedging purposes.
Because the value of a bond option depends upon movements in the level of the
index rather than the price of a particular bond, whether the Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of bond prices in the securities market
generally, rather than movements in the price of a particular security.
Accordingly, successful use by the Portfolio of options on bond indexes will be
subject to Bankers Trust's ability to predict correctly movements in the
direction of the corresponding bond market generally. This requires different
skills and techniques than predicting changes in the price of individual bonds.
FUTURES CONTRACTS ON FOREIGN BOND INDEXES. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of foreign bonds ("Futures Contracts").
This investment technique is designed only to hedge against anticipated future
change in general market prices which otherwise might either adversely affect
the value of securities held by the Portfolio or adversely affect the prices of
securities which are intended to be purchased at a later date for the Portfolio.
A Futures Contract may also be entered into to close out or offset an existing
futures position.
In general, each transaction in Futures Contracts involves the establishment of
a position which will move in a direction opposite to that of the investment
being hedged. If these hedging transactions are successful, the futures
positions taken for the Portfolio will rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments that are being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized.
Although Futures Contracts would be entered into for hedging purposes only, such
transactions do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the foreign bond market being
hedged, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good-faith deposit against performance of obligations under
Futures Contracts written for the Portfolio. The Portfolio may not purchase or
sell a Futures Contract if immediately thereafter its margin deposits on its
outstanding Futures Contracts would exceed 5% of the market value of the
Portfolio's total assets.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may invest in options on such
futures contracts for similar purposes.
The Portfolio will write and purchase put and call options only to the extent
permitted by the policies of state securities authorities in states where shares
of the Fund are qualified for offer and sale.
There can be no assurance that the use of these portfolio strategies will be
successful.
ASSET COVERAGE. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment leverage, the
Portfolio will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities or by
establishing a segregated account with the Portfolio's custodian containing high
grade liquid debt securities in an amount at all times equal to or exceeding the
Portfolio's commitment with respect to these instruments or contracts.
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium- grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e. they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such, bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both (good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds and issued so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
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
<PAGE>
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&PS CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C -The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
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.
<PAGE>
INVESTMENT ADVISER OF THE PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
DISTRIBUTOR
SIGNATURE BROKER-DEALER 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.
BT0437A
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 30, 1996
BT INVESTMENT FUNDS
o LATIN AMERICAN EQUITY FUND
o GLOBAL HIGH YIELD SECURITIES FUND
o SMALL CAP FUND
o EUROPEAN EQUITY FUND
o PACIFIC BASIN EQUITY FUND
o INTERNATIONAL BOND FUND
BT Investment Funds (the "Trust") is comprised of several funds. The
shares of the following funds -- Latin American Equity Fund, Global High Yield
Securities Fund, Small Cap Fund, European Equity Fund, Pacific Basin Equity Fund
and International Bond Fund (each, a "Fund") -- are described herein.
TABLE OF CONTENTS
Investment Objectives, Policies and Restrictions . . . . . . . . . 3
Performance Information . . . . . . . . . . . . . . . . . . . . . 28
Valuation of Securities; Redemptions and Purchases in Kind . . . . 31
Management of the Trust and Portfolios . . . . . . . . . . . . . . 33
Organization of the Trust . . . . . . . . . . . . . . . . . . . . 39
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 44
As described in the Prospectuses, 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 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, Latin American Equity Portfolio, Global High Yield Securities
Portfolio, Small Cap Portfolio, European Equity Portfolio, Pacific Basin Equity
Portfolio and International Bond Portfolio (collectively, the "Portfolios") and
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 Signature Broker-Dealer Services, Inc.
("Signature"), 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 Prospectuses for each Fund are each dated January 30, 1996.
The Prospectuses provide 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 Service Agent. 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 that Fund's 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 Trust's
Prospectuses.
<PAGE>
BANKERS TRUST COMPANY
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
SIGNATURE BROKER-DEALER SERVICES, INC.
DISTRIBUTOR
6 St. James Avenue Boston, Massachusetts 02116 (800) 422-6577
2
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
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 POLICIES
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.
LOWER-RATED DEBT SECURITIES. While the market for high yield corporate
debt securities has been in existence for many years and has weathered previous
economic downturns, the 1980's brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and restructuring.
Past experience may not provide an accurate indication of future performance of
the high yield bond market, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated debt securities may be thinner and less
active than that for higher rated debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not available,
lower-rated debt securities will be valued in accordance with procedures
established by the Board of Trustees, including the use of outside pricing
services. Judgement plays a greater role in valuing high yield corporate debt
securities than is the case for securities for which more external sources for
quotations and last sale information is available. Adverse publicity and
changing investor perception may affect the ability of outside pricing services
to value lower-rated debt securities and the Global High Yield Securities
Portfolio's ability to dispose of these securities.
3
<PAGE>
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 (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: (1) the frequency of trades and quotes for
the security; (2) the number of dealers and other potential purchasers wishing
to purchase or sell the security; (3) dealer undertakings to make a market in
the security and (4) the nature of the security and of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE.
The Global High Yield Securities Portfolio, European Equity Portfolio and
International Bond Portfolio may invest in foreign securities issued by Eastern
European countries. Investments in companies domiciled in Eastern European
4
<PAGE>
countries may be subject to potentially greater risks than those of other
foreign issuers. These risks include: (i) potentially less social, political and
economic stability; (ii) the small current size of the markets for such
securities and the low volume of trading, which result in less liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Portfolios' investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed legal structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries, or in the Commonwealth of Independent States (formerly the Union of
Soviet Socialist Republics).
The economic situation remains difficult for Eastern European countries
in transition from central planning, following what has already been a sizable
decline in output. The contraction now appears to be bottoming out in parts of
Eastern Europe, where some countries are projected to register positive growth
in 1995. Following three successive years of output declines, there are
preliminary indications of a turnaround in the former Czech and Slovak Federal
Republic, Hungary and Poland; growth in private sector activity and strong
exports now appear to have contained the fall in output. A number of their
governments, including those of Hungary and Poland, are currently implementing
or considering reforms directed at political and economic liberalization,
including efforts to foster multi-party political systems, decentralize economic
planning, and a move toward free-market economies. But key aspects of the reform
and stabilization efforts have not yet been fully implemented, and there remain
risks of policy slippage. At present, no Eastern European country has a
developed stock market, but Poland, Hungary and the Czech Republic have small
securities markets in operation.
In many other countries of the region, output losses have been even
larger. These declines reflect the adjustment difficulties during the early
stages of the transition, high rates of inflation, the compression of imports,
disruption in trade among the countries of the former Soviet Union, and
uncertainties about the reform process itself. Large-scale subsidies are
delaying industrial restructuring and are exacerbating the fiscal situation. A
reversal of these adverse factors is not anticipated in the near term, and
output is expected to decline further in most of these countries. In the Russian
Federation and most other countries of the former Soviet Union, economic
conditions are of particular concern because of economic instability due to
political unrest and armed conflicts in many regions. Further, no accounting
standards exist in Eastern European countries. Although certain Eastern European
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to each Fund's
shareholders.
BRADY BONDS. The Latin American Equity Portfolio and Global High Yield
Securities Portfolio may invest in "Brady bonds," which have been issued by the
governments of Argentina, Costa Rica, Mexico, Nigeria, Uruguay and Venezuela.
Most Brady bonds are currently rated below BBB by Standard & Poor's Corporation
("S&P") or Baa by Moody's Investors Services Inc. ("Moody's").
The Brady Plan was conceived by the U.S. Treasury in the 1980's in an
attempt to produce a debt restructuring program which would enable a debt
country to (i) reduce the absolute level of debt of its creditor banks, and (ii)
reschedule its external debt repayments, based upon its ability to service such
debts by persuading its creditor banks to accept a debt write-off by offering
them a selection of options, each of which represented an attractive substitute
for the nonperforming debt. Although it was envisaged that each debtor country
would agree to a unique package of options with its creditor banks, the plan was
that these options would be based upon the following:(i) a discount bond
carrying a market rate of interest (whether fixed or floating), with principal
collateralized by the debtor country with cash or securities in an amount equal
to at least one year of rolling interest; (ii) a par bond carrying a low rate of
interest (whether fixed or floating), collateralized in the same way as in (i)
above; and (iii) retention of existing debt (thereby avoiding
5
<PAGE>
a debt write-off) coupled with an advance of new money or subscription of new
bonds.
The Latin American Equity Portfolio and Global High Yield Securities
Portfolio may invest in either collateralized or uncollateralized Brady bonds.
U.S. dollar-denominated, collateralized Brady bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at the time and is adjusted at regular intervals
thereafter.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING LATIN AMERICA.
Investing in securities of Latin American issuers may entail risks relating to
the potential political and economic instability of certain Latin American
countries and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of expropriation, nationalization or other confiscation
by any country, the Latin American Equity Fund could lose its entire investment
in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The economies of Latin American countries may be predominantly based in
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates; and (v) securities of issuers located in Latin America may have
limited marketability and may be subject to more abrupt or erratic price
movements.
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.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk.
In recent years, there have been significant improvements in some Latin
American economies; however, others continue to experience economic problems,
including high inflation rates and high interest rates. The emergence of Latin
American economies and securities markets will require economic and fiscal
discipline, as well as stable political and social conditions. Recovery may also
be influenced by international
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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 arrearage on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, including the Portfolio, may be requested
to participate in the
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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.
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Thailand has been transformed into one of the fastest growing stock
markets in the world. On February 23, 1991, the military staged its 17th coup
since the overthrow of the absolute monarchy in 1932. The newly appointed
government quickly focused on the economy and enacted major tax revisions,
slashing personal income tax and reducing taxes on imports. Most significantly,
it pushed through a 7% value added tax. Released from political consideration by
the coup, the Bank of Thailand was finally able to implement a monetary
tightening. As a result, interest rates rose and GDP declined to 7.7% from 10%
the previous year. The government continues to move ahead with new projects -
especially telecommunications, roads and port facilities - needed to refurbish
the country's overtaxed infrastructure. Nonetheless, political unrest coupled
with the shooting of antigovernment demonstrators in May 1992 has caused many
international businesses to question Thailand's political stability.
Hong Kong's impending return to Chinese dominion in 1997 has not
initially had a positive effect on its economic growth which was vigorous in the
1980's. However, authorities in Beijing have agreed to maintain a capitalist
system for 50 years that, along with Hong Kong's economic growth, continued to
further strong stock market returns. In preparation for 1997, Hong Kong has to
develop trade with China, where it is the largest foreign investor, while also
maintaining its longstanding export relationship with the United States.
Spending on infrastructure improvements is a significant priority of the
colonial government while the private sector continues to diversify abroad based
on its position as an established international trade center in the Far East.
In terms of GDP, industrial standards and level of education, South
Korea is second only to Japan in Asia. It enjoys the benefits of a diversified
economy with well developed sectors in electronics, automotive, textiles and
shoe manufacturing, steel and shipbuilding among others. The driving force
behind the economy's dynamic growth has been the planned development of an
export-oriented economy in a vigorously entrepreneurial society. Real GDP grew
about 7.5% in 1991. Labor unrest was noticeably calmer, unemployment averaged a
low of 2.3%, and investment was strong. Inflation rates, however, are beginning
to challenge South Korea's strong economic performance. In addition, the
international situation between South and North Korea continues to improve. Both
Koreas joined the United Nations separately in late 1991, creating another forum
for negotiation and joint cooperation.
Indonesia is a mixed economy with many socialist institutions and
central planning, but has recently placed emphasis on deregulation and private
enterprise. Like Thailand, Indonesia has extensive natural wealth, yet with a
large and rapidly increasingly population, it remains a poor country.
Agriculture, including forestry and fishing, is an important sector, accounting
for 21% of GDP and over 50% of the labor force. Once the world's largest rice
importer, Indonesia is now nearly self-sufficient.
The Malaysian economy continued to perform well, growing at an average
annual rate of 9% from 1987 through 1991. This placed Malaysia as one of the
fastest growing economies in the Asian-Pacific region. Malaysia has become the
world's third-largest producer of semiconductor devices (after the US and Japan)
and the world's largest exporter of semiconductor devices. More remarkable is
the country's ability to achieve rapid economic growth with relative price
stability (2% inflation over the past five years) as the government followed
prudent fiscal/monetary policies. Malaysia's high export dependence level leaves
it vulnerable to a recession in the OECD countries or a fall in world commodity
prices.
Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived from its
entrepot history. During the 1970's and early 1980's, the economy expanded
rapidly, achieving an average annual growth rate of 9%. Per capita GDP is among
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
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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
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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
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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.
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
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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
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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 a further
restriction that the Portfolio will not enter into any futures contracts or
options on futures contracts if immediately thereafter the amount of margin
deposits on all the futures contracts of the Portfolio and premiums paid on
outstanding options on futures contracts owned by the Portfolio (other than
those entered into for bona fide hedging purposes) would exceed 5% of the market
value of the total assets of the Portfolio.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio may purchase and write
options on foreign currencies for hedging purposes in a manner similar to that
in which futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, a Portfolio will have the right to sell such currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
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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.
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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. With the exception of International Bond
Portfolio, each Portfolio may write (sell) covered call and put options to a
limited extent on its portfolio securities ("covered options") in an attempt to
increase income. However, the Portfolio may forgo the benefits of appreciation
on securities sold or may pay more than the market price on securities acquired
pursuant to call and put options written by the Portfolio.
When a Portfolio writes a covered call option, it gives the purchaser
of the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the
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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
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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."
The International Equity Portfolio, the European Equity Portfolio and
the Pacific Basin Equity Portfolio may, to the extent allowed by Federal and
state securities laws, invest in securities indices instead of investing
directly in individual foreign securities.
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Portfolio generally will only purchase or write such an option if the Adviser
believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the 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
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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
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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' Prospectuses 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 Prospectuses, 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
substantially all of its Assets (other than assets which are not "investment
securities," as defined in the 1940 Act, or are excepted by the SEC) 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) net assets, it may borrow money (but only as a temporary
measure for extraordinary or emergency purposes in the case of the Small Cap
Portfolio (Fund), 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
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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.
As an operating policy, no Portfolio will invest in another open-end
registered investment company.
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
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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 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 the 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 the 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;
22
<PAGE>
(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 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 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
23
<PAGE>
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
24
<PAGE>
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.
Latin American Equity Portfolio paid brokerage commissions in the
amount of $[ ] for the fiscal year ended September 30, 1995, and $188,008 for
the period from October 25, 1993 (commencement of operations) through September
30, 1994.
Global High Yield Securities Portfolio paid brokerage commissions in
the amount of $[ ] for the fiscal year ended September 30, 1995 and paid no
brokerage commissions for
the period from December 14, 1993 (commencement of operations) through
September 30, 1994.
Small Cap Portfolio paid brokerage commissions
in the amount of $[ ] for the fiscal year ended September 30, 1995 and
$20,835 for the period from October 21, 1993 (commencement of operations)
through September 30, 1994.
Pacific Basin Equity Portfolio paid brokerage commissions in the amount
of $[ ] for the fiscal year ended September 30, 1995 and $139,363 for
25
<PAGE>
the period from November 1, 1993 (commencement of operations) through
September 30, 1994.
European Equity Portfolio and International Bond Portfolio have not
commenced operations as of the fiscal year ended September 30, 1995 and have not
paid brokerage commissions.
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. For the 30-day period ended September 30, 1995, Global High
Yield Fund's yield was [. ]%.
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.
26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Global
High Yield
Latin American Securities Small Pacific Basin
Equity Fund1 Fund2 Cap Fund3 Equity Fund4
Average Annual Total
Return for the
Fiscal Year Ended
September 30, 1995 [ ]% [ ]% [ ]% [ ]%
Average Annual Total
Return for the Period
From Commencement of
Operations Through
September 30, 1994 50.01% 3.66% 17.06% 20.11%
Annualized Total
Return for the Period
From Commencement of
Operations Through
September 30, 1994 50.01% 3.66% 17.06% 20.11%
<FN>
1Fund commenced operations on October 25, 1993
2Fund commenced operations on December 14, 1993.
3Fund commenced operations on October 21, 1993.
4Fund commenced operations on November 1, 1993.
</FN>
</TABLE>
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. 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:
27
<PAGE>
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.
28
<PAGE>
VALUELINE, 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. Such market valuations may
represent the last quoted price on the securities major trading exchange or may
be determined through use of matrix pricing. In matrix pricing, pricing services
may use various pricing models, involving comparable securities, historic
relative price movements, economic factors and dealer quotations.
Over-the-counter securities will normally be valued at the bid price. 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
29
<PAGE>
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. Each 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.
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
30
<PAGE>
five years are set forth below. Their titles may have varied during
that period. Asterisks indicate those Trustees who are "interested persons" (as
defined in the 1940 Act) of the Trust. Unless otherwise indicated, the address
of each Trustee and officer is 6 St. James Avenue, Boston, Massachusetts.
TRUSTEES OF THE TRUST
S. LELAND DILL -- Trustee; Retired; Director, Coutts & Company Group;
Coutts & Co. (U.S.A.) International; Director, Zweig Series Trust; formerly
Partner of KPMG Peat Marwick; Director, Vinters International Company Inc.;
General Partner of Pemco (an investment company registered under the 1940 Act).
His address is 5070 North Ocean Drive, Singer Island, Florida 33404.
KELVIN J. LANCASTER -- Trustee; Professor, Department of Economics,
Columbia University. His address is 35 Claremont Avenue, New York, New York
10027.
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.
PHILIP W. COOLIDGE* -- President and Trustee; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc. ("SFG") (since December,
1988) and Signature (since April, 1989).
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. (U.S.A.)
International; Director, Zweig Cash Fund and Zweig Series Trust; formerly
Partner of KPMG Peat Marwick; Director, Vinters International Company Inc.;
General Partner of Pemco (an investment company registered under the 1940 Act).
His address is 5070 North Ocean Drive, Singer Island, Florida 33404.
PHILIP SAUNDERS, JR. -- Trustee; Principal, Philip Saunders Associates
(Consulting); former Director of Financial Industry Consulting, Wolf & Company;
President, John Hancock Home Mortgage Corporation; and Senior Vice President of
Treasury and Financial Services, John Hancock Mutual Life Insurance Company,
Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.
PHILIP W. COOLIDGE* -- President and Trustee; Chairman, Chief Executive
Officer and President, SFG (since December, 1988) and Signature (since April,
1989).
OFFICERS OF THE TRUST AND PORTFOLIOS
Unless otherwise specified, each officer listed below holds the same
position with the Trust and each Portfolio.
JOHN R. ELDER -- Treasurer; Vice President, SFG (since April, 1995);
Treasurer, Phoenix Family of Mutual Funds (prior to April, 1995).
DAVID G. DANIELSON -- Assistant Treasurer; Assistant Manager, SFG
(since May, 1991); Graduate Student, Northeastern University (from April, 1990
to March, 1991).
31
<PAGE>
JAMES S. LELKO, JR. -- Assistant Treasurer; Assistant Manager, SFG
(since January, 1993); Senior Tax Compliance Accountant, Putnam Companies (since
prior to December, 1992).
BARBARA M. O'DETTE -- Assistant Treasurer; Assistant Treasurer, SFG
(since December, 1988) and Signature (since April, 1989); Administrative
Controller, Massachusetts Financial Services
Company (prior to December, 1988).
DANIEL E. SHEA -- Assistant Treasurer; Assistant Manager, SFG (since
November, 1993); Supervisor and Senior Technical Advisor, Putnam Investments
(prior to 1990).
THOMAS M. LENZ -- Secretary; Vice President and Associate General
Counsel, SFG (since November, 1989); Assistant Secretary, Signature (since
February, 1991); Attorney, Ropes & Gray (prior to November, 1989).
MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and Assistant
Secretary, SFG (since December, 1988); Assistant Secretary, Signature (since
April, 1989).
LINDA T. GIBSON -- Assistant Secretary; Legal Counsel and Assistant
Secretary, SFG (since May, 1992); Assistant Secretary, Signature (since October,
1992); student, Boston University School of Law (September, 1989 to May, 1992);
Product Manager, SFG (January, 1989 to September, 1989).
ANDRES E. SALDANA -- Assistant Secretary; Legal Counsel, SFG (since
November, 1992); Assistant Secretary, Signature (since September, 1993);
Attorney, Ropes & Gray (September, 1990 to November, 1992); law student, Yale
Law School (September, 1987 to May, 1990).
Messrs. Coolidge, Danielson, Lelko, Lenz , Saldana and Shea and Mss.
Gibson, Mugler and O'Dette also hold similar positions for other investment
companies for which Signature or an affiliate serves as the principal
underwriter.
No person who is an officer or director of Bankers Trust is an officer
or Trustee of the Trust or the Portfolios. No director, officer or employee of
Signature or any of its affiliates will receive any compensation from the Trust
or the Portfolios for serving as an officer or Trustee of the Trust or a
Portfolio. The Trust pays each Trustee who is not a director, officer or
employee of the Adviser, the Distributor, the Administrator or any of their
affiliates an annual fee of $10,000, respectively, per annum plus $1,250,
respectively, per meeting attended and reimburses them for travel and
out-of-pocket expenses. Each Portfolio and Cash Management, Treasury Money, Tax
Free Money, NY Tax Free Money, Utility, Short/Intermediate U.S. Government
Securities, Intermediate Tax Free, Asset Management and BT Investment Portfolios
collectively pay each Trustee who is not a director, officer or employee of the
Adviser, the Distributor, the Administrator or any of their affiliates an annual
fee of $10,000, respectively, per annum plus $1,250, respectively, per meeting
attended and reimburses them for travel and out-of-pocket expenses.
Latin American Equity Fund accrued Trustees fees equal to $[ ] for the
fiscal year ended September 30, 1995 and $817 for the period from October 25,
1993 (commencement of operations) through September 30, 1994. For the same
periods, Latin American Equity Portfolio accrued Trustees fees equal to $[ ] and
$668, respectively.
Global High Yield Securities Fund accrued Trustees fees equal to $[ ]
for the fiscal year ended September 30, 1995 and $802 for the period from
December 14, 1993 (commencement of operations) through September 30, 1994. For
the same periods, Global High Yield Securities Portfolio accrued Trustees fees
32
<PAGE>
equal to $[ ] and $663, respectively.
Small Cap Fund accrued Trustees fees equal to $[ ] for the fiscal year
ended September 30, 1995 and $820 fo the period from October 21, 1993
(commencement of operations) through September 30, 1994. For the same periods,
Small Cap Portfolio accrued Trustees fees equal to $[ ] and $669, respectively.
Pacific Basin Equity Fund accrued Trustees fees equal to $[ ] for the
fiscal year ended September 30, 1995 and $860 the period from November 1, 1993
(commencement of operations) through September 30, 1994. For the same periods,
Pacific Basin Equity Portfolio accrued Trustees fees equal to $[ ] and $684,
respectively.
As of the fiscal year ended September 30, 1995, European Equity Fund,
International Bond Fund, European Equity Portfolio and International Bond
Portfolio had not commenced investment operations and did not accrue Trustees
fees.
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 [ ], 1995, 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 [ ], 1995, Bankers Trust, on behalf of
its customers, was the record owner of the following percentages of the
outstanding shares of the following Funds: Latin American Equity Fund [ ]%;
Global High Yield Securities Fund [ ]%; Small Cap Fund [ ]%; and Pacific Basin
Equity Fund [ ]%. Also, as of the same date, Charles Schwab & Co., 101
Montgomery Street, San Francisco, California was the beneficial owner of [ ]%
and [ ]% of the outstanding shares of Latin American Equity Fund and Global High
Yield Securities Fund, respectively. [Name, address] was the beneficial owner of
[ ]% of the outstanding shares of [ ] Fund. Shareholders owning 25% or more of
the outstanding shares of a Fund may take actions without the approval of any
other investor in that Fund.
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,
Signature or any of their affiliates; SEC fees and state Blue Sky qualification
fees; charges of custodians and transfer and dividend disbursing
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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.
In compensation for investment advisory services provided to Latin
American Equity Portfolio, Bankers Trust aggregated $[ ] for the fiscal year
ended September 30, 1995 and $102,872 for the period from October 25, 1993
(commencement of operations) through September 30, 1994. During the same
periods, Bankers Trust reimbursed $[ ] and $81,307, respectively, to that
Portfolio to cover expenses.
In compensation for investment advisory services provided to Global
High Yield Securities Portfolio, Bankers Trust aggregated $[ ] for the fiscal
year ended September 30, 1995 and $66,073 for
the period from December 14, 1993 (commencement of operations) through
September 30, 1994. During the same periods, Bankers Trust reimbursed $[ ] and
$48,741, respectively to that Portfolio to cover expenses.
In compensation for investment advisory services provided to Small Cap
Portfolio, Bankers Trust aggregated $[ ] for the fiscal year ended September 30,
1995 and $69,420 for
the period from October 21, 1993 (commencement of operations) through
September 30, 1994. During the same periods, Bankers Trust reimbursed $[ ] and
$41,110, respectively, to that Portfolio to cover expenses.
In compensation for investment advisory services provided to Pacific
Basin Equity Portfolio, Bankers Trust aggregated $[ ] for the fiscal year ended
September 30, 1995 and $116,020 for
the period from November 1, 1993 (commencement of operations) through
September 30, 1994 . During the same periods, Bankers Trust reimbursed $[ ] and
$40,461, respectively, to that Portfolio to cover expenses.
As of the fiscal year ended September 30, 1995, European Equity
Portfolio and International Bond Portfolio had not commenced investment
operations and did not accrue investment advisory fees.
Bankers Trust 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.
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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"), Signature performs such sub-administration duties for the Trust and
the Portfolios as from time to time may be agreed upon by Bankers Trust and
Signature. The Sub-Administration Agreement provides that Signature will receive
such compensation as from time to time may be agreed upon by Signature and
Bankers Trust. All such compensation will be paid by Bankers Trust.
In compensation for administrative and other services provided to the
Latin American Equity Fund, Bankers Trust aggregated $[ ] for the fiscal year
ended September 30, 1995 and $97,763 for the period from October 25, 1993
(commencement of operations) through September 30, 1994 . During the same
periods, Bankers Trust reimbursed $[ ] and $49,325, respectively, to cover
expenses. For the same periods, Bankers Trust aggregated $[ ] and
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<PAGE>
$20,574, respectively, in compensation for administrative and other services
provided to Latin American Equity Portfolio.
In compensation for administrative and other services provided to the
Global High Yield Securities Fund, Bankers Trust aggregated $[ ] for the fiscal
year ended September 30, 1995 and $78,503 for the period from December 14, 1993
(commencement of operations) through September 30, 1994 . During the same
periods, Bankers Trust reimbursed $[ ] and $40,342, respectively, to cover
expenses. For the same periods, Bankers Trust aggregated $[ ] and $16,518,
respectively, in compensation for administrative and other services provided to
Global High Yield Securities Portfolio.
In compensation for administrative and other services provided to the
Small Cap Fund, Bankers Trust aggregated $[ ] for the fiscal year ended
September 30, 1995 and $69,395 for the fiscal period from October 21, 1993
(commencement of operations) through September 30, 1994 . During the same
periods, Bankers Trust reimbursed $[ ] and $51,004, respectively, to cover
expenses. For the same periods, Bankers Trust aggregated $[ ] and $10,680,
respectively, in compensation for administrative and other services provided to
Small Cap Portfolio.
In compensation for administrative and other services provided to the
Pacific Basin Equity Fund, Bankers Trust aggregated $[ ] for the fiscal year
ended September 30, 1995 and $115,972 for the period from November 1, 1993
(commencement of operations) through September 30, 1994 . During the same
periods, Bankers Trust reimbursed $51,932 to cover expenses. For the same
period, Bankers Trust aggregated $[ ] and $38,673, respectively, in compensation
for administrative and other services provided to Pacific Basin Equity
Portfolio.
As of the fiscal year ended September 30, 1995, European Equity Fund,
International Bond Fund, European Equity Portfolio and International Bond
Portfolio had not commenced investment operations and did not accrue
administrative fees.
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.
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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.
The Trust was organized under the name BT Tax-Free Investment Trust and
assumed its current name of BT Investment Funds on May 16, 1988.
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Except as described below, whenever the Trust is requested to vote on a
fundamental policy of the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast its vote as instructed by 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 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.
Except as described below, whenever the Fund is requested to vote on
matters pertaining to the Portfolio, the Fund will hold a meeting of its
shareholders and will cast its votes proportionately as instructed by Fund
shareholders. However, subject to applicable statutory and regulatory
requirements, the Fund would not request a vote of its shareholders with respect
to (a) any proposal relating to the Portfolio, which proposal, if made with
respect to the Fund, would not require the vote of the shareholders of the Fund,
or (b) any proposal with respect to the Portfolio that is identical in all
material respects to a proposal that has previously been approved by
shareholders of the Fund. Any proposal submitted to holders in the Portfolio,
and that is not required to be voted on by shareholders of the Fund, would
nonetheless be voted on by the Trustees 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-
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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.
LATIN AMERICAN EQUITY PORTFOLIO, GLOBAL HIGH YIELD SECURITIES
PORTFOLIO, EUROPEAN EQUITY PORTFOLIO, PACIFIC BASIN EQUITY PORTFOLIO AND
INTERNATIONAL BOND 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.
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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.
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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 Portfolio is organized as a New York trust. 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
The following financial statements for each Fund or Portfolio are
incorporated herein by reference from the its annual report dated September 30,
1995, a copy of which is attached hereto:
LATIN AMERICAN EQUITY FUND
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995
Statement of Changes in Net Assets for the year ended September 30,
1995 and the period from October 25, 1993 (commencement of operations)
through September 30, 1994
Financial Highlights: Supplemental data for the period indicated
Notes to Financial Statements
Report of Independent Accountants
BT INVESTMENT PORTFOLIOS - LATIN AMERICAN EQUITY PORTFOLIO
Statement of Assets and Liabilities, September 30, 1995
Statement of Operations for the year ended September 30, 1995 Statement
of Changes in Net Assets for the year ended September 30, 1995 and the
period from October 25, 1993 (commencement of operations) through
September 30, 1994
Financial Highlights: Supplemental data for the period indicated
Schedule of Portfolio of Investments, September 30,
1995 Notes to Financial Statements Report of Independent Accountants
GLOBAL HIGH YIELD SECURITIES FUND
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995
Statement of Changes in Net Assets for the year ended September 30,
1995 and the period from December 14, 1993 (commencement of operations)
through September 30, 1994
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Financial Highlights: Supplemental data for the period indicated
Notes to Financial Statements
Report of Independent Accountants
BT INVESTMENT PORTFOLIOS - GLOBAL HIGH YIELD SECURITIES PORTFOLIO
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995
Statement of Changes in Net Assets for the year ended September 30,
1995 and the period from December 14, 1993 (commencement of operations)
through September 30, 1994
Financial Highlights: Selected ratios and supplemental data for the
period indicated
Schedule of Portfolio of Investments, September 30, 1995
Notes to Financial Statements
Report of Independent Accountants
SMALL CAP FUND
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995
Statement of Changes in Net Assets for the year ended September 30,
1995 and the period from October 21, 1993 (commencement of operations)
through September 30, 1994 Financial Highlights: Supplemental data for
the period indicated Notes to Financial Statements Report of
Independent Accountants
BT INVESTMENT PORTFOLIOS - SMALL CAP PORTFOLIO
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995
Statement of Changes in Net Assets for the year ended September 30,
1995 and the period from October 21, 1993 (commencement of operations)
through September 30, 1994; Financial Highlights: Selected ratios and
supplemental data for the period indicated; Schedule of Portfolio of
Investments, September 30, 1995; Notes to Financial Statements; Report
of Independent Accountants
PACIFIC BASIN EQUITY FUND
Statement of Assets and Liabilities, September 30, 1995; Statement of
Operations for the year ended September 30, 1995; Statement of Changes
in Net Assets for the year ended September 30, 1995 and the period from
November 1, 1993 (commencement of operations) through September 30,
1994
42
<PAGE>
Financial Highlights: Supplemental data for the period indicated
Notes to Financial Statements
Report of Independent Accountants
BT INVESTMENT PORTFOLIOS - PACIFIC BASIN EQUITY PORTFOLIO
Statement of Assets and Liabilities, September 30, 1995 Statement of
Operations for the year ended September 30, 1995
Statement of Changes in Net Assets for the year ended September 30,
1995 and the period from November 1, 1993 (commencement of operations)
through September 30, 1994
Financial Highlights: Selected ratios and
supplemental data for the period indicated
Schedule of Portfolio Investments, September 30, 1995
Notes to Financial Statements Report of Independent Accountants
<PAGE>
DISTRIBUTOR
Signature Broker-Dealer Services, Inc. BT INVESTMENT FUNDS
6 St. James Avenue
Boston, MA 02116 o LATIN AMERICAN EQUITY FUND
(617) 423-0800 o GLOBAL HIGH YIELD SECURITIES
FUND
o SMALL CAP FUND
INVESTMENT ADVISER OF EACH PORTFOLIO o EUROPEAN EQUITY FUND
o PACIFIC BASIN EQUITY FUND
Bankers Trust Company o INTERNATIONAL BOND FUND
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 JANUARY 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
<PAGE>
BT0329F
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
The following are included in Part B:
BT Investment Funds - Short/Intermediate U.S. Government Securities Fund,
Intermediate Tax Free Fund, Utility Fund, Capital Appreciation Fund,
International Equity Fund, Cash Management Fund, Treasury
Money Fund, Tax Free Money Fund and NY Tax Free Money Fund
Statement of Assets and Liabilities, December 31, 1994; Statement of
Operations for the period indicated; Statement of Changes in Net Assets
for each of the periods indicated; Financial Highlights: Selected data
for each of the periods indicated; Notes to Financial Statements;
Report of Independent Accountants
BT Investment Portfolios - Short/Intermediate U.S. Government Securities
Portfolio, Intermediate Tax Free Portfolio, Utility Portfolio, Capital
Appreciation Portfolio, International Equity Portfolio, Cash Management
Portfolio, Liquid Assets Portfolio, Treasury Money Portfolio, Tax Free Money
Portfolio and NY Tax Free Money Portfolio
Statement of Assets and Liabilities, December 31, 1994; Statement of
operations for the period indicated; Statement of Changes in Net Assets
for each of the periods indicated; Financial Highlights: Selected
ratios and supplemental data for each of the periods indicated;
Schedule of Portfolio Investments, December 31, 1994; Notes to
Financial Statements; Report of Independent Accountants
BT Investment Funds - BT Investment Lifecycle Short Range Fund
Statement of Assets and Liabilities, March 31, 1995; Statement of
Operations for the year ended March 31, 1995; Statement of Changes in
Net Assets for the year ended March 31, 1995 and for the period October
15, 1993 (commencement of operations) to March 31, 1994; Financial
Highlights: Selected data, return and ratios for the periods indicated;
Notes to Financial Statements; Report of Independent Accountants
BT Investment Portfolios - Asset Management Portfolio III
Statement of Assets and Liabilities, March 31, 1995; Statement of
Operations for the year ended March 31, 1995; Statement of Changes in
Net Assets for the year ended March 31, 1995 and for the period October
15, 1993 (commencement of operations) to March 31, 1994; Financial
Highlights: Selected ratios and supplemental data for the periods
indicated; Schedule of Portfolio of Investments, March 31, 1995; Notes
to Financial Statements; Report of Independent Accountants
BT Investment Funds - BT Investment Lifecycle Mid Range Fund
Statement of Assets and Liabilities, March 31, 1995; Statement of
Operations for the year ended March 31, 1995; Statement of Changes in
Net Assets for the year ended March 31, 1995 and for the period October
14, 1993 (commencement of operations) to March 31, 1994; Financial
Highlights: Selected data, return and ratios for the periods indicated;
Notes to Financial Statements; Report of Independent Accountants
BT Investment Portfolios - Asset Management Portfolio II
Statement of Assets and Liabilities, March 31, 1995; Statement of
Operations for the year ended March 31, 1995; Statement of Changes in
Net Assets for the year ended March 31, 1995 and for the period October
14, 1993 (commencement of operations) to March 31, 1994; Financial
Highlights: Selected ratios and supplemental data for the periods
indicated; Schedule of Portfolio of Investments, March 31, 1995; Notes
to Financial Statements; Report of Independent Accountants
BT Investment Funds - BT Investment Lifecycle Long Range Fund
Statement of Assets and Liabilities, March 31, 1995; Statement of
Operations for the year ended March 31, 1995; Statement of Changes in
Net Assets for the year ended March 31, 1995 and for the period
November 16, 1993 (commencement of operations) to March 31, 1994;
Financial Highlights: Selected data, return and ratios for the periods
indicated; Notes to Financial Statements; Report of Independent
Accountants
Asset Management Portfolio
Statement of Assets and Liabilities, March 31, 1995 Statement of
Operations for the year ended March 31, 1995 Statement of Changes in
Net Assets for the year ended March 31, 1995 and for the period
September 16, 1993 (commencement of operations) to March 31, 1994
Financial Highlights: Selected data, return and ratios for the periods
indicated Schedule of Portfolio of Investments, March 31, 1995 Notes to
Financial Statements Report of Independent Accountants
(b) EXHIBITS:
(1) (a) Declaration of Trust of the Trust.9
(b) Supplement to Declaration of Trust.9
(c) Second Supplement to Declaration of Trust.9
(2) By-Laws of the Trust.9
(3) Not applicable.
(4) Specimen stock certificates for shares of beneficial interest
of the Trust.1
(5) Not applicable.
(6) Distribution Agreement.7
(7) Not applicable.
(8) See Exhibit 9(b).
(9) (a) See Exhibit 9(b).
(b) Administration and Services Agreement.6
(c) Schedule of Fees under Administration and Services
Agreement7
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Plan of Distribution pursuant to Rule 12b-l under the
Investment Company Act of 1940, as amended (the "1940 Act").5
(16) Schedules for Computation of Performance Quotations.2
(17) Financial Data Schedules with respect to BT Investment
Global High Yield Securities
Fund10
(17A) Powers of Attorney.3
(17B) Powers of Attorney for the Trustees of the Portfolios.4
1 Incorporated herein by reference from this Registration
Statement as filed with the Securities and Exchange Commission
(the "SEC") on October 24, 1986.
2 Incorporated herein by reference from Post-Effective Amendment No.
14 to this Registration Statement as filed with the SEC on
February 13, 1992.
3 Incorporated herein by reference from Post-Effective Amendment No.
16 to this Registration Statement as filed with the SEC on April 30,
1992.
4 Incorporated herein by reference from Post-Effective Amendment No.
20 to this Registration Statement as filed with the SEC on October 9,
1992.
5 Incorporated herein by reference from Post-Effective Amendment No.
22 to this Registration Statement as filed with the SEC on
February 26, 1993.
6 Incorporated herein by reference from Post-Effective Amendment No.
23 to this Registration Statement as filed with the SEC on April 30,
1993.
7 Incorporated herein by reference from Post-Effective Amendment No.
29 to this Registration Statement as filed with the SEC on
November 8, 1993.
8 Incorporated herein by reference from Post-Effective Amendment No.
33 to this Registration Statement as filed with the SEC on April 28,
1995.
9 Incorporated herein by reference from Post-Effective Amendment
No. 34 to this Registration Statement as filed with the SEC on
July 31, 1995.
10 Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
NUMBER OF RECORD HOLDERS
TITLE OF CLASS (AS OF November 27, 1995)
Tax Free Money Fund 163
NY Tax Free Money Fund 225
Cash Management Fund 362
Treasury Money Fund 2,065
100% Treasury Fund 0
Short/Intermediate
U.S. Government Securities Fund 183
Intermediate Tax Free Fund 76
Utility Fund 105
Small Cap Fund 182
Pacific Basin Equity Fund 124
European Equity Fund 0
BT Investment Lifecycle Short Range Fund 7
BT Investment Lifecycle Mid Range Fund 8
BT Investment Lifecycle Long Range Fund 10
Latin American Equity Fund 95
International Equity Fund 160
Global High Yield Securities Fund 51
Capital Appreciation Fund 198
International Bond Fund 0
ITEM 27. INDEMNIFICATION.
Under Article XI, Section 2 of the Trust's Declaration of Trust, any
past or present Trustee or officer of the Trust (including persons who
serve at the Trust's request as directors, officers or trustees of
another organization in which the Trust has any interest as a
shareholder, creditor or otherwise [hereinafter referred to as a
"Covered Person"]) is indemnified to the fullest extent permitted by
law against liability and all expenses reasonably incurred by him in
connection with any action, suit or proceeding to which he may be a
party or otherwise involved by reason of his being or having been a
Covered Person. This provision does not authorize indemnification when
it is determined, in the manner specified in the Declaration of Trust,
that such Covered Person has not acted in good faith in the reasonable
belief that his actions were in or not opposed to the best interests of
the Trust. Moreover, this provision does not authorize indemnification
when it is determined, in the manner
specified in the Declaration of Trust, that such Covered Person would
otherwise be liable to the Trust or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of his duties. Expenses may be paid by the Trust in advance of the
final disposition of any action, suit or proceeding upon receipt of an
undertaking by such Covered Person to repay such expenses to the Trust
in the event that it is ultimately determined that indemnification of
such expenses is not authorized under the Declaration of Trust and
either (i) the Covered Person provides security for such undertaking,
(ii) the Trust is insured against losses from such advances or (iii)
the disinterested Trustees or independent legal counsel determines, in
the manner specified in the Declaration of Trust, that there is reason
to believe the Covered Person will be found to be entitled to
indemnification.
Insofar as indemnification for liability arising under the 1933 Act may
be permitted to Trustees, officers and controlling persons of the Trust
pursuant to the foregoing provisions, or otherwise, the Trust has been
advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Trust of expenses
incurred or paid by a Trustee, officer or controlling person of the
Trust in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection
with the securities being registered, the Trust will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Signature Broker-Dealer Services, Inc. is the Distributor (the
"Signature") for the shares of BT Investment Funds. Signature
also serves as the principal underwriter or placement agent for
other registered investment companies.
(b) Set forth below are the names, principal business addresses and
positions of each director and officer of Signature. Unless
otherwise noted, the principal business address of these
individuals is Signature Broker-Dealer Services, Inc., 6 St.
James Avenue, Boston, Massachusetts 02116. Unless otherwise
specified, none of the officers and directors of Signature serve
as officers and Trustees of the Trust.
POSITION AND OFFICES POSITION AND OFFICES
NAME WITH SIGNATURE WITH THE REGISTRANT
Philip W. Coolidge Chief Executive President and Trustee
Officer, President
and Director
Linwood C. Downs Treasurer --
Thomas M. Lenz Assistant Secretary Assistant Secretary
Molly S. Mugler Assistant Secretary Assistant Secretary
Linda T. Gibson Assistant Secretary Assistant Secretary
Andres E. Saldana Assistant Secretary Assistant Secretary
Susan Jakuboski Assistant Treasurer --
Barbara M. O'Dette Assistant Treasurer Assistant Treasurer
Beth A. Remy Assistant Treasurer --
David G. Danielson -- Assistant Treasurer
James S. Lelko, Jr. -- Assistant Treasurer
Daniel E. Shea -- Assistant Trreasurer
Julie J. Wyetzner Product Management Officer --
Robert G. Davidoff Director --
CMNY Capital, L.P
135 East 57th Street
New York, NY 10022
Kate B.M. Bolsover Director --
Signature Financial Group (Europe), Ltd.
49 St. James's Street
London SW1A 1JT
Donald S. Chadwick Director --
Scarborough & Company
110 East 42nd Street
New York, NY 10017
Leeds Hackett Director --
National Credit Management Corporation
10155 York Road
Cockeysville, MD 21030
Laurence E. Levine Director --
First International Capital, Ltd.
130 Sunrise Avenue
Palm Beach, FL 33480
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
BT Investment Funds
6 St. James Avenue
Boston, MA 02116
Bankers Trust Company
4 Albany Street
New York, NY 10006
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, MO 64105
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual
report, with respect to the respective series of the Trust, to
shareholders upon request and without charge.
(b) 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act and the Investment Company
Act of 1940, as amended, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(a) under the 1933 Act and that it has duly caused this Amendment to
Registrant's Registration Statement on Form N-1A to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 27th day of November, 1995.
BT INVESTMENT FUNDS
By: /S/PHILIP W. COOLIDGE
Philip W. Coolidge
President
Pursuant to the requirements of the 1933 Act, this Amendment has been
signed below by the following persons in the capacities indicated on
November 27, 1995.
SIGNATURE TITLE
/S/PHILIP W. COOLIDGE President and Trustee
Philip W. Coolidge
/S/KELVIN J. LANCASTER* Trustee
Kelvin J. Lancaster
/S/PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
/S/ S. LELAND DILL* Trustee
S. Leland Dill
/S/JOHN R. ELDER Treasurer (Principal
John R. Elder Financial and
Principal Accounting
Officer)
*By: /S/PHILIP W. COOLIDGE
Philip W. Coolidge
as Attorney-in-Fact pursuant to a
Power of Attorney previously filed.
<PAGE>
SIGNATURES
BT Investment Portfolios has duly caused this Amendment
to the Registration Statement on Form N-1A of BT Investment Funds (File No.
33-7404) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on the
27h day of November, 1995.
BT INVESTMENT PORTFOLIOS
By: /S/PHILIP W. COOLIDGE
Philip W. Coolidge
President
SIGNATURE TITLE WITH BT INVESTMENT
PORTFOLIOS
/S/PHILIP W. COOLIDGE Trustee and President
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.
/S/JOHN R. ELDER Treasurer (Principal
John R. Elder Financial and
Principal Accounting
Officer)
*By: /S/PHILIP W. COOLIDGE
Philip W. Coolidge
as Attorney-in-Fact pursuant to a
Power of Attorney previously filed.
<PAGE>
BT INVESTMENT FUNDS
EXHIBITS TO
REGISTRATION STATEMENT
ON FORM N-1A
EXHIBIT INDEX
EXHIBIT NO.
(17) Financial Data Schedules with respect to BT Investment
Global High Yield Securities Fund
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<LEGEND>
This Schedule contains Summary Financial Data extracted from the March 31, 1995
Global High Yield Securities Fund Semi-Annual Report and is
qualified in its entirety by reference to such Report.
</LEGEND>
<CIK> 797657
<NAME> Global High Yield Securities Fund
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 14068757
<INVESTMENTS-AT-VALUE> 14068757
<RECEIVABLES> 26601
<ASSETS-OTHER> 18848
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14114206
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48987
<TOTAL-LIABILITIES> 48987
<SENIOR-EQUITY> 1614
<PAID-IN-CAPITAL-COMMON> 16299884
<SHARES-COMMON-STOCK> 1614144
<SHARES-COMMON-PRIOR> 1431869
<ACCUMULATED-NII-CURRENT> 403748
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<ACCUMULATED-NET-GAINS> (815359)
<OVERDISTRIBUTION-GAINS> 0
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<OTHER-INCOME> 779173
<EXPENSES-NET> 74035
<NET-INVESTMENT-INCOME> 705138
<REALIZED-GAINS-CURRENT> (632329)
<APPREC-INCREASE-CURRENT> (1858072)
<NET-CHANGE-FROM-OPS> (1785263)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 750658
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 655599
<NUMBER-OF-SHARES-REDEEMED> 496798
<SHARES-REINVESTED> 23474
<NET-CHANGE-IN-ASSETS> (673137)
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 112134
<AVERAGE-NET-ASSETS> 14854520
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> (1.51)
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.71
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
