AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1996
File Nos. 33-7404 and 811-4760
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 39
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 40
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
Philip W. Coolidge Copies to: Burton M. Leibert, Esq.
Signature Broker-Dealer Services, Inc. Willkie Farr & Gallagher
6 St. James Avenue One Citicorp Center
Boston, Massachusetts 02116 153 East 53rd Street
(Name and Address of Agent for Service) New York, New York 10022
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[x] on July 29, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) 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.
ASSET MANAGEMENT PORTFOLIO AND BT INVESTMENT PORTFOLIOS HAVE ALSO EXECUTED THIS
AMENDMENT TO THE 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 OR ABOUT NOVEMBER 30, 1995
FOR REGISTRANT'S FISCAL YEAR ENDED SEPTEMBER 30, 1995. REGISTRANT FILED THE
NOTICE REQUIRED BY RULE 24F-2 ON OR ABOUT FEBRUARY 28, 1996 FOR REGISTRANT'S
FISCAL YEAR ENDED DECEMBER 31, 1995. REGISTRANT FILED THE NOTICE REQUIRED BY
RULE 24F-2 ON ABOUT MAY 31, 1996 FOR REGISTRANT'S FISCAL YEAR ENDED MARCH 31,
1996.
BT0329J
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EXPLANATORY NOTE
The Post-Effective Amendment No. 39 (the "Amendment") to the
Registrant's Registration Statement on Form N-1A is being filed with respect to
the BT Investment Funds - Lifecycle Short Range Fund, Lifecycle Mid Range Fund
and Lifecycle Long Range Fund (the "Funds"), each a series of shares of the
Registrant. The Amendment is being filed solely in order to bring the Funds'
audited financial statements up to date and to make other non-material changes.
Cash Management Fund, Treasury Money Fund, NY Tax Free Money Fund, Tax Free
Money Fund, Liquid Assets Fund, Utility Fund, Limited Term U.S. Government
Securities Fund, Intermediate Tax Free Fund, Global High Yield Securities Fund,
Capital Appreciation Fund, Small Cap Fund, International Equity Fund, Pacific
Basin Equity Fund, Latin American Fund and 100% Treasury Fund are each a series
of shares of the Registrant and are each offered by separate Prospectuses
included in Post-Effective Amendment No.38 to the Registrant's Registration
Statement. This Amendment does not relate to, amend or otherwise affect any of
the separate Prospectuses contained in Post-Effective Amendment No. 8 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
Amendment.
<PAGE>
BT INVESTMENT FUNDS
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 Financial Highlights
4. General Description of
Registrant . . . . . . . . . . .Cover Page; Investment Objective,
Policies and Risks; Risk Factors;
Matching the Funds to Your Investment
Needs
5. Management of the Fund . . . . .Summary of Fund Expenses; Management of
the Trust and the Portfolios
6. Capital Stock and Other
Securities . . . . . . . . . . .Cover Page; Purchase and Redemptions
of Shares; Performance Information
and Reports; Additional Information;
Dividends, Distributions and Taxes
7. Purchase of Securities Being
Offered . . . . . . . . . . . .Net Asset Value; Purchase & Redemptions
of Shares
8. Redemption or Repurchase . . . .Purchase and Redemptions of Shares;
Dividends, Distributions and Taxes
9. Pending Legal Proceedings . . .Not applicable
<PAGE>
Part B Headings in Statement of
ITEM NO. ADDITIONAL INFORMATION
10. Cover Page . . . . . . . .Cover Page
11. Table of Contents . . . .Table of Contents
12. General Information and
History . . . . . . . . .Not applicable
13. Investment Objectives and
Policies . . . . . . . . .Investment Objectives, Policies and
Restrictions
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 Restrictions
18. Capital Stock and Other
Securities . . . . . . . Valuation of Securities; Redemptions and
Purchase in Kind; Taxation; see Prospectus --
"Dividends, Distributions and Taxes"
19. Purchase, Redemption and Pricing
of Securities Being Offered . .Purchase and Redemption Information;
Net Asset Value
20. Tax Status . . . . . . . .Taxation; 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>
- - BT INVESTMENT FUNDS -
LIFECYCLE FUNDS:
SHORT RANGE FUND
MID RANGE FUND
LONG RANGE FUND
w A family of asset allocation funds, each investing in stocks, bonds and money
market instruments to achieve a distinct goal.
PROSPECTUS
------------------------------------------------
JULY 29, 1996
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the Funds that you should
know and can refer to in deciding whether the Funds' goals match your own.
A Statement of Additional Information (SAI) with the same date has been filed
with the Securities and Exchange Commission ("SEC"), and is incorporated herein
by reference. You may request a free copy of the Statement by calling the Funds'
Service Agent at 1-800-730-1313.
UNLIKE OTHER MUTUAL FUNDS, THE FUNDS SEEK TO ACHIEVE THEIR INVESTMENT OBJECTIVES
BY INVESTING ALL OF THEIR INVESTABLE ASSETS IN SEPARATE INVESTMENT COMPANIES
(THE "PORTFOLIOS") WITH IDENTICAL INVESTMENT OBJECTIVES. THE INVESTMENT
PERFORMANCE OF THE FUNDS WILL CORRESPOND DIRECTLY TO THE INVESTMENT PERFORMANCE
OF THE PORTFOLIOS. SEE "SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND
STRUCTURE" ON PAGE 14.
SHARES OF THE FUNDS 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. INVESTMENT IN THE FUNDS ARE SUBJECT TO RISK THAT MAY CAUSE THE
VALUE OF AN INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE
VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE
INVESTOR.
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.
6 St. James Avenue - Boston, Massachusetts - 02116
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TABLE_ OF_ CONTENTS_____________________________________________________________
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<TABLE>
<CAPTION>
PAGE
<S> <C>
...........................................................................................
Summary of Fund Expenses 3
Fund Financial Highlights 5
Investment Objective, Policies and Risks 7
Risk Factors: Matching the Funds to Your Investment Needs 11
Net Asset Value 16
Purchase and Redemption of Shares 16
Dividends, Distributions and Taxes 20
Performance Information and Reports 21
Management of the Trust and Portfolios 22
Additional Information 28
</TABLE>
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2
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SUMMARY_ OF_ FUND_ EXPENSES_____________________________________________________
The following table provides (i) a summary of expenses relating to purchases and
sales of the shares of BT Investment Lifecycle Short Range Fund, BT Investment
Lifecycle Mid Range Fund and BT Investment Lifecycle Long Range Fund (each a
"Fund" and collectively, the "Funds"), and the annual operating expenses of each
Fund and the corresponding Portfolio (as defined below), as a percentage of
average net assets of that Fund; and (ii) an example illustrating the dollar
cost of such expenses on a $1,000 investment in each Fund. THE TRUSTEES OF THE
BT INVESTMENT FUNDS (THE "TRUST") BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES
OF EACH FUND AND THE ASSET MANAGEMENT PORTFOLIO III, ASSET MANAGEMENT PORTFOLIO
II AND ASSET MANAGEMENT PORTFOLIO (EACH A "PORTFOLIO" AND COLLECTIVELY, THE
"PORTFOLIOS") WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH
THAT FUND WOULD INCUR IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT
ADVISER AND THE INVESTABLE ASSETS ("ASSETS") OF THAT FUND WERE INVESTED DIRECTLY
IN THE TYPE OF SECURITIES BEING HELD BY THE CORRESPONDING PORTFOLIO.
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<TABLE>
<CAPTION>
Short Range Mid Range Long Range
Fund Fund Fund
<S> <C> <C> <C>
..................................................................................................
ANNUAL OPERATING EXPENSES
(as a percentage of the average daily net assets of
the Fund)
..................................................................................................
Investment advisory fee (after reimbursements or
waivers) 0.43% 0.45% 0.48%
12b-1 fees 0.00 0.00 0.00
Other expenses (after reimbursements or waivers) 0.57 0.55 0.52
..................................................................................................
Total operating expenses (after reimbursements or
waivers) 1.00% 1.00% 1.00%
..................................................................................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 year 3 years 5 years 10 years
.............................................................................................
You would pay the following expenses for each
Fund on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of
each time period $10 $32 $55 $122
</TABLE>
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The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of each of the Funds.
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 of 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. During the Portfolios' fiscal year ended March 31, 1996,
Bankers Trust Company ("Bankers Trust") waived a portion of its investment
advisory fees. Without such waivers, each Portfolio's investment advisory fee
would have been equal to 0.65% of the Portfolio's average daily net assets. The
expense table and the example reflect a voluntary undertaking by Bankers Trust
to waive or reimburse expenses of the Funds and/or the Portfolios such that the
aggregate operating expense of the Portfolios and the Funds will not exceed
1.00% on an annual basis of the Fund's average net assets. In the absence of
this undertaking, for the fiscal year ended March 31, 1996 "Total operating
expenses" above of the
3
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BT Investment Lifecycle Short Range Fund, BT Investment Lifecycle Mid Range Fund
and BT Investment Lifecycle Long Range Fund, and the corresponding Portfolio,
would have been equal to approximately 1.65%, 1.58% and 1.60%, respectively, of
each Fund's average net assets. 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%.
Shares of the Funds are 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-servicing agreement with Bankers
Trust (along with Bankers Trust, a "Service Agent"). Some Service Agents may
impose certain conditions on their customers in addition to or different from
those imposed by each 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.
In addition to the customers of Bankers Trust or other institutions described
above, the Fund is available for (a) accounts where an investment adviser or a
financial planner has discretion over such account and the account holder pays
such person as compensation for its advice and other services an annual fee of
at least 0.50% on the assets in the account; (b) accounts established under a
"wrap fee" program or formal asset allocation program where the account holder
pays the program sponsor an annual fee of at least 0.50% on the assets in the
account; and (c) accounts established through an automated clearing or similar
system established for the use of investment professionals and through which
purchases and redemptions are transmitted to the Fund on an omnibus basis.
For more information with respect to the expenses of the Funds and the
Portfolios, see "Management of the Trust and Portfolios" herein.
4
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FUND_ FINANCIAL_ HIGHLIGHTS_____________________________________________________
The following tables show selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data of
the Funds for the periods indicated and have been audited by Coopers & Lybrand
L.L.P., the Funds' independent accountants, whose report thereon appears in the
Funds' Annual Report which is incorporated by reference in the Funds' Statement
of Additional Information.
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<TABLE>
<CAPTION>
BT INVESTMENT LIFECYCLE SHORT RANGE FUND For the period
<S> <C> <C> <C>
October 15, 1993
For the year (Commencement
ended of Operations)
March 31, to
1996 1995 March 31, 1994
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $ 9.60 $ 10.00
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.45 0.41 0.13
Net Realized and Unrealized (Loss) on
Investments
and Futures 0.54 (0.13) (0.47)
................................................................................
Total from Investment Operations 0.99 0.28 (0.34)
................................................................................
DISTRIBUTIONS
Dividends from Net Investment Income (0.46) (0.37) (0.06)
Distributions from Net Realized Gains -- (0.01) --
................................................................................
Total Distributions (0.46) (0.38) (0.06)
................................................................................
NET ASSET VALUE, END OF PERIOD $ 10.03 $ 9.50 $ 9.60
................................................................................
TOTAL INVESTMENT RETURN 10.67% 3.08% (7.39)%*
SUPPLEMENTAL DATA AND RATIOS
Net Assets, End of Period (000's omitted) $28,899 $21,137 $17,582
Ratios to Average Net Assets
Net Investment Income 4.64% 4.47% 3.12%*
Expenses+ 1.00% 1.00% 1.00%*
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.65% 0.82% 1.12%*
--------------------------------------------------------------------------------
</TABLE>
*Annualized
+Includes expenses of the Asset Management Portfolio III.
5
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<TABLE>
<CAPTION>
BT INVESTMENT LIFECYCLE MID RANGE FUND For the period
<S> <C> <C> <C>
October 14, 1993
(Commencement
For the year of Operations)
ended March 31, to
1996 1995 March 31, 1994
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.61 $ 9.45 $ 10.00
------- ------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.41 0.37 0.11
Net Realized and Unrealized Gain (Loss) on
Investments and Futures 0.96 0.11 (0.60)
................................................................................
Total from Investment Operations 1.37 0.48 (0.49)
................................................................................
DISTRIBUTIONS
Dividends from Net Investment Income (0.44) (0.32) (0.06)
Distribution from Net Realized Gains (0.06) -- --
................................................................................
Total Distributions (0.50) (0.32) (0.06)
................................................................................
NET ASSET VALUE, END OF PERIOD $ 10.48 $ 9.61 $ 9.45
................................................................................
TOTAL INVESTMENT RETURN 14.65% 5.24% (10.48)%*
SUPPLEMENTAL DATA AND RATIOS
Net Assets, End of Period (000's omitted) $51,466 $25,733 $19,170
Ratios to Average Net Assets
Net Investment Income 4.15% 4.01% 2.77%*
Expenses+ 1.00% 1.00% 1.00%*
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.58% 0.76% 1.10%*
--------------------------------------------------------------------------------
</TABLE>
*Annualized
+Includes expenses of the Asset Management Portfolio II.
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<TABLE>
<CAPTION>
BT INVESTMENT LIFECYCLE LONG RANGE FUND For the period
<S> <C> <C> <C>
November 16, 1993
For the year (Commencement
ended March 31, of Operations) to
1996 1995 March 31, 1994
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.07 $ 9.68 $ 10.00
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.37 0.30 0.02
Net Realized and Unrealized Gain (Loss) on
Investments and Futures 1.54 0.32 (0.34)
.................................................................................
Total from Investment Operations 1.91 0.62 (0.32)
.................................................................................
DISTRIBUTIONS
Dividends from Net Investment Income (0.38) (0.23) --
Distributions from Net Realized Gains (0.28) -- --
.................................................................................
Total Distributions ((0.66) (0.23) --
.................................................................................
NET ASSET VALUE, END OF PERIOD $ 11.32 $ 10.07 $ 9.68
.................................................................................
TOTAL INVESTMENT RETURN 19.41% 6.60% (8.42)%*
SUPPLEMENTAL DATA AND RATIOS
Net Assets, End of Period (000's omitted) $56,012 $13,366 $ 5,203
Ratios to Average Net Assets
Net Investment Income 3.58% 3.41% 2.69%*
Expenses+ 1.00% 1.00% 1.00%*
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.60% 0.91% 6.00%*
---------------------------------------------------------------------------------
</TABLE>
*Annualized
+Includes expenses of the Asset Management Portfolio.
6
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INVESTMENT_ OBJECTIVE,_ POLICIES_ AND_ RISKS____________________________________
Each Fund seeks to achieve its investment objective by allocating investments
among three asset classes: stocks, bonds, and short-term instruments. The Funds'
investment objectives are as follows:
- BT INVESTMENT LIFECYCLE SHORT RANGE FUND -- seeks high income over the long
term consistent with conservation of capital.
- BT INVESTMENT LIFECYCLE MID RANGE FUND -- seeks long term capital growth,
current income, and growth of income, consistent with reasonable investment
risk.
- BT INVESTMENT LIFECYCLE LONG RANGE FUND -- seeks high total return with
reduced risk over the long term.
The Funds offer investors a convenient means of diversifying their holdings in
various classes of assets while relieving those investors of the administrative
burdens typically associated with purchasing and holding these instruments, such
as determining asset class allocations, coordinating maturities and
reinvestments, providing for safekeeping and maintaining detailed records.
The Trust seeks to achieve the investment objective of each Fund by investing
all the Assets of the BT Investment Lifecycle Short Range Fund in the Asset
Management Portfolio III, the BT Investment Lifecycle Mid Range Fund in the
Asset Management Portfolio II, and the BT Investment Lifecycle Long Range Fund
in the Asset Management Portfolio. Each corresponding Portfolio has the same
investment objective as the Fund. There can be no assurances that the investment
objective of any of the Funds or the Portfolios will be achieved. The investment
objective of each of the Funds and the Portfolios is not a fundamental policy
and may be changed upon notice to but without the approval of a Fund's
shareholders or a Portfolio's investors, respectively. See "Special Information
Concerning Master-Feeder Fund Structure" on page 14 herein.
All Portfolios
INVESTMENT ALLOCATIONS. In seeking to achieve each Portfolio's investment
objective, Bankers Trust, each Portfolio's investment adviser (the "Adviser"),
allocates the Portfolio's assets among three principal asset classes (as
discussed below): stocks, bonds and short-term instruments. The asset classes
stated below are based on risk characteristics and may not be identical to the
Portfolio's total aggregate holdings of the three types of instruments. For
example, a Portfolio may buy or sell a futures contract to increase or decrease
the Portfolio's exposure to the stock market. Bankers Trust will normally
allocate the assets of each Fund's corresponding Portfolio within the following
parameters:
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<TABLE>
<CAPTION>
SHORT TERM BONDS STOCKS
<S> <C> <C> <C>
............................................................................................
- -BT INVESTMENT LIFECYCLE SHORT RANGE FUND 0-65% 35-70% 0-30%
- -BT INVESTMENT LIFECYCLE MID RANGE FUND 0-50% 30-60% 20-50%
- -BT INVESTMENT LIFECYCLE LONG RANGE FUND 0-25% 25-55% 40-70%
</TABLE>
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7
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The asset classes of the corresponding Portfolio of each Fund fluctuates around
the following neutral position: BT Investment Lifecycle Short Range Fund -- 30%
to short-term investments, 55% to bonds and 15% to stocks; BT Investment
Lifecycle Mid Range Fund -- 20% to short-term investments, 45% to bonds and 35%
to stocks; and BT Investment Lifecycle Long Range Fund -- 10% to short-term
investments, 35% to bonds and 55% to stocks.
As of March 31, 1996, the asset classes of the corresponding Portfolio of each
Fund were allocated as follows: BT Investment Lifecycle Short Range Fund -- 15%
to short-term investments, 59% to bonds and 26% to stocks; BT Investment
Lifecycle Mid Range Fund -- 2% to short-term investments, 52% to bonds and 46%
to stocks; and BT Investment Lifecycle Long Range Fund -- 1% to short-term
investments, 34% to bonds and 65% to stocks.
Each Portfolio may make substantial temporary investments in cash and money
market instruments for defensive purposes when, in Bankers Trust's judgment,
market conditions warrant, or when the Portfolio has less than $10 million in
assets.
Bankers Trust regularly reviews each Portfolio's investment allocations, and
will gradually vary them over time to favor asset classes that, in Bankers
Trust's current judgment, provide the most favorable total return outlook
consistent with each Portfolio's investment objective. In making allocation
decisions, Bankers Trust will evaluate projections of risk, market and economic
conditions, volatility, yields and expected return. Bankers Trust will seek to
reduce risk relative to an investment in common stocks by emphasizing the bond
and short-term classes when stocks appear overvalued. Bankers Trust's management
will include use of database systems to help analyze past situations and trends,
research specialists in each of the asset classes to help in securities
selection, portfolio management professionals to determine asset allocation and
to select individual securities, and its own credit analysis as well as credit
analysis provided by rating services to determine the quality of debt
securities.
SHORT-TERM SECURITIES. These securities include the following types of domestic
and foreign securities and money market instruments with remaining maturities of
thirteen months or less. Bankers Trust will seek to maximize total return within
the short-term class by taking advantage of yield differentials between
different instruments, issuers and currencies. The short-term class consists of
foreign and domestic: (i) short-term obligations of sovereign governments, their
agencies, instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated Aa or higher by Moody's Investors Service, Inc.
("Moody's") or AA or higher by Standard & Poor's Corporation ("S&P") or, if
unrated, of comparable quality in the opinion of Bankers Trust; (iii) commercial
paper; (iv) bank obligations, including negotiable certificates of deposit, time
deposits and bankers' acceptances; and (v) repurchase agreements. At the time a
Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the
8
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issuer's parent must have outstanding debt rated Aa or higher by Moody's or AA
or higher by S&P or outstanding commercial paper or bank obligations rated
Prime-1 by Moody's or A-1 by S&P; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of Bankers Trust. These
instruments may be denominated in U.S. dollars or foreign currencies and will
have been determined to be of high quality by a nationally recognized
statistical rating organization ("NRSRO") or, if unrated, by Bankers Trust.
BONDS. These securities include investment grade domestic and foreign fixed-
income securities with remaining maturities or durations greater than thirteen
months. Bankers Trust seeks to maximize total returns within the bond class by
adjusting each Portfolio's investments in securities with different credit
qualities, maturities, and coupon or dividend rates, as well as by exploiting
yield differentials between securities. The bond class consists of bonds, notes,
adjustable rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government agency
securities, zero coupon bonds, Rule 144A securities and other intermediate and
long-term securities. As with the short-term class, these securities may be
denominated in U.S. dollars or foreign currency. No more than 5% of each
Portfolio's net assets (at the time of investment) may be in lower rated (BB/Ba
or lower), high yield bonds. Each Portfolio may retain any bond whose rating
drops below investment grade if it is in the best interest of the respective
Fund's shareholders. Securities rated BB/Ba by a NRSRO are considered to have
speculative characteristics. See the Appendix to the Statement of Additional
Information for further information on these securities.
STOCKS. These securities include domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks, included in the bond class).
Bankers Trust seeks to maximize total return within this asset class by actively
allocating assets to industry sectors expected to benefit from major trends, and
to individual stocks that it believes to have superior investment potential.
Securities in the stock class may include common stocks, fixed-rate preferred
stocks (including convertible preferred stocks), warrants, rights, depositary
receipts, securities of closed-end investment companies, and other equity
securities issued by companies of any size, located anywhere in the world.
Bankers Trust believes that diversification of a Portfolio's investments among
the asset classes will, under most market conditions, better enable each
Portfolio to reduce risk while seeking high total return consistent with the
Portfolio's objectives.
MATURITY AND DURATION. The remaining maturity of a fixed-income instrument is
the amount of time left before the bond's principal is due. The duration of an
instrument or a group of instruments measures the instrument's or group of
instruments' value's expected response to changes in interest rates.
FOREIGN INVESTMENTS AND CURRENCY MANAGEMENT. Each Portfolio focuses on U.S.
investment opportunities, but may invest a portion of its assets in foreign
securities.
9
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Each Portfolio will not invest more than 25% of its total assets in equity
securities of foreign issuers under normal conditions. Each Portfolio also will
not invest more than 25% of its total assets in each of the bond and short-term
classes in foreign securities and securities denominated in foreign currencies.
Foreign securities of all types will normally constitute less than 50% of each
Portfolio's assets.
In connection with each Portfolio's investments denominated in foreign
currencies, Bankers Trust may choose to utilize a variety of currency management
strategies. Bankers Trust seeks to take advantage of different yield, risk, and
return characteristics that different currencies, currency denominations, and
countries can provide to U.S. investors. In doing so, Bankers Trust will
consider such factors as the outlook for currency relationships, current and
anticipated interest rates, levels of inflation within various countries,
prospects for relative economic growth, and government policies influencing
currency exchange rates and business conditions.
To manage exposure to currency fluctuations, each Portfolio may enter into
forward currency exchange contracts (agreements to exchange one currency for
another at a future date), may buy and sell options and futures contracts
relating to foreign currencies, and may purchase securities indexed to foreign
currencies. Each Portfolio will use currency exchange contracts in the normal
course of business to lock in an exchange rate in connection with purchases and
sales of securities denominated in foreign currencies. These currency management
strategies allow Bankers Trust to hedge portfolio securities, to shift
investment exposure from one currency to another, or to attempt to profit from
anticipated declines in the value of a foreign currency relative to the U.S.
dollar. Some of these strategies will require the Portfolio to set aside liquid
assets in a segregated custodial account to cover its obligations. For
additional information on foreign investments and currency management, see
"Additional Information" and the Statement of Additional Information.
OPTIONS AND FUTURES CONTRACTS. Each Portfolio may buy and sell options and
futures contracts to manage its exposure to changing interest rates, security
prices and currency exchange rates, and as an efficient means of managing
allocations between asset classes. Each Portfolio may invest in options and
futures based on any type of security or index related to the Portfolio's
investments, including options and futures traded on foreign exchanges.
Some options and futures strategies, including selling futures, buying puts, and
writing calls, hedge the Portfolios' investments against price fluctuations.
Other strategies, including buying futures, writing puts, and buying calls, tend
to increase market exposure. Options and futures may be combined with each
other, or with forward contracts, in order to adjust the risk and return
characteristics of an overall strategy. See "Additional Information" for further
information on options on stocks, options and futures contracts on stock
indices, options on futures contracts, foreign currency exchange transactions,
and options on foreign currencies.
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Other Investments and Investment Techniques
Each Portfolio may also utilize the following investments and investment
techniques and practices: when-issued and delayed-delivery securities, short
sales, indexed securities, securities lending, repurchase agreements, Rule 144A
securities, zero coupon debt securities, government securities, mortgage-backed
securities, collateralized mortgage obligations, asset-backed securities and
foreign investments. See "Additional Information" for further information.
Additional Investment Limitations
As diversified funds, no more than 5% of the assets of each Portfolio may be
invested in the securities of one issuer (other than U.S. Government
securities), except that up to 25% of a Portfolio's assets may be invested
without regard to this limitation. Each Portfolio will not invest more than 25%
of its assets in the securities of issuers in any one industry. These are
fundamental investment policies of each Portfolio which may not be changed
without investor approval. No more than 15% of each Portfolio's net assets may
be invested in illiquid or not readily marketable securities (including
repurchase agreements and time deposits maturing in more than seven calendar
days). Additional investment policies of each Portfolio are contained in the
Statement of Additional Information.
RISK FACTORS: MATCHING THE FUNDS TO YOUR
INVESTMENT_ NEEDS_______________________________________________________________
The Lifecycle Funds are designed to make investing for your future easy. Each
Lifecycle Fund is diversified across stocks, bonds, and short-term instruments;
each Fund is professionally managed by a team of Bankers Trust experts; and each
Fund is specially designed to meet the investment objectives of investors at
different points in the wealth accumulation cycle. Thus investing in the
Lifecycle Funds is easier than typical mutual funds, since with the Lifecycle
Funds the worry of deciding how much to put in stocks or bonds is left to
professionals. All you decide is how long it will be until you need your
savings.
- BT INVESTMENT LIFECYCLE SHORT RANGE FUND: This Fund is designed for
investors with less than five years until they need their savings. Since
the Fund seeks high income over the long-term, it may be appropriate for
investors who need current income rather than capital growth and who are
not willing to ride out market fluctuations.
- BT INVESTMENT LIFECYCLE MID RANGE FUND: This Fund is designed for
investors who will not need their savings for at least five years. Since
the Fund seeks long-term capital growth, current income, and growth of
income, it may be appropriate for investors who can tolerate some
short-term market value fluctuation, but who also need the added stability
of share value that can be derived from investing for income.
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- BT INVESTMENT LIFECYCLE LONG RANGE FUND: This Fund is designed for
investors who have more than ten years until they will need their savings.
In other words, since the Fund seeks high total return with reduced risk
over the long-term, the Fund is appropriate for investors who are willing
to ride out market fluctuations.
Each Fund is designed for investors seeking to achieve their investment
objectives through a variety of investments selected at the discretion of the
Portfolio's manager, yet subject to parameters that generally limit risk and
exposure to any one asset class. Each Portfolio diversifies its investments
among short-term instruments, bonds and stocks as economic conditions change.
Each Fund may also be appropriate for investors who wish to moderate risks over
time by taking advantage of the asset class with the best relative value. Each
Portfolio allocates its investments within the parameters described in
"Investment Objective, Policies and Risks." Since each Portfolio's asset
allocation involves significant investment in short-term instruments and bonds
over time, it is expected that each Portfolio will be less volatile than a fund
that invests primarily in common stocks. Each 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.
Each Fund's performance may be affected by many different factors depending on
the corresponding Portfolio's emphasis. Short-term instruments are generally the
most stable securities in which each Portfolio will invest. Their returns depend
primarily on current short-term interest rates although currency fluctuations
can also be significant with respect to foreign securities.
The bond class is affected primarily by interest rates: prices of fixed-income
securities tend to rise when interest rates fall, and fall when interest rates
rise. Interest rate changes will have a greater impact on a Portfolio if it is
heavily invested in long-term or zero-coupon bonds. Fixed-income securities may
also be affected by changes in credit quality.
The stock class is subject to the risks of stock market investing, including the
possibility of sudden or prolonged market declines as well as the risks
associated with individual companies. These risks may be intensified for
investments in smaller or less well-known companies or in foreign securities.
Risks of Investing in Foreign Securities
The investment in foreign securities may involve additional risks. Foreign
securities usually are denominated in foreign currencies, which means their
value will be affected by changes in the strength of foreign currencies relative
to the U.S. dollar as well as the other factors that affect security prices.
Foreign companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and there often is less publicly
available information about their operations. Generally, there is less
governmental regulation of foreign securities markets, and security trading
practices abroad may offer less protection to investors
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such as a Portfolio. The value of such investments may be adversely affected by
changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or tax regulations in
those foreign countries. Foreign securities may be less liquid or more volatile
than domestic investments. Bankers Trust considers these factors in making
investments for each Portfolio and limits the amount of each Portfolio's assets
that may be invested in foreign securities to 25% of its total assets for each
asset class and to less than 50% for all classes under normal conditions.
However, within each Portfolio's limitations, investments in any one country or
currency are not restricted.
Derivatives
Each Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in 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. The Portfolio may
use futures and options for traditional hedging purposes to attempt to protect
the Portfolio from exposure to changing interest rates, securities prices or
currency exchange rates and for cash management or other investment purposes as
a low cost method of gaining exposure to a particular securities market without
investing directly in those securities. The use of derivatives may result in
some leverage. The Portfolio will limit the leverage created by its use of
derivatives for investment purposes by "covering" such positions as required by
the SEC. The Adviser will use derivatives only in circumstances where the
Adviser believes they offer the most economical means of improving the
risk/reward profile of a 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 a Portfolio. The use of
derivatives for non-hedging purposes may be considered speculative. A
description of the derivatives that the Portfolios may use and some of their
associated risks is found under "Additional Information."
Each Portfolio's investments in options, futures or forward contracts, and
similar strategies depend on Bankers Trust's judgment as to the potential risks
and rewards of different types of strategies. Options and futures can be
volatile investments, and may not perform as expected. If Bankers Trust applies
a hedge at an inappropriate time or judges price trends incorrectly, options and
futures strategies may lower a Portfolio's return. Options and futures traded on
foreign exchanges generally are not regulated by U.S. authorities, and may offer
less liquidity and less protection to a Portfolio in the event of default by the
other party to the contract. Each Portfolio
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could also experience losses if the prices of its options and futures positions
were poorly correlated with its other investments, or if it could not close out
its positions because of an illiquid secondary market.
Further descriptions of a number of investments and investment techniques
available to the Portfolios, including foreign investments and the use of
options and futures and other investment techniques which may be considered
"derivatives", and certain risks associated with these investments and
techniques are included under "Additional Information."
Portfolio Turnover
The frequency of portfolio transactions -- a Portfolio's turnover rate -- will
vary from year to year depending on market conditions. Each Portfolio's
portfolio turnover rates were as follows: Asset Management Portfolio III -- 221%
and 111% for fiscal years ended March 31, 1996 and 1995, respectively, and 84%
(not annualized) for the period from October 15, 1993 (commencement of
operations) through March 31, 1994; Asset Management Portfolio II -- 208% and
105% for fiscal years ended March 31, 1996 and 1995, respectively, and 79% (not
annualized) for the period from October 14, 1993 (commencement of operations)
through March 31, 1994; and Asset Management Portfolio -- 154% and 92% for
fiscal years ended March 31, 1996 and 1995, respectively, and 56% (not
annualized) for the period from September 16, 1993 (commencement of operations)
through March 31, 1994. 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.
Special Information Concerning Master-Feeder Fund Structure
Unlike other open-end management investment companies (mutual funds) which
directly acquire and manage their own portfolio securities, the Funds seek to
achieve their investment objectives by investing all of their Assets in the
corresponding Portfolio, a separate registered investment company with the same
investment objectives as the respective Fund. Therefore, an investor's interest
in the Portfolio's securities is indirect. In addition to selling a beneficial
interest to a Fund, a 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
Funds due to variations in sales commissions and other operating expenses.
Therefore, investors in the Funds should be aware that these differences may
result in differences in returns experienced by investors in the different funds
that invest in the Portfolios. Such differences in returns are also present in
other mutual fund structures. Information concerning other holders of interests
in the Portfolios is available by contacting Bankers Trust at (800) 730-1313.
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The master-feeder structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.
Smaller funds investing in the Portfolios may be materially affected by the
actions of larger funds investing in the Portfolios. For example, if a large
fund withdraws from a Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns (however, this
possibility exists as well for traditionally structured funds which have large
institutional investors). Additionally, the Portfolio may become less diverse,
resulting in increased portfolio risk. Also, funds with a greater pro rata
ownership in the Portfolios could have effective voting control of the
operations of the Portfolios. Whenever the Trust is requested to vote on matters
pertaining to the Portfolio, the Trust will, except as permitted by the SEC,
hold a meeting of shareholders of the corresponding 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 a
Portfolio's investment objectives, policies or restrictions may require the
corresponding 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, a 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 a
Fund. Notwithstanding the above, there are other means for meeting redemption
requests, such as borrowing.
A Fund may withdraw its investments 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 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 a 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.
Each Fund's investment objective is not a fundamental policy and may be changed
upon notice to but without the approval of the Fund's shareholders. If there is
a change in a Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of each Portfolio is also not a
fundamental policy. Shareholders of the Funds will receive 30 days prior written
notice with respect to any change in the investment objective of the Funds or
the Portfolios. See "Investment Objective, Policies and Risks" for a description
of the fundamental
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policies of the Portfolios that cannot be changed without approval by the
holders of "a majority of the outstanding voting securities" (as defined in the
1940 Act) of each Portfolio.
For descriptions of the investment objective, policies and restrictions of the
Portfolios, see "Investment Objective, Policies and Risks." For descriptions of
the management of the Portfolios, see "Management of the Trust and Portfolios"
herein and in the Statement of Additional Information. For descriptions of the
expenses of the Portfolios, see "Management of the Trust and Portfolios" herein.
NET_ ASSET_ VALUE_______________________________________________________________
The net asset value per share of each 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 subsequent Monday when one of
the calendar-determined holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of each Fund is calculated 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 or in the event that the NYSE closes early,
at the time of such early closing. The net asset value per share of each Fund is
computed by dividing the value of the Fund's Assets (i.e., the value of its
investment in the Portfolio and other assets), less all liabilities, by the
total number of its shares outstanding. Each Portfolio's securities and other
assets are valued on the basis of market quotations or, if market quotations are
not readily available, by a method which that Portfolio's Board of Trustees
believes accurately reflects fair value.
Under procedures adopted by the Board, a net asset value for a Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a net asset value determined to have been
inaccurate will be adjusted, although in certain circumstances, such as where
the difference between the original net asset value and the recalculated net
asset value divided by the recalculated net asset value is 0.005 ( 1/2 of 1%) or
less or shareholder transactions are otherwise insubstantially affected, further
action is not required.
PURCHASE_ AND_ REDEMPTION_ OF_ SHARES___________________________________________
Purchase of Shares
The Trust accepts purchase orders for shares of each Fund at the net asset value
per share of that 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
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distributing shares of each Fund may be reimbursed from its assets, as described
herein. Service Agents may impose initial and subsequent investment minimums
that differ from the amounts presented in the "Minimum Investments" table below.
Shares of each Fund may be purchased in only those states where they may be
lawfully sold.
Purchase orders for shares of a 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 or
earlier, should the NYSE close earlier) 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 by the following business day (trade date + 1) after an order for
shares is placed. 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.
AUTOMATIC INVESTMENT PLAN. The Fund may offer shareholders an automatic
investment plan under which shareholders may authorize some Service Agents to
place a purchase order each month or quarter for Fund shares. For further
information regarding the automatic investment plan, shareholders should contact
their Service Agent.
<TABLE>
<S> <C>
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $ 2,500
For retirement accounts $ 500
Through automatic investment plans $ 1,000
TO ADD TO AN ACCOUNT $ 250
For retirement accounts $ 100
Through automatic investment plan $ 100
MINIMUM BALANCE $ 1,000
For retirement accounts None
</TABLE>
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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 a Fund received
by the Service Agent and transmitted to the Transfer Agent prior to the
Valuation Time (currently 4:00 p.m., New York time or earlier, should the NYSE
close earlier) 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
calendar days following receipt of the request.
Service Agents may allow redemptions or exchanges by telephone and may also
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 a
Fund having a balance below the minimum (as shown above) but not if an account
is below the minimum balance due to a change in market value. See "Minimum
Investments" above for minimum balance accounts.
AUTOMATIC CASH WITHDRAWAL PLAN. The Funds may offer shareholders an automatic
cash withdrawal plan, under which shareholders who own shares of the Funds 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 Funds reserve 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:
- - Call your Service Agent for information and a prospectus. Read the prospectus
for relevant information.
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- - 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).
- - 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 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.
- - 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.
- - ROLLOVER IRAS: tax-deferred retirement accounts that retain the special tax
advantages of lump sum distributions from qualified retirement plans and
transferred IRA accounts.
- - 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.
- - 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.
- - 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.
- - 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.
- - 403(B) CUSTODIAN ACCOUNTS: defined contribution plans open to employees of
most nonprofit organizations and educational institutions.
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- - DEFERRED BENEFIT PLANS: plan sponsors may invest all or part of their pension
assets in the Fund.
DIVIDENDS,_ DISTRIBUTIONS_ AND_ TAXES___________________________________________
DISTRIBUTIONS. Each 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. The Trust intends to qualify the Fund as a regulated investment
company, as defined in the Internal Revenue Code of 1986, as amended (the
"Code"). Provided the Fund meets the requirements imposed by the Code and
distributes all of its income and gains, the Fund will not pay any Federal
income or excise taxes. The Portfolio will also not be required to pay any
Federal income or excise taxes.
Distributions from the Funds' income and short-term capital gains are taxed as
dividends, and long-term capital gain distributions are taxed as long-term
capital gains. The Funds' 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. Each 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, each 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 Portfolios from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. You should consult
with your own tax adviser concerning the application of Federal, state and local
taxes to your distributions from the Fund.
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PERFORMANCE_ INFORMATION_ AND_ REPORTS__________________________________________
The Funds' performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include each Fund's investment results
and/or comparisons of its investment results to the Lipper Flexible Funds
Average, Standard and Poor's 500 Composite Stock Price Index, Salomon Broad
Investment Grade Bond Index, Salomon U.S. Dollar T-Bill Index and various
unmanaged indices (or a blended rate of several of such indices) or results of
other mutual funds or investment or savings vehicles. Each 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 Funds. The "total return" refers to the change in the value of an
investment in each 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
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 Funds. The "yield"
of a 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 the investment.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of a Fund will vary depending upon
interest rates, the current market value of the securities held by the
corresponding Portfolio and changes in the Fund's expenses. In addition, during
certain periods for which total return or yield quotations 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 a Fund's
net income (and therefore its total return or yield) during the period such
waivers are in effect.
Shareholders will receive financial reports semi-annually that include the
Portfolios' financial statements, including listings of investment securities
held by the Portfolios at those dates. Annual reports are audited by independent
accountants.
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MANAGEMENT_ OF_ THE_ TRUST_ AND_ PORTFOLIOS_____________________________________
Board of Trustees
The affairs of the Trust and each Portfolio 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 each Portfolio, neither
the Trust nor any Portfolio requires employees other than its officers. None of
the Trust's or any Portfolio's officers devotes full time to the affairs of the
Trust or the respective Portfolio.
The Trustees of each of the Trust and the Portfolios who are not "interested
persons" (as defined in the 1940 Act) (the "Independent Trustees") of the Trust
or of the Portfolios, as the case may be, have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest, up to and
including creating separate boards of trustees. For more information with
respect to the Trustees of the Trust and the Portfolios, see "Management of the
Trust and 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 each Fund by investing all the
Assets of each Fund in the corresponding Portfolio. Each Portfolio has retained
the services of Bankers Trust, as investment adviser. Messrs. Howard Mason,
Scott A. Stickler, Jason L. Wolin, Jose M. Quintana, Ph.D. and Karen Keller are
responsible for the day-to-day management of the Portfolio.
Mr. Mason, vice president, is a specialist in portfolio risk measurement and
management, and has ten years of experience in global investment and risk
management for institutional investors, central banks, and multi-national
corporations. His previous experience includes structuring principal investments
at NM Rothschild & Sons in London, and director of an investment banking
boutique in Sao Paulo specializing in Latin American private market investments.
Mr. Mason was also vice president in portfolio risk management for Bankers
Trust's proprietary positions. He joined Bankers Trust in August 1992. He has an
M.A. in Mathematics from Cambridge University in England and an M.B.A. from
Harvard Graduate School of Business. He is a regular contributor to Global
Investor magazine. Mr. Mason has managed the Portfolios' assets since July 1995.
Mr. Stickler, vice president, is a portfolio manager/trader responsible for the
design and implementation of asset allocation for the Global Asset Allocation
portfolios. He joined Bankers Trust in November 1992 and has more than seven
years investment experience. Previously, he managed and developed equity and
high yield trading systems as well as developed equity syndicate operations for
J.P. Morgan & Company. He has a B.S. in Management Information Systems and an
M.B.A. in Business Administration from the State University of New York, Albany.
Mr. Stickler has managed the Portfolios' assets since January 1995.
Mr. Wolin, assistant vice president, is a portfolio analyst, providing
analytical support and ongoing research for model development and portfolio
strategies. He assists in global and domestic account management and is
responsible for the
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research database. He joined Bankers Trust in March 1995 and has two years of
investment experience. Previously, he was involved in the management and
development of financial information systems for J.P. Morgan. He received his
B.S. in Management Information Systems from Boston University, and has an M.B.A.
in progress at New York University. Mr. Wolin has managed the Portfolios' assets
since January 1996.
Mr. Quintana, vice president, is the director of the Quantitative Research for
Strategic Asset Allocation team and a specialist in dynamic Bayesian statistical
technique and optimization methodologies. He has six years experience in Global
Asset Allocation Strategies. He joined Bankers Trust in September 1994. His
previous experience includes vice president of the Global Risk Management Sector
of Chase Manhattan Bank; staff supervisor of Market Analysis and Forecasting
Directory for AT&T; and academic/consultant positions. He received his B.A. from
UNAM, Mexico, M.A. in Statistics and O.R. from UNAM, Mexico, and a Ph.D. in
statistics at University of Warwick, England. He is an author/co-author of
various academic articles. Mr. Quintana has managed the Portfolios' assets since
June 1995.
Ms. Keller, vice president, is a portfolio manager for tactical asset allocation
portfolios. She also provides on-going research for model development and
portfolio strategies. Ms. Keller joined Bankers Trust in October 1988 and has
over seven years of investment experience. Previously, she was a mutual fund
accountant at State Street Bank and Trust Company. She has a B.A. in Economics
from Tufts University and an M.B.A. in Finance from New York University. Ms.
Keller has been overseeing the management of the Portfolios since their
inception in 1993.
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 December 31, 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 over 120 offices in more than 40 countries. Investment management is a core
business of Bankers Trust, built on a tradition of excellence from its roots as
a trust bank founded in 1903. The scope of Bankers Trust's investment management
capability is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. Bankers Trust is one of the nation's largest and most
experienced investment managers, with approximately $210 billion in assets under
management globally, as of March 31, 1996. Of that total, approximately $2
billion are in tactical asset allocation funds. This makes Bankers Trust one of
the nation's leading managers of tactical asset allocation funds.
Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. In the past, these
clients have been serviced through separate account and commingled fund
structures. Now, the
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BT Family of Funds brings Bankers Trust's extensive investment management
expertise, once available to only the largest institutions in the U.S., to
individual investors. Bankers Trust's officers have had extensive experience in
managing investment portfolios having objectives similar to those of the
Portfolios.
Bankers Trust, subject to the supervision and direction of the Board of Trustees
of the respective Portfolio, manages each Portfolio in accordance with that
Portfolio's investment objective and stated investment policies, makes
investment decisions for each Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of each Portfolio and
employs professional investment managers and securities analysts who provide
research services to each 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 each
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 each Portfolio only if Bankers Trust believes that the
affiliate's charge for the transaction does not exceed usual and customary
levels. Each Portfolio will not invest in obligations for which Bankers Trust or
any of its affiliates is the ultimate obligor or accepting bank. Each 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 each
Portfolio computed daily and paid monthly at the annual rate of 0.65% of the
average daily net assets of the Portfolio.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the
Portfolios 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.
Administrator
Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of each Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee computed daily and paid monthly at the annual rate of 0.65%
of the average daily net assets of each Fund.
Under an Administration and Services Agreement with each Portfolio, Bankers
Trust calculates the value of the assets of the Portfolios and generally assists
the Board of Trustees of the Portfolios in all aspects of the administration and
operation of the Portfolios. Each Administration and Services Agreement provides
for the respective Portfolio to pay Bankers Trust a fee computed daily and paid
monthly at the rate of 0.10% of the average daily net assets of that Portfolio.
Under each Administration
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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.
For the fiscal year of each Fund ended March 31, 1996, the Funds and their
respective Portfolios, after a partial waiver by Bankers Trust, paid Bankers
Trust total administrative and services fees equal to 0.32%, 0.37% and 0.32%,
respectively, of the average daily net assets of the BT Investment Lifecycle
Short Range Fund, BT Investment Lifecycle Mid Range Fund and BT Investment
Lifecycle Long Range Fund.
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 each Fund's average daily net assets annually for
expenses incurred in connection with any activities primarily intended to result
in the sale of the Funds' 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 the 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 Funds; 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 respective Fund, subject to the 0.20% of net assets limitation. All costs
and expenses associated with preparing the prospectuses and statements 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 respective 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
payments will be made under the Plan in the foreseeable future.
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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 Funds 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 each Portfolio
and serves as the Transfer Agent for the Trust and each Portfolio under the
Trust's Administration and Services Agreement with the Trust and each Portfolio.
Organization of the Trust
The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. Each Fund is a separate series of the Trust and was established
and designated on August 12, 1992. 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 of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
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When matters are submitted for shareholder vote, shareholders of each Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of a Fund is required on any matter
affecting that Fund on which shareholders are entitled to vote. Shareholders of
a Fund are not entitled to vote on Trust matters that do not affect that Fund.
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.
Asset Management Portfolio II and Asset Management Portfolio III are each a
series of BT Investment Portfolios, an open-end management investment company.
BT Investment Portfolios and Asset Management Portfolio are each organized as
trusts under the laws of the State of New York. Each Portfolio's Declaration of
Trust provides that the corresponding 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 a Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the corresponding Portfolio itself was unable to meet its
obligations. Accordingly, the Trustees of the Trust believe that neither the
Funds nor their shareholders will be adversely affected by reason of the Funds
investing in the corresponding Portfolios. The interest in BT Investment
Portfolios are divided into separate series, such as Asset Management Portfolio
II and Asset Management Portfolio III. 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 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 separately or together in the
same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of BT Investment Portfolios could control the
outcome of these votes.
Expenses of the Trust
Each Fund bears its own expenses. Operating expenses for each 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
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maintaining legal existence and shareholder relations. Bankers Trust and
Signature have agreed to reimburse each Fund to the extent required by
applicable state law for certain expenses that are described in the Statement of
Additional Information. Each Portfolio bears its own expenses. Operating
expenses for each Portfolio generally consist of all costs not specifically
borne by Bankers Trust or Signature, including investment advisory and
administration and services fees, fees for necessary professional services, the
costs associated with regulatory compliance and maintaining legal existence and
investor relations.
ADDITIONAL_ INFORMATION_________________________________________________________
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio may buy and sell
securities on a when-issued or delayed-delivery basis. These transactions
involve a commitment by the Portfolio to buy or sell securities at a set price,
with payment and delivery taking place at a future date. When the Portfolio
agrees to purchase a security on a when-issued or delayed-delivery basis, it
sets aside liquid securities in a segregated custodial account to equal the
payment that will be due. Purchasing securities in this manner may cause greater
fluctuations in the Portfolio's share price.
SHORT SALES. Each Portfolio may engage in short sales with respect to securities
that it owns or has the right to obtain (for example, through conversion of a
convertible bond). These transactions, known as short sales "against the box,"
allow the Portfolio to hedge against price fluctuations by locking in a sale
price for securities it does not wish to sell immediately.
INDEXED SECURITIES. Each Portfolio may invest in indexed securities whose value
depends on the price of foreign currencies, securities indices or other
financial values or statistics. Examples include debt securities whose value at
maturity is determined by reference to the relative prices of various currencies
or to the price of a stock index. These securities may be positively or
negatively indexed; that is, their value may increase or decrease if the
underlying instrument appreciates.
SECURITIES LENDING. Each Portfolio is permitted to lend up to 30% of the total
value of its securities. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio can increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. In lending securities to brokers, dealers and other 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.
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REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements. In a
repurchase agreement the Portfolio buys a security and simultaneously agrees to
sell it back at a higher price. In the event of the bankruptcy of the other
party to either a repurchase agreement or a securities loan, a Portfolio could
experience delays in recovering either its cash or the securities it lent. To
the extent that, in the meantime, the value of the securities repurchased had
decreased or the value of the securities lent had increased, the Portfolio could
experience a loss. In all cases, Bankers Trust must find the creditworthiness of
the other party to the transaction satisfactory. A repurchase agreement is
considered a collateralized loan under the 1940 Act.
RULE 144A SECURITIES. Each 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 each Portfolio's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees of each Portfolio,
Bankers Trust determines the liquidity of restricted securities and, through
reports from Bankers Trust, that 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 each Portfolio could be
adversely affected.
ZERO COUPON DEBT SECURITIES. Zero coupon debt securities do not make regular
interest payments. Instead they are sold at a deep discount from their face
value. Because a zero coupon bond does not pay current income, its price can be
very volatile when interest rates change. In calculating its dividends, each
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
GOVERNMENT SECURITIES. Government securities may or may not be backed by the
full faith and credit of the U.S. Government. U.S. Treasury bonds, notes and
bills and certain agency securities, such as those issued by the Federal Housing
Administration, are backed by the full faith and credit of the U.S. Government
and are the highest quality government securities. Each Portfolio may also
invest a substantial portion of its portfolio in securities issued by government
agencies or instrumentalities (such as executive departments of the U.S.
Government or independent Federal organizations supervised by Congress), which
may have different degrees of government backing but which are not backed by the
full faith and credit of the U.S. Government. There is no guarantee that the
government will support these types of securities, and therefore they involve
more risk than other government obligations.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
representing interests in a pool of mortgages. Principal and interest payments
made on the mortgages in the underlying mortgage pool are passed through to the
investor.
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Unscheduled prepayments of principal shorten the securities' weighted average
life and may lower their total return. (When a mortgage in the underlying pool
is prepaid, an unscheduled principal prepayment is passed through to the
investor. This principal is returned to the investor at par. As a result, if a
mortgage security were trading at a premium, its total return would be lowered
by prepayments, and if a mortgage security were trading at a discount, its total
return would be increased by prepayments.) The value of these securities also
may change because of changes in the market's perception of the creditworthiness
of the Federal agency that issued them. In addition, the mortgage securities
market in general may be adversely affected by changes in governmental
regulation or tax policies.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are pay-through securities
collateralized by mortgages or mortgage-backed securities. CMOs are issued in
classes and series that have different maturities and often are retired in
sequence. CMOs may be issued by governmental or non-governmental entities such
as banks and other mortgage lenders. Non-government securities may offer a
higher yield but also may be subject to greater price fluctuation than
government securities.
ASSET-BACKED SECURITIES. Asset-backed securities consist of undivided fractional
interests in pools of consumer loans (unrelated to mortgage loans) held in a
trust. Payments of principal and interest are passed through to
certificateholders and are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guarantee or
senior/subordination. The degree of credit enhancement varies, but generally
amounts to only a fraction of the asset-backed security's par value until
exhausted. If the credit enhancement is exhausted, certificateholders may
experience losses or delays in payment if the required payments of principal and
interest are not made to the trust with respect to the underlying loans. The
value of these securities also may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the loan pool, the
originator of the loans or the financial institution providing the credit
enhancement. Asset-backed securities are ultimately dependent upon payment of
consumer loans by individuals, and the certificateholder generally has no
recourse to the entity that originated the loans. The underlying loans are
subject to prepayments which shorten the securities' weighted average life and
may lower their return. (As prepayments flow through at par, total returns would
be affected by the prepayments: if a security were trading at a premium, its
total return would be lowered by prepayments, and if a security were trading at
a discount, its total return would be increased by prepayments.)
FOREIGN INVESTMENTS. Each Portfolio may invest in securities of foreign issuers
directly or in the form of American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or other
similar securities representing securities of foreign issuers. These securities
may not necessarily be denominated in the same currency as the securities they
represent. Designed for use in U.S. and European securities markets,
respectively,
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ADRs, GDRs and EDRs are alternatives to the purchase of the underlying
securities in their national markets and currencies. ADRs, GDRs and EDRs are
subject to the same risks as the foreign securities to which they relate.
With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by each Portfolio may be made
through investment in other investment companies that in turn are authorized to
invest in the securities of such countries. Investment in other investment
companies is limited in amount by the 1940 Act, will involve the indirect
payment of a portion of the expenses, including advisory fees, of such other
investment companies and may result in a duplication of fees and expenses.
OPTIONS ON STOCKS. Each Portfolio may write and purchase put and call options on
stocks. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period. A covered call
option, which is a call option with respect to which a Portfolio owns the
underlying stock, sold by the Portfolio exposes the Portfolio during the term of
the option to possible loss of opportunity to realize appreciation in the market
price of the underlying stock or to possible continued holding of a stock which
might otherwise have been sold to protect against depreciation in the market
price of the stock. A covered put option sold by a Portfolio exposes the
Portfolio during the term of the option to a decline in price of the underlying
stock. A put option sold by a Portfolio is covered when, among other things,
cash or liquid securities are placed in a segregated account to fulfill the
obligations undertaken.
To close out a position when writing covered options, each Portfolio may make a
"closing purchase transaction," which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. A 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, each Portfolio may
make a "closing sale transaction," which involves liquidating the Portfolio's
position by selling the option previously purchased.
Each Portfolio intends to treat over-the-counter options ("OTC Options")
purchased and the assets used to "cover" OTC Options written as not readily
marketable and therefore subject to the limitations described in "Investment
Restrictions" in the Statement of Additional Information.
OPTIONS ON STOCK INDICES. Each Portfolio may purchase and write put and call
options on stock indices listed on stock exchanges. A stock index fluctuates
with changes in the market values of the stocks included in the index.
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Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether a Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by a Portfolio of options on stock indices will be subject to
Bankers Trust's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
FUTURES CONTRACTS ON SECURITIES INDICES. Each Portfolio may enter into contracts
providing for the making and acceptance of a cash settlement based upon changes
in the value of an index of securities ("Futures Contracts"). This investment
technique may be used 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 or as an
efficient means of managing allocations between asset classes. A Futures
Contract may also be entered into to close out or offset an existing futures
position.
When used for hedging purposes, a Futures Contracts involves the establishment
of a position which will move in a direction opposite to that of the investment
being hedged. If these hedging transactions are successful, the futures
positions taken for a Portfolio will rise in value by an amount which
approximately offsets the decline in value of the portion of 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.
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Futures Contracts do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the corresponding securities
market, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good-faith deposit against performance of obligations under
Futures Contracts written for a Portfolio.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio may invest in options on such
Futures Contracts for similar purposes.
Each Portfolio may not purchase or sell a Futures Contract or option thereon if
immediately thereafter its margin deposits on its outstanding Futures Contracts
(other than Futures Contracts entered into for bona fide hedging purposes) and
premiums paid for options thereon would exceed 5% of the market value of the
Portfolio's total assets.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because each Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolios 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. Each 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 a 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
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be incorporated into Bankers Trust's long-term investment decisions, each
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 each
Portfolio's best interest. Although these transactions tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. Each
Portfolio may use options on currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different, but related currency. As with other types of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge up to the amount of the premium received, and each Portfolio could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may be used to hedge against fluctuations in exchange rates although, in the
event of exchange rate movements adverse to a Portfolio's position, it may
forfeit the entire amount of the premium plus related transaction costs. In
addition each Portfolio may purchase call options on currency when the Adviser
anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange will
exist for any particular option, or at any particular time. If a Portfolio is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Portfolio will not be able to sell the underlying currency
or dispose of assets held in a segregated account until the options expire or
are exercised. Similarly, if a Portfolio is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying currency. Each 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
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the case of exchange-traded currency options. Each 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, each 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.
There can be no assurance that the use of these portfolio strategies will be
successful.
ASSET COVERAGE. To reduce the leverage created by each of 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, each 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.
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BT INVESTMENT FUNDS
LIFECYCLE FUNDS:
SHORT RANGE FUND
MID RANGE FUND
LONG RANGE FUND
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
P.O. Box 318, Church Street Station
New York, NY 10008
DISTRIBUTOR
SIGNATURE BROKER-DEALER SERVICES, INC.
6 St. James Avenue
Boston, MA 02116
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
P.O. Box 318, Church Street Station
New York, NY 10008
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
1100 Main Street, Suite 900
Kansas City, MO 64105
COUNSEL
WILLKIE FARR & GALLAGHER
153 East 53rd Street
New York, NY 10022
...........................
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.
...........................
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STATEMENT OF ADDITIONAL INFORMATION
July 29, 1996
BT INVESTMENT FUNDS
o BT Investment Lifecycle Short Range Fund
o BT Investment Lifecycle Mid Range Fund
o BT Investment Lifecycle Long Range Fund
BT Investment Funds (the "Trust") is comprised of several funds. The shares of
the following funds -- BT Investment Lifecycle Short Range Fund, BT Investment
Lifecycle Mid Range Fund and BT Investment Lifecycle Long Range Fund (each, a
"Fund") -- are described herein.
As described in the Prospectus, the Trust seeks to achieve the
investment objectives of each Fund by investing all the investable assets
("Assets") of the Fund in a diversified open-end management investment company
having the same investment objectives as such Fund. These investment companies
are, respectively, Asset Management Portfolio III, Asset Management Portfolio II
and Asset Management Portfolio (collectively, the "Portfolios"). Asset
Management Portfolio II and Asset Management Portfolio III 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
<PAGE>
Services, Inc. ("Signature"), the Trust's distributor, to clients and customers
(including affiliates and correspondents) of Bankers Trust Company ("Bankers
Trust"), the Portfolios' investment adviser, and to clients and customers of
other organizations.
The Trust's Prospectus relating to the Funds, as amended from time to
time, is dated July 29, 1996, and provides the basic information investors
should know before investing. The Prospectus 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
the Prospectus. Capitalized terms not otherwise defined in this Statement of
Additional Information have the meanings accorded to them in the Trust's
Prospectus.
BANKERS TRUST COMPANY
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
SIGNATURE BROKER-DEALER SERVICES, INC.
DISTRIBUTOR
6 St. James Avenue Boston, Massachusetts 02116 (800) 730-1313
2
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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.
ILLIQUID SECURITIES. Historically, illiquid securities have
included securities subject to contractual or legal restrictions
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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
calendar days. Securities which have not been registered under the 1933 Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven calendar
days. A mutual fund might also have to register such restricted securities in
order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act for 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
4
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needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
LENDING OF PORTFOLIO SECURITIES. The Portfolios have the authority to
lend portfolio securities to brokers, dealers and other financial organizations.
The Portfolios will not lend securities to Bankers Trust, Signature or their
affiliates. By lending its securities, a Portfolio can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. Government obligations are used
as collateral.
There may be risks of delay in receiving additional collateral or risks of
delay in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially. Each Portfolio will
adhere to the following conditions whenever its securities are loaned: (i) the
Portfolio must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the securities including accrued interest rises
above the level of the collateral; (iii) the Portfolio must be able to terminate
the loan at any time; (iv) the Portfolio must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (v) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower; provided, however, that if a
material event adversely affecting the investment occurs, the Board of Trustees
must terminate the loan and regain the right to vote the securities.
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. Each Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed-income securities or 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
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<PAGE>
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. Each Portfolio may enter into futures
contracts which are based on debt securities that are backed by the full faith
and credit of the U.S. Government, such as long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills. Each 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, a
Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of a Portfolio which holds or intends to acquire fixed-income securities,
is to attempt to protect the Portfolio from fluctuations in interest or foreign
exchange rates without actually buying or selling fixed-income securities or
foreign currencies. For example, if interest rates were expected to increase,
the Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as selling an equivalent
value of the debt securities owned by the Portfolio. If interest rates did
increase, the
6
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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
7
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general direction of interest rates is incorrect, a Portfolio's overall
performance would be poorer than if it had not entered into any such contract.
For example, if a Portfolio has hedged against the possibility of an increase in
interest rates which would adversely affect the price of debt securities held in
its portfolio and interest rates decrease instead, the Portfolio will lose part
or all of the benefit of the increased value of its debt securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if a Portfolio has insufficient cash, it may have
to sell debt securities from its portfolio to meet daily variation margin
requirements. Such sales of bonds may be, but will not necessarily be, at
increased prices which reflect the rising market. A Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio may purchase and write
options on futures contracts for hedging purposes. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when a Portfolio is not fully invested it may
purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's 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
8
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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 also adopted a further
restriction that the Portfolio will not enter into any futures contracts or
options on futures contracts if immediately thereafter the amount of margin
deposits on all the futures contracts of the Portfolio and premiums paid on
outstanding options on futures contracts owned by the Portfolio (other than
those entered into for bona fide hedging purposes) would exceed 5% of the market
value of the total assets of the Portfolio.
OPTIONS ON FOREIGN CURRENCIES. Each Portfolio may purchase and write
options on foreign currencies for hedging purposes in a manner similar to that
in which futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, a Portfolio will have the right to sell such currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
Each Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, where a Portfolio anticipates a decline
in the dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
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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
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entered into by a Portfolio in futures contracts, options on foreign currencies
and forward contracts are not traded on contract markets regulated by the CFTC
or (with the exception of certain foreign currency options) by the SEC. To the
contrary, such instruments are traded through financial institutions acting as
market-makers, although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. Similarly, options on
currencies may be traded over-the-counter. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer and a trader of forward contracts could
lose amounts substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
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As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. A
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, each
Portfolio will treat purchased over-the-counter options and assets used to cover
written over-the-counter options as illiquid securities. With respect to options
written with primary dealers in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
OPTIONS ON SECURITIES. Each Portfolio may write (sell) covered call and
put options to a limited extent on its portfolio securities ("covered options")
in an attempt to increase income. However, the Portfolio may forgo the benefits
of appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Portfolio.
When a Portfolio writes a covered call option, it gives the purchaser
of the option the right to buy the underlying security at the price specified in
the option (the "exercise price") by exercising the option at any time during
the option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price.
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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." 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.
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A Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's portfolio, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's portfolio securities. Put options also may be purchased by the
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. The Portfolio would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.
Each Portfolio has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. Each 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.
Each 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
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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 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."
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 a
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. Each Portfolio will not purchase such options unless
the Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in a Portfolio's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the Adviser may be forced to liquidate portfolio
securities to meet settlement obligations.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Because each Portfolio
buys and sells securities denominated in currencies other than the U.S. dollar
and receives interest, dividends and sale proceeds in currencies other than the
U.S. dollar, each Portfolio from time to time may enter into foreign currency
exchange transactions to convert to and from different foreign currencies and to
convert foreign currencies to and from the U.S. dollar. A Portfolio either
enters into these transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market or uses forward contracts to
purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange
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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
each 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 a 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
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may not always be able to enter into foreign currency forward contracts at
attractive prices and this will limit the Portfolio's ability to use such
contract to hedge or cross-hedge its assets. Also, with regard to a Portfolio's
use of cross-hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to the U.S. dollar
will continue. Thus, at any time poor correlation may exist between movements in
the exchange rates of the foreign currencies underlying a Portfolio's
cross-hedges and the movements in the exchange rates of the foreign currencies
in which the Portfolio's assets that are the subject of such cross-hedges are
denominated.
RATING SERVICES
The ratings of rating services represent their opinions as to the
quality of the securities that they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings are an initial criterion for selection of
portfolio investments, Bankers Trust also makes its own evaluation of these
securities, subject to review by the Board of Trustees. After purchase by a
Portfolio, an obligation may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither event would
require a Fund to eliminate the obligation from its portfolio, but Bankers Trust
will consider such an event in its determination of whether a Fund should
continue to hold the obligation. A description of the ratings used herein and in
the Funds' Prospectus is set forth in the Appendix to this Statement of
Additional Information.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of
each Fund and each Portfolio and may not be changed with respect to the Fund or
the Portfolio without the approval of a "majority of the outstanding voting
securities" of the Fund or the Portfolio, as the case may be. "Majority of the
outstanding voting securities" under the Investment Company Act of 1940, as
amended (the "1940 Act"), and as used in this Statement of Additional
Information and the Prospectus, means, with respect to the Fund (or the
Portfolio), the lesser of (i) 67% or more of the outstanding voting securities
of the Fund (or of the total beneficial interests of the Portfolio) present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund (or of the total beneficial interests of the Portfolio) are present or
represented by proxy or (ii) more than 50% of the outstanding voting securities
of the Fund (or of the total beneficial interests of the Portfolio). Whenever
the Trust is requested to vote on a fundamental policy of a Portfolio, the Trust
will hold a meeting of the corresponding Fund's shareholders and will cast its
vote as instructed by that Fund's shareholders.
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As a matter of fundamental policy, each Portfolio (or Fund) may not
(except that no investment restriction of a Fund shall prevent a Fund from
investing all of its Assets in an open-end investment company with substantially
the same investment objectives):
(1) borrow money or mortgage or hypothecate assets of the Portfolio
(Fund), except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase agreements
or dollar roll transactions, and except that it may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings (it is
intended that money would be borrowed only from banks and only either to
accommodate requests for the withdrawal of beneficial interests (redemption of
shares) while effecting an orderly liquidation of portfolio securities or to
maintain liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations) or reverse
repurchase agreements, provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute; for additional related restrictions, see clause
(i) under the caption "State and Federal Restrictions" below (as an operating
policy, the Portfolios may not engage in dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as the
Portfolios (Trust or the Funds) may technically be deemed an underwriter under
the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's (Fund's) total assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt securities of
types distributed publicly or privately;
(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
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(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, each Portfolio will not invest in another
open-end registered investment company.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and Federal statutes and policies 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 dollar roll
transactions) for any purpose in excess of 5% of the Portfolio's
(Fund's) total assets (taken at cost), except that the Portfolio
(Fund) may borrow for temporary or emergency purposes up to 1/3 of
its total assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's (Fund's) total assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin,
and reverse repurchase agreements are not considered a pledge of
assets for purposes of this restriction;
(iii) purchase any security or evidence of interest
therein on margin, except that such short-term
credit as may be necessary for the clearance of
purchases and sales of securities may be obtained
and except that deposits of initial deposit and
variation margin may be made in connection with
the purchase, ownership, holding or sale of
futures;
(iv) sell securities it does not own such that the dollar amount of such
short sales at any one time exceeds 25% of the net equity of the
Portfolio (Fund), and the value of securities of any one issuer in
which the Portfolio (Fund) is short exceeds the lesser of 2.0% of
the value of the Portfolio's (Fund's) net assets or 2.0% of the
securities of any class of any U.S. issuer and, provided that short
sales may be made only in those securities which are fully listed on
a national securities exchange or a foreign exchange (This provision
does not include the sale of securities of the Portfolio (Fund)
contemporaneously owns or has the right to obtain 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.);
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(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 (as an operating
policy, each Portfolio will not invest in another open-end
registered investment company);
(vii) invest more than 10% of the Portfolio's (Fund's) total assets (taken
at the greater of cost or market value) in securities that are
restricted as to resale under the 1933 Act (other than Rule 144A
securities deemed liquid by the Portfolio's (Fund's) Board of
Trustees);
(viii) invest more than 15% of the Portfolio's (Fund's) net assets (taken
at the greater of cost or market value) in securities that are
illiquid or not readily marketable excluding (a) Rule 144A
securities that have been determined to be liquid by the Board of
Trustees; and (b) commercial paper that is sold under section 4(2)
of the 1933 Act which: (i) is not traded flat or in default as to
interest or principal; and (ii) is rated in one of the two highest
categories by at least two nationally recognized statistical rating
organizations and the Portfolio's (Fund's) Board of Trustees have
determined the commercial paper to be liquid; or (iii) is rated in
one of the two highest categories by one nationally recognized
statistical rating agency and the Portfolio's (Fund's) Board of
Trustees has determined that the commercial paper is of equivalent
quality and is liquid;
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(ix) 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) if the Portfolio (Fund) is a "diversified" fund with respect to 75%
of its assets, invest more than 5% of its total assets in the
securities (excluding U.S. Government securities) of any one issuer;
(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;
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(xii) invest in warrants (other than warrants acquired by the Portfolio
(Fund) as part of a unit or attached to securities at the time of
purchase) if, as a result, the investments (valued at the lower of
cost or market) would exceed 5% of the value of the Portfolio's
(Fund's) net assets 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 50% 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
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such options which are held at any time do not exceed 20% of the
Portfolio's (Fund's) total net assets; and (c) the aggregate margin
deposits required on all such futures or options thereon held at any
time do not exceed 5% of the Portfolio's (Fund's) total assets.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
Each Fund will comply with the state securities laws and regulations of
all states in which it is registered. Each Portfolio will comply with the
permitted investments and investment limitations in the securities laws and
regulations of all states in which the corresponding Fund, or any other
registered investment company investing in the Portfolio, is registered.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for each Portfolio,
the selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of a Portfolio are frequently placed by the Adviser with the issuer or
a primary or secondary market-maker for these securities on a net basis, without
any brokerage commission being paid by the Portfolio. Trading does, however,
involve transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Transaction costs may also
include fees paid to third parties for information as to potential purchasers or
sellers of securities. Purchases of underwritten issues may be made which will
include an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for a Portfolio taking into account such factors
as price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as
23
<PAGE>
by comparing commissions paid by the Portfolio to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for a Portfolio with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Portfolio may determine, the Adviser may consider sales of
shares of the Trust and of other investment company clients of Bankers Trust as
a factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to a Portfolio and to the Adviser, it is the
opinion of the management of the Portfolios that such information is only
supplementary to the Adviser's own research effort, since the information must
still be analyzed, weighed and reviewed by the Adviser's staff. Such information
may be useful to the Adviser in providing services to clients other than the
Portfolios, and not all such information is used by the Adviser in connection
with the Portfolios. Conversely, such information provided to the Adviser by
brokers and dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to the
Portfolios.
24
<PAGE>
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.
The Asset Management Portfolio paid brokerage commissions in the amount
of $132,955 and $118,748 for the fiscal years ended March 31, 1996 and 1995,
respectively, and $42,311 for the period from September 16, 1993 (commencement
of operations) through March 31, 1994.
The Asset Management Portfolio II paid brokerage commissions in the
amount of $19,304 and $25,346 for the fiscal years ended March 31, 1996 and
1995, respectively, and $9,424 for the period from October 14, 1993
(commencement of operations) through March 31, 1994.
The Asset Management Portfolio III paid brokerage commissions in the
amount of $8,251 and $15,143 for the fiscal years ended March 31, 1996 and 1995
and $5,814 for the period from October 15, 1993 (commencement of operations)
through March 31, 1994.
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
25
<PAGE>
share at the end of the period, and annualizing the result (assuming compounding
of income) in order to arrive at an annual percentage rate. Income is calculated
for purpose of yield quotations in accordance with standardized methods
applicable to all stock and bond mutual funds. Dividends from equity investments
are treated as if they were accrued on a daily basis, solely for the purpose of
yield calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily income.
Capital gains and losses generally are excluded from the calculation.
Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions of the Fund paid over the same period or the rate of income
reported in the Fund's financial statements. The Funds' SEC yields were as
follows for the 30-day period ended March 31, 1996:
BT Investment Lifecycle Short Range Fund 4.00%
BT Investment Lifecycle Mid Range Fund 3.45%
BT Investment Lifecycle Long Range Fund 2.93%
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. Each Fund's one-year total return, average annual
total return and aggregate total return for the fiscal year ended March 31, 1996
were as follows:
26
<PAGE>
<TABLE>
<CAPTION>
BT Investment BT Investment BT Investment
Lifecycle Lifecycle Lifecycle
Short Mid Long
Range Fund 1 Range Fund 2 Range Fund 3
<S> <C> <C> <C>
One-Year 10.67% 14.65% 19.41%
Total Return for Fiscal
Year Ended 3/31/96
Average Annual 4.00% 5.71% 9.20%
Total Return
for the Period from
Commencement of
Operations through
3/31/96
Aggregate 10.14% 14.66% 23.21%
Total Return for
the Period from
Commencement of
Operations through
3/31/96
</TABLE>
1Fund commenced operations on October 15, 1993.
2Fund commenced operations on October 14, 1993.
3Fund commenced operations on November 16, 1993.
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
27
<PAGE>
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:
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 BUSINESS 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.
28
<PAGE>
NEW YORK TIMES, a nationally distributed newspaper which regularly covers
financial news.
PERSONAL INVESTING NEWS, a monthly news publication that often reports on
investment opportunities and market conditions.
PERSONAL INVESTOR, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SUCCESS, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
U.S. NEWS AND WORLD REPORT, a national business weekly that
periodically reports mutual fund performance data.
VALUE LINE, a biweekly publication that reports on the largest 15,000 mutual
funds.
WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper
which regularly covers financial news.
WEISENBERGER INVESTMENT COMPANIES SERVICES, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
WORKING WOMEN, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities for
which price quotations are available, will normally be valued on the basis of
market valuations furnished by a pricing service. Short-term debt obligations
and money market securities maturing in 60 days or less are valued at amortized
cost, which approximates market.
Securities for which market quotations are not available are valued by
Bankers Trust pursuant to procedures adopted by each Portfolio's Board of
Trustees. It is generally agreed that securities for which market quotations are
not readily available should not be valued at the same value as that carried by
an equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting
29
<PAGE>
Series Release No. 113)) which concludes that there is "no automatic formula"
for calculating the value of restricted securities. It recommends that the best
method simply is to consider all relevant factors before making any calculation.
According to FRR 1 such factors would include consideration of the:
type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as
to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that a Portfolio purchases securities which are
restricted as to resale or for which current market quotations are not
available, the Adviser of the Portfolio will value such securities based upon
all relevant factors as outlined in FRR 1.
The Trust, on behalf of each Fund, and each Portfolio reserve the
right, if conditions exist which make cash payments undesirable, to honor any
request for redemption or repurchase order by making payment in whole or in part
in readily marketable securities chosen by the Trust, or the Portfolio, as the
case may be, and valued as they are for purposes of computing the Fund's or the
Portfolio's net asset value, as the case may be (a redemption in kind). If
payment is made to a Fund shareholder in securities, an investor, including the
Fund, the shareholder may incur transaction expenses in converting these
securities into cash. The Trust, on behalf of each Fund, and each Portfolio have
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which each Fund and each Portfolio are obligated to redeem shares or beneficial
interests, as the case may be, with respect to any one investor during any
90-day period, solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund or the Portfolio, as the case may be, at the beginning
of the period.
Each Portfolio has agreed to make a redemption in kind to the
corresponding Fund whenever the Fund wishes to make a redemption in kind and
therefore shareholders of the Fund that receive redemptions in kind will receive
portfolio securities of the corresponding Portfolio and in no case will they
receive a security issued by the Portfolio. The Portfolio has advised the Trust
that the Portfolio will not redeem in kind except in circumstances in which the
Fund is permitted to redeem in kind or unless requested by the Fund.
30
<PAGE>
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 PORTFOLIOS
The Trustees and officers of the Trust and Portfolios and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. 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.
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<PAGE>
TRUSTEES OF THE TRUST
KELVIN J. LANCASTER (age 71) -- Trustee; Professor, Department of
Economics, Columbia University. His address is 35 Claremont Avenue, New York,
New York 10027.
S. LELAND DILL (age 65) -- Trustee; Retired; Director, Coutts & Co.
Trust Holdings Limited and 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. (age 60) -- Trustee; Principal, Philip Saunders
Associates (Consulting); former Director of Financial Industry Consulting, Wolf
& Company; President, John Hancock Home Mortgage Corporation; and Senior Vice
President of Treasury and Financial Services, John Hancock Mutual Life Insurance
Company, Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.
PHILIP W. COOLIDGE* (age 44) -- 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 (age 65) -- Trustee; Retired; Director of Chase/NBW
Bank Advisory Board; Director, Batemen, Eichler, Hill Richards Inc.; formerly
Vice President of International Business Machines and President of the National
Services and the Field Engineering Divisions of IBM. His address is 12 Hitching
Post Lane, Chappaqua, New York 10514.
S. LELAND DILL (age 65) -- Trustee; Retired; Director, Coutts & Co.
Trust Holdings Limited and 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. (age 60) -- Trustee; Principal, Philip Saunders
Associates (Consulting); former Director of Financial Industry Consulting, Wolf
& Company; President, John Hancock Home Mortgage Corporation; and Senior Vice
President of Treasury and Financial Services, John Hancock Mutual Life Insurance
Company, Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.
PHILIP W. COOLIDGE* (age 44) -- President and Trustee; Chairman, Chief
Executive Officer and President, SFG (since December, 1988) and Signature (since
April, 1989).
32
<PAGE>
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 (age 47) -- Treasurer ; Vice President, SFG (since April,
1995); Treasurer, Phoenix Family of Mutual Funds (prior to April, 1995).
LINDA T. GIBSON (age 31) -- Assistant Secretary; Vice President and
Associate General Counsel , SFG (since May, 1992); Assistant Secretary,
Signature (since October, 1992); student, Boston University School of Law
(September, 1989 to May, 1992) .
THOMAS M. LENZ (age 37) -- Secretary; Senior 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 (age 44) -- Assistant Secretary; Legal Counsel and
Assistant Secretary, SFG (since December, 1988); Assistant Secretary, Signature
(since April, 1989).
ANDRES E. SALDANA (age 33) -- Assistant Secretary; Legal Counsel, SFG
(since November, 1992); Assistant Secretary, Signature (since September, 1993);
Attorney, Ropes & Gray (September, 1990 to November, 1992)
BARBARA M. O'DETTE (age 36) -- Assistant Treasurer; Assistant
Treasurer, SFG (since December, 1988) and Signature (since April, 1989);
Administrative Controller, Massachusetts Financial Services Company (prior to
December, 1988).
DANIEL E. SHEA (age 34) -- Assistant Treasurer; Assistant Manager, SFG
(since November 1993); Supervisor and Senior Technical Advisor, Putnam
Investments (prior to November 1993).
Messrs. Coolidge, Elder, 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.
33
<PAGE>
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 the
Portfolios. 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. The Portfolios, Cash Management Portfolio, Treasury
Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, Equity
500 Index Portfolio, Short/Intermediate U.S. Government Securities Portfolio,
Intermediate Tax Free Portfolio, Utility Portfolio, Capital Appreciation
Portfolio and International Equity Portfolio (together with the Trust, the "Fund
Complex") 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.
Bankers Trust reimbursed the Funds and the Portfolios for a portion of
their Trustees fees for the periods indicated above. See "Investment Adviser"
and "Administrator" below.
The following table reflects fees paid to the Trustees of the Trust and
the Portfolios for the year ended March 31, 1996.
TRUSTEE COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION FROM FUND COMPLEX
POSITION FROM TRUST PAID TO TRUSTEES
Kelvin J. Lancaster,
Trustee of Trust $12,952 $15,750
S. Leland Dill,
Trustee of Trust
and Portfolios $3,088 $15,750
Philip Saunders, Jr.,
Trustee of Trust
and Portfolios $12,588 $15,750
Charles P. Biggar,
Trustee of Portfolios none $15,750
BT Investment Lifecycle Short Range Fund incurred $2,251 in Trustees
fees for the fiscal year ended March 31, 1996. During the same period, Asset
Management Portfolio III incurred $2,238.
BT Investment Lifecycle Mid Range Fund incurred $2,251 in Trustees fees
for the fiscal year ended March 31, 1996. During the same period, Asset
Management
Portfolio II incurred $2,288.
BT Investment Lifecycle Long Range Fund incurred $2,301 in Trustees
fees for the fiscal year ended March 31, 1996. During the same period, Asset
Management
Portfolio incurred $2,288.
As of July 17, 1996, the Trustees and officers of the Trust and the
Portfolios owned in the aggregate less than 1% of the shares of any Fund or the
Trust (all series taken together). As of July 17, 1996, the following record
owners held the indicated percentage of the outstanding shares of the Funds:
Bankers Trust, 280 Park Avenue, New York, New York, on behalf of its customers
- -- BT Investment Lifecycle Long Range Fund, 93.33%; BT Investment Lifecycle Mid
Range Fund, 97.76%; and BT Investment Lifecycle Short Range Fund 92.81%;
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.
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<PAGE>
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 agents; certain
insurance premiums; outside auditing and legal expenses; costs of maintenance of
corporate existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.
For compensation of investment advisory services provided to the Asset
Management Portfolio III, Bankers Trust earned $166,563 and $136,199 for the
fiscal years ended March 31, 1996 and 1995, respectively, and $44,872 for the
period October 15, 1993 (commencement of operations) through March 31, 1994. For
the same periods, Bankers Trust reimbursed $55,645, $62,017 and $33,838,
respectively, to the Portfolio to cover expenses.
For compensation of investment advisory services provided to the Asset
Management Portfolio II, Bankers Trust earned $250,954 and $156,421 for the
fiscal years ended March 31, 1996 and 1995, respectively, and $46,279 for the
period from October 14, 1993 (commencement of operations) through March 31,
1994. For the same periods, Bankers Trust reimbursed $75,578, $65,748 and
$34,192, respectively, to the Portfolio to cover expenses.
For compensation of investment advisory services provided to the Asset
Management Portfolio, Bankers Trust earned $1,092,488 and $576,146 for the
fiscal years ended March 31, 1996 and 1995, respectively, and $94,329 for the
period from September 16, 1993 (commencement of operations) through March 31,
1994. For the same periods, Bankers Trust reimbursed $279,200, $169,159 and
$48,572, respectively, to the Portfolio to cover expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Portfolios, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust has informed the Portfolios that, in making its investment decisions, it
does not obtain or use
36
<PAGE>
material inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Portfolios, Bankers
Trust will not inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by a Portfolio is a customer of Bankers
Trust, its parent or its subsidiaries or affiliates and, in dealing with its
customers, Bankers Trust, its parent, subsidiaries and affiliates will not
inquire or take into consideration whether securities of such customers are held
by any fund managed by Bankers Trust or any such affiliate.
Each Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment advisory and administration and services fees, including
waivers thereof. Bankers Trust may not recoup any of its waived investment
advisory or administration and services fees. Such waivers by Bankers Trust
shall stay in effect for at least 12 months.
ADMINISTRATOR
Under administration and services agreements, Bankers Trust is
obligated on a continuous basis to provide such administrative services as the
Board of Trustees of the Trust and 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.
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As compensation for administrative and other services provided to the
BT Investment Lifecycle Short Range Fund, Bankers Trust earned $166,399 and
$136,157 for the fiscal years ended March 31, 1996 and 1995, respectively, and
$44,855 for the period from October 15, 1993 (commencement of operations)
through March 31, 1994. During the same periods, Bankers Trust reimbursed
$108,995, $109,534 and $43,355, respectively, to the Fund to cover expenses. As
compensation for administrative and other services provided to Asset Management
Portfolio III, Bankers Trust earned $25,625, $20,954 and $6,903 during the same
periods.
As compensation for administrative and other services provided to the
BT Investment Lifecycle Mid Range Fund, Bankers Trust earned $250,720 and
$156,366 for the fiscal years ended March 31, 1996 and 1995, respectively, and
$46,256 for period from October 14, 1993 (commencement of operations) through
March 31, 1994. During the same periods, Bankers Trust reimbursed $144,986,
$116,867 and $44,573, respectively, to the Fund to cover expenses. As
compensation for administrative and other services provided to Asset Management
Portfolio II, Bankers Trust earned $38,608, $24,065 and $7,120 during the same
periods.
As compensation for administrative and other services provided to the
BT Investment Lifecycle Long Range Fund, Bankers Trust earned $235,552 and
$69,865 for the fiscal years ended March 31, 1996 and 1995, respectively, and
$2,175 for the period from November 16, 1993 (commencement of operations)
through March 31, 1994. During the same periods, Bankers Trust reimbursed
$155,577, $77,393 and $18,956, respectively, to the Fund to cover expenses. As
compensation for administrative and other services provided to Asset Management
Portfolio, Bankers Trust earned $168,075, $88,638 and $14,512 during the same
periods.
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
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<PAGE>
holds the Funds' and each Portfolio's assets. Bankers Trust also serves as
transfer agent of the Trust and of each Portfolio pursuant to the respective
administration and services agreement.
Under its transfer agency agreement with the Trust, Bankers Trust maintains the
shareholder account records for each Fund, handles certain communications
between shareholders and the Trust and causes to be distributed any dividends
and distributions payable by the Trust. Bankers Trust may be reimbursed by the
Funds or the Portfolios for its out-of-pocket expenses. Bankers Trust will
comply with the self-custodian provisions of Rule 17f-2 under the 1940 Act.
USE OF NAME
The Trust and Bankers Trust have agreed that the Trust may use "BT" as
part of its name for so long as Bankers Trust serves as investment adviser to
the Portfolios. The Trust has acknowledged that the term "BT" is used by and is
a property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.
The Trust may be required, on 60 days' notice from Bankers Trust at any
time, to abandon use of the acronym "BT" as part of its name. If this were to
occur, the Trustees would select an appropriate new name for the Trust, but
there would be no other material effect on the Trust, its shareholders or
activities.
BANKING REGULATORY MATTERS
Bankers Trust has been advised by its counsel that in its opinion
Bankers Trust may perform the services for the Portfolios contemplated by the
investment advisory agreement and other activities for the Funds and the
Portfolios described in the Prospectus 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
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Street, Suite 900, Kansas City, Missouri 64105 has been selected as Independent
Accountants for 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.
Whenever the Trust is requested to vote on a matter pertaining to a
Portfolio, the Trust will vote its shares without a meeting of the respective
Fund shareholders if the proposal, if made with respect to such Fund, would not
require the vote of the Fund shareholders as long as such action is permissible
under applicable statutory and regulatory requirements. The Trust will hold a
meeting of the Fund shareholders for all other matters requiring a vote, and the
Trust will cast all of its votes at the meeting of investors in a Portfolio in
the same proportion as the votes of the respective Fund shareholders. Other
investors with a greater pro rata ownership of a Portfolio could have effective
voting control of the operations of the Portfolio.
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.
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 and therefore does not
anticipate incurring a Federal income tax liability.
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
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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. Shareholders should consult their own tax adviser
concerning the application of federal, state and local taxes to the
distributions they receive from the Fund.
TAXATION OF THE PORTFOLIOS
The Portfolios are not subject to the 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.
FOREIGN WITHHOLDING TAXES
Income received by a Portfolio from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING
A Fund may be required to withhold U.S. Federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. Federal income tax liability.
FOREIGN SHAREHOLDERS
The tax consequences to a foreign shareholder of an investment in a
Fund may be different from those described herein. Foreign shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Fund.
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor any Fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
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.
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FINANCIAL STATEMENTS
Each Fund's current report to shareholders filed with the SEC pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder are hereby
incorporated herein by reference. A copy of each such report will be provided,
without charge, to each person receiving this Statement of Additional
Information.
BT INVESTMENT LIFECYCLE SHORT RANGE FUND
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996 Statements
of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected data, return and ratios for
the periods indicated
Notes to Financial Statements
Report of Independent Accountants
ASSET MANAGEMENT PORTFOLIO III
Schedule of Investments, March 31, 1996
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996 Statements
of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected ratios and supplemental data
for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
BT INVESTMENT LIFECYCLE MID RANGE FUND
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996 Statements
of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected data, return and ratios for
the periods indicated
Notes to Financial Statements
Report of Independent Accountants
ASSET MANAGEMENT PORTFOLIO II
Schedule of Investments, March 31, 1996
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996 Statements
of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected ratios and supplemental data
for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
BT INVESTMENT LIFECYCLE LONG RANGE FUND
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996 Statements
of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected data, return and ratios for
the periods indicated
Notes to Financial Statements
Report of Independent Accountants
ASSET MANAGEMENT PORTFOLIO
Schedule of Portfolio Investments, March 31, 1996
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996 Statements
of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected ratios and supplemental data
for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
46
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APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of ratings which represent opinions as to the
quality of the securities. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS
AAA: Bonds which are 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-edged". 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 which are 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 fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A: Bonds which are 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 which are 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 which are 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 safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the 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 which are 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 which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor
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prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MOODY'S INVESTORS SERVICE, INC.'S SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.
Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well established
industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated PRIME-2 or P-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P'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 than
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bonds in higher rated categories.
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 a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
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 or 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.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating 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.
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C1: The Rating C1 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 Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.
STANDARD & POOR'S RATINGS GROUP'S COMMERCIAL PAPER RATINGS
A: S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1 ".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
FITCH INVESTORS SERVICE, INC. BOND RATINGS
INVESTMENT GRADE
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA"
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categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD GRADE
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
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NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
"F-1+" and "F-1 " categories.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
DUFF & PHELPS BOND RATINGS
INVESTMENT GRADE
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AND AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, AND A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, AND BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
HIGH YIELD GRADE
BB+, BB, AND BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
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B+, B, AND B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior position in the capital structure. Structured
financings are also rated on this scale.
DUFF & PHELPS PAPER/CERTIFICATES OF DEPOSIT RATINGS
CATEGORY 1: TOP GRADE
Duff 1 plus: Highest certainty of timely payment. Short-term liquidity including
internal operating factors and/or ready access to alternative sources of funds,
is outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
DUFF 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1 MINUS: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
CATEGORY 2: GOOD GRADE
DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
CATEGORY 3: SATISFACTORY GRADE
DUFF 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
A-8
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* * * * *
Bonds which are unrated expose the investor to risks with respect to capacity to
pay interest or repay principal which are similar to the risks of lower-rated
bonds. The Fund is dependent on the investment adviser's or investment
subadviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
NOTE:
1 The ratings indicated herein are believed to be the most
recent ratings available at the date of this Statement of
Additional Information for the securities listed. Ratings
are generally given to securities at the time of issuance.
While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the
ratings indicated do not necessarily represent ratings which
would be given to these securities on the date of the Fund's
fiscal year end.
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TABLE OF CONTENTS
Investment Objectives, Policies and Restrictions . . . . . . . . . . .. 2
Performance Information . . . . . . . . . . . . . . . . . . . . . . .. 21
Valuation of Securities; Redemptions and Purchases in Kind . . . . . .. 24
Management of the Trust and Portfolios . . . . . . . . . . . . . . . . 26
Organization of the Trust . . . . . . . . . . . . . . . . . . . . . .. 33
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 33
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .. 35
Appendix (Bond and Commercial Paper Ratings) . . . . . . . . . . . . . A-1
_____________________________
DISTRIBUTOR
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
(617) 423-0800
INVESTMENT ADVISER OF EACH PORTFOLIO
Bankers Trust Company
280 Park Avenue
New York, NY 10017
TRANSFER AGENT
Bankers Trust Company
280 Park Avenue
New York, NY 10017
CUSTODIAN
Bankers Trust Company 280 Park
Avenue New York, NY 10017
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
BT0370F
<PAGE>
BT0329J
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
BT INVESTMENT LIFECYCLE SHORT RANGE FUND
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996
Statements of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected data, return and ratios for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
ASSET MANAGEMENT PORTFOLIO III
Schedule of Investments, March 31, 1996
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996
Statements of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected data, return and ratios for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
BT INVESTMENT LIFECYCLE MID RANGE FUND
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996
Statements of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected data, return and ratios for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
ASSET MANAGEMENT PORTFOLIO II
Schedule of Investments, March 31, 1996
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996
Statements of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected data, return and ratios for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
BT INVESTMENT LIFECYCLE LONG RANGE FUND
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996
Statements of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected data, return and ratios for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
ASSET MANAGEMENT PORTFOLIO
Schedule of Investments, March 31, 1996
Statements of Assets and Liabilities, March 31, 1996
Statements of Operations for the year ended March 31, 1996
Statements of Changes in Net Assets for the year ended March 31, 1996 and 1995
Financial Highlights: Selected data, return and ratios for the periods indicated
Notes to Financial Statements
Report of Independent Accountants
<PAGE>
(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) Consent of Independent Accountants.10
(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 10
(25A) Powers of Attorney.3
(25B) 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.
<PAGE>
C-3
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 herein.
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 JUNE 28, 1996)
Tax Free Money Fund 169
NY Tax Free Money Fund 210
Cash Management Fund 350
Treasury Money Fund 1982
Liquid Assets Fund 0
100% Treasury Fund 0
Intermediate Tax Free Fund 91
Utility Fund 96
Small Cap Fund 473
Pacific Basin Equity Fund 183
European Equity Fund 0
BT Investment Lifecycle Short Range Fund 10
BT Investment Lifecycle Mid Range Fund 12
BT Investment Lifecycle Long Range Fund 13
Latin American Equity Fund 122
International Equity Fund 400
Global High Yield Securities Fund 73
Capital Appreciation Fund 285
International Bond Fund 0
<PAGE>
C-5
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.
<PAGE>
C-6
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.
<TABLE>
<CAPTION>
Position and Offices Position and Offices
NAME WITH SIGNATURE WITH THE REGISTRANT
<S> <C> <C>
Philip W. Coolidge Chief Executive President and Trustee
Officer, President
and Director
Linwood C. Downs Treasurer --
John R. Elder Assistant Treasurer Treasurer
Joan R. Gullinello Secretary --
Thomas M. Lenz Assistant Secretary 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 --
Daniel E. Shea -- Assistant Treasurer
Julie J. Wyetzner Product Management
Officer --
</TABLE>
<PAGE>
C-7
<TABLE>
<CAPTION>
Position and Offices Position and Offices
NAME WITH SIGNATURE WITH THE REGISTRANT
<S> <C> <C>
Robert G. Davidoff Director --
CMNY Capital, L.P
135 East 57th Street
New York, NY 10022
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
</TABLE>
(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.
<PAGE>
C-8
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(b) 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 23th day of July, 1996.
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 with respect
to BT Investment Funds on July 23, 1996.
SIGNATURE TITLE
/S/PHILIP W. COOLIDGE President and Trustee
Philip W. Coolidge
/S/S. LELAND DILL* Trustee
S. Leland Dill
KELVIN J. LANCASTER* Trustee
Kelvin J. Lancaster
PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
/S/JOHN R. ELDER Treasurer (Principal Financial and
John R. Elder 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
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(b) 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 23th day of July, 1996.
BT INVESTMENT PORTFOLIOS
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 with respect
to BT Investment Portfolios on July 23, 1996.
SIGNATURE TITLE
/S/PHILIP W. COOLIDGE President and Trustee
Philip W. Coolidge
/S/S. LELAND DILL* Trustee
S. Leland Dill
KELVIN J. LANCASTER* Trustee
Kelvin J. Lancaster
PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
/S/JOHN R. ELDER Treasurer (Principal Financial and
John R. Elder 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
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(b) 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 23th day of July, 1996.
ASSET MANAGEMENT PORTFOLIO
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 with respect
to Asset Management Portfolio on July 23, 1996.
SIGNATURE TITLE
/S/PHILIP W. COOLIDGE President and Trustee
Philip W. Coolidge
/S/S. LELAND DILL* Trustee
S. Leland Dill
KELVIN J. LANCASTER* Trustee
Kelvin J. Lancaster
PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
/S/JOHN R. ELDER Treasurer (Principal Financial and
John R. Elder Principal Accounting Officer)
*By: /S/PHILIP W. COOLIDGE
Philip W. Coolidge as Attorney-in-Fact pursuant to a Power of Attorney
previously filed.
<PAGE>
INDEX TO EXHIBITS
11. Consent of Independent Auditors.
17. Financial Data Schedules.
COOPERS Coopers & Lybrand L.L.P.
&LYBRAND
a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
_______________________
We consent to the incorporation by reference in Post-effective Amendment
No. 39 to the Registration Statement of BT Investment Lifecycle Funds - Long
Range Fund, Mid Range Fund and Short Range Fund on Form N-1A of our report dated
May 3, 1996 on our audit of the financial statements and financial highlights of
the BT Investment Lifecycle Funds - Long Range Fund, Mid Range Fund and Short
Range Fund which report is included in its Annual Report to Shareholders which
is also incorporated by reference in this Post-Effective Amendment to the
Registration Statement. We also consent to the references to our Firm in the
Prospectus under the caption "Fund Financial Highlights" and in the Statement of
Additional Information under the captions "Counsel and Independent Accountants".
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
July 25, 1996
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
&LYBRAND
a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
_______________________
We consent to the incorporation by reference in Post-effective Amendment No. 39
to the Registration Statement of Asset Management Portfolio on Form N-1A of our
report dated May 3, 1996 on our audit of the financial statements and financial
highlights of Asset Management Portfolio which report is included in its Annual
Report to Shareholders which is also incorporated by reference in this
Post-Effective Amendment to the Registration Statement. We also consent to the
references to our Firm in the Prospectus under the caption "Fund Financial
Highlights" and in the Statement of Additional Information under the captions
"Counsel and Independent Accountants".
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
July 25, 1996
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
&LYBRAND
a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
_______________________
We consent to the incorporation by reference in Post-effective Amendment No. 39
to the Registration Statement of BT Investment Portfolios - Asset Management
Portfolio II and Asset Management Portfolio III on Form N-1A of our report dated
May 3, 1996 on our audit of the financial statements and financial highlights of
the BT Investment Portfolios - Asset Management Portfolio II and Asset
Management Portfolio III which report is included in its Annual Report to
Shareholders which is also incorporated by reference in this Post-Effective
Amendment to the Registration Statement. We also consent to the references to
our Firm in the Prospectus under the caption "Fund Financial Highlights" and in
the Statement of Additional Information under the captions "Counsel and
Independent Accountants".
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
July 25, 1996
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Lifecycle Long Range Fund Annual Report dated March 31, 1996, and is qualified
in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000797657
<NAME> BT Investment Funds
<SERIES>
<NUMBER> 12
<NAME> LIFECYCLE LONG RANGE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 55902273
<INVESTMENTS-AT-VALUE> 55902273
<RECEIVABLES> 165831
<ASSETS-OTHER> 8199
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56076303
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63862
<TOTAL-LIABILITIES> 63862
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51860557
<SHARES-COMMON-STOCK> 4947762
<SHARES-COMMON-PRIOR> 1326853
<ACCUMULATED-NII-CURRENT> 392190
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1944977
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1814717
<NET-ASSETS> 56012441
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1443609
<EXPENSES-NET> 144955
<NET-INVESTMENT-INCOME> 1298654
<REALIZED-GAINS-CURRENT> 2996767
<APPREC-INCREASE-CURRENT> 1509294
<NET-CHANGE-FROM-OPS> 5804715
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1044464
<DISTRIBUTIONS-OF-GAINS> 995721
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4376179
<NUMBER-OF-SHARES-REDEEMED> 942323
<SHARES-REINVESTED> 187053
<NET-CHANGE-IN-ASSETS> 42646397
<ACCUMULATED-NII-PRIOR> 119744
<ACCUMULATED-GAINS-PRIOR> (37814)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 300532
<AVERAGE-NET-ASSETS> 36238034
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> 1.54
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .66
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.32
<EXPENSE-RATIO> 100
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Lifecycle Mid Range Fund Annual Report dated March 31, 1996, and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000797657
<NAME> BT Investment Funds
<SERIES>
<NUMBER> 13
<NAME> LIFECYCLE MID RANGE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 51399537
<INVESTMENTS-AT-VALUE> 51399537
<RECEIVABLES> 101309
<ASSETS-OTHER> 8208
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51509054
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 43132
<TOTAL-LIABILITIES> 43132
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48833587
<SHARES-COMMON-STOCK> 4909072
<SHARES-COMMON-PRIOR> 2678186
<ACCUMULATED-NII-CURRENT> 385674
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1175309
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1071352
<NET-ASSETS> 51465922
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1756177
<EXPENSES-NET> 154289
<NET-INVESTMENT-INCOME> 1601888
<REALIZED-GAINS-CURRENT> 2255767
<APPREC-INCREASE-CURRENT> 989840
<NET-CHANGE-FROM-OPS> 4847495
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1514668
<DISTRIBUTIONS-OF-GAINS> 251391
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2501640
<NUMBER-OF-SHARES-REDEEMED> 446097
<SHARES-REINVESTED> 175343
<NET-CHANGE-IN-ASSETS> 25732834
<ACCUMULATED-NII-PRIOR> 287551
<ACCUMULATED-GAINS-PRIOR> (818164)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 299275
<AVERAGE-NET-ASSETS> 38572068
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> .96
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .50
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 100
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Lifecycle Short Range Fund Annual Report dated March 31, 1996, and is qualified
in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000797657
<NAME> BT Investment Funds
<SERIES>
<NUMBER> 14
<NAME> LIFECYCLE SHORT RANGE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 28868654
<INVESTMENTS-AT-VALUE> 28868654
<RECEIVABLES> 49527
<ASSETS-OTHER> 8164
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28926345
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27506
<TOTAL-LIABILITIES> 27506
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28403880
<SHARES-COMMON-STOCK> 2880500
<SHARES-COMMON-PRIOR> 2224112
<ACCUMULATED-NII-CURRENT> 320715
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (200718)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 374962
<NET-ASSETS> 28898839
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1290180
<EXPENSES-NET> 102399
<NET-INVESTMENT-INCOME> 1187781
<REALIZED-GAINS-CURRENT> 725026
<APPREC-INCREASE-CURRENT> 536561
<NET-CHANGE-FROM-OPS> 2449368
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1141292
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1109684
<NUMBER-OF-SHARES-REDEEMED> 570529
<SHARES-REINVESTED> 117233
<NET-CHANGE-IN-ASSETS> 7761701
<ACCUMULATED-NII-PRIOR> 267916
<ACCUMULATED-GAINS-PRIOR> (919434)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
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</TABLE>
