o BT INVESTMENT FUNDS o
Intermediate Tax Free Fund
Global High Yield Securities Fund
Capital Appreciation Fund
Small Cap Fund
International Equity Fund
Pacific Basin Equity Fund
Latin American Equity Fund
PROSPECTUS
JANUARY 31, 1997
BT Investment Funds (the `Trust'') is an open-end, management investment
company (mutual fund) which consists of a number of separate investment
funds. Each of the funds listed above (each, a `Fund'') is a separate
series of BT Investment Funds.
UNLIKE OTHER MUTUAL FUNDS, EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS (`ASSETS'') IN A
SEPARATE INVESTMENT COMPANY (A `PORTFOLIO'') WITH AN IDENTICAL INVESTMENT
OBJECTIVE. THE INVESTMENT PERFORMANCE OF EACH FUND WILL CORRESPOND DIRECTLY
TO THE INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO. SEE `SPECIAL
INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE''HEREIN.
Bankers Trust Company (`Bankers Trust'') is the investment adviser (the
`Adviser'') of each Portfolio.
Please read this Prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
Fund invests and the services available to shareholders.
To learn more about a Fund and its investments, investors can obtain a copy
of that Fund's Statement of Additional Information (`SAI''), dated January
31, 1997, along with the corresponding Portfolio's most recent financial
report and portfolio listing. Each SAI has been filed with the Securities
and Exchange Commission (the `SEC'') and is incorporated herein by
reference. For a free copy of this Prospectus or the SAI, call the Trust's
Service Agent at 1-800-730-1313.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, BANKERS TRUST OR ANY OTHER BANKING OR DEPOSITORY INSTITUTION.
SHARES ARE NOT FEDERALLY GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (`FDIC''), THE U.S. GOVERNMENT, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
The Global High Yield Securities Portfolio and Latin American Equity
Portfolio may invest in lower-quality debt securities, sometimes called
`junk bonds.'' The Global High Yield Securities Portfolio may invest in
these types of securities without limit. Investors should consider that
these securities carry greater risks, such as the risk of default, than
other debt securities. Refer to `Risk Factors and Certain Securities and
Investment Practices-Risks of Investing in High Yield Securities (`Junk
Bonds') herein for further information.
The Global High Yield Securities Portfolio and Latin American Equity
Portfolio may borrow money for investment in securities. Such leverage will
exaggerate any increase or decrease the value of shares in the Funds.
Borrowing also involves costs to the Portfolio. See `Risk Factors and
Certain Securities and Investment Practices-Leverage''herein. Each of the
corresponding Funds may be considered a speculative investment and is
designed for aggressive investors.
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
EDGEWOOD SERVICES, INC.
Clearing Operations o P.O. Box 897 o Pittsburgh, Pennsylvania o 15230-0897
TABLE OF CONTENTS
PAGE
The Funds 3
Who May Want To Invest 3
Investment Principles and Risks 4
Summary Of Fund Expenses 5
Financial Highlights 7
Investment Objectives And Policies 11
Risk Factors: Matching The Fund To Your Investment Needs 18
Securities And Investment Practices 21
Performance Information And Reports 28
Management Of The Trust And Portfolios 29
Purchase And Redemption Of Shares 33
Dividends, Distributions And Taxes 38
Additional Information 39
Appendix 41
2
THE FUNDS
Intermediate Tax Free Fund's investment objective is a high level of
current income exempt from Federal income tax consistent with moderate risk
of capital. The Portfolio seeks to maintain a current yield that is
greater than that generally obtainable from a portfolio of short-term tax-
exempt obligations, subject to applicable quality restrictions. See `Risk
Factors: Matching the Fund to Your Investment Needs''herein.
Global High Yield Securities Fund's investment objective is high current
income from investment in a non-diversified portfolio of high yield, non-
investment grade debt securities issued in many of the world's securities
markets. Capital appreciation will be considered when consistent with the
primary investment objective of high current income. See `Risk Factors:
Matching the Fund to Your Investment Needs''herein.
Capital Appreciation Fund's investment objective is long-term capital
growth; the production of any current income is secondary to this
objective. The Portfolio invests primarily in growth-oriented common stocks
of medium sized domestic corporations and, to a lesser extent, foreign
corporations. See `Risk Factors: Matching the Fund to Your Investment
Needs''herein.
Small Cap Fund's investment objective is long-term capital growth; the
production of any current income is secondary to this objective. The
Portfolio seeks to provide long-term capital growth by investing primarily
in equity securities of smaller sized growth companies. See `Risk Factors:
Matching the Fund to Your Investment Needs''herein.
International Equity Fund's investment objective is long-term capital
appreciation from investment in foreign equity securities (or other
securities with equity characteristics); the production of any current
income is incidental to this objective. The Portfolio invests primarily in
established companies based in developed countries outside the United
States, but the Portfolio may also invest in emerging market securities.
See `Risk Factors: Matching the Fund to Your Investment Needs'' herein.
Pacific Basin Equity Fund's investment objective is long-term capital
appreciation from investment primarily in the equity securities (or other
securities with equity characteristics) of companies domiciled in, or doing
business in the Pacific Basin region, other than Japan; the production of
any current income is incidental to this objective. See `Risk Factors:
Matching the Fund to Your Investment Needs''herein.
Latin American Equity Fund's investment objective is long-term capital
appreciation from investment primarily in the equity securities (or other
securities with equity characteristics) of companies domiciled in, or doing
business in, Latin America; the production of any current income is
incidental to this objective. See `Risk Factors: Matching the Fund to Your
Investment Needs''herein.
WHO MAY WANT TO INVEST
The Trust seeks to achieve the investment objective of each Fund by
investing all the Assets of the Fund in the corresponding Portfolio. The
Portfolios are Intermediate Tax Free Portfolio, Global High Yield
Securities Portfolio, Capital Appreciation Portfolio, Small Cap Portfolio,
International Equity Portfolio, Pacific Basin Equity Portfolio and Latin
American Equity Portfolio, respectively.
The Capital Appreciation Fund, Small Cap Fund, International Equity Fund,
Pacific Basin Equity Fund, and Latin American Equity Fund are designed for
investors who are willing to accept short-term domestic and/or foreign
stock market fluctuations in pursuit of potentially higher long-term
returns. These Funds invest for growth and do not pursue income.
In addition, the International Equity Fund, Global High Yield Securities
Fund, Latin American Equity Fund and Pacific Basin Equity Fund may also be
appropriate for investors who want to pursue their investment goals in
markets outside of the United States. By including international
investments in your portfolio, you can achieve an extra level of
diversification and also participate in opportunities around the world.
The Intermediate Tax Free Fund is designed for conservative investors
looking for a relatively stable, high-grade investment, the income of which
is free from Federal income tax. Because the Fund's Portfolio invests in
high-grade tax-exempt instruments with short to intermediate maturities its
share price should be more stable than that of a long-term bond fund,
although it may be less stable than that of a short-term bond fund.
Each Fund is not in itself a balanced investment plan. Investors should
consider their investment objective and tolerance for risk when making an
investment decision. When investors sell their Fund shares, they may be
worth more or less than what they originally paid for them.
3
INVESTMENT PRINCIPLES AND RISKS
The value of each Portfolio's investments varies based on many factors. The
value of bonds fluctuates based on changes in domestic or foreign interest
rates, the credit quality of the issuer, market conditions, and other
economic and political news. In general, bond prices rise when interest
rates fall, and vice versa. This effect is usually more pronounced for
longer-term securities. Lower-quality securities offer higher yields, but
also carry more risk.
Stock values fluctuate, sometimes dramatically, in response to the
activities of individual companies and general market and economic
conditions. Over time, however, stocks have shown greater long-term growth
potential than other types of securities.
Because many foreign investments are denominated in foreign currencies,
changes in the value of these currencies can significantly affect a Fund's
share price. General economic factors in the various world markets can
also impact the value of an investor's investment, especially for
securities in emerging markets. Many investments in emerging markets can be
considered speculative, and therefore may offer higher income (for debt
funds) and total return potential, but significantly greater risk.
Each of the Global High Yield Securities Fund and Portfolio is classified
as a `non-diversified'' investment company under the Investment Company
Act of 1940, as amended (the `1940 Act''), and may invest a greater
portion of its assets in a single issuer than a diversified fund. As a
result, this Portfolio may be more susceptible to any single economic,
political or regulatory occurrence than a diversified fund. See `Risk
Factors: Matching the Fund to Your Investments Needs-Non-Diversified
Investment Company''for more information. Each other Fund and Portfolio is
classified as `diversified.''
Bankers Trust may use various investment techniques to hedge a Portfolio's
risks, but there is no guarantee that these strategies will work as
intended. When an investor sells their Fund shares (`Shares''), they may
be worth more or less than what they originally paid for them. See `Risk
Factors: Matching the Fund to Your Investment Needs''herein for more
information.
4
SUMMARY OF FUND EXPENSES
ANNUAL OPERATING EXPENSES are paid out of the assets of each Portfolio and
Fund. Each Portfolio pays an investment advisory fee and an administrative
services fee to Bankers Trust. Each Fund incurs expenses such as
maintaining shareholder records and furnishing shareholder statements. Each
Fund must provide financial reports.
The following table provides: (i) a summary of estimated expenses relating
to purchases and sales of Shares of the Funds and the annual operating
expenses of the Funds and the expenses of the corresponding Portfolio, as a
percentage of average net assets of the Fund, and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in
each Fund. THE TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE PER SHARE
EXPENSES OF EACH FUND AND THE CORRESPONDING PORTFOLIO WILL BE LESS THAN OR
APPROXIMATELY EQUAL TO THE EXPENSES WHICH THE FUND WOULD INCUR IF THE TRUST
RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE ASSETS OF EACH FUND
WERE INVESTED DIRECTLY IN THE TYPE OF SECURITIES BEING HELD BY THE
CORRESPONDING PORTFOLIO.
Annual Operating Expenses
(as a percentage of the average daily net assets of the Fund)
Intermediate Tax Free Fund
Investment advisory fee (after reimbursements or waivers) 0.31%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.54
Total operating expenses (after reimbursements or waivers) 0.85%
Global High Yield Securities Fund
Investment advisory fee (after reimbursements or waivers) 0.56%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.94
Total operating expenses (after reimbursements or waivers) 1.50%
Capital Appreciation Fund
Investment advisory fee (after reimbursements or waivers) 0.58%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.67
Total operating expenses (after reimbursements or waivers) 1.25%
Small Cap Fund
Investment advisory fee (after reimbursements or waivers) 0.58%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.67
Total operating expenses (after reimbursements or waivers) 1.25%
International Equity Fund
Investment advisory fee (after reimbursements or waivers) 0.60%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.90
Total operating expenses (after reimbursements or waivers) 1.50%
5
Pacific Basin Equity Fund
Investment advisory fee (after reimbursements or waivers) 0.89%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.86
Total operating expenses (after reimbursements or waivers) 1.75%
Latin American Equity Fund
Investment advisory fee (after reimbursements or waivers) 0.89%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 1.11
Total operating expenses (after reimbursements or waivers) 2.00%
Examples
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end
of each time period: 1 year 3 years 5 years 10 years
Intermediate Tax Free Fund $9 $27 $47 $105
Global High Yield Securities Fund $15 $47 $82 $179
Capital Appreciation Fund $13 $40 $69 $151
Small Cap Fund $13 $40 $69 $151
International Equity Fund $15 $47 $82 $179
Pacific Basin Equity Fund $18 $55 $95 $206
Latin American Equity Fund $20 $63 $108 $233
The expense tables and the examples above show the costs and expenses that
an investor will bear directly or indirectly as a shareholder of each Fund.
Bankers Trust has voluntarily agreed to waive a portion of its investment
advisory fee with respect to each Portfolio. Without such waiver, each
Portfolio's investment advisory fee would be equal to the following:
Intermediate Tax Free Portfolio -- 0.40%; Global High Yield Securities
Portfolio -- 0.80%; Capital Appreciation Portfolio -- 0.65%; Small Cap
Portfolio -- 0.65%; International Equity Portfolio -- 0.65%; Pacific Basin
Equity Portfolio -- 0.75%; and Latin American Equity Portfolio -- 1.00%.
The expense tables and examples reflect a voluntary undertaking by Bankers
Trust to waive or reimburse expenses such that the total aggregate
operating expenses of each Fund for the fiscal year ended September 30,
1996 (as a percentage of the Fund's average daily net assets) will not
exceed the following: Intermediate Tax Free Fund -- 0.85%; Global High
Yield Securities Fund -- 1.50%; Capital Appreciation Fund -- 1.25%; Small
Cap Fund -- 1.25%; International Equity Fund -- 1.50%; Pacific Basin Equity
Fund -- 1.75%; and Latin American Equity Fund -- 2.00%. In the absence of
this undertaking, `Total Operating Expenses'' would have been as follows:
Intermediate Tax Free Fund -- 1.23%; Global High Yield Securities Fund --
2.50%; Capital Appreciation Fund -- 1.51%; Small Cap Fund -- 1.47%;
International Equity Fund -- 1.76%; Pacific Basin Equity Fund -- 2.06%; and
Latin American Equity Fund -- 2.66%. The examples 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%.
For more information about each Fund's and each Portfolio's expenses see
`Management of the Trusts and Portfolios'' herein.
The Funds are distributed by Edgewood Services, Inc. (`Edgewood'') (the
`Distributor'') to investors includingcustomers of Bankers Trust or to
customers of another bank or a dealer or other institution that has a sub-
shareholder servicing agreement with Bankers Trust (along with Bankers
Trust, a `Service Agent''). Some Service Agents may impose certain
conditions on their customers in addition to or different from those
imposed by the Funds and may charge their customers a direct fee for their
services. Each Service Agent has agreed to trans-
6
mit to shareholders who are its customers appropriate disclosures of any
fees that it may charge them directly.
While reimbursement of distribution expenses in amounts up to 0.20% of
average net assets of each Fund are authorized to be made pursuant to the
Plan of Distribution under Rule 12b-1 of the 1940 Act it is not expected
that any payments will actually be made under that plan in the foreseeable
future.
FINANCIAL HIGHLIGHTS
The following tables show selected data for a Share outstanding, total
investment return ratios to average net assets and other supplemental data
for each Fund for each of the periods indicated and has been audited by
Coopers & Lybrand L.L.P., the Funds' independent accountants, whose report
thereon appears in each Fund's Annual Report which is incorporated by
reference.
Intermediate Tax Free Fund
<TABLE>
<CAPTION>
For
the period
July 20, 1992
For the Period
(Commencement
January 1, 1996 to For the Year Ended
December 31, of Operations) to
September 30, 1996** 1995 1994
1993 December 31, 1992
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.56 $ 9.72 $10.54 $
9.99 $10.00
Income from Investment Operations
Net Investment Income 0.33 0.47 0.42 0.41
0.16
Net Realized and Unrealized Gain (Loss) on
Investment Transactions (0.22) 0.84 (0.82) 0.57
(0.01)
Total from Investment Operations 0.11 1.31 (0.40)
0.98 0.15
Distributions to Shareholders
Net Investment Income (0.33) (0.47) (0.42) (0.41)
(0.16)
Net Realized Gain from Investment Transactions - - -
(0.02) -
Total Distributions (0.33) (0.47) (0.42) (0.43)
(0.16)
Net Asset Value, End of Period$10.34 $10.56 $ 9.72 $10.54 $
9.99
Total Investment Return 4.09% 13.71% (3.81)%
9.94% 3.42%*
Supplemental Data and Ratios
Net Assets, End of Period (000s omitted) $22,008$22,213
$25,303 $31,709$9,992
Ratio to Average Net Assets:
Net Investment Income 4.25%* 4.58% 4.20% 3.88%
3.72%*
Expenses, Including Expenses of the Portfolio*** 0.85%* 0.85%
0.85% 0.85% 0.85%*
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers Trust0.38%* 0.28% 0.36%
0.35% 0.80%*
</TABLE>
* Annualized
** The Board of Trustees approved the change of the fiscal year ends from
December 31 to September 30.
***Expenses allocated from the Intermediate Tax Free Portfolio.
7
Global High Yield Securities Fund
<TABLE>
<CAPTION>
For the
period
December 14,
1993
(Commencement
For the Year Ended of
Operations) to
September 30, 1996 September 30,
1995 September 30, 1994
<S> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period 9.78 $10.29
$10.00
Income from Investment Operations
Net Investment Income 0.87 0.77 0.31
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 1.30 (0.41)
(0.02)
Total from Investment Operations 2.17 0.36 0.29
Distributions to Shareholders
Net Investment Income (0.75) (0.87) -
Net Realized Gain from Investment Transactions - - -
Total Distributions (0.75) (0.87) -
Net Asset Value, End of Period $11.20 $ 9.78 $10.29
Total Investment Return 23.31% 4.28% 3.66%*
Supplemental Data and Ratios
Net Assets, End of Period (000s omitted) $19,541 $22,913
$14,738
Ratio to Average Net Assets:
Net Investment Income 8.04% 8.68% 5.44%*
Expenses, Including Expenses of the Portfolio*** 1.50%
1.74% 1.75%
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers Trust1.00% 0.87%
1.08%*
</TABLE>
Capital Appreciation Fund
<TABLE>
<CAPTION>
For the period
March 9, 1993
For the For the PeriodFor the (Commencement
Year Ended January 1, 1995 to Year Ended of Operations) to
September 30, 1996 September 30, 1995** December 31, 1994 December 31, 1993
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $16.83 $12.10 $11.72 $10.00
Income from Investment Operations
Net Investment Loss (0.10) (0.07) (0.04) (0.01)
Net Realized and Unrealized Gain on
Investment Transactions 1.89 4.80 0.42 1.73
Total from Investment Operations 1.79 4.73 0.38 1.72
Distributions to Shareholders
Net Investment Income - - - -
Net Realized Gain from Securities Transactions (1.83) - - -
Total Distributions (1.83) - - -
Net Asset Value, End of Period $16.79 $16.83 $12.10 $11.72
Total Investment Return 12.35% 39.09% 3.24% 21.54%*
Supplemental Data and Ratios
Net Assets, End of Period (000s omitted) $67,385 $57,380 $42,737 $17,573
Ratio to Average Net Assets:
Net Investment Loss (0.66)% (0.65)%* (0.57)% (0.23)%*
Expenses, Including Expenses of the Portfolio*** 1.25% 1.25%* 1.25% 1.25%*
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers Trust0.26% 0.32%* 0.54% 0.74%*
</TABLE>
* Annualized
**The Board of Trustees approved the change of the fiscal year ends from
December 31 to September 30.
*** Expenses allocated from Global High Yield
Securities Portfolio and Capital Appreciation Portfolio, respectively.
8
Small Cap Fund
<TABLE>
<CAPTION>
For the
period
October 21,
1993
(Commencement
For the Year Ended of
Operations) to
September 30, 1996 September 30,
1995 September 30, 1994
<S> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $18.50 $11.60
$10.00
Income from Investment Operations
Net Investment Loss (0.12) (0.04) (0.03)
Net Realized and Unrealized Gain on Investments 4.65
6.94 1.63
Total from Investment Operations 4.53 6.90 1.60
Distributions to Shareholders
Net Realized Gain from Investment Transactions (1.37) - -
Net Asset Value, End of Period $21.66 $18.50 $11.60
Total Investment Return 26.41% 59.48% 17.06%*
Supplemental Data and Ratios
Net Assets, End of Period (000s omitted) $242,236 $122,935
$21,332
Ratio to Average Net Assets:
Net Investment Loss (0.70)% (0.46)% (0.58)%*
Expenses, Including Expenses of the Portfolio*** 1.25%
1.25% 1.25%*
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers Trust0.22% 0.34%
0.86%*
</TABLE>
International Equity Fund
<TABLE>
<CAPTION>
For the period
August 4, 1992
For the For the PeriodFor the Year
Ended (Commencement
Year Ended January 1, 1995 to December 31, of Operations) to
September 30, 1996 September 30, 1995** 1994 1993 December 31, 1992
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $15.47 $13.37$13.18 $ 9.75 $10.00
Income from Investment Operations
Net Investment Income 0.18 0.14 0.10 0.05 0.03
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 1.80 1.97 0.44 3.60 (0.28)
Total from Investment Operations 1.98 2.11 0.54 3.65 (0.25)
Distributions to Shareholders
Net Investment Income (0.31) (0.00) (0.09)(0.15) -
Net Realized Gain from Investment Transactions (0.37) (0.01)(0.26) (0.07) -
Total Distributions (0.68) (0.01) (0.35)(0.22) -
Net Asset Value, End of Period $16.77 $15.47 $13.37$13.18 $ 9.75
Total Investment Return 13.42% 15.82% 4.12% 37.38% (6.01)%*
Supplemental Data and Ratios
Net Assets, End of Period (000s omitted) $161,692 $82,807 $56,020 $33,869 $8,218
Ratio to Average Net Assets:
Net Investment Income 0.91% 1.55%* 0.84% 0.79% 0.97%*
Expenses, Including Expenses of the Portfolio*** 1.50% 1.50%* 1.50% 1.50% 1.50%*
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers Trust0.26% 0.33%*0.37% 0.62% 1.36%*
</TABLE>
* Annualized
** The Board of Trustees approved the change of the fiscal year ends from
December 31 to September 30.
*** Expenses allocated from Small Cap Portfolio and International Equity
Portfolio, respectively.
9
Pacific Basin Equity Fund
<TABLE>
<CAPTION>
For the
period
November 1,
1993
(Commencement
For the Year Ended of
Operations) to
September 30, 1996 September 30,
1995 September 30, 1994
<S> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $10.96 $11.82
$10.00
Income from Investment Operations
Net Investment Income (Loss) (0.03) 0.01 (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 0.87 (0.49)
1.86
Total from Investment Operations 0.84 (0.48) 1.82
Distributions to Shareholders
Net Realized Gain from Investment Transactions - (0.38)
-
Total Distributions - (0.38) -
Net Asset Value, End of Period $11.80 $10.96 $11.82
Total Investment Return 7.66% (3.87)% 20.11%*
Supplemental Data and Ratios
Net Assets, End of Period (000s omitted) $29,389 $24,504
$25,362
Ratio to Average Net Assets:
Net Investment Income (Loss) (0.24)% 0.12% (0.59)%*
Expenses, Including Expenses of the Portfolio*** 1.75%
1.75% 1.75%*
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers Trust0.31% 0.52%
0.60%*
</TABLE>
Latin American Equity Fund
<TABLE>
<CAPTION>
For the
period
October 25,
1993
(Commencement
For the Year Ended of
Operations) to
September 30, 1996 September 30,
1995 September 30, 1994
<S> <C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $ 8.50 $14.59
$10.00
Income from Investment Operations
Net Investment Income 0.02 0.03 -
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 2.19 (5.92)
4.59
Total from Investment Operations 2.21 (5.89) 4.59
Distributions to Shareholders
Net Realized Gain from Investment Transactions - (0.20)
-
Net Asset Value, End of Period $10.71 $ 8.50 $14.59
Total Investment Return 26.00% (40.68)% 50.01%*
Supplemental Data and Ratios
Net Assets, End of Period (000s omitted) $16,997 $13,624
$27,489
Ratio to Average Net Assets:
Net Investment Income 0.16% 0.29% 0.03%*
Expenses, Including Expenses of the Portfolio*** 2.00%
2.00% 2.00%*
Decrease Reflected in Above Expense Ratio
Due to Absorption of Expenses by Bankers Trust0.66% 1.17%
1.27%*
</TABLE>
* Annualized
** The Board of Trustees approved the change of the fiscal year ends from
December 31 to September 30.
*** Expenses allocated from Pacific Basin Equity Portfolio and Latin
American Equity Portfolio, respectively.
10
INVESTMENT OBJECTIVES AND POLICIES
The Trust seeks to achieve the investment objective of each Fund by
investing all of its Assets in the corresponding Portfolio, which has the
same investment objective as the Fund. Since the investment characteristics
of each Fund will correspond directly to those of the corresponding
Portfolio, the following is a discussion of the various investments of and
techniques employed by each Portfolio. Additional information about the
investment policies of each Portfolio appears in `Risk Factors: Matching
the Fund to Your Investment Needs''herein and in the SAI. There can be no
assurance that the investment objective of either a Fund or the
corresponding Portfolio will be achieved.
The Intermediate Tax Free Portfolio's investment objective is a high level
of current income exempt from Federal income tax consistent with moderate
risk of capital. The Portfolio intends to manage its holdings actively.
Portfolio transactions are undertaken principally to accomplish the
Portfolio's investment objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in
short-term trading consistent with its objective.
The Portfolio seeks to maintain a current yield that is greater than that
generally obtainable from a portfolio of short-term tax-exempt obligations,
subject to applicable quality restrictions. The Portfolio seeks to increase
yields by adjusting the average maturity of its portfolio in light of
prevailing market conditions and credit considerations. The Portfolio will
normally consist of a portfolio of securities with a weighted average
maturity of three to ten years. The remaining maturity of securities
generally will not exceed 20 years at the time of investment. The Portfolio
adjusts its holdings of long-term and short-term debt securities to reflect
its assessment of prospective changes in interest rates, which may
adversely affect current income. The success of this strategy depends upon
the ability of Bankers Trust to forecast changes in interest rates.
The value of securities held by the Portfolio will generally fluctuate
inversely with changes in prevailing interest rates and will also be
affected by changes in the creditworthiness of issuers and other market
factors. The quality criteria applied in the selection of Portfolio
securities are intended to minimize adverse price changes due to credit
considerations. The value of municipal securities in the Portfolio can also
be affected by market reaction to legislative consideration of various tax
reform proposals. Although the value of the assets of the Portfolio and the
net asset value of the Fund will fluctuate, the Portfolio attempts to
conserve the value of its assets to the extent consistent with its
objective.
Quality Information. The Portfolio will not purchase any municipal
obligation unless it is rated at least A, MIG-1 or Prime-1 by Moody's
Investors Service, Inc. (`Moodys'') or A, SP-1 or A-1 by Standard & Poor's
Ratings Group (`S&P'') or it is unrated and in the Adviser's opinion it is
of comparable quality. These standards must be satisfied at the time an
investment is made. If the quality of the investment later declines, the
Portfolio may continue to hold the investment.
Taxable Investments. The Portfolio attempts to invest 100% of its assets in
tax-exempt municipal securities; however the Portfolio is permitted to
invest up to 20% (or greater while maintaining a temporary defensive
position) of the value of its total assets in securities, the interest
income on which is subject to Federal income or alternative minimum tax.
The Portfolio may make taxable investments pending investment of proceeds
of tax-exempt securities, pending settlement of purchases of portfolio
securities, to maintain liquidity to meet redemptions or when it is
advisable in Bankers Trust's opinion because of adverse market conditions.
The taxable investments permitted for the Portfolio include obligations of
the U.S. and its agencies and instrumentalities, bank obligations,
commercial paper and repurchase agreements and other debt securities which
meet the Portfolio's quality requirements.
Municipal Securities. The Portfolio may invest in notes and bonds issued by
or on behalf of states, territories and possessions of the United States
and the District of Columbia and their political subdivisions, agencies,
authorities and instrumentalities. These obligations may be general
obligation instruments secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest, or they
may be revenue instruments payable from specific revenue sources, but not
generally backed by the issuer's taxing power. These include industrial
development bonds where payment is the responsibility of the private
industrial user of the facility financed by the instruments.
Short-Term Municipal Investments. For temporary defensive purposes or for
purposes of liquidity, the assets of the Portfolio may be invested in
short-term municipal obligations. These short-term obligations include
municipal notes of various types, including notes issued in
11
anticipation of receipt of taxes, the proceeds of the sale of bonds, other
revenues or grant proceeds and project notes, as well as municipal
commercial paper and municipal demand obligations such as variable rate
demand notes and master demand obligations. The interest rate on variable
rate demand notes is adjustable at periodic intervals as specified in the
notes. Master demand obligations permit the investment of fluctuating
amounts at periodically adjusted interest rates. Although master demand
obligations are not marketable to third parties, the Portfolio considers
them to be liquid because they are payable on demand. There is no specific
percentage limitation on these investments. The credit quality of variable
rate demand notes and other municipal obligations is frequently enhanced by
various arrangements with domestic or foreign financial institutions, such
as letters of credit, guarantees and insurance, and these arrangements are
considered when investment quality is evaluated. These obligations will be
of comparable quality to municipal bonds and will be purchased in
anticipation of a declining market and rising interest rates, pending
purchase of longer term investments or to maintain liquidity to meet
redemptions. The amortized cost method is used by the Portfolio to value
municipal securities with maturities of less than 60 days; when these
securities are subject to puts separate from the underlying securities, no
value is assigned to the puts. The cost of any such put is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
Other Investments and Investment Techniques. The Portfolio may also utilize
the following investments and investment techniques and practices: puts,
zero coupon municipal securities, repurchase agreements, Rule 144A
securities, when-issued and delayed delivery securities, and options and
futures contracts. See `Risk Factors: Matching the Fund to Your Investment
Needs''herein and in the SAI for more information.
The Global High Yield Securities Portfolio's investment objective is high
current income from investment in a non-diversified portfolio of high yield
non-investment grade debt securities issued in many of the world's
securities markets. Capital appreciation will be considered when consistent
with the primary investment objective of high current income. The Portfolio
intends to invest in Brady bonds and other sovereign debt and in high risk,
lower quality debt securities commonly referred to as `junk bonds'' and
regarded as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligation as well as in the debt securities of issuers located in emerging
markets, Brady bonds and other sovereign debt.
Under normal circumstances, at least 65% of the Portfolio's assets will be
invested in high yield, non-investment grade debt securities of both
governmental and corporate issuers in both the major industrialized markets
and the so-called `emerging markets.'' See ``Risk Factors: Matching the
Fund to Your Investment Needs-Risks of Investing in Foreign Securities''
and `-Risk of Investing in Emerging Markets'' herein.
Although Bankers Trust considers both industrialized and emerging countries
eligible for investment pursuant to the Portfolio's objective, the
Portfolio will not be invested in all such markets at all times.
Furthermore, investing in some emerging markets may be neither feasible nor
desirable from time to time, due to the lack of adequate custodial
arrangements for the Portfolio's assets, exchange controls and overly
burdensome repatriation rules, the lack of organized and liquid securities
markets, and unacceptable political risks. Under normal circumstances, the
Portfolio will invest in at least three emerging markets countries. See
`Risk Factors: Matching the Fund to Your Investment Needs-Risks of
Investing in Foreign Securities''and ``-Risk of Investing in Emerging
Markets''herein.
The Portfolio generally invests in securities which are rated BBB or lower
by S&P or Baa or lower by Moody's or, if unrated, of comparable quality in
the opinion of Bankers Trust. Securities which are rated BBB by S&P or Baa
by Moody's possess some speculative characteristics. A description of the
rating categories is contained in the Appendix herein. There is no lower
limit with respect to the rating categories for securities in which the
Portfolio may invest. See `Risk Factors: Matching the Fund to Your
Investment Needs-Risks of Investing In High Yield Securities (`Junk
Bonds') herein.
The Portfolio is not required to dispose of debt securities whose credit
quality declines at some point after the security is purchased; however, no
more than 25% of the Portfolio's assets will be invested at any time in
securities rated less than CCC by S&P or Caa by Moody's or, if unrated, of
comparable quality in the opinion of Bankers Trust. S&P's lowest rating for
bonds is CI, which is reserved for income bonds on which no interest is
being paid, and D, which is reserved for debt in default and in respect of
which payment of interest or repayment
12
of principal is in arrears. Moody's lowest rating is C, which is applied to
bonds which have extremely poor prospects for ever attaining any real
investment standing. The Portfolio may, from time to time, purchase
defaulted debt securities if, in the opinion of Bankers Trust, the issuer
may resume interest payments in the near future. The Portfolio will not
invest more than 10% of its total assets (at the time of purchase) in
defaulted debt securities, which may be illiquid. Other than as set forth
above, there is no restriction on the percentage of the Portfolio's assets
which may be invested in bonds of a particular rating.
Asset Allocation. The Portfolio invests in debt obligations allocated among
diverse markets and denominated in various currencies, including multi-
currency units such as European Currency Units. The Portfolio may purchase
securities that are issued by the government or a company or financial
institution of one country but denominated in the currency (or multi-
currency unit) of another country.
Non-Diversified Investment Company. The Portfolio is classified as a `non-
diversified''investment company under the 1940 Act, which means the
Portfolio is not limited by the 1940 Act in the proportion of its assets
that may be invested in a single issuer. The Portfolio may, therefore,
invest in the securities of individual issuers to a greater degree than a
diversified fund and may be more susceptible to any single economic,
political or regulatory occurrence affecting those issuers. However, in
order to enable the Fund (and other registered investment companies which
may in the future invest all their assets in the Portfolio) to qualify as a
regulated investment company (a `RIC'') the Portfolio must comply with the
diversification requirement of Subchapter M of the Internal Revenue Code of
1986, as amended (the `Code''), for U.S. Federal income tax purposes. See
`Risk Factors: Matching the Fund to Your Investment Needs-Non-Diversified
Investment Company''herein.
Other Investments and Investment Techniques. The Portfolio may also utilize
the following investments and investment techniques and practices: short-
term instruments, floating rate bonds, zero coupon bonds, sovereign and
supranational debt obligations, Brady bonds, loan participations and
assignments, convertible bonds, preferred stock, foreign currency exchange
transactions, options on foreign currencies, options on foreign bond
indices, futures contracts on foreign bond indices, options on futures
contracts, Rule 144A securities, when-issued or delayed delivery
securities, securities lending, repurchase agreements and reverse
repurchase agreements. See `Risk Factors: Matching the Fund to Your
Investment Needs''herein and in the SAI for further information.
The Portfolio may borrow money for investment purposes. See `Risk Factors
and Certain Securities and Investment Practices''in the SAI.
The Capital Appreciation Portfolio's investment objective is long-term
capital growth; the production of any current income is secondary to this
objective. The Portfolio invests primarily in growth-oriented common stocks
of medium-sized domestic corporations and, to a lesser extent, foreign
corporations.
Bankers Trust employs a flexible investment program in pursuit of the
Portfolio's investment objective. The Portfolio is not restricted to
investments in specific market sectors. The Portfolio may invest in any
market sectors and in companies of any size and may take advantage of any
investment opportunity with attractive long-term prospects. The Adviser
takes advantage of its market access and the research available to it to
select investments in promising growth companies that are involved in new
technologies, new products, foreign markets and special developments, such
as research discoveries, acquisitions, recapitalizations, liquidations or
management changes, and companies whose stock may be undervalued by the
market. These situations are only illustrative of the types of investment
the Portfolio may make. The Portfolio is free to invest in any common stock
which in the Adviser's judgment provides above average potential for long-
term growth of capital and income.
The Portfolio will generally invest a majority of its assets in equity
securities of medium-sized companies (companies with a market
capitalization of between $500 million and $2 billion), but may invest in
securities of companies having various levels of market capitalization,
including smaller companies whose securities may be more volatile and less
liquid than securities issued by larger companies with higher levels of net
worth. Investments will be in companies in various industries. Industry and
company fundamentals along with key investment themes and various
quantitative screens will be used in the investment process. Criteria for
selection of individual securities include the issuer's competitive
13
environment and position, prospects for growth, managerial strength,
earnings momentum and quality, underlying asset value, relative market
value and overall marketability. The Portfolio will follow a disciplined
selling process to lessen market risks.
The Portfolio may also invest up to 25% of its assets in similar securities
of foreign issuers. For further information on foreign investments see
`Risk Factors: Matching the Fund to Your Investment Needs-Risks of
Investing in Foreign Securities''herein.
Other Investments and Investment Techniques. The Portfolio may also utilize
the following investments and investment techniques and practices: short-
term instruments, options on stocks, options on stock indices, futures
contracts on stock indices, foreign investments, options on futures
contracts, foreign currency exchange transactions, options on foreign
currencies, Rule 144A securities, when-issued and delayed delivery
securities, securities lending, and repurchase agreements. See `Risk
Factors: Matching the Fund to Your Investment Needs''herein and in the SAI
for further information.
The Small Cap Portfolio's investment objective is long-term capital growth;
the production of any current income is secondary to this objective.
The Portfolio seeks to provide long term capital growth by investing
primarily in equity securities of smaller companies. The Portfolio's policy
is to invest in equity securities of smaller companies that Bankers Trust
believes are in an early stage or transitional point in their development
and have demonstrated or have the potential for above average capital
growth. The Adviser will select companies which have the potential to gain
market Share in their industry, achieve and maintain high consistent
profitability or produce increases in earnings. The Adviser also seeks
companies with strong company management and superior fundamental strength.
The Adviser employs a flexible investment program in pursuit of the
Portfolio's investment objective. The Portfolio is free to invest in any
common stock which in the Adviser's judgement provides above average
potential for long-term growth of capital and income.
Under normal market conditions, the Portfolio will invest at least 65% of
its assets in smaller companies (with market capitalizations less than $750
million at time of purchase) that offer strong potential for capital
growth. Small capitalization companies have the potential to show earnings
growth over time that is well above the growth rate of the overall economy.
The Portfolio may also invest in larger, more established companies that
the Adviser believes may offer the potential for strong capital growth due
to their relative market position, anticipated earnings growth, changes in
management or other similar opportunities. The Portfolio will follow a
disciplined selling process to lessen market risks.
For temporary defensive purposes, when in the opinion of the Adviser that
market conditions so warrant, the Portfolio may invest all or a portion of
its Assets in common stocks of larger, more established companies or in
fixed-income securities or short-term money market securities. To the
extent the Portfolio is engaged in temporary defensive investments, the
Portfolio will not be pursuing its investment objective.
The Portfolio may also invest up to 25% of its assets in similar securities
of foreign issuers. For further information on foreign investments see
`Risk Factors: Matching the Fund to Your Investment Needs-Risks of
Investing in Foreign Securities''herein.
Other Investments and Techniques. The Portfolio may also utilize the
following investments and investment techniques and practices: short-term
instruments, options on stocks, options on stock indices, futures contracts
on stock indices, options on future contracts, foreign currency exchange
transactions, options on foreign currencies, Rule 144A securities, when-
issued and delayed delivery securities, securities lending, foreign
instruments and repurchase agreements. See `Risk Factors: Matching the
Fund to Your Investment Needs''herein and in the SAI for further
information.
The International Equity Portfolio's investment objective is long-term
capital appreciation from investment in foreign equity securities (or other
securities with equity characteristics); the production of any current
income is incidental to this objective. The Portfolio invests primarily in
established companies based in developed countries outside the United
States, but the Portfolio also invests in securities of issuers in emerging
markets. See `Risk Factors: Matching the Fund to Your Investment Needs-
Risks of Investing in Foreign Securities''and ``-Risk of Investing in
Emerging Markets''herein. Under normal circumstances, the Portfolio will
invest at least 65% of the value of its total assets in the equity
14
securities of issuers based in at least three countries other than the
United States. The Portfolio's investments will generally be diversified
among several geographic regions and countries.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Portfolio. Criteria for selection of individual
securities include the issuer's competitive position, prospects for growth,
managerial strength, earnings quality, underlying asset value, relative
market value and overall marketability. The Portfolio may invest in
securities of companies having various levels of net worth, including
smaller companies whose securities may be more volatile than securities
offered by larger companies with higher levels of net worth.
In other countries and regions where capital markets are underdeveloped or
not easily accessed and information is difficult to obtain, the Portfolio
may choose to invest only at the market level. Here, to the extent
available and consistent with applicable regulations, the Portfolio may
seek to achieve country exposure through use of options or futures based on
an established local index or through investment in other registered
investment companies rather than investing directly in individual
securities. Investment in other investment companies is limited in amount
by the 1940 Act, will involve the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies and
may result in a duplication of fees and expenses.
The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic over-the-
counter markets and may invest in restricted or unlisted securities.
Other Investments and Investment Techniques. The Portfolio may also utilize
the following investments and investment techniques and practices: short-
term instruments, foreign currency exchange transactions, options on
foreign currencies, American Depositary Receipts (`ADRs''), Global
Depositary Receipts (`GDRs''), European Depositary Receipts (``EDRs''),
options on stocks, options on foreign stock indices, futures contracts on
foreign stock indices, options on futures contracts, Rule 144A securities,
when-issued and delayed delivery securities, securities lending and
repurchase agreements. See `Risk Factors: Matching the Fund to Your
Investment Needs''herein and in the SAI for further information.
The Pacific Basin Equity Portfolio's investment objective is long-term
capital appreciation from investment primarily in the equity securities (or
other securities with equity characteristics) of companies domiciled in, or
doing business in the Pacific Basin region, other than Japan; the
production of any current income is incidental to this objective.
Investment in such securities involves certain considerations which are not
normally involved in investment in securities of U.S. issuers, and an
investment in the Fund may be considered speculative.
For purposes of this Prospectus, `issuers domiciled in, or doing business
in, the Pacific Basin region (other than Japan)''shall include securities
of issuers: (1) which are organized under the laws of Pacific Basin
countries (see below); (2) for which the principal securities trading
market is in a Pacific Basin country; or (3) which derive a significant
proportion (at least 50 percent) of their revenues or profits from goods
produced or sold, investments made, or services performed in the countries
of the Pacific Basin or which have at least 50 percent of their assets
situated in the countries of the Pacific Basin. It is expected under normal
conditions that at least 65% of the Portfolio's assets will be invested in
the equity securities of issuers based in at least three countries in the
Pacific Basin.
For the purpose of this Prospectus, the `Pacific Basin'' includes, but is
not limited to, the following countries: Hong Kong, India, Indonesia,
Malaysia, New Zealand, Pakistan, the Philippines, the People's Republic of
China (`China''), Singapore, Sri Lanka, South Korea, Thailand, Taiwan and
Vietnam. See `Risk Factors and Certain Securities and Investment
Practices-Risks of Investing in Foreign Securities''and ``-Risks of
Investing in Emerging Markets''herein and ``Foreign Securities: Special
Consideration Concerning China and China Region''in the SAI.
The Portfolio will be managed using a disciplined, value-oriented
investment philosophy that stresses the inherent value of, and the medium
term outlook for, the companies under examination. Experience has proven
that often the real basis of a business is quite different from that
perceived by the market: a misconception that usually results in its Shares
trading below its true business or replacement value. The exploitation of
this `perception/reality'' gap is a hallmark of the investment style that
has been adopted for the Portfolio, and a potential source of value for its
investors.
15
`Value'' investing means trying to find companies which are mispriced by
the market for reasons of neglect, fashion or misconception. These
opportunities arise out of legislative changes, industrial restructuring
and technology advancements, for example. As a result, Bankers Trust and
the sub-investment adviser attach great importance to analyzing trends and
accessing possible breaks with traditional price patterns. At the company
level, the emphasis is placed on assessing the inherent `business'' value
of the firm. While this often varies from the stock market's valuation, the
Adviser and the sub- investment adviser believe a company's stock price
tends to gravitate to their `business'' value over time.
The Portfolio's investments will generally be diversified among several
geographic regions and countries in the Pacific Basin. Criteria for
determining the appropriate distribution of investment among various
countries and regions include the prospects for relative growth among
foreign countries, expected levels of inflation, government policies
influencing business conditions, the outlook for currency relationships and
the range of alternative opportunities available to international
investors.
The Portfolio will not invest more than 20% of the value of its total
assets in issuers domiciled in China.
In countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, the Portfolio may
choose to invest only at the market level. Here, to the extent available
and consistent with applicable regulations, the Portfolio may seek to
achieve country exposure through the use of options on futures based on an
established local index or through investment in other registered
investment companies. Investment in other investment companies is limited
in amount by the 1940 Act, will involve the indirect payment of a portion
of the expenses, including advisory fees, of such other investment
companies and may result in a duplication of fees and expenses.
The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic over-the-
counter markets and may invest in restricted unlisted securities.
Other Investments and Investment Techniques. The Portfolio may also utilize
the following investments and investment techniques and practices: short-
term instruments, foreign currency exchange transactions, options on
foreign currencies, ADRs, GDRs, EDRs, options on stocks, options on foreign
stock indices, futures contracts on foreign stock indices, options on
futures contracts, Rule 144A securities, when-issued and delayed delivery
securities, securities lending and repurchase agreements. See `Risk
Factors: Matching the Fund to Your Investment Needs''herein and in the SAI
for further information.
The Latin American Equity Portfolio's investment objective is long-term
capital appreciation from investment primarily in the equity securities (or
other securities with equity characteristics) of companies domiciled in, or
doing business in, Latin America; the production of any current income is
incidental to this objective. Investment in such securities involves
certain considerations which are not normally involved in investment in
securities of U.S. issuers, and an investment in the Fund may be considered
speculative. See `Risk Factors: Matching the Fund to Your Investment
Needs-Risks of Investing in Foreign Securities''and ``-Risk of Investing
in Emerging Markets''herein and ``Foreign Securities: Special
Consideration Concerning Latin America''in the SAI. It is expected under
normal conditions that at least 65% of the Portfolio's total assets will be
invested in the equity securities of Latin American issuers.
The Portfolio may borrow money for investment purposes. See `Risk Factors:
Matching the Fund to Your Investment Needs''herein.
The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic over-the-
counter markets and may invest in restricted or unlisted securities.
For purposes of this Prospectus, `Latin America'' is defined as Mexico,
and all countries in Central America and South America, including
Argentina, Brazil, Chile, Colombia, Peru and Venezuela.
As used in this Prospectus, `securities of Latin American issuers'' is
defined as: (i) securities of companies for which the principal securities
trading market is in Latin America; (ii) securities, traded in any market,
of companies that derive 50% or more of their total revenue from either
goods or services produced in Latin America or sales made in Latin America;
(iii) securities of companies organized under the laws of, and with a
principal office in, Latin America; or (iv) securities issued or guaranteed
by the government of a country in Latin America,
16
its agencies or instrumentalities, political subdivisions or the central
bank of such a country. Determinations as to eligibility will be made by
Bankers Trust, under the supervision of the Board of Trustees of BT
Investment Portfolios, based on publicly available information and
inquiries made to the issuers.
Bankers Trust intends to consider investment only in those countries in
Latin America in which it believes investing is feasible and does not
involve undue political risks. As of the date of this Prospectus, this list
included Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
Under normal circumstances, the Portfolio's investments will be diversified
among at least three Latin American countries.
The Portfolio may invest in securities of companies having various levels
of net worth, including small companies whose securities may be more
volatile than securities offered by larger companies with higher levels of
net worth.
In other countries and regions where capital markets are underdeveloped or
not easily accessed and information is difficult to obtain, the Portfolio
may choose to invest only at the market level. Here, to the extent
available and consistent with applicable regulations, the Portfolio may
seek to achieve country exposure through the use of options or futures
based on an established local index or through investment in other
registered investment companies. Investment in other investment companies
is limited in amount by the 1940 Act, will involve the indirect payment of
a portion of the expenses, including advisory fees, of such other
investment companies and may result in a duplication of fees and expenses.
Fixed Income Investments. For purposes of seeking capital appreciation, the
Portfolio may invest up to 35% of its total assets in debt securities of
Latin American issuers which are rated at least C by S&P or Moody's or, if
unrated, of comparable quality in the opinion of Bankers Trust. As an
operating policy, which may be changed by the Board of Trustees of BT
Investment Portfolios, the Portfolio will not invest more than 10% of its
total assets in debt securities rated BBB or lower by S&P or Baa or lower
by Moody's. Securities which are rated BBB by S&P or Baa by Moody's possess
speculative characteristics. Bonds rated C by S&P are of the lowest quality
and may be used when the issuer has filed a bankruptcy petition, but debt
payments are still being paid. Moody's lowest rating is C, which is applied
to bonds which have extremely poor prospects of ever attaining any real
investment standing. See `Risk Factors and Certain Securities and
Investment Practices-Risks of Investing in High Yield Securities (Junk
Bonds).''Certain debt securities can provide the potential for capital
appreciation based on various factors such as changes in interest rates,
economic and market conditions, improvement in an issuer's ability to repay
principal and pay interest and ratings upgrades. Additionally, convertible
bonds offer the potential for capital appreciation through the conversion
feature, which enables the holder of the bond to benefit from increases in
the market price of the securities into which they are convertible.
Other Investments and Investment Techniques. The Portfolio may also utilize
the following investments and investment techniques and practices: Brady
bonds, foreign currency exchange transactions, options on foreign
currencies, ADRs, GDRs, EDRs, options on stocks, options on foreign stock
indices, futures contracts on foreign stock indices, options on futures
contracts, when-issued and delayed delivery securities, Rule 144A
securities, short-term instruments, repurchase agreements, reverse
repurchase agreements, leverage and securities lending. See `Risk Factors:
Matching the Fund to Your Investment Needs''herein and in the SAI for
further information.
17
Risk Factors: Matching the Fund to Your Investment Needs
The following pages contain more detailed information about types of
instruments in which a Portfolio may invest and strategies Bankers Trust
may employ in pursuit of a Portfolio's investment objective. A summary of
risks and restrictions associated with these instrument types and
investment practices is included as well.
Bankers Trust may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so
will help a Portfolio achieve its goal. Holdings and recent investment
strategies are described in the financial reports of a Fund and the
corresponding Portfolio, which are sent to Fund Shareholders twice a year.
For a free SAI or financial report, call an Investment Professional.
Risks of Investing in Foreign Securities
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in
securities of companies organized and operated in the United States.
Investors should realize that the value of a Portfolio's foreign
investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control or tax regulations in foreign
countries. In addition, changes in government administrations or economic
or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Portfolio's operations. Furthermore, the economies
of individual foreign nations may differ from the U.S. economy, whether
favorably or unfavorably, in areas such as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position; it may also be more difficult to obtain
and enforce a judgment against a foreign issuer. In general, less
information is publicly available with respect to foreign issuers than is
available with respect to U.S. companies. Most foreign companies are also
not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. Any foreign investments made
by the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of a Portfolio
as measured in U.S. dollars will be affected favorably or unfavorably by
changes in exchange rates. In order to protect against uncertainty in the
level of future foreign currency exchange rates, each Portfolio is also
authorized to enter into certain foreign currency exchange transactions.
Furthermore, a Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities of
U.S. companies. The settlement periods for foreign securities, which are
often longer than those for securities of U.S. issuers, may affect
portfolio liquidity. Finally, there may be less government supervision and
regulation of securities exchanges, brokers and issuers in foreign
countries than in the United States.
Risk of Investing in Emerging Markets
The world's industrialized markets generally include but are not limited to
the following: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, the
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland,
the United Kingdom, and the United States; the world's emerging markets
generally include but are not limited to the following: Argentina, Bolivia,
Brazil, Bulgaria, Chile, China, Colombia, Costa Rica, the Czech Republic,
Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, the Ivory Coast,
Jordan, Malaysia, Mexico, Morocco, Nicaragua, Nigeria, Pakistan, Peru, the
Philippines, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay,
Venezuela, Vietnam and Zimbabwe.
Investment in securities of issuers based in underdeveloped emerging
markets entails all of the risks of investing in securities of foreign
issuers outlined in this section to a heightened degree. These heightened
risks include: (i) greater risks of expropriation, confiscatory taxation,
nationalization, and less social, political and economic stability; (ii)
the smaller size of the market for such securities and a low or nonexistent
volume of trading, resulting in lack of liquidity and in price volatility;
(iii) certain national policies which may restrict the Portfolio's
investment opportunities including restrictions on investing in issuers or
industries deemed sensitive to relevant
18
national interests; and (iv) in the case of Eastern Europe and in China and
other Asian countries, the absence of developed capital markets and legal
structures governing private or foreign investment and private property and
the possibility that recent favorable economic and political developments
could be slowed or reversed by unanticipated events.
So long as the Communist Party continues to exercise a significant or, in
some countries, dominant role in Eastern European countries or in China and
other Asian countries, investments in such countries will involve risks of
nationalization, expropriation and confiscatory taxation. The Communist
governments of a number of Eastern European countries expropriated large
amounts of private property in the past, in many cases without adequate
compensation, and there may be no assurance that such expropriation will
not occur in the future. In the event of such expropriation, a Portfolio
could lose a substantial portion of any investments it has made in the
affected countries. Further, no accounting standards exist in Eastern
European countries. Finally, even though certain Eastern European
currencies may be convertible into U.S. dollars, the conversion rates may
be artificial to the actual market values and may be adverse to Fund
shareholders.
In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive
than in the United States. Such markets have been unable to keep pace with
the volume of securities transactions, making it difficult to conduct such
transactions. The inability of a Portfolio to make intended security
purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of a security
due to settlement problems could result either in losses to the Portfolio
due to subsequent declines in the value of the security or, if the
Portfolio has entered into a contract to sell the security, could result in
possible liability to the purchaser.
Risks of Investing in High Yield Securities (`Junk Bonds'')
Lower-rated long-term securities, including securities rated from BB to D
by S&P or Ba to C by Moody's or, if unrated, of comparable quality in the
opinion of Bankers Trust, will usually offer higher yields than higher-
rated securities. However, there is more risk associated with these
investments. This is because of the reduced creditworthiness and increased
risk of default that these securities carry. Lower-rated long-term
securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher-rated securities which react
primarily to fluctuations in the general level of interest rates. Lower
rated long-term securities also involve greater sensitivity to significant
increases in interest rates. Short-term corporate and market developments
affecting the prices and liquidity of lower-rated long-term securities
could include adverse news impacting major issues or underwriters or
dealers in lower-rated long-term or unrated securities. In addition, since
there are fewer investors in lower-rated long-term securities, it may be
harder to sell securities at an optimum time.
An economic downturn may adversely affect the value of some lower-rated
long-term bonds. Such a downturn may especially affect highly leveraged
companies or companies in cyclically sensitive industries, where
deterioration in a company's cash flow may impair its ability to meet its
obligation to pay principal and interest to bondholders in a timely
fashion. From time to time, as a result of changing conditions, issuers of
lower-rated long-term bonds may seek or may be required to restructure the
terms and conditions of the securities they have issued. As a result of
these restructurings, holders of lower-rated long-term securities may
receive less principal and interest than originally expected at the time
such bonds were purchased. In the event of a restructuring, the Portfolio
may bear additional legal or administrative expenses in order to maximize
recovery from an issuer. The secondary trading market for lower-rated
long-term bonds is generally less liquid than the secondary trading market
for higher-rated bonds.
The risk of loss due to default by the issuer is significantly greater for
the holders of high yield securities because such securities are generally
unsecured and are often subordinated to other obligations of the issuer.
During an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of high yield securities may experience financial
stress and may not have sufficient revenues to meet their interest payment
obligations. An issuer's ability to service its debt obligations may also
be adversely affected by specific corporate developments, its inability to
meet specific projected business forecasts, or the unavailability of
additional financing.
Factors adversely affecting the market value of high yield and other
Portfolio securities will adversely affect
19
the corresponding Fund's net asset value. In addition, a Portfolio may
incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
holdings. As a matter of operating policy, the Global High Yield Securities
Portfolio and Latin American Equity Portfolio will not invest more than 10%
of their total assets (at the time of purchase) in default debt securities,
which may be illiquid.
Risks of Investing in Medium- and Small-Capitalization Stocks
Historically, medium- and small-capitalization stocks have been more
volatile in price that the larger-capitalization stocks included in the S&P
500. Among the reasons for the greater price volatility of these securities
are the less certain growth prospects of smaller firms, the lower degree of
liquidity in the markets for such stocks, and the greater sensitivity of
medium- and small-size companies to changing economic conditions. In
addition to exhibiting greater volatility, medium- and small-size company
stocks may fluctuate independently of larger company stocks. Medium- and
small-size company stocks may decline in price as large company stocks
rise, or rise in prices as large company stocks decline.
Non-Diversified Investment Company
The Global High Yield Securities Portfolio and Fund are each classified as
a `non-diversified'' investment company so that with respect to 50% of the
Portfolio's assets, it will be able to invest more than 5% of its assets in
obligations of one or more issuers, while being limited with respect to the
other half of its assets to investments not exceeding 5% of the Portfolio's
total assets. (A `diversified'' investment company would be required under
the 1940 Act, to maintain at least 75% of its assets in cash (including
foreign currency), cash items, U.S. government securities, and other
securities limited per issuer to not more than 5% of the investment
company's total assets.) In order to enable the Fund to qualify as a
regulated investment company under the Code, the Portfolio, among other
things, may not invest more than 25% of its assets in obligations of any
one issuer (other than U.S. government securities). As a `non-
diversified''investment company, the Portfolio may invest a greater
proportion of its assets in the securities of a smaller number of issuers
and therefore may be subject to greater market and credit risk than a more
broadly diversified fund.
Additional Investment Information. The Portfolio will not have more than
25% of the current value of its total assets invested in any single
industry, provided that this restriction shall not apply to debt securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
SPECIAL INFORMATION CONCERNING
MASTER-FEEDER FUND STRUCTURE
Unlike other open-end management investment companies (mutual funds) which
directly acquire and manage their own portfolio securities, each Fund seeks
to achieve its investment objective by investing all of its Assets in the
corresponding Portfolio, a separate registered investment company with the
same investment objectives as the corresponding Fund. Therefore, an
investor's interest in the Portfolio's securities is indirect. In addition
to selling a beneficial interest to the corresponding Fund, each Portfolio
may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in a Portfolio on the same terms and
conditions and will pay a proportionate Share of the Portfolio's expenses.
However, the other investors investing in a Portfolio are not required to
sell their Shares at the same public offering price as the Fund due to
variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the different funds that
invest in the Portfolio. Such differences in returns are also present in
other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Bankers Trust, as the
Administrator, at (800) 730-1313.
The master-feeder structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.
Smaller funds investing in a Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from a Portfolio, the remaining funds may experience higher
pro rata operating expenses, thereby producing lower returns (however, this
possibility exists as well for traditionally structured funds which have
large institutional investors). Additionally, a Portfolio may become less
diverse, resulting in increased portfolio risk. Also, funds with a greater
pro rata ownership in a Portfolio could have effective voting control of
the operations of the Portfolio. Except as permitted by the SEC, whenever
the
20
Trust is requested to vote on matters pertaining to a Portfolio, the Trust
will hold a meeting of shareholders of the Fund and will cast all of its
votes in the same proportion as the votes of the Fund's shareholders. Fund
shareholders who do not vote will not affect the Trust's votes at the
Portfolio meeting. The percentage of the Trust's votes representing Fund
shareholders not voting will be voted by the Trustees or officers of the
Trust in the same proportion as the Fund shareholders who do, in fact,
vote. Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the
Portfolio. Any such withdrawal could result in a distribution `in kind''
of portfolio securities (as opposed to a cash distribution from the
Portfolio). If securities are distributed, the Fund could incur brokerage,
tax or other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding
the above, there are other means for meeting redemption requests, such as
borrowing.
A Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests
of the shareholders of the Fund to do so. Upon any such withdrawal, the
Board of Trustees of the Trust would consider what action might be taken,
including the investment of all the Assets of the Fund in another pooled
investment entity having the same investment objectives as the Fund or the
retaining of an investment adviser to manage the Fund's Assets in
accordance with the investment policies described herein with respect to
the corresponding Portfolio.
Each Fund's investment objective is not a fundamental policy and may be
changed upon notice to but without the approval of the Fund's shareholders.
If there is a change in a Fund's investment objective, the Fund's
shareholders should consider whether the Fund remains an appropriate
investment in light of their then-current needs. The investment objective
of each Portfolio is also not a fundamental policy. Shareholders of the
Funds will receive 30 days prior written notice with respect to any change
in the investment objective of a Fund or the corresponding Portfolio. See
`Risk Factors and Certain Securities and Investment Practices'' in the SAI
for a description of the fundamental policies of each Portfolio that cannot
be changed without approval by `the vote of a majority of the outstanding
voting securities''(as defined in the 1940 Act) of the Portfolio.
For descriptions of the investment objective, policies and restrictions of
each Portfolio, see `Investment Objectives and Policies'' herein and
`Risk Factors: Matching the Fund to Your Investment Needs'' in this
Prospectus and in the SAI. For descriptions of the management of the Trusts
and the Portfolios, see `Management of the Trusts and the Portfolios''
herein and in the SAI. For descriptions of the expenses of the Portfolio,
see `Summary of Fund Expenses'' herein and ``Management of the Trust and
the Portfolios''herein and in the SAI.
SECURITIES AND INVESTMENT PRACTICES
Equity Securities. As used herein, `equity securities'' are defined as
common stock, preferred stock, trust or limited partnership interests,
rights and warrants to subscribe to or purchase such securities, sponsored
or unsponsored ADRs, EDRs, GDRs, and convertible securities, consisting of
debt securities or preferred stock that may be converted into common stock
or that carry the right to purchase common stock. Common stocks, the most
familiar type, represent an equity (ownership) interest in a corporation.
Although equity securities have a history of long-term growth in value,
their prices fluctuate based on changes in a company's financial condition
and on overall market and economic conditions. Smaller companies are
especially sensitive to these factors.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. Debt
securities, loans, and other direct debt have varying degrees of quality
and varying levels of sensitivity to changes in interest rates. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds.
Lower-quality foreign government securities are often considered to be
speculative and involve greater risk of default or price changes, or they
may already be in default. These risks are in addition to the general risks
associated with foreign securities.
21
Convertible Securities. A convertible security is a bond or preferred stock
which may be converted at a stated price within a specific period of time
into a specified number of Shares of common stock of the same or different
issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-
convertible debt securities. While providing a fixed income stream-
generally higher in yield than in the income derived from a common stock
but lower than that afforded by a non-convertible debt security-a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of common
stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion
value (the value of the underlying Shares of common stock if the security
is converted). As a fixed income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise; however, the price of a
convertible security generally increases as the market value of the
underlying stock increases, and generally decreases as the market value of
the underlying stock declines. Investments in convertible securities
generally entail less risk than investments in the common stock of the same
issuer.
Preferred Stock. Preferred stock has a preference in liquidation (and,
generally dividends) over common stock but is subordinated in liquidation
to debt. As a general rule the market value of preferred stocks with fixed
dividend rates and no conversion rights varies inversely with interest
rates and perceived credit risk, with the price determined by the dividend
rate. Some preferred stocks are convertible into other securities, for
example common stock, at a fixed price and ratio or upon the occurrence of
certain events. The market price of convertible preferred stocks generally
reflects an element of conversion value. Because many preferred stocks
lack a fixed maturity date, these securities generally fluctuate
substantially in value when interest rates change; such fluctuations often
exceed those of long-term bonds of the same issuer. Some preferred stocks
pay an adjustable dividend that may be based on an index, formula, auction
procedure or other dividend rate reset mechanism. In the absence of credit
deterioration, adjustable rate preferred stocks tend to have more stable
market values than fixed rate preferred stocks.
All preferred stocks are also subject to the same types of credit risks of
the issuer as corporate bonds. In addition, because preferred stock is
junior to debt securities and other obligations of an issuer, deterioration
in the credit rating of the issuer will cause greater changes in the value
of a preferred stock than in a more senior debt security with similar yield
characteristics. Preferred stocks may be rated by S&P and Moody's although
there is no minimum rating which a preferred stock must have (and a
preferred stock may not be rated) to be an eligible investment for a
Portfolio. Bankers Trust expects, however, that generally the preferred
stocks in which a Portfolio invests will be rated at least CCC by S&P or
Caa by Moody's or, if unrated, of comparable quality in the opinion of
Bankers Trust. Preferred stocks rated CCC by S&P are regarded as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations and represent the highest degree of speculation
among securities rated between BB and CCC; preferred stocks rated Caa by
Moody's are likely to be in arrears on dividend payments. Moody's rating
with respect to preferred stocks does not purport to indicate the future
status of payments of dividends.
Warrants are instruments which entitle the holder to buy underlying equity
securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying securities.
U.S. Government Securities are high-quality debt securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. government. Not all U.S. government securities are backed by the full
faith and credit of the United States. For example, securities issued by
the Farm Credit Banks or by the Federal National Mortgage Association are
supported by the instrumentality's right to borrow money from the U.S.
Treasury under certain circumstances. However, securities issued by other
agencies or instrumentalities are supported only by the credit of the
entity that issued them.
ADRs, GDRs and EDRs are certificates evidencing ownership of Shares of a
foreign-based issuer held in trust by a bank or similar financial
institution. Designed for use in U.S. and European securities markets,
respectively, ADRs, GDRs and EDRs are alternatives to the purchase of the
underlying securities in their national
22
markets and currencies. ADRs, GDRs and EDRs are subject to the same risks
as the foreign securities to which they relate. See `Risk Factors and
Certain Securities and Investment Practices-Risks of Investing in Foreign
Securities''herein.
Puts. The Intermediate Tax Free Portfolio may purchase municipal bonds or
notes together with the right to resell them at an agreed price or yield
within a specified period prior to maturity. This right to resell is known
as a put. The aggregate price paid for securities with puts may be higher
than the price which otherwise would be paid. Consistent with the
investment objectives of the Portfolio and subject to the supervision of
the Trustees of the Portfolio, the purpose of this practice is to permit
the Portfolio to be fully invested in tax-exempt securities while
maintaining the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions, to purchase at a later date
securities other than those subject to the put and to facilitate Bankers
Trust's ability to manage the Portfolio actively. The principal risk of
puts is that the put writer may default on its obligation to repurchase.
Bankers Trust will monitor each writer's ability to meet its obligations
under puts.
The amortized cost method is used by the Portfolio to value municipal
securities with maturities of less than 60 days; when these securities are
subject to puts separate from the underlying securities, no value is
assigned to the puts. The cost of any such put is carried as an unrealized
loss from the time of purchase until it is exercised or expires.
Zero Coupon Bonds are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile, and certain zero coupon
bonds move in the same direction as interest rates.
Zero Coupon Municipal Securities. The Intermediate Tax Free Portfolio may
invest in zero coupon municipal securities which are debt securities issued
or sold at a discount from their face value which do not entitle the holder
to any periodic payment of interest prior to maturity or a specified
redemption date (or cash payment date). The amount of the discount varies
depending on the time remaining until maturity or cash payment date,
prevailing interest rates, liquidity of the security and perceived credit
quality of the issuer. Zero coupon securities also may take the form of
debt securities that have been stripped of their unmatured interest
coupons, the coupons themselves and receipts or certificates representing
interests in such stripped debt obligations and coupons. The market prices
of zero coupon securities generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a
greater degree to changes in interest rates than interest-bearing
securities having similar maturities and credit qualities.
Floating Rate Bonds may have interest rates that move in tandem with a
benchmark, helping to stabilize their prices.
Sovereign and Supranational Debt Obligations. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational
organizations (`sovereign debt obligations''), especially sovereign debt
obligations of developing countries, may involve a high degree of risk, and
may be in default or present the risk of default. The issuer of the
obligation or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal and interest when
due, and may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend on
political as well as economic factors.
Brady Bonds. `Brady bonds'' are bonds issued as a result of a
restructuring of a country's debt obligations to commercial banks under the
`Brady plan.'' Brady bonds have been issued by the governments of
Argentina, Costa Rica, Mexico, Nigeria, Uruguay, Venezuela, Brazil and the
Philippines, as well as other emerging market countries. Most Brady bonds
are currently rated below BBB by S&P or Baa by Moody's. While Bankers Trust
is not aware of the occurrence of any payment defaults on Brady bonds,
investors should recognize that these debt securities have been issued only
recently and, accordingly, do not have a long payment history. Brady bonds
may be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the secondary market
for Latin American debt.
Rule 144A Securities are securities in the United States that are not
registered for sale under Federal securities laws but which can be resold
to institutions under SEC Rule 144A. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the 15% limit on illiquid
23
securities. Under the supervision of the Board of Trustees of the
Portfolio, Bankers Trust determines the liquidity of restricted securities
and, through reports from Bankers Trust, the Board will monitor trading
activity in restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Portfolio could be
adversely affected.
When-Issued and Delayed Delivery Securities. Each Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take place as long as a month or more
after the date of the purchase commitment. The value of these securities is
subject to market fluctuation during this period and no income accrues to
the Portfolio until settlement takes place. The Portfolio maintains with
the Custodian a segregated account containing high grade liquid securities
in an amount at least equal to these commitments.
Repurchase Agreements. In a repurchase agreement, a Portfolio buys a
security at one price and simultaneously agrees to sell it back at a higher
price at a future date. Delays or losses could result if the other party to
the agreement defaults or becomes insolvent.
Reverse Repurchase Agreements. In a reverse repurchase agreement, a
Portfolio temporarily transfers possession of a portfolio instrument to
another party in return for cash. This could increase the risk of
fluctuation in the Fund's yield or in the market value of its assets. A
reverse repurchase agreement is a form of borrowing and will be counted
towards each Portfolio's borrowing restrictions. See `Risk Factors and
Certain Securities and Investment Practices -Leverage''herein and in the
SAI.
Investment Companies. With respect to certain countries in which capital
markets are either less developed or not easily accessed, investments by
the Portfolio may be made through investment in other registered investment
companies that in turn are authorized to invest in the securities of such
countries. Investment in other investment companies is limited in amount by
the 1940 Act, will involve the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies and
may result in a duplication of fees and expenses.
Short-Term Instruments. Each Portfolio intends to stay invested in the
securities described above to the extent practical in light of its
objective and long-term investment perspective. However, a Portfolio's
assets may be invested in high quality short-term investments with
remaining maturities of 397 days or less to meet anticipated redemptions
and expenses for day-to-day operating purposes and when, in Bankers Trust's
opinion, it is advisable to adopt a temporary defensive position because of
unusual and adverse conditions affecting the respective markets.
Securities Lending. Each Portfolio (other than the Intermediate Tax Free
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. During the term of the loan, the Portfolio continues to bear
the risk of fluctuations in the price of the loaned securities. In lending
securities to brokers, dealers and other financial organizations, a
Portfolio is subject to risks, which like those associated with other
extensions of credit, include delays in recovery and possible loss of
rights in the collateral should the borrower fail financially.
Leverage. The Global High Yield Securities Portfolio and Latin American
Equity Portfolio may each borrow up to one-third of the value of its total
assets, from banks or through the use of reverse repurchase agreements, to
increase its holdings of portfolio securities. Under the 1940 Act, each
Portfolio is required to maintain continuous asset coverage of 300% with
respect to such borrowings and to sell (within three days) sufficient
portfolio holdings to restore such coverage if it should decline to less
than 300% due to market fluctuations or otherwise, even if such
liquidations of a Portfolio's holdings may be disadvantageous from an
investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any increase
or decrease in the value of each Portfolio's securities and the
corresponding Fund's net asset value and money borrowed by a Portfolio will
be subject to interest and other costs (which may include commitment fees
and/or the cost of maintaining minimum average balances) which may or may
not exceed the income received from the securities purchased with borrowed
funds.
24
Loan Participations and Assignments. The Global High Yield Securities
Portfolio may invest in fixed and floating rate loans (`loans'') arranged
through private negotiations between a borrower and one or more
institutions (`lenders''). The majority of the Portfolio's investments in
loans in emerging markets is expected to be in the form of participations
in loans (`participations'') and assignments of portions of loans from
third parties (`assignments''). The Portfolio may also invest in loans,
participations or assignments of loans to borrowers located in the
industrialized world. Participations typically will result in the
Portfolio's having a contractual relationship only with the lender, not the
borrower. The Portfolio will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the
lender selling the participation and only upon receipt by the lender of the
payments from the borrower. In connection with purchasing participations,
the Portfolio generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement relating to the loan (`loan
agreement'), nor any rights of set-off against the borrower, and the
Portfolio may not directly benefit from any collateral supporting the loan
in which it has purchased the participation. As a result, the Portfolio
will assume the credit risk of both the borrower and the lender that is
selling the participation. In the event of the insolvency of the lender
selling the participation, the Portfolio may be treated as a general
creditor of the lender and may not benefit from any set-off between the
lender and the borrower. The Portfolio will acquire participations only if
the lender interpositioned between the Portfolio and the borrower is
determined by Bankers Trust to be creditworthy. When the Portfolio
purchases assignments from lenders, the Portfolio will acquire direct
rights against the borrower on the loan; however, since assignments are
arranged through private negotiations between the potential assignees and
assignors, the rights and obligations acquired by the Portfolio as the
purchaser of an assignment may differ from, and be more limited than, those
held by the assigning lender.
The Portfolio may have difficulty disposing of assignments and
participations. The liquidity of such securities is limited and the
Portfolio anticipates that such securities could only be sold to a limited
number of institutional investors. The lack of a liquid secondary market
could have an adverse impact on the value of such securities and on the
Portfolio's ability to dispose of particular assignments or participations
when necessary to meet the Portfolio's liquidity needs or in response to a
specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for assignments and
participations also may make it more difficult in valuing the Portfolio
and, therefore, calculating the net asset value per Share of the Fund. All
assignments and participations shall be considered to be illiquid
securities by the Portfolio. The investment by the Portfolio in illiquid
securities, including assignments and participations, is limited to a total
of 15% of net assets.
Derivatives. Each Portfolio may invest in various instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or `derived'' from, a
traditional security, asset, or market index. Some `derivatives'' such as
mortgage-related and other asset-backed securities are in many respects
like any other investment, although they may be more volatile or less
liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There
are a range of risks associated with those uses. Futures and options are
commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However,
some derivatives are used for leverage, which tends to magnify the effects
of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount of
financial assets, and can in some circumstances, lead to significant
losses. Bankers Trust will use derivatives only in circumstances where they
offer the most efficient means of improving the risk/reward profile of a
Portfolio and when consistent with a Portfolio's investment objective and
policies. The use of derivatives for non-hedging purposes may be considered
speculative.
Foreign Currency Exchange Transactions. Each Portfolio (other than the
Intermediate Tax Free Portfolio) 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.
25
A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or to sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Portfolio's securities
or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
A Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions
or changes in foreign currency exchange rates that would adversely affect a
portfolio position or an anticipated investment position. Although these
transactions tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged
currency increase. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
Options on Foreign Currencies. Each Portfolio (other than the Intermediate
Tax Free Portfolio) may write covered put and call options and purchase put
and call options on foreign currencies for the purpose of protecting
against declines in the U.S. dollar value of portfolio securities and
against increases in the U.S. dollar cost of securities to be acquired. A
Portfolio may use options on foreign 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 a foreign
currency will constitute only a partial hedge up to the amount of the
premium received, and the Portfolio could be required to purchase or sell a
foreign currency at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may be used to hedge
against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to a Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. In addition, a
Portfolio may purchase call options on a foreign currency when the
investment adviser anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market 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 it closes out the
options or the options expire or are exercised. Similarly, if the Portfolio
is unable to close out options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction
costs. The Portfolio pays brokerage commissions or spreads in connection
with its options transactions.
Options on Stocks. Each Portfolio (except the Global High Yield Securities
Portfolio and the Intermediate Tax Free Portfolio) may write and purchase
options on stocks. A call option gives the purchaser of the option the
right to buy, and obligates the writer to sell, the underlying stock at the
exercise price at any time during the option period. Similarly, a put
option gives the purchaser of the option the right to sell, and obligates
the writer to buy the underlying stock at the exercise price at any time
during the option period. A covered call option with respect to which a
Portfolio owns the underlying stock sold by the Portfolio exposes the
Portfolio during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying stock or to
possible continued holding of a stock which might otherwise have been sold
to protect against depreciation in the market price of the stock. A covered
put option sold by a Portfolio exposes the Portfolio during the term of the
option to a decline in price of the underlying stock.
Options on Stock and Bond Indices. Each Portfolio may purchase and write
put and call options on stock or bond indices listed on domestic and
foreign stock exchanges, in lieu of direct investment in the underlying
securities or for hedging purposes. A stock or bond index fluctuates with
changes in the market values of the securities included in the index.
26
Options on securities indices are generally similar to options on stocks
except that the delivery requirements are different. Instead of giving the
right to take or make delivery of securities at a specified price, an
option on a stock or bond index gives the holders the right to receive a
cash `exercise settlement amount'' equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of the exercise, multiplied by (b) a fixed `index
multiplier.''
Successful use by a Portfolio of options on security indices will be
subject to Bankers Trust's ability to predict correctly movement in the
direction of the security market generally or of a particular industry.
This requires different skills and techniques than predicting changes in
the price of individual securities.
Futures Contracts on Stock and Bond 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 domestic or foreign
securities (`Futures Contracts''). This investment technique may be used
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities or to hedge against
anticipated future changes in general market prices which otherwise might
either adversely affect the value of securities held by the Portfolio or
adversely affect the prices of securities which are intended to be
purchased at a later date for the Portfolio. A Futures Contract may also be
entered into to close out or offset an existing futures position.
When used for hedging purposes, each transaction in Futures Contracts
involves the establishment of a position which will move in a direction
opposite to that of the investment being hedged. If these hedging
transactions are successful, the futures position taken for the Portfolio
will rise in value by an amount which approximately offsets the decline in
value of the portion of the Portfolio's investments that is being hedged.
Should general market prices move in an unexpected manner, the full
anticipated benefits of Futures Contracts may not be achieved or a loss may
be realized.
The risks of Futures Contracts also include a potential lack of liquidity
in the secondary market and incorrect assessments of market.
Brokerage costs will be incurred and `margin'' will be required to be
posted and maintained as a good faith deposit against performance of
obligations under Futures Contracts written for a Portfolio. A Portfolio
may not purchase or sell a Futures Contract if immediately thereafter its
margin deposits on its outstanding Futures Contracts, other than Futures
Contracts used for hedging purposes, would exceed 5% of the market value of
the Portfolio's total assets.
Options on Futures Contracts. Each Portfolio may invest in options on
futures contracts for similar purposes.
There can be no assurance that the use of these portfolio strategies will
be successful.
Asset Coverage. To assure that a Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment
leverage, a Portfolio will cover such transactions, as required under
applicable interpretations, of the SEC, either by owning the underlying
securities, entering into an off-setting transaction, or by segregating
with the Portfolio's custodian liquid securities in an amount at all times
equal to or exceeding the Portfolio's commitment with respect to these
instruments or contracts.
Portfolio Turnover
The portfolio turnover rates for each Portfolio for the periods indicated
were as follows: Intermediate Tax Free Portfolio - 130% and 95%, for the
period from January 1, 1996 to September 30, 1996 and for the year ended
December 31, 1995, respectively; Global High Yield Securities Portfolio -
207% and 169%, for the fiscal years ended September 30, 1996, and 1995
respectively; Capital Appreciation Portfolio - 271% and 125%, for the
fiscal year ended September 30, 1996, and for the period from January 1,
1995 to September 30, 1995, respectively; Small Cap Portfolio - 159% and
161%, for the fiscal years ended September 30, 1996, and 1995,
respectively; International Equity Portfolio - 68% and 21%, for the fiscal
year ended September 30, 1996, and for the period from January 1, 1995 to
September 30, 1995, respectively; Pacific Basin Equity Portfolio - 118% and
104%, for the fiscal years ended September 30, 1996, and 1995,
respectively; Latin American Equity Portfolio - 171% and 161%, for the
fiscal years ended September 30, 1996, and 1995, respectively. These rates
will vary from year to year. High turnover rates increase transaction costs
and may increase investable capital gains. Bankers Trust considers these
effects when evaluating the anticipated benefits of short-term investing.
27
PERFORMANCE INFORMATION AND REPORTS
Each Portfolio's recent strategies and holdings, and the corresponding
Fund's performance, is detailed twice a year in the Funds' financial
reports, which are sent to all Fund shareholders.
For current Fund performance or a free copy of the Funds' financial report,
please contact a Service Agent.
Mutual fund performance is commonly measured as total return and/or yield.
Each Fund's performance is affected by the expenses of that Fund. The
exclusion of any applicable sales charge from a performance calculation
produces a higher return.
Explanation of Terms
Total Return is the change in value of an investment in a Fund over a given
period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total return calculations smooth out variations in performance; they are
not the same as actual year-by-year results. Average annual total returns
covering periods of less than one year assume that performance will remain
constant for the rest of the year.
Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted yield
may not equal the income actually paid to shareholders. This difference may
be significant for a Fund investing in a Portfolio whose investments are
denominated in foreign currencies.
Performance information may include comparisons of a Fund's investment
results to various unmanaged indices or results of other mutual funds or
investment or savings vehicles. From time to time, Fund rankings may be
quoted from various sources, such as Lipper Analytical Services, Inc.,
Value Line, and Morningstar, Inc.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the total return of a Fund will vary depending
upon interest rates, the current market value of the securities held by the
corresponding Portfolio and changes in the expenses of the Fund or
Portfolio. In addition, during certain periods for which total return may
be provided, Bankers Trust may have voluntarily agreed to waive portions of
their fees, or reimburse certain operating expenses of a Fund or Portfolio,
on a month-to-month basis. Such waivers will have the effect of increasing
the Fund's net income (and therefore its yield and total return) during the
period such waivers are in effect.
Total returns and yields are based on past results and are not an
indication of future performance.
28
MANAGEMENT OF THE TRUST AND THE PORTFOLIOS
Board of Trustees
The Trust and each Portfolio is governed by a Board of Trustees which is
responsible for protecting the interests of investors. A majority of the
Trustees who are not `interested persons'' (as defined in the 1940 Act) of
the Trust or the Portfolio, as the case may be, have adopted written
procedures reasonably appropriate to deal with potential conflicts of
interest arising from the fact that some of the same individuals are
Trustees of the Trust and the Portfolios, up to and including creating
separate boards of trustees. See `Management of the Trusts and the
Portfolios''in the SAI for more information with respect to the Trustees
and officers of the Trust and each Portfolio.
Investment Adviser
The Trust has not retained the services of an investment adviser since the
Trust seeks to achieve the investment objective of each of its Funds by
investing all the Assets of the Fund in the corresponding Portfolio. Each
Portfolio has retained the services of Bankers Trust as Adviser.
Bankers Trust Company and Its Affiliates
Bankers Trust Company, a New York banking corporation with principal
offices at 280 Park Avenue, New York, New York 10017, is a wholly owned
subsidiary of Bankers Trust New York Corporation. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic
institutional market.
As of June 30, 1996, Bankers Trust New York Corporation was the seventh
largest bank holding company in the United States with total assets of
approximately $115 billion. Bankers Trust is a 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 $215 billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled
fund structures. Now, the BT Family of Funds brings Bankers Trust's
extensive investment management expertise - once available to only the
largest institutions in the U.S. - to individual investors. Bankers Trust's
officers have had extensive experience in managing investment portfolios
having objectives similar to those of each Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of each Portfolio, manages each Portfolio in accordance with the
Portfolio's investment objective and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who
provide research services to the Portfolio. Bankers Trust may utilize the
expertise of any of its world wide subsidiaries and affiliates to assist it
in its role as investment adviser. All orders for investment transactions
on behalf of a Portfolio are placed by Bankers Trust with broker-dealers
and other financial intermediaries that it selects, including those
affiliated with Bankers Trust. A Bankers Trust affiliate will be used in
connection with a purchase or sale of an investment for the Portfolio only
if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. The Portfolio will not invest
in obligations for which Bankers Trust or any of its affiliates is the
ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents and customers of Bankers Trust.
The Investment Advisory Agreement provides for each Portfolio to pay
Bankers Trust a fee, accrued daily and paid monthly, equal on an annual
basis to the following percentages of the average daily net assets of the
Portfolio for its then-current fiscal year: Intermediate Tax Free
Portfolio, 0.40%; Global High Yield Securities Portfolio, 0.80%; Capital
Appreciation Portfolio, 0.65%;
29
Small Cap Portfolio, 0.65%; International Equity Portfolio, 0.65%; Pacific
Basin Equity Portfolio, 0.75%; and Latin American Equity Portfolio, 1.00%.
With respect to Global High Yield Securities Portfolio, Pacific Basin
Equity Portfolio, and Latin American Equity Portfolio, the investment
advisory fee is higher than that of most funds, but not necessarily higher
than that of a typical international fund, due to the greater complexity,
expense and commitment of resources involved in international investing.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the
Portfolios described in this Prospectus and the SAI without violation of
the Glass-Steagall Act or other applicable banking laws or regulations.
Sub-Investment Adviser-Pacific Basin Equity Portfolio
Bankers Trust has entered into a sub-investment advisory agreement (the
`Sub-Advisory Agreement'') with BT Fund Managers International Limited
(`BT Fund Managers International''), a wholly owned registered investment
advisory subsidiary of Bankers Trust Australia Limited (`BTAL''). BTAL is
a wholly owned subsidiary of Bankers Trust New York Corporation. Under the
Sub-Advisory Agreement, Bankers Trust may receive investment advice and
research services with respect to companies based in the Pacific Basin and
may grant BT Fund Managers International investment management authority as
well as the authority to buy and sell securities if Bankers Trust believes
it would be beneficial to the Pacific Basin Equity Portfolio. Under the
Sub-Advisory Agreement, BT Fund Managers International receives a fee from
Bankers Trust for providing investment advice and research services,
accrued daily and paid monthly, at the annual rate of 0.60% of the average
daily assets of the Portfolio.
Portfolio Managers
Gary Pollack is responsible for the day-to-day management of the
Intermediate Tax Free Portfolio. Mr. Pollack has been employed by Bankers
Trust since 1989 and has managed the Portfolio's assets since the
Portfolio's commencement of operations.
David A. Reiss, Managing Director of Bankers Trust and Stephen C.
Freidheim, Managing Director of Bankers Trust are responsible for the day-
to-day management of the Global High Yield Securities Portfolio. Mr. Reiss
has been employed by Bankers Trust since March, 1994 and has managed the
Portfolio's assets since March, 1994. From September, 1989 to March, 1994,
Mr. Reiss was a Portfolio Manager at Kidder Peabody Asset Management. Prior
to September, 1989, he was an associate in Mortgage Research at Goldman,
Sachs & Co. Mr. Freidheim has been employed by Bankers Trust since August,
1993 and has managed the Portfolio's assets since December, 1993. From
July, 1990 to July, 1993 he was a Senior Vice President and Director of
Research and Trading at Nomura Securities International. Mr. Freidheim was
also on the Board of Directors of Nomura Corporate Research and Asset
Management. Prior to July, 1990, he was Director of Research at Kidder,
Peabody High Yield Asset Management.
Mary P. Dugan, CFA, Vice President of Bankers Trust, and Mr. Timothy Woods,
CFA, Vice President of Bankers Trust, share senior portfolio management
responsibilities of the Small Cap Portfolio. Ms. Dugan joined Bankers
Trust in 1994. She has thirteen years of investment analysis experience.
Previously, she worked at Fred Alger Management, Dean Witter, Integrated
Resources and Equitable Investment Management Corporation. Mr. Woods
joined Bankers Trust in 1992. He has twelve years of investment and
financial experience. Previously, he worked at Prudential Securities,
Chase Manhattan Bank and Bank of Boston.
30
Anthony Takazawa, CFA, Vice President of Bankers Trust, has senior
management responsibilities for the Capital Appreciation Portfolio. Mr.
Takazawa joined Bankers Trust in 1996. He has eight years of investment
and financial analysis experience. Previously, he worked at Phoenix Mutual
Life Insurance Company as an investment analyst, portfolio manager and
director or research.
Michael Levy has been the primary portfolio manager for the International
Equity Portfolio since August 1995. He also heads the international active
equity team, which is responsible for the day to day management of the
Portfolio. Mr. Levy has been the head of this team since joining Bankers
Trust in March, 1993, and is a Managing Director and International Equity
Strategist of Bankers Trust. The international active equity team has
provided input into the management of the Portfolio since the Portfolio's
commencement of operations. Prior to joining Bankers Trust, Mr. Levy was an
investment banker and an equity analyst with Oppenheimer & Company. He has
twenty-four years of business experience, of which fourteen years have been
in the investment industry.
Robert Reiner has been the co-manager of the International Equity Portfolio
since joining Bankers Trust in 1994. Mr. Reiner is responsible for managing
global portfolios and developing analytical and investment tools for the
group's global equity team. As a member of the international active equity
team, he focuses on Japanese and European markets. Prior to joining Bankers
Trust, he was an equity analyst and also provided macroeconomic coverage
for Scudder, Stevens and Clark. He previously served as Senior Analyst at
Sanford C. Bernstein & Co. and was instrumental in the development of
Bernstein's International Value Fund. For more than nine years, Mr. Reiner
was employed by Standard & Poor's Corporation in its ratings group. His
tenure included managing the day to day operations of Standard & Poor's
Corporation's Tokyo office for three years.
Paul Durham, Vice President of BTAL, is responsible for the day-to-day
management of the Pacific Basin Equity Portfolio. Mr. Durham has been
employed by Bankers Trust since January, 1988 and has managed the
Portfolio's assets since November, 1993.
Maria-Elena Carrion, CFA, Vice President of Bankers Trust, is primarily
responsible for the day-to-day management of the Latin American Equity
Portfolio. Ms. Carrion has been employed by Bankers Trust since April, 1993
and has managed the Portfolio's assets since the Portfolio commenced
operations. Prior to April, 1993, Ms. Carrion was employed by Latin
American Securities (London) (from June, 1991 to April, 1993). Prior to
June, 1991, Ms. Carrion was employed by US Trust Company (from September,
1986 to June, 1991).
Julie Wang, Vice President of Global Investment Management, is a portfolio
manager with primary focus on the Asia-Pacific region. She is part of the
International Equity Fund portfolio management team. Before joining Bankers
Trust in 1994, Julie was an investment manager at American International
Group, where she advised in the management of $7 billion of assets in
Southeast Asia, including private and listed equities, bonds, loans and
structured products. She was also an associate at Donaldson, Lufkin &
Jenrette, where she worked on all phases of merger and LBO analyses and
advised clients on shareholder value maximization and tender defense
strategies. Julie received her B.A. (economics) from Yale University and
her MBA from the Wharton School.
Bankers Trust investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Administrator
Under its Administration and Services Agreement with the Trust, Bankers
Trust calculates the net asset value of each Fund and generally assists the
Board of Trustees of the Trust in all aspects of the administration and
operation of the Funds. The Administration and Services Agreement provides
for the Trust to pay Bankers Trust a fee, accrued daily and paid monthly
equal on an annual basis to the following percentages of the average daily
net assets of the Fund for its then-current fiscal year: Intermediate Tax
Free Fund, 0.40%; Global High Yield Securities Fund, 0.95%; Capital
Appreciation Fund, 0.65%; Small Cap Fund, 0.65%; International Equity Fund,
0.85%; Pacific Basin Equity Fund, 0.75%; and Latin American Equity Fund,
0.95%.
Under an Administration and Services Agreement with each Portfolio, Bankers
Trust calculates the value of the assets of the Portfolio and generally
assists the respective Board of Trustees in all aspects of the
administration and operation of the Portfolios. The Administration and
Services Agreement provides for each Portfolio to pay
31
Bankers Trust a fee, accrued daily and paid monthly, equal on an annual
basis to the following percentages of the Portfolio's average daily net
assets for its then-current fiscal year: Intermediate Tax Free Portfolio,
0.05%; Global High Yield Securities Portfolio, 0.20%; Capital Appreciation
Portfolio, 0.10%; Small Cap Portfolio, 0.10%; International Equity
Portfolio, 0.15%; Pacific Basin Equity Portfolio, 0.25%; and Latin American
Equity Portfolio, 0.20%. Under each Administration and Services Agreement,
Bankers Trust may delegate one or more of its responsibilities to others,
including affiliates of Edgewood, at Bankers Trust's expense. For more
information, see the SAI.
Distributor
Edgewood Services, Inc. is the principal distributor for the Shares of the
Funds. In addition, Edgewood and its affiliates provide the Trust with
office facilities, and currently provide administration and distribution
services for other registered investment companies. The principal business
address of Edgewood and its affiliates is Clearing Operations, P.O. Box
897, Pittsburgh, Pennsylvania 15230-0897.
Distribution and Service Plan
Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act (the `Plan''), Edgewood 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 Fund's Shares, including, but not
limited to: compensation to and expenses (including overhead and telephone
expenses) of account executives or other employees of Edgewood who, as
their primary activity, engage in or support the distribution of Shares;
printing of prospectuses, statements of additional information and reports
for other than existing Fund shareholders in amounts in excess of that
typically used in connection with the distribution of Shares of the Fund;
costs of placing advertising in various media; services of parties other
than Edgewood or its affiliates in formulating sales literature; and
typesetting, printing and distribution of sales literature. All costs and
expenses in connection with implementing and operating the Plan will be
paid by the Fund, subject to the 0.20% of net assets limitation. All costs
and expenses associated with preparing the Prospectus and SAI 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 Funds. To the extent expenses of Edgewood under the Plan in any
fiscal year of the Trust exceed amounts payable under the Plan during that
year, those expenses may be reimbursed in a succeeding fiscal year;
however, no carrying charge or interest will be added to the amount of the
expense. Expenses incurred in connection with distribution activities will
be identified to each Fund or the other series of the Trust involved,
although it is anticipated that some activities may be conducted 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.
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.
32
Custodian and Transfer Agent
Bankers Trust acts as custodian of the assets of the Trust and each
Portfolio and serves as the transfer agent (the `Transfer Agent'') for the
Trust and each Portfolio under the Administration and Services Agreement
with the Trusts and each Portfolio.
NET ASSET VALUE
The net asset value (`NAV'') 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 NAV per Share of each Fund is calculated once on each Valuation Day as
of the close of regular trading on the NYSE (the `Valuation Time''), which
is currently 4:00 p.m., Eastern time or in the event that the NYSE closes
early, at the time of such early closing. The NAV per Share of a 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 as of the Valuation Time. The
Portfolio's securities and other assets are valued primarily on the basis
of market quotations or, if quotations are not readily available, by a
method which the Portfolio's Board of Trustees believes accurately reflects
fair value.
Under procedures adopted by the Board, a NAV for a Fund later determined to
have been inaccurate for any reason will be recalculated. Purchases and
redemptions made at a NAV determined to have been inaccurate will be
adjusted, although in certain circumstances, such as where the difference
between the original NAV and the recalculated NAV divided by the
recalculated NAV 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
How To Buy Shares
The Trust accepts purchase orders for Shares of the Fund at the NAV per
Share next determined after the order is received on each Valuation Day.
See `Net Asset Value'' herein. Shares of the Fund may be available through
Investment Professionals, such as broker/dealers and investment advisers
(including Service Agents).
Purchase orders for Shares of the Fund (including those purchased through a
Service Agent) that are transmitted to the Trust's Transfer Agent (the
`Transfer Agent''), prior to the Valuation Time on any Valuation Day will
be effective at that day's Valuation Time. The Trust and Transfer Agent
reserve the right to reject any purchase order.
Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. 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 by the following business day (trade date
+ 1) after an order for Shares is placed. A shareholder must settle with
the Service Agent for 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 held with Bankers Trust to settle
transactions with 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 Transfer Agent.
If orders are placed through an Investment Professional, it is the
responsibility of the Investment Professional to transmit the order to buy
Shares to the Transfer Agent before 4:00 p.m. Eastern time.
The Transfer Agent must receive payment within one business day after an
order for Shares is placed; otherwise, the purchase order may be canceled
and the investor could be held liable for resulting fees and/or losses.
33
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
If you are new to BT Investment Funds, complete and sign an account
application and mail it along with your check to the address listed below.
If there is no account application accompanying this Prospectus, call the
BT Service Center at 1-800-730-1313.
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
If you already have money invested in a fund in the BT Family of Funds, you
can:
o Mail an account application with a check,
o Wire money into your account,
o Open an account by exchanging from another fund in the BT Family of
Funds, or
o Contact your Service Agent or Investment Professional.
If you are investing through a tax-sheltered retirement plan, such as an
IRA, for the first time, you will need a special application. Contact your
Investment Professional or BT Retirement Services Center at 1-800-677-7596
for more information and a retirement account application.
Additional Information About Buying Shares
To Open an Account To Add to an Account
By Wire Call the BT Service Center at Call your Investment
Professional or wire
1-800-730-1313 to receive wire additional investment to:
instructions for account establishment.
Routing No.: 021001033
Attn: Bankers Trust/IFTC
Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Fund Number (see table
below)
Investment Intermediate Tax
Free Fund - 467
Investment Global High Yield
Securities Fund - 478
Investment Capital Appreciation
Fund - 465
Investment Small Cap Fund - 498
Investment International Equity
Fund - 463 Investment Pacific Basin
Equity Fund - 496
Investment Latin American
Equity Fund - 497
Specify the complete name of
the Fund of
your choice, and include your
account number
and your name.
34
By Phone Contact your Service Agent, Contact your Service Agent,
Investment Professional, or call Investment Professional,
or call
BT's Service Center at 1-800-730-1313. BT's Service Center
at 1-800-730-1313.
If you are an existing shareholder, If you are an
you may exchange from another BT existing shareholder, you
may
account with the same registration, exchange from
another BT account
including, name, address, and taxpayer with the same
registration, including,
ID number. name, address, and taxpayer ID
number.
By Mail Complete and sign the account appli- Make your check
payable to the complete
cation. Make your check payable to name of the Fund of
your choice. Indicate
the complete name of the Fund of your Fund account number
on your check
your choice. Mail to the appropriate and mail to the
address printed on your
address indicated on the application. account statement.
How to Sell Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your Shares. Your Shares shall be sold
at the next NAV calculated after an order is received by the Transfer
Agent. Redemption requests should be transmitted by customers in accordance
with procedures established by the Transfer Agent and the Shareholder's
Service Agent. Redemption requests for Shares of the Fund received by the
Service Agent and transmitted to the Transfer Agent prior to the Valuation
Time 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 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
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 Transfer Agent
and the Service Agent must employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Shareholder
Servicing Agent does not do so, it may be liable for any losses due to
unauthorized or fraudulent instructions. Such procedures may include, among
others, requiring some form of personal identification prior to acting upon
instructions received by telephone, providing written confirmation of such
transactions and/or tape recording of telephone instructions.
Redemption orders are processed without charge by the Trust. A Service
Agent may on at least 30 days' notice involuntarily redeem a shareholder's
account with the Fund having a balance below the minimum, but not if an
account is below the minimum due to a change in market value. See `Minimum
Investments''above for minimum balance amounts.
To sell Shares in a retirement account, your request must be made in
writing, except for exchanges to other eligible funds in the BT Family of
Funds, which can be requested by phone or in writing. For information on
retirement distributions, contact your Service Agent or call the BT Service
Center at 1-800-730-1313.
If you are selling some but not all of your non-retirement account Shares,
leave at least $1,000 worth of shares in the account to keep it open.
To sell Shares by bank wire you will need to sign up for these services in
advance when completing your account application.
Certain requests must include a signature guarantee to protect you and
Bankers Trust from fraud. Redemption requests in writing must include a
signature guarantee if any of the following situations apply:
o Your account registration has changed within the last 30 days,
o The check is being mailed to a different address than the one on your
account (record address),
o The check is being made payable to someone other than the account
owner,
o The redemption proceeds are being transferred to a BT account with a
different registration, or
o You wish to have redemption proceeds wired to a non-predesignated bank
account.
35
A signature guarantee is also required if you change the pre-designated
bank information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker,
dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency, or savings association. A notary public
cannot provide a signature guarantee.
Additional Information About Selling Shares
By Wire - You must sign up for the wire feature before using it. To verify
that it is in place, call 1-800-730-1313. Minimum wire: $1,000. Your wire
redemption request must be received by the Transfer Agent before 4:00 p.m.
Eastern time for money to be wired on the next business day.
In Writing - Write a signed `letter of instruction'' with your name, the
Fund's name and Fund's number, your Fund account number, the dollar amount
or number of Shares to be redeemed, and mail to one of the following
addresses:
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
For Trust accounts, the trustee must sign the letter indicating capacity as
trustee. If the trustee's name is not on the account registration, provide
a copy of the trust document certified within the last 60 days.
For a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.
Unless otherwise instructed, the Transfer Agent will send a check to the
account address of record. The Trust reserves the right to close investor
accounts via 30 day notice in writing if the Fund account balance falls
below the Fund minimums.
Investor Services
BT Investment Funds provide a variety of services to help you manage your
account.
Information Services
Statements and reports that your Investment Professional or the Transfer
Agent may send to you include the following:
o Confirmation statements (after every transaction that affects your
account balance, including distributions or your account registration)
o Account statements (monthly)
o Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed,
even if you have more than one account in the Fund. Call your Investment
Professional or the BT Service Center at 1-800-730-3131 if you need
additional copies of financial reports.
Exchange Privilege
Shareholders may exchange their Shares for shares of certain other funds in
the BT Family of Funds registered in their state. The Fund reserves the
right to terminate or modify the exchange privilege in the future. To make
an exchange, follow the procedures indicated in `Purchase of Shares'' and
`Redemption of Shares'' herein. Before making an exchange, please note the
following:
o Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.
o Your new account will have the identical account registration
including the same name, address and taxpayer identification number as your
existing account(s).
o Each exchange represents the sale of shares of one fund and the
purchase of shares of another, which may produce a gain or loss for tax
purposes. Your Service Agent will receive a written confirmation of each
exchange transaction.
Note that exchanges out of a Fund may be limited to four per calendar year
and that they may have tax consequences for you.
36
Systematic Programs
To move money from your bank account to BT Investment Funds
Minimum Minimum Frequency Setting up or changing
Initial Subsequent
$1,000 $100 Monthly, bimonthly, For a new account, complete
the appropriate section
quarterly or semi- on the application.
annually
For existing accounts, call your
Investment Professional
for an application. To change the
amount or frequency
of your investment, contact your
Investment Professional
directly or call 1-800-730-1313. Call
at least 10 busi-
ness days prior to your next
scheduled investment date.
Systematic Withdrawal Program lets you set up periodic redemptions from
your account.
Minimum Frequency Setting up or changing
$100 Monthly, quarterly, semi-annually or To establish, call your
Investment Professional or call
annually 1-800-730-1313 after your account is
open. The
accounts from which the withdrawals will
be
processed must have a minimum balance of
$10,000.
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 Bankers Trust for further
information. Bankers Trust can set up your new account in the Fund under a
number of several tax-savings or tax-deferred plans. Minimums may differ
from those listed elsewhere in this Prospectus.
o Individual Retirement Accounts (IRAs): personal savings plans that
offer tax advantages for individuals to set aside money for retirement and
allow new contributions of $2,000 per tax year.
o Rollover IRAs: tax-deferred retirement accounts that retain the
special tax advantages of lump sum distributions from qualified retirement
plans and transferred IRA accounts.
o Simplified Employee Pension Plans (SEP): a relatively easy and
inexpensive alternative to retirement planning for sole proprietors,
partnerships and corporations. Under a SEP, employers make tax-deductible
contributions to their own and to eligible employees' IRA accounts.
Employee contributions are available through a `Salary Deferral'' SEP for
businesses with fewer than 25 eligible employees.
o Keogh Plans: defined contribution plans available to individuals with
self-employed income and nonincorporated businesses such as sole
proprietors, professionals and partnerships. Contributions are tax-
deductible to the employer and earnings are tax-sheltered until
distribution.
o Corporate Profit-Sharing and Money-Purchase Plans: defined
contribution plans available to corporations to benefit their employees by
making contributions on their behalf and in some cases permitting their
employees to make contributions.
o 401(k) Programs: defined contribution plans available to corporations
allowing tax-deductible employer contributions and permitting employees to
contribute a percentage of their wages on a tax-deferred basis.
o 403(b) Custodian Accounts: defined contribution plans open to
employees of most non-profit organizations and educational institutions.
o Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.
37
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Each Fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Each Fund distributes capital
gains annually. Normally, income dividends for the Global High Yield
Securities Fund, Small Cap Fund and the Capital Appreciation Fund are
distributed quarterly; income dividends for the International Equity Fund,
Pacific Basin Equity Fund and the Latin American Equity Fund are
distributed annually. Income dividends for the Intermediate Tax Free Fund
are declared daily and paid monthly. Unless a Shareholder instructs a
Trust to pay such dividends and distributions in cash, they will be
automatically reinvested in additional Shares of the Fund.
Federal Taxes. Each Fund intends to qualify as a regulated investment
company, as defined in the Internal Revenue Code of 1986, as amended (the
`Code''). Provided each Fund meets the requirements imposed by the Code
and distributes all of its income and gains, a Fund will not pay any
Federal income or excise taxes.
Distributions from each Fund's income and short-term capital gains are
taxes as dividends, and long-term capital gain distributions are taxes as
long-term capital gains. Each Fund's capital gain 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 on the past
year.
The Intermediate Tax Free Fund intends to qualify to pay exempt-interest
dividends to its shareholders by having, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets invested in
tax-exempt securities. An exempt-interest dividend is that part of
dividend distributions made by the Intermediate Tax Free Fund which
consists of interest received by the Intermediate Tax Free Fund derived
from tax-exempt securities held by the Intermediate Tax Free Portfolio.
Exempt-interest dividends received from the Intermediate Tax Free Fund will
be treated for Federal income tax purposes as tax-exempt interest income.
In view of the Intermediate Tax Free Portfolio's investment policies, it is
expected that substantially all the Intermediate Tax Free Fund's dividends
will be exempt-interest dividends, although the Intermediate Tax Free Fund
may from time to time distribute net short-term capital gains or other
minor amounts of taxable income.
Interest on certain tax-exempt municipal obligations issued after August 7,
1986 is a preference item for purposes of the Federal alternative minimum
tax applicable to individuals and corporations. Under tax regulations to
be used, the portion of an exempt-interest dividend of a regulated
investment company that is allocable to these obligations will be treated
as a preference item for purposes of the alternative minimum tax. The
Intermediate Tax Free Portfolio has limited its investment to those
securities the interest on which will not be treated as preference items
for purposes of the alternative minimum tax in the opinion of bond counsel
for the issuer. The Intermediate Tax Free Portfolio currently has no
intention of investing in obligations subject to the alternative minimum
tax under normal market conditions.
Corporations should, however, be aware that interest on all municipal
securities will be included in calculating: (i) adjusted current earning
for purposes of the alternative minimum tax applicable to them; (ii) the
additional tax imposed on certain corporations by the Superfund Revenue Act
of 1986; and (iii) the foreign branch profits tax imposed on effectively
connected earnings and profits of United States branches of foreign
corporations. Furthermore, special tax provisions may apply to certain
financial institutions and property and casualty insurance companies, and
they should consult their tax advisors before purchasing Shares of the
Intermediate Tax Free Fund.
Certain provisions in the Tax Reform Act of 1986, as amended, relating to
issuance of municipal obligations, have reduced the volume of municipal
obligations qualifying for Federal tax exemption and may continue to do so.
Interest on indebtedness incurred or continued by a shareholder (whether a
corporation or an individual) to purchase or carry Shares of these Funds is
not deductible. The U.S. Department of the Treasury has been given
authority to issue regulations which would disallow the interest deduction
if incurred to purchase or carry Share of the Fund owned by the taxpayer's
spouse, minor child or entity controlled by the taxpayer. Entities or
persons who are `substantial users'' (or related persons) of facilities
financed by tax-exempt bonds should consult their tax advisers before
purchasing Shares of the Fund.
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.
38
`Buying a Dividend.'' On the ex-date for a distribution from 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. You may be subject to state or local taxes on your
investment, depending on the laws in your area. You should consult with
your own tax adviser concerning the application of federal, state and local
taxes to your distributions from each Fund.
ADDITIONAL INFORMATION
Each Fund is a mutual fund: an investment that pools shareholders' money
and invests it toward a specified goal. Each Fund is a separate series of
BT Investment Funds, a Massachusetts business trust. Each of the Global
High Yield Securities Portfolio, Small Cap Portfolio, Pacific Basin Equity
Portfolio and Latin American Equity Portfolio is a separate subtrust of BT
Investment Portfolios, a New York master trust fund. Each of the Capital
Appreciation Portfolio, International Equity Portfolio, and Intermediate
Tax Free Portfolio is a New York trust.
The Trust and BT Investment Portfolios reserves the right to add additional
series in the future. The Trust also reserves the right to issue more than
one class of Shares of each Fund.
The Trust or a Portfolio may hold special meetings and mail proxy
materials. These meetings may be called to elect or remove trustees,
change fundamental policies, approve Portfolio's investment advisory
agreement, or for other purposes. Shareholders not attending these meetings
are encouraged to vote by proxy. The Trust's Transfer Agent will mail proxy
materials in advance, including a voting card and information about the
proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of each Fund
will have one vote for each full Share held and proportionate, fractional
votes for fractional Shares held. A separate vote of one of the Funds is
required on any matter affecting only that Fund on which shareholders are
entitled to vote. Shareholders of a Fund are not entitled to vote on Trust
matters that do not affect that Fund and do not require a separate vote of
the Fund. All series of the Trust will vote together on certain matters,
such as electing trustees or approving independent public auditors. There
normally will be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of Trustees
holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election
of Trustees. Any Trustee may be removed from office upon the vote of
shareholders holding at least two-thirds of the Trust's outstanding Shares
at a meeting called for that purpose. The Trustees are required to call
such a meeting upon the written request of shareholders holding at least
10% of the Trust's outstanding Shares. The Trust will also assist
shareholders in communicating with one another as provided for in the 1940
Act.
Each series of the BT Investment Portfolios will vote separately on any
matter involving the corresponding Portfolio. Shareholders of all of the
series of the Trust will, however, vote together to elect Trustees of the
Trust and for certain other matters. Under certain circumstances, the
shareholders of one or more series could control the outcome of these
votes. The series of BT Investment Portfolios will vote together or
separately on matters in the same manner, and in the same circumstances, as
do the series of the Trust. As with the Trust, the investors in one or more
series of BT Investment Portfolios could control the outcome of these
votes.
As of December 31, 1996, Henry Shotmeyer, Sr., New York, New York, owned
26.89% of the voting securities of the Intermediate Tax Free Fund, and,
therefore, may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of its
shareholders. As of December 31, 1996, Infid & Co., New York, New York,
owned 83.49% of the voting securities of the Global High Yield Securities
Fund, and, therefore, may, for certain purposes, be deemed to control the
Fund and be able to affect the outcome of certain matters presented for a
vote of its shareholders. As of December 31, 1996, Bartrus & Co., New York,
New York, and Infid & Co., New York, New York, owned 32.91% and 41.49%,
respectively, of the voting securities of the Capital Appreciation Fund,
and,
39
therefore, may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of its
shareholders. As of December 31, 1996, Bankers Trust Co., New York, New
York, owned 32.37% of the voting securities of the Small Cap Fund, and,
therefore, may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of its
shareholders. As of December 31, 1996, Infid & Co., New York, New York,
owned 27.01% of the voting securities of the International Equity Fund,
and, therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote
of its shareholders. As of December 31, 1996, Infid & Co., New York, New
York, owned 58.50% of the voting securities of the Pacific Basin Equity
Fund, and, therefore, may, for certain purposes, be deemed to control the
Fund and be able to affect the outcome of certain matters presented for a
vote of its shareholders. As of December 31, 1996, Charles Schwab & Co.,
San Francisco, California, and Infid & Co., New York, New York, owned
25.04% and 50.00%, respectively, of the voting securities of the Latin
American Equity Fund, and, therefore, may, for certain purposes, be deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of its shareholders.
Each Trust is an entity of the type commonly known as a `Massachusetts
business trust.''Under Massachusetts law, shareholders of such a business
trust may, under certain circumstances, be held personally liable as
partners for its obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and the Trust
itself was unable to meet its obligations.
Each Portfolio was organized as a trust under the laws of the State of New
York. Each Portfolio's Declaration of Trust provides that each Fund and
other entities investing in a Portfolio (e.g., other investment companies,
insurance company separate accounts and common and commingled trust funds)
will each be liable for all obligations of that Portfolio. However, the
risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed and a
Portfolio itself was unable to meet its obligations. Accordingly, the
Trustees of the Trust believe that neither the Funds nor their shareholders
will be adversely affected by reason of the Funds' investing in the
Portfolios. No series of BT Investment Portfolios has any preference over
any other series.
40
APPENDIX
Description of Moody's Corporate Bond Ratings:
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as `gilt
edge.''Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium-grade obligations, i.e. they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such, bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both (good and bad times over the future). Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-
comings.
C - Bonds rated C are the lowest-rated class of bonds and issued so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond system. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
Description of S&P Corporate Bond Ratings:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
41
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to weakened capacity to pay interest
and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
Description of S&P commercial paper ratings:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are
denoted A-1+.
Description of Moody's commercial paper ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term
promissory obligations.
Description of S&P Municipal Bond Ratings:
AAA - Prime - These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligations Bonds - In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible
to autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Quality
of management appears superior.
Revenue Bonds - Debt service coverage has been, and is expected to remain,
substantial, stability of the pledged rev-
42
enues is also exceptionally strong due to the competitive position of the
municipal enterprise or to the nature of the revenues. Basic security
provisions (including rate covenant, earnings test for issuance of
additional bonds and debt service reserve requirements) are rigorous. There
is evidence of superior management.
AA - High Grade - The investment characteristics of bonds in this group are
only slightly less marked than those of the prime quality issues. Bonds
rated AA have the second strongest capacity for payment of debt service.
A - Good Grade - Principal and interest payments on bonds in this category
are regarded as safe although the bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions
than bonds in higher rated categories. This rating describes the third
strongest capacity for payment of debt service. Regarding municipal bonds,
the rating differs from the two higher ratings because:
General Obligation Bonds - There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer
to meet debt obligations at some future date.
Revenue Bonds - Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appearance appears adequate.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA rating category.
Description of Moody's Municipal 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 edge''. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds 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
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Bonds 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.
Moody's may apply the numerical modifier in each generic rating
classification from Aa through B. The modifier 1 indicates that the
security within its generic rating classification possesses the strongest
investment attributes.
Description of S&P Municipal Note Ratings:
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, or -2) to distinguish more clearly the
credit quality of notes as compared to bonds. Notes rated SP-1 have a very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given the
designation of SP-1. Notes rates SP-2 have a satisfactory capacity to pay
principal and interest.
Description of Moody's Municipal Note Ratings:
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
43
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows of funds
for their servicing or from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG2/VMIG2 are of high
quality, with ample margins of protection, although not as large as the
preceding group.
S&P's Commercial Paper Ratings:
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-
term debt ratings is A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow are in an
upward tread. Typically, the issuer is a strong company in a well-
established industry and has superior management.
Moody's Commercial Paper Ratings:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics: leasing market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal
cash generation; well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound,will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. Issuers rates Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment of short-term
promissory obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained.
44
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45
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46
BT INVESTMENT FUNDS
Intermediate Tax Free Fund
Global High Yield Securities Fund
Capital Appreciation Fund
Small Cap Fund
International Equity Fund
Pacific Basin Equity Fund
Latin American Equity Fund
Investment Adviser of each Portfolio and Administrator
BANKERS TRUST COMPANY
280 Park Avenue
New York, NY 10017
Distributor
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
Custodian and Transfer Agent
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
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 Trusts' Prospectuses, the
corresponding SAIs or the Trusts' 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 a 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.
Cusip #055922801
#055922777
#055922819
#055922769
#055922868
#055922736
#055922788
COMBINV300 (1/97)
o BT INVESTMENT FUNDS o
International Equity Fund
Seeks long-term capital appreciation primarily from non-U.S. equities, or
other securities with equity characteristics.
PROSPECTUS
JANUARY 31, 1997
BT Investment Funds (the `Trust'') is an open-end, management investment
company (mutual fund) which consists of a number of separate investment
funds.
Please read this Prospectus carefully before investing and retain it for
future reference. It contains important information about the
International Equity Fund (the `Fund'') that you should know and can refer
to in deciding whether the Fund's goals match your own.
A Statement of Additional Information (`SAI'') with the same date has been
filed with the Securities and Exchange Commission (`SEC''), and is
incorporated herein by reference. You may request a free copy of the SAI
by calling the Fund's Service Agent at 1-800-730-1313.
Unlike other mutual funds, the Fund seeks to achieve its investment
objective by investing all of its investable assets (`Assets'') in the
International Equity Portfolio (the `Portfolio''), a separate investment
company with an identical investment objective. The investment performance
of the Fund will correspond directly to the investment performance of the
Portfolio. See `Special Information Concerning Master-Feeder Fund
Structure''herein.
Bankers Trust Company (`Bankers Trust'') is the investment adviser (the
`Adviser'') of the Portfolio. Shares of the Fund are not deposits or
obligations of, or guaranteed or endorsed by, Bankers Trust or any other
banking or depository institution. Shares are not Federally guaranteed or
insured by the Federal Deposit Insurance Corporation (`FDIC''), the U.S.
government, the Federal Reserve Board or any other agency and are subject
to investment risk, including the possible loss of principal amount
invested.
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
EDGEWOOD SERVICES, INC.
Clearing Operations o P.O. Box 897 o Pittsburgh, Pennsylvania o 15230-0897
TABLE OF CONTENTS
PAGE
The Fund 3
Who May Want To Invest 3
Summary Of Fund Expenses 4
Financial Highlights 5
Investment Objective And Policies 6
Risk Factors: Matching The Fund To Your Investment Needs 8
Net Asset Value 10
Purchase And Redemption Of Shares 11
Dividends, Distributions And Taxes 16
Performance Information And Reports 17
Management Of The Trust And Portfolio 17
Additional Information 21
2
THE FUND
The Fund's investment objective is long-term capital appreciation from
investment in foreign equity securities (or other securities with equity
characteristics); the production of any current income is incidental to
this objective. The Portfolio invests primarily in established companies
based in developed countries outside the United States, but the Portfolio
may also invest in emerging market securities.
WHO MAY WANT TO INVEST
The Trust seeks to achieve the investment objective of the Fund by
investing all the Assets of the Fund in the Portfolio.
The Fund is designed for investors who are willing to accept short-term
domestic and/or foreign stock market fluctuations in pursuit of potentially
higher long-term returns. The Fund invests for growth and does not pursue
income.
The Fund is not in itself a balanced investment plan. Investors should
consider their investment objective and tolerance for risk when making an
investment decision. When investors sell their Fund shares, they may be
worth more or less than what they originally paid for them.
3
SUMMARY OF FUND EXPENSES
The following table provides (i) a summary of expenses relating to
purchases and sales of the shares of the Fund and the annual operating
expenses of the Fund and the expenses of the Portfolio, as a percentage of
average net assets of the Fund and (ii) an example illustrating the dollar
cost of such expenses on a $1,000 investment in the Fund. The Trustees of
the BT Investment Funds believe that the aggregate per share expenses of
the Fund and the Portfolio will be less than or approximately equal to the
expenses which the Fund would incur if the Trust retained the services of
an investment adviser and the Assets of the Fund were invested directly in
the type of securities being held by the corresponding Portfolio.
Annual Operating Expenses
(as a percentage of the average daily net assets of the Fund)
Investment advisory fee (after reimbursements or waivers) 0.60%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers) 0.90
Total operating expenses (after reimbursements or waivers) 1.50%
Example 1 year 3 Years 5 years10 years
You would pay the following expenses on a $1,000
investment, assuming: (1) 5% annual return and
(2) redemption at the end of each time period$15 $47 $82 $179
The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund.
While reimbursement of distribution expenses in amounts up to 0.20% of
average net assets are authorized to be made pursuant to the Plan of
Distribution under Rule 12b-1 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. Bankers Trust
has voluntarily agreed to waive a portion of its investment advisory fee.
Without such waiver, the Portfolio's investment advisory fee would be equal
to 0.65%. The expense table and the example reflect a voluntary
undertaking by Bankers Trust to waive or reimburse expenses such that the
total operating expenses will not exceed 1.50% of the Fund's average net
assets annually. In the absence of this undertaking, for the fiscal year
ended September 30, 1996, the total operating expenses would have been
equal to approximately 1.76% of the Fund's average net assets annually.
The example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
Moreover, while each example assumes a 5% annual return, actual performance
will vary and may result in a return greater or less than 5%.
For more information with respect to the expenses of the Fund and the
Portfolio see `Management of the Trust and Portfolio'' herein.
The Fund is distributed by Edgewood Services, Inc. (`Edgewood'') (the
`Distributor'') to customers of Bankers Trust or to customers of another
bank or a dealer or other institution that has a sub-shareholder servicing
agreement with Bankers Trust (along with Bankers Trust, a `Service
Agent'). Some Service Agents may impose certain conditions on their
customers in addition to or different from those imposed by the Fund and
may charge their customers a direct fee for their services. Each Service
Agent has agreed to transmit to shareholders who are its customers
appropriate disclosures of any fees that it may charge them directly.
4
FINANCIAL HIGHLIGHTS
The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data
of the Fund for each period indicated and has been audited by Coopers &
Lybrand L.L.P., the Fund's independent accountants, whose report thereon
appears in the Fund's Annual Report which is incorporated by reference.
<TABLE>
<CAPTION>
For
the period
For the
August 4, 1992
For the For the period year ended
(Commencement
year ended January 1, 1995 to December 31,
of Operations) to
September 30, 1996 September 30, 1995**
1994 1993 December 31, 1992
SELECTED PER SHARE DATA
<S> <C>
<C> <C> <C>
<C>
Net Asset Value, Beginning of Period $15.47 $13.37$13.18
$9.75 $10.00
Income from Investment Operations
Net Investment Income 0.18 0.14 0.10 0.05
0.03
Net Realized and Unrealized Gain (Loss)
on Securities and Foreign Currency
Transactions1.80 1.97 0.44 3.60
(0.28)
Total from Investment Operations 1.98 2.11 0.54
3.65 (0.25)
Distributions to Shareholders
Net Investment Income (0.31) (0.00) (0.09)(0.15) -
Net Realized Gain from
Investment Transactions (0.37) (0.01) (0.26)(0.07) -
Total Distributions (0.68) (0.01) (0.35)(0.22) -
Net Asset Value, End of Period $16.77 $15.47$13.37
$13.18 $9.75
Total Investment Return 13.42% 15.82% 4.12% 37.38%
(6.01)%*
Ratios and Supplemental Data
Ratios to Average Net Assets:
Net Investment Income 0.91% 1.55%* 0.84% 0.79%
0.97%*
Expenses, including Expenses of the
International Equity Portfolio 1.50% 1.50%*1.50%
1.50% 1.50%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.26% 0.33%*0.37%
0.62% 1.36%*
Net Assets, End of Period (000s omitted) $161,692 $82,807
$56,020 $33,869 $8,218
</TABLE>
* Annualized
** Board of Trustees approved the change of the fiscal year end from
December 31 to September 30.
5
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital appreciation from
investment in foreign equity securities (or other securities with equity
characteristics); the production of any current income is incidental to
this objective.
The Trust seeks to achieve the investment objective of the Fund by
investing all the Assets of the Fund in the Portfolio, which has the same
investment objective as the Fund. There can be no assurances that the
investment objective of either the Fund or the Portfolio will be achieved.
The investment objective of the Fund and the Portfolio is not a fundamental
policy and may be changed upon notice to, but without the approval of, the
Fund's shareholders or the Portfolio's investors, respectively. See
`Special Information Concerning Master-Feeder Fund Structure'' herein.
International Equity Portfolio
Under normal circumstances, the Portfolio invests at least 65% of the value
of its total assets in the equity securities of foreign issuers, consisting
of common stock and other securities with equity characteristics. These
issuers are primarily established companies based in developed countries
outside the United States. However, the Portfolio may also invest in
securities of issuers in underdeveloped countries. Investments in these
countries will be based on an acceptable degree of risk in anticipation of
superior returns. The Portfolio will at all times be invested in the
securities of issuers based in at least three countries other than the
United States. For further discussion of the unique risks associated with
investing in foreign securities in both developed and underdeveloped
countries, see `Risk Factors: Matching the Fund to Your Investment
Needs,''``Additional Information'' herein and the SAI.
The Portfolio's investments will generally be diversified among several
geographic regions and countries. Criteria for determining the appropriate
distribution of investments among various countries and regions include the
prospects for relative growth among foreign countries, expected levels of
inflation, government policies influencing business conditions, the outlook
for currency relationships and the range of alternative opportunities
available to international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Portfolio. Criteria for selection of individual
securities include the issuer's competitive position, prospects for growth,
managerial strength, earnings quality, underlying asset value, relative
market value and overall marketability. The Portfolio may invest in
securities of companies having various levels of net worth, including
smaller companies whose securities may be more volatile than securities
offered by larger companies with higher levels of net worth.
In other countries and regions where capital markets are underdeveloped or
not easily accessed and information is difficult to obtain, the Portfolio
may choose to invest only at the market level. Here, the Portfolio may
seek to achieve country exposure through use of options or futures based on
an established local index. Similarly, country exposure may also be
achieved through investments in other registered investment companies.
Restrictions on both these types of investments are fully explained herein
and in the SAI.
The remainder of the Portfolio's assets will be invested in dollar and non-
dollar denominated short-term instruments. These investments are subject
to the conditions described in `Short-Term Instruments'' below.
Equity Investments. The Portfolio invests primarily in common stocks and
other securities with equity characteristics. For purposes of the
Portfolio's policy of investing at least 65% of the value of its total
assets in the equity securities of foreign issuers. Equity securities are
defined as common stock, preferred stock, trust or limited partnership
interests, rights and warrants, and convertible securities, consisting of
debt securities or preferred stock that may be converted into common stock
or that carry the right to purchase common stock. The Portfolio invests in
securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets, in
addition to investment in restricted or unlisted securities.
With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Portfolio may be made
through investment in other investment companies that in turn are
authorized to invest in the securities of such countries. Investment in
other investment companies is limited in amount by the 1940 Act, will
involve the indirect payment of a portion of the expenses, including
advisory fees, of such other investment companies and may result in a
duplication of fees and expenses.
6
Short-Term Instruments. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its
objective and long-term investment perspective. However, the Portfolio's
assets may be invested in short-term instruments with remaining maturities
of 397 days or less to meet anticipated redemptions and expenses or for
day-to-day operating purposes and when, in Bankers Trust's opinion, it is
advisable to adopt a temporary defensive position because of unusual and
adverse conditions affecting the equity markets. In addition, when the
Portfolio experiences large cash inflows through the sale of securities and
desirable equity securities that are consistent with the Portfolio's
investment objective are unavailable in sufficient quantities or at
attractive prices, the Portfolio may hold short-term investments for a
limited time pending availability of such equity securities. Short-term
instruments consist of foreign and domestic: (i) short-term obligations of
sovereign governments, their agencies, instrumentalities, authorities or
political subdivisions; (ii) other short-term debt securities rated Aa or
higher by Moody's Investors Service, Inc. (`Moody's'') or AA or higher by
Standard & Poor's Ratings Group (`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 the
Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding debt
rated Aa or higher by Moody's or AA or higher by S&P or outstanding
commercial paper or bank obligations rated Prime-1 by Moody's or A-1 by
S&P; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of Bankers Trust. These instruments may
be denominated in U.S. dollars or in foreign currencies and will have been
determined to be of high quality by a nationally recognized statistical
rating organization, or if unrated, by Bankers Trust.
Additional Investment Techniques
The Portfolio may also utilize the following investments and investment
techniques and practices: American Depositary Receipts (`ADRs''), Global
Depositary Receipts (`GDRs''), European Depositary Receipts (``EDRs''),
when-issued and delayed delivery securities, Rule 144A securities,
securities lending, repurchase agreements, foreign currency exchange
transactions, options on foreign currencies, options on stocks, options on
foreign stock indices, futures contracts on foreign stock indices and
options on futures contracts. See `Additional Information'' herein for
further information.
Additional Investment Limitations
As a diversified fund, no more than 5% of the assets of the Portfolio may
be invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Portfolio's assets may be
invested without regard to this limitation. The Portfolio will not invest
more than 25% of its assets in the securities of issuers in any one
industry. These are fundamental investment policies of the Portfolio which
may not be changed without investor approval. No more than 15% of the
Portfolio's net assets may be invested in illiquid or not readily
marketable securities (including repurchase agreements and time deposits
with remaining maturities of more than seven calendar days). Additional
investment policies of the Portfolio are contained in the SAI.
The Fund's investment objective is not a fundamental policy and may be
changed upon 30 days prior written notice to, but without approval of, the
Fund's shareholders. If there is a change in the Fund's investment
objective, the Fund's shareholders should consider whether the Fund
remains an appropriate investment in light of their then-current needs.
See `Investment Objective, Policies and Restrictions'' in the SAI for a
description of the additional fundamental policies of the fund that cannot
be changed without approval by a `vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund.
7
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
By itself, the Fund does not constitute a balanced investment plan; the
Fund seeks long-term capital appreciation from investment primarily in the
equity securities (or other securities with equity characteristics) of
foreign issuers. Changes in domestic and foreign interest rates may affect
the value of the Portfolio's investments, and rising interest rates can be
expected to reduce the Fund's share value. A description of a number of
investments and investment techniques available to the Portfolio, including
foreign investments and the use of options and futures, and certain risks
associated with these investments and techniques is included under
`Additional Information'' herein. The Fund's share price and total return
fluctuate and your investment may be worth more or less than your original
cost when you redeem your shares.
Risk of Investing in Foreign Securities
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in
securities of companies organized and operated in the United States.
Although the Portfolio intends to invest primarily in securities of
established companies based in developed countries, investors should
realize that the value of the Portfolio's investments may be adversely
affected by changes in political or social conditions, diplomatic
relations, confiscatory taxation, expropriation, nationalization,
limitation on the removal of funds or assets, or imposition of (or change
in) exchange control or tax regulations in those foreign countries. In
addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably
affect the Portfolio's operations. Furthermore, the economies of
individual foreign nations may differ from the U.S. economy, whether
favorably or unfavorably, in areas such as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position; it may also be more difficult to obtain
and enforce a judgment against a foreign issuer. In general, less
information is publicly available with respect to foreign issuers than is
available with respect to U.S. companies. Most foreign companies are also
not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. Any foreign investments made
by the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.
The Portfolio may invest in the securities of issuers based in
underdeveloped countries, including those in Eastern Europe. Investment in
securities of issuers based in underdeveloped countries entails all of the
risks of investing in securities of foreign issuers outlined in this
section to a heightened degree. These heightened risks include: (i)
greater risks of expropriation, confiscatory taxation, nationalization, and
less social, political and economic stability; (ii) the smaller size of the
market for such securities and a low or nonexistent volume of trading,
resulting in lack of liquidity and in price volatility; (iii) certain
national policies which may restrict the Portfolio's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) in the case of
Eastern Europe, the absence of developed capital market and legal
structures governing private or foreign investment and private property and
the possibility that recent favorable economic and political developments
could be slowed or reversed by unanticipated events. The Portfolio will
not invest more than 5% of the value of its total assets in securities of
issuers based in Eastern Europe.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio
as measured in U.S. dollars will be affected favorably or unfavorably by
changes in exchange rates. Generally, the Portfolio's currency exchange
transactions will be conducted on a spot (i.e., cash) basis at the spot
rate prevailing in the currency exchange market. The cost of the
Portfolio's currency exchange transactions will generally be the difference
between the bid and offer spot rate of the currency being purchased or
sold. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Portfolio is authorized to enter into
certain foreign currency exchange transactions. See `Additional
Information''herein.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains
appreciably below that of the New York Stock Exchange, Inc. (the
`NYSE''). Accordingly,
8
the Portfolio's foreign investments may be less liquid and their prices may
be more volatile than comparable investments in securities of U.S.
companies. Moreover, the settlement periods for foreign securities, which
are often longer than those for securities of U.S. issuers, may affect
portfolio liquidity. In buying and selling securities on foreign
exchanges, the Portfolio normally pays fixed commissions that are generally
higher than the negotiated commissions charged in the United States. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers in foreign countries than in the
United States.
Portfolio Turnover
Bankers Trust intends to manage the Portfolio actively in pursuit of its
investment objective. The Portfolio does not expect to trade in securities
for short-term profits but, when circumstances warrant, securities may be
sold without regard to the length of time held. The Portfolio's portfolio
turnover rates for the fiscal year ended September 30, 1996, and for the
period from January 1, 1995 to September 30, 1995 were 68% and 21%,
respectively.
Derivatives
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value
of which is based on, or `derived'' from, a traditional security, asset or
market index. Some `derivatives'' such as mortgage-related and other
asset-backed securities are in many respects like any other investment,
although they may be more volatile or less liquid than more traditional
debt securities. There are, in fact, many different types of derivatives
and many different ways to use them. There are a range of risks associated
with those uses. Futures and options are commonly used for traditional
hedging purposes to attempt to protect a fund from exposure to changing
interest rates, securities prices or currency exchange rates and for cash
management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those
securities. However, some derivatives are used for leverage, which tends
to magnify the effects of an instrument's price changes as market
conditions change. Leverage involves the use of a small amount of money to
control a large amount of financial assets and can, in some circumstances,
lead to significant losses. Bankers Trust, as the Portfolio's Adviser will
use derivatives only in circumstances where the Adviser believes they offer
the most economic means of improving the risk/reward profile of the
Portfolio. Derivatives will not be used to increase portfolio risk above
the level that could be achieved using only traditional investment
securities or to acquire exposure to changes in the value of assets or
indices that by themselves would not be purchased for the Portfolio. The
use of derivatives for non-hedging purposes may be considered speculative.
A description of the derivatives that the Portfolio may use and some of
their associated risks is found under `Additional Information'' herein.
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 Fund seeks
to achieve its investment objective by investing all of its Assets in the
Portfolio, a separate registered investment company with the same
investment objective as the Fund. Therefore, an investor's interest in the
Portfolio's securities is indirect. In addition to selling a beneficial
interest to the Fund, the Portfolio may sell beneficial interests to other
mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate
share of the Portfolio's expenses. However, the other investors investing
in the Portfolio are not required to sell their shares at the same public
offering price as the Fund due to variations in sales commissions and other
operating expenses. Therefore, investors in the Fund should be aware that
these differences may result in differences in returns experienced by
investors in the different funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is
available from Bankers Trust at (800) 730-1313.
The master-feeder structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a
large fund withdraws from the Portfolio, the remaining funds may experience
higher pro rata operating expenses, thereby producing lower returns
(however, this possibility exists as well for
9
traditionally structured funds which have large institutional investors).
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk. Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Except as permitted by the SEC, whenever the Trust is requested
to vote on matters pertaining to the Portfolio, the Trust will hold a
meeting of shareholders of the Fund and will cast all of its votes in the
same proportion as the votes of the Fund's shareholders. Fund shareholders
who do not vote will not affect the Trust's votes at the Portfolio meeting.
The percentage of the Trust's votes representing the Fund's shareholders
not voting will be voted by the Trustees or officers of the Trust in the
same proportion as the Fund shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the
Portfolio. Any such withdrawal could result in a distribution `in kind''
of portfolio securities (as opposed to a cash distribution from the
Portfolio). If securities are distributed, the Fund could incur brokerage,
tax or other charges in converting the securities to cash. In addition,
the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding
the above, there are other means for meeting redemption requests, such as
borrowing.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests
of the shareholders of the Fund to do so. Upon any such withdrawal, the
Board of Trustees of the Trust would consider what action might be taken,
including the investment of all the Assets of the Fund in another pooled
investment entity having the same investment objective 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.
NET ASSET VALUE
The net asset value (`NAV'') per share of the Fund is calculated on each
day on which 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 NAV per share of the Fund is calculated once on each Valuation Day as
of the close of regular trading on the NYSE (the `Valuation Time''), which
is currently 4:00 p.m., Eastern time or in the event that the NYSE closes
early, at the time of such early closing. The NAV per share of the Fund is
computed by dividing the value of the Fund's Assets (i.e., the value of its
investment in the Portfolio and other assets), less all liabilities, by the
total number of its shares outstanding as of the Valuation Time. The
Portfolio's securities and other assets are valued primarily on the basis
of market quotations or, if quotations are not readily available, by a
method which the Portfolio's Board of Trustees believes accurately reflects
fair value.
Under procedures adopted by the Board, a NAV for a Fund later determined to
have been inaccurate for any reason will be recalculated. Purchases and
redemptions made at a NAV determined to have been inaccurate will be
adjusted, although in certain circumstances, such as where the difference
between the original NAV and the recalculated NAV divided by the
recalculated NAV is 0.005 (1/2 of 1%) or less or shareholder transactions
are otherwise insubstantially affected, further action is not required.
10
PURCHASE AND REDEMPTION OF SHARES
How To Buy Shares
The Trust accepts purchase orders for shares of the Fund at the NAV per
share next determined after the order is received on each Valuation Day.
See `Net Asset Value'' herein. Shares of the Fund may be available through
Investment Professionals, such as broker/dealers and investment advisers
(including Service Agents).
Purchase orders for shares of the Fund (including those purchased through a
Service Agent) that are transmitted to the Trust's Transfer Agent (the
`Transfer Agent''), prior to the Valuation Time on any Valuation Day will
be effective at that day's Valuation Time. The Trust and Transfer Agent
reserve the right to reject any purchase order.
Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. 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 by the following business day (trade date
+ 1) after an order for shares is placed. A shareholder must settle with
the Service Agent for 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 held with Bankers Trust to settle
transactions with 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 Transfer Agent.
If orders are placed through an Investment Professional, it is the
responsibility of the Investment Professional to transmit the order to buy
shares to the Transfer Agent before 4:00 p.m. Eastern time.
The Transfer Agent must receive payment within one business day after an
order for shares is placed; otherwise, the purchase order may be canceled
and the investor could be held liable for resulting fees and/or losses.
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
If you are new to BT Investment Funds, complete and sign an account
application and mail it along with your check to the address listed below.
If there is no account application accompanying this Prospectus, call the
BT Service Center at 1-800-730-1313.
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
If you already have money invested in a fund in the BT Family of Funds, you
can:
o Mail an account application with a check,
o Wire money into your account,
o Open an account by exchanging from another fund in the BT Family of
Funds, or
o Contact your Service Agent or Investment Professional.
If you are investing through a tax-sheltered retirement plan, such as an
IRA, for the first time, you will need a special application. Contact your
Investment Professional or call BT Retirement Services Center at 1-800-677-
7596 for more information and a retirement account application.
11
Additional Information About Buying Shares
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C>
<C>
By Wire Call the BT Service Center at Call your Investment
Professional or wire
1-800-730-1313 to receive additional
investment to:
wire instructions for account
establishment.
Routing No.:
021001033
Attn: Bankers
Trust/IFTC Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Fund Number
Investment
International Equity Fund - 463
Specify the complete
name of the
Fund of your choice,
and include
your account number
and your name.
By Phone Contact your Service Agent, Contact your Service
Agent,
Investment Professional, or call BT's Investment
Professional, or call
Service Center at 1-800-730-1313. BT's Service
Center at 1-800-730-1313.
If you are an existing shareholder, If you are
an
you may exchange from another BT existing
shareholder, you may
account with the same registration, exchange
from another BT account
including, name, address, and with the same
registration, including,
taxpayer ID number. name, address, and
taxpayer ID number.
By Mail Complete and sign the account appli- Make your
check payable to the complete
cation. Make your check payable to name of
the Fund of your choice. Indicate
the complete name of the Fund of your Fund
account number on your check
your choice. Mail to the appropriate and mail
to the address printed on your
address indicated on the application. account
statement.
</TABLE>
How to Sell Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares. Your shares shall be sold
at the next NAV calculated after an order is received by the Transfer
Agent. Redemption requests should be transmitted by customers in accordance
with procedures established by the Transfer Agent and the Shareholder's
Service Agent. Redemption requests for shares of the Fund received by the
Service Agent and transmitted to the Transfer Agent prior to the Valuation
Time 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 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
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 Transfer Agent
and the Service Agent must employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Shareholder
Servicing 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 identifi-
12
cation prior to acting upon instructions received by telephone, providing
written confirmation of such transactions and/or tape recording of
telephone instructions.
Redemption orders are processed without charge by the Trust. A Service
Agent may on at least 30 days' notice involuntarily redeem a shareholder's
account with the Fund having a balance below the minimum, but not if an
account is below the minimum due to a change in market value. See `Minimum
Investments''above for minimum balance amounts.
To sell shares in a retirement account, your request must be made in
writing, except for exchanges to other eligible funds in the BT Family of
Funds, which can be requested by phone or in writing. For information on
retirement distributions, contact your Service Agent or call the BT Service
Center at 1-800-730-1313.
If you are selling some but not all of your non-retirement account shares,
leave at least $1,000 worth of shares in the account to keep it open.
To sell shares by bank wire you will need to sign up for these services in
advance when completing your account application.
Certain requests must include a signature guarantee to protect you and
Bankers Trust from fraud. Redemption requests in writing must include a
signature guarantee if any of the following situations apply:
o Your account registration has changed within the last 30 days,
o The check is being mailed to a different address than the one on your
account (record address),
o The check is being made payable to someone other than the account
owner,
o The redemption proceeds are being transferred to a BT account with a
different registration, or
o You wish to have redemption proceeds wired to a non-predesignated bank
account.
A signature guarantee is also required if you change the pre-designated
bank information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker,
dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency, or savings association. A notary public
cannot provide a signature guarantee.
Additional Information About Selling Shares
By Wire - You must sign up for the wire feature before using it. To verify
that it is in place, call 1-800-730-1313. Minimum wire: $1,000. Your wire
redemption request must be received by the Transfer Agent before 4:00 p.m.
Eastern time for money to be wired on the next business day.
In Writing - Write a signed `letter of instruction'' with your name, the
Fund's name and Fund's number, your Fund account number, the dollar amount
or number of Shares to be redeemed, and mail to one of the following
addresses:
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
For Trust accounts, the trustee must sign the letter indicating capacity as
trustee. If the trustee's name is not on the account registration, provide
a copy of the trust document certified within the last 60 days.
For a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.
Unless otherwise instructed, the Transfer Agent will send a check to the
account address of record. The Trust reserves the right to close investor
accounts via 30 day notice in writing if the Fund account balance falls
below the Fund minimums.
13
Investor Services
BT Investment Funds provide a variety of services to help you manage your
account.
Information Services
Statements and reports that your Investment Professional or the Transfer
Agent may send to you include the following:
o Confirmation statements (after every transaction that affects your
account balance, including distributions or your account registration)
o Account statements (monthly)
o Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed,
even if you have more than one account in the Fund. Call your Investment
Professional or the BT Service Center at 1-800-730-3131 if you need
additional copies of financial reports.
Exchange Privilege
Shareholders may exchange their shares for shares of certain other funds in
the BT Family of Funds registered in their state. The Fund reserves the
right to terminate or modify the exchange privilege in the future. To make
an exchange, follow the procedures indicated in `How to Purchase Shares''
and `How to Redeem Shares'' herein. Before making an exchange, please note
the following:
o Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.
o Your new account will have the identical account registration
including the same name, address and taxpayer identification number as your
existing account(s).
o Each exchange represents the sale of shares of one fund and the
purchase of shares of another, which may produce a gain or loss for tax
purposes. Your Service Agent will receive a written confirmation of each
exchange transaction.
Note that exchanges out of a Fund may be limited to four per calendar year
and that they may have tax consequences for you.
Systematic Programs
To move money from your bank account to BT Investment Funds
<TABLE>
<CAPTION>
Minimum Minimum Frequency Setting up or changing
Initial Subsequent
<S> <C> <C>
<C>
$1,000 $100 Monthly, bimonthly, For a new account,
complete the appropriate section
quarterly or semi- on the application.
annually
For existing accounts, call
your Investment
Professional for an
application.
To change the amount or
frequency of your
investment, contact your
Investment
Professional directly or call
1-800-730-1313.
Call at least 10 business
days prior to your next
scheduled investment date.
</TABLE>
14
Systematic Withdrawal Program lets you set up periodic redemptions from
your account.
<TABLE>
<CAPTION>
Minimum Frequency Setting up or changing
<S> <C>
<C>
$100 Monthly, quarterly, semi-annually or To establish,
call your Investment Professional or call
annually 1-800-730-1313 after your
account is open. The
accounts from which the
withdrawals will be
processed must have a
minimum balance of $10,000.
</TABLE>
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 Bankers Trust for further
information. Bankers Trust can set up your new account in the Fund under a
number of several tax-savings or tax-deferred plans. Minimums may differ
from those listed elsewhere in this Prospectus.
o Individual Retirement Accounts (IRAs): personal savings plans that
offer tax advantages for individuals to set aside money for retirement and
allow new contributions of $2,000 per tax year.
o Rollover IRAs: tax-deferred retirement accounts that retain the
special tax advantages of lump sum distributions from qualified retirement
plans and transferred IRA accounts.
o Simplified Employee Pension Plans (SEP): a relatively easy and
inexpensive alternative to retirement planning for sole proprietors,
partnerships and corporations. Under a SEP, employers make tax-deductible
contributions to their own and to eligible employees' IRA accounts.
Employee contributions are available through a `Salary Deferral'' SEP for
businesses with fewer than 25 eligible employees.
o Keogh Plans: defined contribution plans available to individuals with
self-employed income and nonincorporated businesses such as sole
proprietors, professionals and partnerships. Contributions are tax-
deductible to the employer and earnings are tax-sheltered until
distribution.
o Corporate Profit-Sharing and Money-Purchase Plans: defined
contribution plans available to corporations to benefit their employees by
making contributions on their behalf and in some cases permitting their
employees to make contributions.
o 401(k) Programs: defined contribution plans available to corporations
allowing tax-deductible employer contributions and permitting employees to
contribute a percentage of their wages on a tax-deferred basis.
o 403(b) Custodian Accounts: defined contribution plans open to
employees of most non-profit organizations and educational institutions.
o Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.
15
DIVIDENDS, DISTRIBUTIONS AND TAXES
Distributions. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends and
any net capital gains are normally distributed in December. 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 Fund 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 Fund's income and short-term capital gains are taxed
as dividends, and long-term capital gain distributions are taxed as long-
term capital gains. The Fund's distributions are taxable when they are
paid, whether you take them in cash or reinvest them in additional shares.
Distributions declared in December and paid in January are taxable as if
paid on December 31. The Fund will send each shareholder a tax statement by
January 31 showing the tax status of the distributions received in the past
year.
Capital Gains. You may realize a capital gain or loss when you redeem
(sell) or exchange shares. Because the tax treatment also depends on your
purchase price and your personal tax position, you should keep your regular
account statements to use in determining your tax.
`Buying a Dividend.'' On the ex-date for a distribution from income and/or
capital gains, the Fund's share value is reduced by the amount of the
distribution. If you buy shares just before the ex-date (`buying a
dividend'), you will pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.
Other Tax Information. In addition to Federal taxes, you may be subject to
state or local taxes on your investment, depending on the laws in your
area. Income received by the Portfolio from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Investors should consult their tax advisor for specific details
on state, local or foreign taxes. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes. It is impossible
to determine the effective rate of foreign tax in advance since the amount
of the Portfolio's assets to be invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of the
value of the Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, it may make an
election pursuant to which certain foreign taxes paid by it would be
treated as having been paid directly by shareholders of the entities, such
as the Fund, which have invested in the Portfolio. Pursuant to such
election, the amount of foreign taxes paid will be included in the income
of Fund shareholders, and Fund shareholders (except tax-exempt
shareholders) may, subject to certain limitations, claim either a credit or
deduction for the taxes. Each Fund shareholder will be notified after the
close of the Portfolio's taxable year whether the foreign taxes paid will
`pass through'' for that year and, if so, such notification will designate
(a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion which represents income derived from sources
within each such country.
The amount of foreign taxes for which a shareholder may claim a credit in
any year will generally be subject to a separate limitation for `passive
income,''which includes, among other items of income, dividends, interest
and certain foreign currency gains. Because capital gains realized by the
Portfolio on the sale of foreign securities will be treated as U.S.-source
income, the available credit of foreign taxes paid with respect to such
gains may be restricted by this limitation.
16
PERFORMANCE AND INFORMATION REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment
results and/or comparisons of its investment results to the MSCI GDP
weighted EAFE Index, MSCI EAFE Index, and the Lipper International Average
or other various unmanaged indices or results of other mutual funds or
investment or savings vehicles. The Fund's investment results as used in
such communications will be calculated on a total rate of return basis in
the manner set forth herein. From time to time, fund rankings may be quoted
from various sources, such as Lipper Analytical Services, Inc., Value Line,
and Morningstar, Inc.
The Trust may provide period and average annualized `total return''
quotations for the Fund. The Fund's `total return'' refers to the change
in the value of an investment in the Fund over a stated period based on any
change in net asset value per share and including the value of any shares
purchasable with any dividends or capital gains distributed during such
period. Period total return 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.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the total return of the Fund will vary depending
upon interest rates, the current market value of the securities held by the
Portfolio and changes in the Fund's expenses. In addition, during certain
periods for which total return may be provided, Bankers Trust, as Adviser,
Service Agent or Administrator may have voluntarily agreed to waive
portions of their fees on a month-to-month basis. Such waivers will have
the effect of increasing the Fund's net income (and therefore its total
return) during the period such waivers are in effect.
Shareholders will receive financial reports semi-annually that include the
Portfolio's financial statements, including a listing of investment
securities held by the Portfolio at those dates. Annual reports are audited
by independent accountants.
MANAGEMENT OF THE TRUST AND PORTFOLIO
Board of Trustees
The affairs of the Trust and the Portfolio are managed under the
supervision of their respective Boards of Trustees. By virtue of the
responsibilities assumed by Bankers Trust, the administrator of the Trust
and Portfolio, neither the Trust nor the Portfolio requires employees other
than its executive officers. None of the executive officers of the Trust or
the Portfolio devotes full time to the affairs of the Trust or the
Portfolio.
The Trustees of the Trust who are not `interested persons'' (as defined in
the 1940 Act) (the `Independent Trustees'') or of the Portfolio, 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, arising from the fact that several of the same
individuals are trustees of the Trust and of the Portfolio. For more
information with respect to the Trustees of both the Trust and the
Portfolio, see `Management of the Trust and Portfolios'' in the SAI.
Investment Adviser
The Trust has not retained the services of an investment adviser since the
Trust seeks to achieve the investment objective of the Fund by investing
all the Assets of the Fund in the Portfolio. The Portfolio has retained the
services of Bankers Trust as investment adviser. Mr. Michael Levy has been
the primary portfolio manager for the International Equity Fund since 1995.
He also heads the international active equity team, which is responsible
for the day to day management of the Portfolio. Mr. Levy has been the head
of this team since joining Bankers Trust in March, 1993, and is Managing
Director and International Equity Strategist of Bankers Trust. The
international active equity team has provided input into the management of
the Portfolio since the Portfolio's commencement of operations. Prior to
joining Bankers Trust, Mr. Levy was an investment banker and an equity
analyst with Oppenheimer & Company. He has twenty-four years of business
experience, of which fourteen years have been in the investment industry.
17
Robert Reiner has been the co-manager of the Fund since 1995. As Vice
President-Global Investment Management and Bankers Trust, he has been
responsible for managing global portfolios and developing analytical and
investment tools for the group's global equity team. As a member of the
Fund's portfolio management team, he focuses primarily on Japanese and
European markets. Prior to joining Bankers Trust, he was an equity analyst
and also provided macroeconomic coverage for Scudder, Stevens and Clark. He
previously served as Senior Analyst at Sanford C. Bernstein & Co. and was
instrumental in the development of Bernstein's International Value Fund.
Mr. Reiner spent more than nine years at Standard & Poor's Corporation,
where he was a member of its international ratings group. His tenure
included managing the day to day operations of Standard & Poor's
Corporation Tokyo office for three years.
Julie Wang, Vice President of Global Investment Management, is a portfolio
manager with primary focus on the Asia-Pacific region. She is part of the
International Equity Fund portfolio management team. Before joining Bankers
Trust in 1994, Julie was an investment manager at American International
Group, where she advised in the management of $7 billion of assets in
Southeast Asia, including private and listed equities, bonds, loans and
structured products. She was also an associate at Donaldson, Lufkin &
Jenrette, where she worked on all phases of merger and LBO analyses and
advised clients on shareholder value maximization and tender defense
strategies. Julie received her B.A. (economics) from Yale University and
her MBA from the Wharton School.
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 June 30, 1996, Bankers Trust New York Corporation was the seventh
largest bank holding company in the United States with total assets of
approximately $115 billion. Bankers Trust is a worldwide merchant bank
dedicated to servicing the needs of corporations, governments, financial
institutions and private clients through a global network of over 120
offices in more than 40 countries. Investment management is a core business
of Bankers Trust, built on a tradition of excellence from its roots as a
trust bank founded in 1903. The scope of Bankers Trust's investment
management capability is unique due to its leadership positions in both
active and passive quantitative management and its presence in major equity
and fixed income markets around the world. Bankers Trust is one of the
nation's largest and most experienced investment managers with
approximately $215 billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled
fund structures. Now, the BT Family of Funds brings Bankers Trust's
extensive investment management expertise -- once available to only the
largest institutions in the U.S. -- to individual investors. Bankers
Trust's officers have had extensive experience in managing investment
portfolios having objectives similar to those of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Portfolio, manages the Portfolio in accordance with the
Portfolio's investment objective and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who
provide research services to the Portfolio. Bankers Trust may utilize the
expertise of any of its worldwide subsidiaries and affiliates to assist it
in its role as investment Adviser.
All orders for investment transactions on behalf of the Portfolio are
placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers
Trust. A Bankers Trust affiliate will be used in connection with a purchase
or sale of an investment for the Portfolio only if Bankers Trust believes
that the affiliate's charge for the transaction does not exceed usual and
customary levels. The Portfolio will not invest in obligations for which
Bankers Trust or any of its affiliates is the ultimate obligor or accepting
bank. The Portfolio may, however, invest in the obligations of
correspondents and customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee from
the Portfolio, computed daily and paid monthly, at the annual rate of 0.65%
(before waiver) 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
Portfolio described in this Prospectus and the SAI without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
18
Administrator
Under its Administration and Services Agreement with the Trust, Bankers
Trust calculates the NAV of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of
the Trust. The Administration and Services Agreement provides for the Trust
to pay Bankers Trust a fee, computed daily and paid monthly, at the annual
rate of 0.85% of the average daily net assets of the Fund.
Under an Administration and Services Agreement with the Portfolio, Bankers
Trust calculates the value of the assets of the Portfolio and generally
assists the Board of Trustees of the Portfolio in all aspects of the
administration and operation of the Portfolio. The Administration and
Services Agreement provides for the Portfolio to pay Bankers Trust a fee,
computed daily and paid monthly, at the annual rate of 0.15% of the average
daily net assets of the Portfolio. Under each Administration and Services
Agreement, Bankers Trust may delegate one or more of its responsibilities
to others, including affiliates of Edgewood, at Bankers Trust's expense.
For more information, see the SAI.
Distributor
Edgewood Services, Inc. is the principal distributor for shares of the
Fund. In addition, Edgewood and its affiliates provide the Trust with
office facilities, and currently provide administration and distribution
services for other registered investment companies. The principal business
address of Edgewood and its affiliates is Clearing Operations, P.O. Box
897, Pittsburgh, Pennsylvania 15230-0897.
Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act (the `Plan''), Edgewood may seek reimbursement in
an amount not exceeding 0.20% of the Fund's average daily net assets
annually for expenses incurred in connection with any activities primarily
intended to result in the sale of the Fund's shares, including, but not
limited to: compensation to and expenses (including overhead and telephone
expenses) of account executives or other employees of Edgewood who, as
their primary activity, engage in or support the distribution of shares;
printing of prospectuses, statements of additional information and reports
for other than existing Fund shareholders in amounts in excess of that
typically used in connection with the distribution of shares of the Fund;
costs of placing advertising in various media; services of parties other
than Edgewood or its affiliates in formulating sales literature; and
typesetting, printing and distribution of sales literature. All costs and
expenses in connection with implementing and operating the Plan will be
paid by the Fund, subject to the 0.20% of net assets limitation. All costs
and expenses associated with preparing the Fund's Prospectuses and SAI and
in connection with printing them for and distributing them to existing
shareholders and regulatory authorities, which costs and expenses would not
be considered distribution expenses for purposes of the Plan, will also be
paid by the Fund. To the extent expenses of Edgewood 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.
Service Agent
All shareholders must be represented by a Service Agent. Bankers Trust acts
as a Service Agent pursuant to its Administration and Services Agreement
with the Trust and receives no additional compensation from the Fund for
such shareholder services. The service fees of any other Service Agents,
including broker-dealers, will be paid by Bankers Trust from its fees. The
services provided by a Service Agent may include establishing and
maintaining shareholder accounts, processing purchase and redemption
transactions, arranging for bank wires, performing shareholder sub-
accounting, answering client inquiries regarding the Trust, assisting
clients in changing dividend options, account designations and addresses,
providing periodic statements showing the client's account balance,
transmitting proxy statements, periodic reports, updated prospectuses and
other communications to shareholders and, with respect to meetings of
shareholders, collecting, tabulating and forwarding to the Trust executed
proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may
separately charge their clients additional fees only to cover provision of
additional or more comprehensive services not already provided under the
Administration and
19
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. In addition, investors may be
charged a transaction fee if they effect transactions in Fund shares
through a broker or agent. 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 the
Portfolio and serves as the Transfer Agent for the Trust and the Portfolio
under the Administration and Services Agreement with the Trust and the
Portfolio.
Organization of the Trust
The Trust was organized on July 21, 1986 under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust. The Trust
offers shares of beneficial interest of separate series, par value $0.001
per share. The shares of the other series of the Trust are offered through
separate prospectuses. No series of shares has any preference over any
other series.
The Trust is an entity commonly known as a `Massachusetts business
trust.''Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for
its obligations. However, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in
which both inadequate insurance existed and the Trust itself was unable to
meet its obligations.
When matters are submitted for shareholder vote, shareholders of the Fund
will have one vote for each full share held and proportionate, fractional
votes for fractional shares held. A separate vote of the Fund is required
on any matter affecting the Fund on which shareholders are entitled to
vote. Shareholders of the Fund are not entitled to vote on Trust matters
that do not affect the Fund. There normally will be no meetings of
shareholders for the purpose of electing Trustees unless and until such
time as less than a majority of Trustees holding office have been elected
by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be
removed from office upon the vote of shareholders holding at least two-
thirds of the Trust's outstanding shares at a meeting called for that
purpose. The Trustees are required to call such a meeting upon the written
request of shareholders holding at least 10% of the Trust's outstanding
shares.
The Portfolio, in which all the Assets of the Fund will be invested, is
organized as a trust under the laws of the State of New York. The
Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance
company separate accounts and common and commingled trust funds) will each
be liable for all obligations of the Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund's investing in the Portfolio.
Each series in the Trust will not be involved in any vote involving a
Portfolio in which it does not invest its Assets. Shareholders of all of
the series of the Trust will, however, vote together to elect Trustees of
the Trust and for certain other matters. Under certain circumstances, the
shareholders of one or more series could control the outcome of these
votes.
As of December 31, 1996, Infid & Co., New York, New York, owned 27.00% of
the voting securities of the International Equity Fund, and, therefore,
may, for certain purposes, be deemed to control the Fund and be able to
affect the outcome of certain matters presented for a vote of its
shareholders.
Expenses of the Trust
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Edgewood,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses and costs associated with
regulatory compliance and maintaining legal existence and shareholder
relations. The Portfolio bears its own expenses. Operating expenses for the
Portfolio generally consist of all costs not specifically borne by Bankers
Trust or Edgewood, including investment advisory and administration and
services fees, fees for necessary professional services, amortization of
organizational expenses, the costs associated with regulatory compliance
and maintaining legal existence and investor relations.
20
ADDITIONAL INFORMATION
American Depositary Receipts, Global Depositary Receipts and European
Depositary Receipts. ADRs, GDRs and EDRs are certificates evidencing
ownership of shares of a foreign-based issuer held in trust by a bank or
similar financial institution. Designed for use in U.S., international and
European securities markets, respectively, ADRs, GDRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies. ADRs, GDRs and EDRs are subject to the same risks
as the foreign securities to which they relate.
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take place as long as a month or more
after the date of the purchase commitment. The value of these securities is
subject to market fluctuation during this period and no income accrues to
the Portfolio until settlement takes place. The Portfolio maintains with
the Custodian a segregated account containing high grade liquid securities
in an amount at least equal to these commitments. When entering into a
when-issued or delayed delivery transaction, the Portfolio will rely on the
other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged.
Rule 144A Securities. The Portfolio may purchase securities in the United
States that are not registered for sale under Federal securities laws but
which can be resold to institutions under the SEC Rule 144A. Provided that
a dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Portfolio's 15% limit
on illiquid securities. Under the supervision of the Board of Trustees of
the Portfolio, Bankers Trust determines the liquidity of restricted
securities and, through reports from Bankers Trust, the Board will monitor
trading activity in restricted securities. If institutional trading in
restricted securities were to decline, the liquidity of the Portfolio could
be adversely affected.
Securities Lending. The Portfolio is permitted to lend up to 30% of the
total value of its securities. These loans must be secured continuously by
cash or equivalent collateral or by a letter of credit at least equal to
the market value of the securities loaned plus accrued income. By lending
its securities, the Portfolio can increase its income by continuing to
receive income on the loaned securities as well as by the opportunity to
receive interest on the collateral. During the term of the loan, the
Portfolio continues to bear the risk of fluctuations in the price of the
loaned securities. 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.
Repurchase Agreements. In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price at a
future date. In the event of the bankruptcy of the other party to either a
repurchase agreement or a securities loan, the Portfolio could experience
delays in recovering either its cash or the securities it lent. To the
extent that, in the meantime, the value of the securities repurchased had
decreased or the value of the securities lent had increased, the Portfolio
could experience a loss. In all cases, Bankers Trust must find the
creditworthiness of the other party to the transaction satisfactory. A
repurchase agreement is considered a collateralized loan under the 1940
Act.
Foreign Currency Exchange Transactions. Because the Portfolio buys and
sells securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the
U.S. dollar, the Portfolio from time to time may enter into foreign
currency exchange transactions to convert to and from different foreign
currencies and to convert foreign currencies to and from the U.S. dollar.
The Portfolio either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market
or uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract. Forward
foreign currency exchange contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has
no deposit requirement and is traded at a net price without commission. The
Portfolio maintains with its custodian a segregated account of high grade
liquid assets in an amount at least equal to its obligations under each
forward foreign currency exchange contract. Neither spot transactions nor
forward
21
foreign currency exchange contracts eliminate fluctuations in the prices of
the Portfolio's securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions
or changes in foreign currency exchange rates that would adversely affect a
portfolio position or an anticipated investment position. Since
consideration of the prospect for currency parities will be incorporated
into Bankers Trust's long-term investment decisions, the Portfolio will not
routinely enter into foreign currency hedging transactions with respect to
security transactions; however, Bankers Trust believes that it is important
to have the flexibility to enter into foreign currency hedging transactions
when it determines that the transactions would be in the Portfolio's best
interest. Although these transactions tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of such
securities between the date the forward contract is entered into and the
date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
Options on Foreign Currencies. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. The Portfolio may use options on a foreign 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 a foreign currency will constitute only a partial hedge up to the amount
of the premium received, and the Portfolio could be required to purchase or
sell a foreign currency at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used
to hedge against fluctuations in exchange rates although, in the event of
exchange rate movements adverse to the Portfolio's position, it may forfeit
the entire amount of the premium plus related transaction costs. In
addition, the Portfolio may purchase call options on a foreign currency
when the Adviser anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Portfolio is unable to
effect a closing purchase transaction with respect to covered options it
has written, the Portfolio will not be able to sell the underlying currency
or dispose of assets held in a segregated account until the options expire
or are exercised. Similarly, if the Portfolio is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying currency. The
Portfolio pays brokerage commissions or spreads in connection with its
options transactions.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which
may not be present in the case of exchange-traded currency options. The
Portfolio's ability to terminate over-the-counter options (`OTC Options'')
will be more limited than with exchange-traded options. It is also possible
that broker-dealers participating in OTC Options transactions will not
fulfill their obligations. Until such time as the staff of the SEC changes
its position, the Portfolio will treat purchased OTC Options and assets
used to cover written OTC Options as illiquid securities. With respect to
options written with primary dealers in U.S. government securities pursuant
to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference
to the repurchase formula.
Options on Stocks. The Portfolio may write and purchase put and call
options on stocks. A call option gives the purchaser of the option the
right to buy, and obligates the writer to sell, the underlying stock at the
exercise price at any time during the option period. Similarly, a put
option gives the purchaser of the option the right to sell, and obligates
the writer to buy, the underlying stock at the exercise price at any time
during the option period. A covered call option, which is a call option
with respect to which the Portfolio owns the underlying stock, sold by the
Portfolio exposes the Portfolio during the term of the
22
option to possible loss of opportunity to realize appreciation in the
market price of the underlying stock or to possible continued holding of a
stock which might otherwise have been sold to protect against depreciation
in the market price of the stock. A covered put option sold by the
Portfolio exposes the Portfolio during the term of the option to a decline
in price of the underlying stock. A put option sold by the Portfolio is
covered when, among other things, cash or liquid securities are placed in a
segregated account to fulfill the obligations undertaken.
To close out a position when writing covered options, the Portfolio may
make a `closing purchase transaction,'' which involves purchasing an
option on the same stock with the same exercise price and expiration date
as the option which it has previously written on the stock. The Portfolio
will realize a profit or loss for a closing purchase transaction if the
amount paid to purchase an option is less or more, as the case may be, than
the amount received from the sale thereof. To close out a position as a
purchaser of an option, the Portfolio may make a `closing sale
transaction,''which involves liquidating the Portfolio's position by
selling the option previously purchased.
The Portfolio intends to treat OTC Options purchased and the assets used to
`cover'' OTC Options written as not readily marketable and therefore
subject to the limitations described in `Investment Restrictions'' in the
SAI.
Options on Foreign Stock Indices. The Portfolio may purchase and write put
and call options on foreign stock indices listed on domestic and foreign
stock exchanges. A stock index fluctuates with changes in the market values
of the stocks included in the index.
Options on stock indices are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash `exercise
settlement amount''equal to (a) the amount, if any, by which the fixed
exercise price of the option exceeds (in the case of a put) or is less than
(in the case of a call) the closing value of the underlying index on the
date of exercise, multiplied by (b) a fixed `index multiplier.'' Receipt
of this cash amount will depend upon the closing level of the stock index
upon which the option is based being greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option. The
amount of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option expressed
in dollars or a foreign currency, as the case may be, times a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a
closing transaction on an exchange or the option may expire unexercised.
To the extent permitted by U.S. federal or state securities laws, the
Portfolio may invest in options on foreign stock indices in lieu of direct
investment in foreign securities. The Portfolio may also use foreign stock
index options for hedging purposes.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the
Portfolio will realize a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Portfolio of options
on stock indices will be subject to Bankers Trust's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Futures Contracts on Foreign Stock Indices. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement
based upon changes in the value of an index of foreign securities
(`Futures Contracts''). This investment technique is designed only to
hedge against anticipated future change in general market prices which
otherwise might either adversely affect the value of securities held by the
Portfolio or adversely affect the prices of securities which are intended
to be purchased at a later date for the Portfolio. A Futures Contract may
also be entered into to close out or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to that
of the investment being hedged. If these hedging transactions are
successful, the futures positions taken for the Portfolio will rise in
value by an amount which approximately offsets the decline in
23
value of the portion of the Portfolio's investments that are being hedged.
Should general market prices move in an unexpected manner, the full
anticipated benefits of Futures Contracts may not be achieved or a loss may
be realized.
Although Futures Contracts would be entered into for hedging purposes only,
such transactions do involve certain risks. These risks could include a
lack of correlation between the Futures Contract and the foreign equity
market being hedged, a potential lack of liquidity in the secondary market
and incorrect assessments of market trends which may result in poorer
overall performance than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and `margin'' will be required to be
posted and maintained as a good-faith deposit against performance of
obligations under Futures Contracts written for the Portfolio. The
Portfolio may not purchase or sell a Futures Contract if immediately
thereafter its margin deposits on its outstanding Futures Contracts would
exceed 5% of the market value of the Portfolio's total assets.
Options on Futures Contracts. The Portfolio may invest in options on such
futures contracts for similar purposes.
All options that the Portfolio writes will be covered under applicable
requirements of the SEC. The Portfolio will write and purchase options only
to the extent permitted by the policies of state securities authorities in
states where shares of the Fund are qualified for offer and sale.
There can be no assurance that the use of these portfolio strategies will
be successful.
Asset Coverage. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment
leverage, the Portfolio will cover such transactions, as required under
applicable interpretations of the SEC, either by owning the underlying
securities or by segregating liquid assets with the Portfolio's Custodian
in an amount at all times equal to or exceeding the Portfolio's commitment
with respect to these instruments or contracts.
24
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25
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26
BT INVESTMENT FUNDS
International Equity Fund
Investment Adviser of the Portfolio and Administrator
BANKERS TRUST COMPANY
280 Park Avenue
New York, NY 10017
Distributor
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
Custodian and Transfer Agent
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
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.
Cusip #055922868
STA463300 (1/97)
o BT INVESTMENT FUNDS o
Small Cap Fund
Seeks long term capital growth through investment in smaller sized growth
companies.
PROSPECTUS
JANUARY 31, 1997
BT Investment Funds (the `Trust'') is an open-end, management investment
company (mutual fund) which consists of a number of separate investment
funds.
Please read this Prospectus carefully before investing and retain it for
future reference. It contains important information about the Small Cap
Fund (the `Fund'') that you should know and can refer to in deciding
whether the Fund's goals match your own.
A Statement of Additional Information (`SAI'') with the same date has been
filed with the Securities and Exchange Commission (`SEC''), and is
incorporated herein by reference. You may request a free copy of the SAI by
calling the Fund's Service Agent at 1-800-730-1313.
Unlike other mutual funds, the Fund seeks to achieve its investment
objective by investing all of its investable assets (`Assets'') in the
Small Cap Portfolio (the `Portfolio''), a separate investment company with
an identical investment objective. The investment performance of the Fund
will correspond directly to the investment performance of the Portfolio.
See `Special Information Concerning Master-Feeder Fund Structure'' herein.
Bankers Trust Company (`Bankers Trust'') is the investment adviser (the
`Adviser'') of the Portfolio. Shares of the Fund are not deposits or
obligations of, or guaranteed or endorsed by, Bankers Trust or any other
banking or depository institution. Shares are not Federally guaranteed or
insured by the Federal Deposit Insurance Corporation (`FDIC''), the U.S.
government, the Federal Reserve Board or any other agency and are subject
to investment risk, including the possible loss of principal amount
invested.
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Edgewood Services, Inc.
Clearing Operations o P.O. Box 897 o Pittsburgh, Pennsylvania o 15230-0897
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S>
<C>
The Fund 3
Who May Want To Invest 3
Summary of Fund Expenses 4
Financial Highlights 5
Investment Objective and Policies 6
Risk Factors: Matching The Fund To Your Investment Needs 8
Net Asset Value 10
Purchase and Redemption Of Shares 11
Dividends, Distributions And Taxes 16
Performance Information And Reports 16
Management of the Trust And Portfolio 17
Additional Information 20
</TABLE>
2
THE FUND
The Fund's investment objective is long-term capital growth; the production
of any current income is secondary to this objective. The Portfolio seeks
to provide long-term capital growth by investing primarily in equity
securities of smaller sized growth companies.
WHO MAY WANT TO INVEST
The Trust seeks to achieve the investment objective of the Fund by
investing all the Assets of the Fund in the Portfolio.
The Fund is designed for investors who are willing to accept short-term
domestic and/or foreign stock market fluctuations in pursuit of potentially
higher long-term returns. The Fund invests for growth and does not pursue
income.
The Fund is not in itself a balanced investment plan. Investors should
consider their investment objective and tolerance for risk when making an
investment decision. When investors sell their Fund shares, they may be
worth more or less than what they originally paid for them.
4
SUMMARY OF FUND EXPENSES
Annual Operating Expenses
<TABLE>
<CAPTION>
<S>
<C>
(as a percentage of the average daily net assets of the Fund)
Investment advisory fee (after reimbursements or waivers) 0.58%
12b-1 fees 0.00
Other expenses (after reimbursements or waivers)0.67
Total operating expenses (after reimbursements or waivers) 1.25%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
<C> <C> <C>
Example 1 Year 3 Years 5 Years10 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 $13 $40 $69 $151
</TABLE>
The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund.
While reimbursement of distribution expenses in amounts up to 0.20% of
average net assets are authorized to be made pursuant to the Plan of
Distribution under Rule 12b-1 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. Bankers Trust
has voluntarily agreed to waive a portion of its investment advisory fee.
Without such waiver, the Portfolio's investment advisory fee would be equal
to 0.65%. The expense table and the example reflect a voluntary undertaking
by Bankers Trust to waive or reimburse expenses such that the total
operating expenses will not exceed 1.25% of the Fund's average net assets
annually. In the absence of this undertaking, for the fiscal year ended
September 30, 1996, the total operating expenses would be equal to
approximately 1.47% of the Fund's average net assets annually. The example
should not be considered a representation of past or future expenses and
actual expenses may be greater or less than those shown. Moreover, while
each example assumes a 5% annual return, actual performance will vary and
may result in a return greater or less than 5%.
For more information with respect to the expenses of the Fund and the
Portfolio see "Management of the Trust and Portfolio" herein.
The Fund is distributed by Edgewood Services, Inc. ("Edgewood") (the
"Distributor") to customers of Bankers Trust or to customers of another
bank or a dealer or other institution that has a sub-shareholder servicing
agreement with Bankers Trust (along with Bankers Trust, a "Service Agent").
Some Service Agents may impose certain conditions on their customers in
addition to or different from those imposed by the Fund and may charge
their customers a direct fee for their services. Each Service Agent has
agreed to transmit to shareholders who are its customers appropriate
disclosures of any fees that it may charge them directly.
4
FINANCIAL HIGHLIGHTS
The following table shows selected data for a share outstanding, total
investment return, ratios to average net assets and other supplemental data
for the Fund for each period indicated and has been audited by Coopers &
Lybrand L.L.P., the Fund's independent accountants, whose report thereon
appears in the Fund's Annual Report which is incorporated by reference.
<TABLE>
<CAPTION>
For the Period
October 21, 1993
For the year ended (Commencement
September 30, of Operations) to
1996 1995 September 30, 1994
<S>
<C> <C> <C>
SELECTED PER SHARE DATA
Net Asset Value, Beginning of Period $18.50 $11.60 $10.00
Income from Investment Operations
Net Investment Loss (0.12) (0.04) (0.03)
Net Realized and Unrealized Gain on Investments 4.65 6.94 1.63
Total from Investment Operations 4.53 6.90 1.60
Distributions to Shareholders
Net Realized Gain from Investment Transactions (1.37) - -
Net Asset Value, End of Period $21.66 $18.50 $11.60
Total Investment Return 26.41% 59.48% 17.06%*
Ratios and Supplemental Data
Ratios to Average Net Assets:
Net Investment Loss (0.70)%(0.46)% (0.58)%
Expenses, including Expenses of the Small Cap Portfolio 1.25% 1.25%
1.25%*
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.22% 0.34%
0.86%*
Net Assets, End of Period (000's omitted)$242,236 $122,935 $21,332
* Annualized
</TABLE>
5
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital growth; the production
of any current income is secondary to this objective.
The Trust seeks to achieve the investment objective of the Fund by
investing all the Assets of the Fund in the Portfolio, which has the same
investment objective as the Fund. There can be no assurances that the
investment objective of either the Fund or the Portfolio will be achieved.
The investment objective of each of the Fund and the Portfolio is not a
fundamental policy and may be changed upon notice to, but without the
approval of the Fund's shareholders or the Portfolio's investors,
respectively. See "Special Information Concerning Master-Feeder Fund
Structure" herein.
Small Cap Portfolio
The Portfolio seeks to provide long term capital growth by investing
primarily in equity securities of smaller companies. The Portfolio's policy
is to invest in equity securities of smaller companies that Bankers Trust,
as the Portfolio's Adviser, believes are in an early stage or transitional
point in their development and have demonstrated or have the potential for
above average capital growth. The Adviser will select companies which have
the potential to gain market share in their industry, achieve and maintain
high and consistent profitability or produce increases in earnings. The
Adviser also seeks companies with strong company management and superior
fundamental strength.
The Adviser employs a flexible investment program in pursuit of the
Portfolio's investment objective. The Adviser takes advantage of its market
access and the research available to it to select investments in promising
growth companies that are involved in new technologies, new products,
foreign markets and special developments, such as research discoveries,
acquisitions, recapitalizations, liquidations or management changes, and
companies whose stock may be undervalued by the market. These situations
are only illustrative of the types of investment the Portfolio may make.
The Portfolio is free to invest in any common stock which in the Adviser's
judgment provides above-average potential for long-term growth of capital
and income.
Under normal market conditions, the Portfolio will invest at least 65% of
its assets in smaller companies (with market capitalizations less than $750
million at time of purchase) that offer strong potential for capital
growth. Small capitalization companies have the potential to show earnings
growth over time that is well above the growth rate of the overall economy.
The Portfolio may also invest in larger, more established companies that
the Adviser believes may offer the potential for strong capital growth due
to their relative market position, anticipated earnings growth, changes in
management or other similar opportunities. The Portfolio will follow a
disciplined selling process to lessen market risks.
For temporary defensive purposes, when in the opinion of the Adviser market
conditions so warrant, the Portfolio may invest all or a portion of its
assets in common stocks of larger, more established companies or in fixed-
income securities or short-term money market securities. To the extent the
Portfolio is engaged in temporary defensive investments, the Portfolio will
not be pursuing its investment objective.
The Portfolio may also invest up to 25% of its assets in similar securities
of foreign issuers. For further information on foreign investments and
related hedging techniques, see "Risk Factors: Matching the Fund to Your
Investment Needs," "Additional Information" herein and the SAI.
Equity Investments. The Portfolio invests primarily in common stock and
other securities with equity characteristics, such as trust or limited
partnership interests, rights and warrants. These investments may or may
not pay dividends and may or may not carry voting rights. The Portfolio may
also invest in convertible securities when, due to market conditions, it is
more advantageous to obtain a position in an attractive company by purchase
of its convertible securities than by purchase of its common stock. The
convertible securities in which the Portfolio invests may include any debt
securities or preferred stock which may be converted into common stock or
which carries the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of
shares of common stock, usually of the same company, at specified prices
within a certain period of time and to receive interest or dividends until
the holder elects to exercise the conversion privilege. Since the Portfolio
invests in both common stock and convertible securities, the risks of the
general equity markets may be tempered to a degree by the Portfolio's
investments in convertible securities which are often not as volatile as
equity securities.
6
Short-Term Instruments. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its
objective and long-term investment perspective. However, the Portfolio's
assets may be invested in short-term instruments with remaining maturities
of 397 days or less to meet anticipated redemptions and expenses or for
day-to-day operating purposes and when, in the Adviser's opinion, it is
advisable to adopt a temporary defensive position because of unusual and
adverse conditions affecting the equity markets. In addition, when the
Portfolio experiences large cash inflows through the sale of securities and
desirable equity securities that are consistent with the Portfolio's
investment objective are unavailable in sufficient quantities or at
attractive prices, the Portfolio may hold short-term investments for a
limited time pending availability of such equity securities. Short-term
instruments consist of foreign and domestic: (i) short-term obligations of
sovereign governments, their agencies, instrumentalities, authorities or
political subdivisions; (ii) other short-term debt securities rated Aa or
higher by Moody's Investors Service, Inc. ("Moody's") or AA or higher by
Standard & Poor's Ratings Group ("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 the
Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding debt
rated Aa or higher by Moody's or AA or higher by S&P or outstanding
commercial paper or bank obligations rated Prime-1 by Moody's or A-1 by
S&P; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of Bankers Trust. These instruments may
be denominated in U.S. dollars or in foreign currencies.
Additional Investment Techniques
The Portfolio may also utilize the following investments and investment
techniques and practices: Rule 144A securities, when-issued and delayed
delivery securities, securities lending, repurchase agreements, foreign
investments, options on stocks, options on stock indices, futures contracts
on stock indices, options on futures contracts, foreign currency exchange
transactions and options on foreign currencies. See "Additional
Information" for further information.
Additional Investment Limitations
As a diversified fund, no more than 5% of the assets of the Portfolio may
be invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Portfolio's assets may be
invested without regard to this limitation. The Portfolio will not invest
more than 25% of its assets in the securities of issuers in any one
industry. These are fundamental investment policies of the Portfolio which
may not be changed without investor approval. No more than 15% of the
Portfolio's net assets may be invested in illiquid or not readily
marketable securities (including repurchase agreements and time deposits
with remaining maturities of more than seven calendar days). Additional
investment policies of the Portfolio are contained in the SAI.
The Fund's investment objective is not a fundamental policy and may be
changed upon notice to but without the approval of the Fund's shareholders.
If there is a change in the Fund's investment objective, the Fund's
shareholders should consider whether the Fund remains an appropriate
investment in light of their then-current needs. The investment objective
of the Portfolio is also not a fundamental policy. Shareholders of the Fund
will receive 30 days prior written notice with respect to any change in the
investment objective of the Fund or the Portfolio. See "Investment
Objective, Policies and Risks" for a description of the fundamental
policies of the Portfolio that cannot be changed without approval by the
holders of "a majority of the outstanding voting securities" (as defined in
the 1940 Act) of the Portfolio.
For descriptions of the investment objective, policies and restrictions of
the Portfolio, see "Investment Objective, Policies and Restrictions" in the
SAI. For descriptions of the management of the Portfolio, see "Management
of the Trust and Portfolios" herein and "Management of the Trust and
Portfolios" in the SAI. For descriptions of the expenses of the Portfolio,
see "Management of the Trust and Portfolios" herein.
7
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS.
By itself, the Fund does not constitute a balanced investment plan; the
Fund and the Portfolio seek to provide long-term capital growth, with the
production of any current income being incidental to this objective, by
investments primarily in growth-oriented common stocks of smaller domestic
corporations and, to a limited extent, foreign corporations. The Fund is
designed for those investors primarily interested in capital growth from
investments in smaller-sized growth companies. In view of the long-term
capital growth objective of the Fund and the smaller size of the companies,
the risks of investment in the Fund may be greater than the general equity
markets, and changes in domestic and foreign interest rates may also affect
the value of the Portfolio's investments, and rising interest rates can be
expected to reduce the Fund's share value. A description of a number of
investments and investment techniques available to the Portfolio, including
foreign investments and the use of options and futures, and certain risks
associated with these investments and techniques is included under
"Additional Information." The Fund's share price, yield and total return
fluctuate and your investment may be worth more or less than your original
cost when you redeem your shares.
Risks of Investing In Foreign Securities
In seeking its investment objectives, the Portfolio may invest in
securities of foreign issuers. Foreign securities may involve a higher
degree of risk and may be less liquid or more volatile than domestic
investments. Foreign securities usually are denominated in foreign
currencies, which means their value will be affected by changes in the
strength of foreign currencies relative to the U.S. dollar as well as the
other factors that affect security prices. Foreign companies may not be
subject to accounting standards or governmental supervision comparable to
U.S. companies, and there often is less publicly available information
about their operations. Generally, there is less governmental regulation of
foreign securities markets, and security trading practices abroad may offer
less protection to investors such as the Portfolio. The value of such
investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control or tax regulations in those
foreign countries. Additional risks of foreign securities include
settlement delays and costs, difficulties in obtaining and enforcing
judgments, and taxation of dividends at the source of payment. The
Portfolio will not invest more than 5% of the value of its total assets in
the securities of issuers based in developing countries, including Eastern
Europe.
Portfolio Turnover
The Portfolio intends to manage its holdings actively to pursue its
investment objective. Since the Portfolio has a long-term investment
perspective, it does not intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term
trading; however, it may take advantage of short-term trading opportunities
that are consistent with its objective. The Portfolio's turnover rates for
the fiscal years ended September 30, 1996 and 1995, were 159% and 161%,
respectively. Because a higher portfolio turnover rate increases
transaction costs and may increase taxable capital gains, Bankers Trust
carefully weighs the anticipated benefits of short-term investment against
these consequences.
Derivatives
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value
of which is based on, or "derived" from, a traditional security, asset, or
market index. Some "derivatives" such as mortgage-related and other asset-
backed securities are in many respects like any other investment, although
they may be more volatile or less liquid than more traditional debt
securities. There are, in fact, many different types of derivatives and
many different ways to use them. There are a range of risks associated with
those uses. Futures and options are commonly used for traditional hedging
purposes to attempt to protect a fund from exposure to changing interest
rates, securities prices, or currency exchange rates and for cash
management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those
securities. However, some derivatives are used for leverage, which tends to
magnify the effects of an instrument's price changes as market conditions
change. Leverage involves the use of a small amount of money to control a
large amount of financial assets, and can in some circumstances, lead to
significant losses. The Adviser will use derivatives only in circumstances
where the Adviser
8
believes they offer the most economic means of improving the risk/reward
profile of the Portfolio. Derivatives will not be used to increase
portfolio risk above the level that could be achieved using only
traditional investment securities or to acquire exposure to changes in the
value of assets or indices that by themselves would not be purchased for
the Portfolio. The use of derivatives for non-hedging purposes may be
considered speculative. A description of the derivatives that the Portfolio
may use and some of their associated risks is found under "Additional
Information" herein.
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 Fund seeks
to achieve its investment objective by investing all of its Assets in the
Portfolio, a separate registered investment company with the same
investment objective as the Fund. Therefore, an investor's interest in the
Portfolio's securities is indirect. In addition to selling a beneficial
interest to the Fund, the Portfolio may sell beneficial interests to other
mutual funds or institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a proportionate
share of the Portfolio's expenses. However, the other investors investing
in the Portfolio are not required to sell their shares at the same public
offering price as the Fund due to variations in sales commissions and other
operating expenses. Therefore, investors in the Fund should be aware that
these differences may result in differences in returns experienced by
investors in the different funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is
available from Bankers Trust at (800) 730-1313.
The master-feeder structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience
higher pro rata operating expenses, thereby producing lower returns
(however, this possibility exists as well for traditionally structured
funds which have large institutional investors). Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk.
Also, funds with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio. Except as
permitted by the SEC, whenever the Trust is requested to vote on matters
pertaining to the Portfolio, the Trust will hold a meeting of shareholders
of the Fund and will cast all of its votes in the same proportion as the
votes of the Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of
the Trust's votes representing Fund shareholders not voting will be voted
by the Trustees or officers of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the
Portfolio. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the
Portfolio). If securities are distributed, the Fund could incur brokerage,
tax or other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding
the above, there are other means for meeting redemption requests, such as
borrowing.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests
of the shareholders of the Fund to do so. Upon any such withdrawal, the
Board of Trustees of the Trust would consider what action might be taken,
including the investment of all the Assets of the Fund in another pooled
investment entity having the same investment objectives as the Fund or the
retaining of an investment adviser to manage the Fund's Assets in
accordance with the investment policies described with respect to the
Portfolio.
9
NET ASSET VALUE
The net asset value (`NAV'') per share of the Fund is calculated on each
day on which the New York Stock Exchange, Inc. (the "NYSE") is open (each
such day being a "Valuation Day"). The NYSE is currently open on each day,
Monday through Friday, except: (a) January 1st, Presidents' Day (the third
Monday in February), Good Friday, Memorial Day (the last Monday in May),
July 4th, Labor Day (the first Monday in September), Thanksgiving Day (the
last Thursday in November) and December 25th; and (b) the preceding Friday
or the subsequent Monday when one of the calendar-determined holidays falls
on a Saturday or Sunday, respectively.
The NAV per share of the Fund is calculated once on each Valuation Day as
of the close of regular trading on the NYSE (the "Valuation Time"), which
is currently 4:00 p.m., Eastern time or in the event that the NYSE closes
early, at the time of such early closing. The NAV per share of the Fund is
computed by dividing the value of the Fund's Assets (i.e., the value of its
investment in the Portfolio and other assets), less all liabilities, by the
total number of its shares outstanding as of the Valuation time. The
Portfolio's securities and other assets are valued primarily on the basis
of market quotations or, if quotations are not readily available, by a
method which the Portfolio's Board of Trustees believes accurately reflects
fair value.
Under procedures adopted by the Board, a NAV for a Fund later determined to
have been inaccurate for any reason will be recalculated. Purchases and
redemptions made at a NAV determined to have been inaccurate will be
adjusted, although in certain circumstances, such as where the difference
between the original NAV and the recalculated NAV divided by the
recalculated NAV is 0.005 (1/2 of 1%) or less or shareholder transactions
are otherwise insubstantially affected, further action is not required.
10
PURCHASE AND REDEMPTION OF SHARES
How To Buy Shares
The Trust accepts purchase orders for shares of the Fund at the NAV per
share next determined after the order is received on each Valuation Day.
See `Net Asset Value'' herein. Shares of the Fund may be available through
Investment Professionals, such as broker/dealers and investment advisers
(including Service Agents).
Purchase orders for shares of the Fund (including those purchased through a
Service Agent) that are transmitted to the Trust's Transfer Agent (the
`Transfer Agent''), prior to the Valuation Time on any Valuation Day will
be effective at that day's Valuation Time. The Trust and Transfer Agent
reserve the right to reject any purchase order.
Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. 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 by the following business day (trade date
+ 1) after an order for shares is placed. A shareholder must settle with
the Service Agent for 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 held with Bankers Trust to settle
transactions with 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 Transfer Agent.
If orders are placed through an Investment Professional, it is the
responsibility of the Investment Professional to transmit the order to buy
shares to the Transfer Agent before 4:00 p.m. Eastern time.
The Transfer Agent must receive payment within one business day after an
order for shares is placed; otherwise, the purchase order may be canceled
and the investor could be held liable for resulting fees and/or losses.
<TABLE>
<CAPTION>
Minimum Investments
<S>
<C>
To Open an Account $2,500
For retirement accounts 500
Through automatic investment plans1,000
To Add to an Account $250
For retirement accounts 100
Through automatic investment plan100
Minimum Balance $1,000
For retirement accounts None
</TABLE>
If you are new to BT Investment Funds, complete and sign an account
application and mail it along with your check to the address listed below.
If there is no account application accompanying this Prospectus, call the
BT Service Center at 1-800-730-1313.
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
If you already have money invested in a fund in the BT Family of Funds, you
can:
o Mail an account application with a check,
o Wire money into your account,
o Open an account by exchanging from another fund in the BT Family of
Funds, or
o Contact your Service Agent or Investment Professional.
If you are investing through a tax-sheltered retirement plan, such as an
IRA, for the first time, you will need a special application. Contact your
Investment Professional or call BT Retirement Services Center at 1-800-677-
7596 for more information and a retirement account application.
11
Additional Information About Buying Shares
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C>
<C>
By Wire Call the BT Service Center at Call your Investment
Professional or wire
1-800-730-1313 to receive additional investment to:
wire instructions for account
establishment.
Routing No.: 021001033
Attn: Bankers Trust/IFTC
Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Fund Number
Investment Small Cap Fund - 498
Specify the complete name of
the Fund of
your choice, and include your
account number
and your name.
By Phone Contact your Service Agent, Contact your Service Agent,
Investment Professional, or call Investment Professional, or
call
BT's Service Center at 1-800-730-1313. BT's Service Center
at 1-800-730-1313.
If you are an existing shareholder, If you are an
you may exchange from another BT existing shareholder, you
may
account with the same registration, exchange from another BT
account
including, name, address, and taxpayer with the same
registration, including,
ID number. name, address, and taxpayer ID
number.
By Mail Complete and sign the account appli- Make your check payable
to the complete
cation. Make your check payable to name of the Fund of your
choice. Indicate
the complete name of the Fund of your Fund account number on
your check
your choice. Mail to the appropriate and mail to the address
printed on your
address indicated on the application. account statement.
</TABLE>
How to Sell Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares. Your shares shall be sold
at the next NAV calculated after an order is received by the Transfer
Agent. Redemption requests should be transmitted by customers in accordance
with procedures established by the Transfer Agent and the Shareholder's
Service Agent. Redemption requests for shares of the Fund received by the
Service Agent and transmitted to the Transfer Agent prior to the Valuation
Time 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 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
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 Transfer Agent
and the Service Agent must employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Shareholder
Servicing Agent does not do so, it may be liable for any losses due to
unauthorized or
12
fraudulent instructions. Such procedures may include, among others,
requiring some form of personal identification prior to acting upon
instructions received by telephone, providing written confirmation of such
transactions and/or tape recording of telephone instructions.
Redemption orders are processed without charge by the Trust. A Service
Agent may on at least 30 days' notice involuntarily redeem a shareholder's
account with the Fund having a balance below the minimum, but not if an
account is below the minimum due to a change in market value. See `Minimum
Investments''above for minimum balance amounts.
To sell shares in a retirement account, your request must be made in
writing, except for exchanges to other eligible funds in the BT Family of
Funds, which can be requested by phone or in writing. For information on
retirement distributions, contact your Service Agent or call the BT Service
Center at 1-800-730-1313.
If you are selling some but not all of your non-retirement account shares,
leave at least $1,000 worth of shares in the account to keep it open.
To sell shares by bank wire you will need to sign up for these services in
advance when completing your account application.
Certain requests must include a signature guarantee to protect you and
Bankers Trust from fraud. Redemption requests in writing must include a
signature guarantee if any of the following situations apply:
o Your account registration has changed within the last 30 days,
o The check is being mailed to a different address than the one on your
account (record address),
o The check is being made payable to someone other than the account
owner,
o The redemption proceeds are being transferred to a BT account with a
different registration, or
o You wish to have redemption proceeds wired to a non-predesignated bank
account.
A signature guarantee is also required if you change the pre-designated
bank information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker,
dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency, or savings association. A notary public
cannot provide a signature guarantee.
Additional Information About Selling Shares
By Wire - You must sign up for the wire feature before using it. To verify
that it is in place, call 1-800-730-1313. Minimum wire: $1,000. Your wire
redemption request must be received by the Transfer Agent before 4:00 p.m.
Eastern time for money to be wired on the next business day.
In Writing - Write a signed `letter of instruction'' with your name, the
Fund's name and Fund's number, your Fund account number, the dollar amount
or number of Shares to be redeemed, and mail to one of the following
addresses:
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
For Trust accounts, the trustee must sign the letter indicating capacity as
trustee. If the trustee's name is not on the account registration, provide
a copy of the trust document certified within the last 60 days.
For a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.
Unless otherwise instructed, the Transfer Agent will send a check to the
account address of record. The Trust reserves the right to close investor
accounts via 30 day notice in writing if the Fund account balance falls
below the Fund minimums.
13
Investor Services
BT Investment Funds provide a variety of services to help you manage your
account.
Information Services
Statements and reports that your Investment Professional or the Transfer
Agent may send to you include the following:
o Confirmation statements (after every transaction that affects your
account balance, including distributions or your account registration)
o Account statements (monthly)
o Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed,
even if you have more than one account in the Fund. Call your Investment
Professional or the BT Service Center at 1-800-730-3131 if you need
additional copies of financial reports.
Exchange Privilege
Shareholders may exchange their shares for shares of certain other funds in
the BT Family of Funds registered in their state. The Fund reserves the
right to terminate or modify the exchange privilege in the future. To make
an exchange, follow the procedures indicated in `How to Purchase Shares''
and `How to Redeem Shares'' herein. Before making an exchange, please note
the following:
o Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.
o Your new account will have the identical account registration
including the same name, address and taxpayer identification number as your
existing account(s).
o Each exchange represents the sale of shares of one fund and the
purchase of shares of another, which may produce a gain or loss for tax
purposes. Your Service Agent will receive a written confirmation of each
exchange transaction.
Note that exchanges out of a Fund may be limited to four per calendar year
and that they may have tax consequences for you.
<TABLE>
<CAPTION>
Systematic Programs
To move money from your bank account to BT Investment Funds
<S> <C> <C>
<C>
Minimum Minimum Frequency Setting up or changing
Initial Subsequent
$1,000 $100 Monthly, bimonthly, For a new account, complete the
appropriate section
quarterly or semi- on the application.
annually
For existing accounts, call your
Investment
Professional for an application.
To change the amount or frequency of
your
investment, contact your Investment
Professional directly or call 1-800-
730-1313.
Call at least 10 business days prior
to your next
scheduled investment date.
</TABLE>
<TABLE>
<CAPTION>
14
Systematic Withdrawal Program lets you set up periodic redemptions from
your account.
<S> <C>
<C>
Minimum Frequency Setting up or changing
$100 Monthly, quarterly, semi-annually or To establish, call your
Investment Professional or call
annually 1-800-730-1313 after your account is
open. The accounts
from which the withdrawals will be
processed must have
a minimum balance of $10,000.
</TABLE>
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 Bankers Trust for further
information. Bankers Trust can set up your new account in the Fund under a
number of several tax-savings or tax-deferred plans. Minimums may differ
from those listed elsewhere in this Prospectus.
o Individual Retirement Accounts (IRAs): personal savings plans that
offer tax advantages for individuals to set aside money for retirement and
allow new contributions of $2,000 per tax year.
o Rollover IRAs: tax-deferred retirement accounts that retain the
special tax advantages of lump sum distributions from qualified retirement
plans and transferred IRA accounts.
o Simplified Employee Pension Plans (SEP): a relatively easy and
inexpensive alternative to retirement planning for sole proprietors,
partnerships and corporations. Under a SEP, employers make tax-deductible
contributions to their own and to eligible employees' IRA accounts.
Employee contributions are available through a `Salary Deferral'' SEP for
businesses with fewer than 25 eligible employees.
o Keogh Plans: defined contribution plans available to individuals with
self-employed income and nonincorporated businesses such as sole
proprietors, professionals and partnerships. Contributions are tax-
deductible to the employer and earnings are tax-sheltered until
distribution.
o Corporate Profit-Sharing and Money-Purchase Plans: defined
contribution plans available to corporations to benefit their employees by
making contributions on their behalf and in some cases permitting their
employees to make contributions.
o 401(k) Programs: defined contribution plans available to corporations
allowing tax-deductible employer contributions and permitting employees to
contribute a percentage of their wages on a tax-deferred basis.
o 403(b) Custodian Accounts: defined contribution plans open to
employees of most non-profit organizations and educational institutions.
o Deferred Benefit Plans: plan sponsors may invest all or part of their
pension assets in the Fund.
15
DIVIDENDS, DISTRIBUTIONS AND TAXES
Distributions. The Fund distributes substantially all of its net investment
income and capital gains to shareholders each year. Income dividends if
any, 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 Fund 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 Fund's income and short-term capital gains are taxed
as dividends, and long-term capital gain distributions are taxed as long-
term capital gains. The Fund's distributions are taxable when they are
paid, whether you take them in cash or reinvest them in additional shares.
Distributions declared in December and paid in January are taxable as if
paid on December 31. The Fund will send each shareholder a tax statement by
January 31 showing the tax status of the distributions received in the past
year.
Capital Gains. You may realize a capital gain or loss when you redeem
(sell) or exchange shares. Because the tax treatment also depends on your
purchase price and your personal tax position, you should keep your regular
account statements to use in determining your tax.
"Buying a Dividend." On the ex-date for a distribution from income and/or
capital gains, the Fund's share value is reduced by the amount of the
distribution. If you buy shares just before the record date ("buying a
dividend"), you will pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.
Other Tax Information. In addition to Federal taxes, you may be subject to
state or local taxes on your investment, depending on the laws in your
area. Income received by the Portfolio from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Investors should consult their tax adviser for specific details
on federal, state, local or foreign taxes.
PERFORMANCE INFORMATION AND REPORTS
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment
results and/or comparisons of its investment results to various unmanaged
indices such as the Russell 2000 Index or Lipper Small Company Growth Funds
Average or results of other mutual funds or investment or savings vehicles.
The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth below.
From time to time, Fund rankings may be quoted from various sources, such
as Lipper Analytical Services, Inc., Value Line, and Morningstar, Inc.
The Trust may provide period and average annualized "total return"
quotations for the Fund. The Fund's "total return" refers to the change in
the value of an investment in the Fund over a stated period based on any
change in net asset value per share and including the value of any shares
purchasable with any dividends or capital gains distributed during such
period. Period total return 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.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the total return of the Fund will vary depending
upon interest rates, the current market value of the securities held by the
Portfolio and changes in the Fund's expenses. In addition, during certain
periods for which total return quotations may be provided, Bankers Trust,
as Adviser, Service Agent or Administrator may have voluntarily agreed to
waive portions of their fees on a month-to-month basis. Such waivers will
have the effect of increasing the Fund's net income (and therefore its
total return) during the period such waivers are in effect.
Shareholders will receive financial reports semi-annually that include the
Portfolio's financial statements, including listings of investment
securities held by the Portfolio at those dates. Annual reports are audited
by independent accountants.
16
MANAGEMENT OF THE TRUST AND PORTFOLIO
Board of Trustees
The affairs of the Trust and BT Investment Portfolios are managed under the
supervision of their respective Boards of Trustees. By virtue of the
responsibilities assumed by Bankers Trust, as the Administrator of the
Trust and BT Investment Portfolios, neither the Trust nor BT Investment
Portfolios requires employees other than its officers. None of the Trust's
or BT Investment Portfolios' officers devotes full time to the affairs of
the Trust or BT Investment Portfolios.
The Trustees of the Trust who are not "interested persons," (as defined in
the 1940 Act) of the Trust or of the BT Investment Portfolios, as the case
may be, (the "Independent Trustees") have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest, up to
and including creating separate boards of trustees, arising from the fact
that several of the same individuals are trustees of the Trust and BT
Investment Portfolios. For more information with respect to the Trustees of
both the Trust and the Portfolio, see "Management of the Trust and
Portfolios" in the SAI.
Investment Adviser
The Trust has not retained the services of an investment adviser since the
Trust seeks to achieve the investment objective of the Fund by investing
all the Assets of the Fund in the Portfolio. The Portfolio has retained the
services of Bankers Trust as investment adviser.
Mary P. Dugan, CFA, Vice President of Bankers Trust, and Mr. Timothy Woods,
CFA, Vice President of Bankers Trust, share senior portfolio management
responsibilities of the Small Cap Portfolio. Ms. Dugan joined Bankers
Trust in 1994. She has thirteen years of investment analysis experience.
Previously, she worked at Fred Alger Management, Dean Witter, Integrated
Resources and Equitable Investment Management Corporation. Mr. Woods
joined Bankers Trust in 1992. He has twelve years of investment and
financial experience. Previously, he worked at Prudential Securities,
Chase Manhattan Bank and Bank of Boston.
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 June 30, 1996, Bankers Trust New York Corporation was the seventh
largest bank holding company in the United States with total assets of
approximately $115 billion. Bankers Trust is a worldwide merchant bank
dedicated to servicing the needs of corporations, governments, financial
institutions and private clients through a global network of over 120
offices in more than 40 countries. Investment management is a core business
of Bankers Trust, built on a tradition of excellence from its roots as a
trust bank founded in 1903. The scope of Bankers Trust's investment
management capability is unique due to its leadership positions in both
active and passive quantitative management and its presence in major equity
and fixed income markets around the world. Bankers Trust is one of the
nation's largest and most experienced investment managers with
approximately $215 billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement
assets for the nation's largest corporations and institutions. In the past,
these clients have been serviced through separate account and commingled
fund structures. Now, the BT Family of Funds brings Bankers Trust's
extensive investment management expertise -- once available to only the
largest institutions in the U.S. -- to individual investors. Bankers
Trust's officers have had extensive experience in managing investment
portfolios having objectives similar to those of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of BT Investment Portfolios, manages the Portfolio in accordance
with the Portfolio's investment objective and stated investment policies,
makes investment decisions for the Portfolio, places orders to purchase and
sell securities and other financial
17
instruments on behalf of the Portfolio and employs professional investment
managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its worldwide
subsidiaries and affiliates to assist it in its role as Adviser.
All orders for investment transactions on behalf of the Portfolio are
placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers
Trust. A Bankers Trust affiliate will be used in connection with a purchase
or sale of an investment for the Portfolio only if Bankers Trust believes
that the affiliate's charge for the transaction does not exceed usual and
customary levels. The Portfolio will not invest in obligations for which
Bankers Trust or any of its affiliates is the ultimate obligor or accepting
bank. The Portfolio may, however, invest in the obligations of
correspondents or customers of Bankers Trust.
Under its investment advisory agreement, Bankers Trust receives a fee from
the Portfolio computed daily and paid monthly at the annual rate of 0.65%
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
Portfolio described in this Prospectus and the SAI without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
Administrator
Under its Administration and Services Agreement with the Trust, Bankers
Trust calculates the NAV of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of
the Trust. The Administration and Services Agreement provides for the Trust
to pay Bankers Trust a fee, computed daily and paid monthly, at the annual
rate of 0.65% of the average daily net assets of the Fund.
Under an Administration and Services Agreement with BT Investment
Portfolios, Bankers Trust calculates the value of the assets of the
Portfolio and generally assists the Board of Trustees of the Portfolio in
all aspects of the administration and operation of the Portfolio. The
Administration and Services Agreement provides for the Portfolio to pay
Bankers Trust a fee, computed daily and paid monthly, at the annual rate of
0.10% of the average daily net assets of the Portfolio. Under each
Administration and Services Agreement, Bankers Trust may delegate one or
more of its responsibilities to others, including affiliates of Edgewood,
at Bankers Trust's expense. For more information, see the SAI.
Distributor
Edgewood Services, Inc. is the principal distributor for shares of the
Fund. In addition, Edgewood and its affiliates provide the Trust with
office facilities, and currently provide administration and distribution
services for other registered investment companies. The principal business
address of Edgewood and its affiliates is Clearing Operations, P.O. Box
897, Pittsburgh, Pennsylvania 15230-0897.
Pursuant to the terms of the Trust's Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act (the "Plan"), Edgewood may seek reimbursement in
an amount not exceeding 0.20% of the Fund's average daily net assets
annually for expenses incurred in connection with any activities primarily
intended to result in the sale of the Fund's shares, including, but not
limited to: compensation to and expenses (including overhead and telephone
expenses) of account executives or other employees of Edgewood who, as
their primary activity, engage in or support the distribution of shares;
printing of prospectuses, statements of additional information and reports
for other than existing Fund shareholders in amounts in excess of that
typically used in connection with the distribution of shares of the Fund;
costs of placing advertising in various media; services of parties other
than Edgewood or its affiliates in formulating sales literature; and
typesetting, printing and distribution of sales literature. All costs and
expenses in connection with implementing and operating the Plan will be
paid by the Fund, subject to the 0.20% of net assets limitation. All costs
and expenses associated with preparing the Fund's Prospectus and SAI and in
connection with printing them for and distributing them to existing
shareholders and regulatory authorities, which costs and expenses would not
be considered distribution expenses for purposes of the Plan, will also be
paid by the Fund. To the extent expenses of Edgewood 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,
18
although it is anticipated that some activities may be conducted on a
Trust-wide basis, with the result that those activities will not be
identifiable to any particular series. In the latter case, expenses will be
allocated among the series of the Trust on the basis of their relative net
assets. It is not expected that any payment will be made under the Plan in
the foreseeable future.
Service Agent
All shareholders must be represented by a Service Agent. Bankers Trust acts
as a Service Agent pursuant to its Administration and Services Agreement
with the Trust and receives no additional compensation from the Fund for
such shareholder services. The service fees of any other Service Agents,
including broker-dealers, will be paid by Bankers Trust from its fees. The
services provided by a Service Agent may include establishing and
maintaining shareholder accounts, processing purchase and redemption
transactions, arranging for bank wires, performing shareholder sub-
accounting, answering client inquiries regarding the Trust, assisting
clients in changing dividend options, account designations and addresses,
providing periodic statements showing the client's account balance,
transmitting proxy statements, periodic reports, updated prospectuses and
other communications to shareholders and, with respect to meetings of
shareholders, collecting, tabulating and forwarding to the Trust executed
proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may
separately charge their clients additional fees only to cover provision of
additional or more comprehensive services not already provided under the
Administration and Services Agreement with Bankers Trust, or of the type or
scope not generally offered by a mutual fund, such as cash management
services or enhanced retirement or trust reporting. Each Service Agent has
agreed to transmit to shareholders, who are its customers, appropriate
disclosures of any fees that it may charge them directly.
Custodian and Transfer Agent
Bankers Trust acts as Custodian of the assets of the Trust and BT
Investment Portfolios and serves as the Transfer Agent for the Trust and BT
Investment Portfolios under the Administration and Services Agreement with
the Trust and the Portfolio.
Organization of the Trust
The Trust was organized on July 21, 1986 under the laws of the Commonwealth
of Massachusetts. The Fund is a separate series of the Trust and was
established and designated as a separate series of the Trust on August 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 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.
When matters are submitted for shareholder vote, shareholders of the Fund
will have one vote for each full share held and proportionate, fractional
votes for fractional shares held. A separate vote of the Fund is required
on any matter affecting the Fund on which shareholders are entitled to
vote. Shareholders of the Fund are not entitled to vote on Trust matters
that do not affect the Fund. There normally will be no meetings of
shareholders for the purpose of electing Trustees unless and until such
time as less than a majority of Trustees holding office have been elected
by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be
removed from office upon the vote of shareholders holding at least two-
thirds of the Trust's outstanding shares at a meeting called for that
purpose. The Trustees are required to call such a meeting upon the written
request of shareholders holding at least 10% of the Trust's outstanding
shares.
The Portfolio is a series of BT Investment Portfolios, an open-end
management investment company. BT Investment Portfolios was organized as a
trust under the laws of the State of New York. BT Investment Portfolios'
Declaration of Trust provides that the Fund and other entities investing in
the Portfolio (e.g., other investment companies, insurance company separate
accounts and common and commingled trust funds) will each be liable for all
obligations of the Portfolio. However, the risk of
19
the Fund incurring financial loss on account of such liability is limited
to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations. Accordingly, the
Trustees of the Trust believe that neither the Fund nor its shareholders
will be adversely affected by reason of the Fund's investing in the
Portfolio. The interest in BT Investment Portfolios are divided into
separate series, such as the Portfolio. No series of BT Investment
Portfolios has any preference over any other series.
Each series in 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.
As of December 31, 1996, Bankers Trust Co., New York, New York, owned
32.37% of the voting securities of the Small Cap Fund, and, therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of its shareholders.
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
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Edgewood,
including administration and service fees, fees for necessary professional
services, amortization of organizational expenses, and costs associated
with regulatory compliance and maintaining legal existence and shareholder
relations. The Portfolio bears its own expenses. Operating expenses for the
Portfolio generally consist of all costs not specifically borne by Bankers
Trust or Edgewood including investment advisory and administration and
services fees, fees for necessary professional services, amortization of
organizational expenses, the costs associated with regulatory compliance
and maintaining legal existence and investor relations.
ADDITIONAL INFORMATION
Rule 144A Securities. The Portfolio may purchase securities in the United
States that are not registered for sale under Federal securities laws but
which can be resold to institutions under SEC Rule 144A. Provided that a
dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Portfolio's 15% limit
on illiquid securities. Under the supervision of the Board of Trustees of
the Portfolio, Bankers Trust determines the liquidity of restricted
securities and, through reports from Bankers Trust, the Board will monitor
trading activity in restricted securities. If institutional trading in
restricted securities were to decline, the liquidity of the Portfolio could
be adversely affected.
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take place as long as a month or more
after the date of the purchase commitment. The value of these securities is
subject to market fluctuation during this period and no income accrues to
the Portfolio until settlement takes place. The Portfolio maintains with
the custodian a segregated account containing high grade liquid securities
in an amount at least equal to these commitments. When entering into a
when-issued or delayed delivery transaction, the Portfolio will rely on the
other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged.
Securities Lending. The Portfolio is permitted to lend up to 30% of the
total value of its securities. These loans must be secured continuously by
cash or equivalent collateral or by a letter of credit at least equal to
the market value of the securities loaned plus accrued income. By lending
its securities, the Portfolio can increase its income by continuing to
receive income on the loaned securities as well as by the opportunity to
receive interest on the collateral. During the term of the loan, the
Portfolio continues to bear the risk of fluctuations in the price of the
loaned securities. In lending securities to brokers, dealers and other
organizations, the Portfolio is subject to risks which, like those
associated with other
20
extensions of credit, include delays in recovery and possible loss of
rights in the collateral should the borrower fail financially.
Foreign Investments. The 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, 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 the Portfolio may be made
through investment in other investment companies that in turn are
authorized to invest in the securities of such countries. Investment in
other investment companies is limited in amount by the 1940 Act, will
involve the indirect payment of a portion of the expenses, including
advisory fees, of such other investment companies and may result in a
duplication of fees and expenses.
Options on Stocks. The Portfolio may write and purchase put and call
options on stocks. A call option gives the purchaser of the option the
right to buy, and obligates the writer to sell, the underlying stock at the
exercise price at any time during the option period. Similarly, a put
option gives the purchaser of the option the right to sell, and obligates
the writer to buy, the underlying stock at the exercise price at any time
during the option period. A covered call option, which is a call option
with respect to which the Portfolio owns the underlying stock, sold by the
Portfolio exposes the Portfolio during the term of the option to possible
loss of opportunity to realize appreciation in the market price of the
underlying stock or to possible continued holding of a stock which might
otherwise have been sold to protect against depreciation in the market
price of the stock. A covered put option sold by the Portfolio exposes the
Portfolio during the term of the option to a decline in price of the
underlying stock. A put option sold by the Portfolio is covered when, among
other things, cash or liquid securities are placed in a segregated account
to fulfill the obligations undertaken.
To close out a position when writing covered options, the Portfolio may
make a "closing purchase transaction," which involves purchasing an option
on the same stock with the same exercise price and expiration date as the
option which it has previously written on the stock. The Portfolio will
realize a profit or loss for a closing purchase transaction if the amount
paid to purchase an option is less or more, as the case may be, than the
amount received from the sale thereof. To close out a position as a
purchaser of an option, the Portfolio may make a "closing sale
transaction," which involves liquidating the Portfolio's position by
selling the option previously purchased.
The Portfolio intends to treat 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 SAI.
Options on Stock Indices. The 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.
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 the
Portfolio will realize a gain or loss from the purchase or writing of
options on an index depends upon movements in the level of stock
21
prices in the stock market generally or, in the case of certain indices, in
an industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Portfolio of options
on stock indices will be subject to Bankers Trust's ability to correctly
predict 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 Stock Indices. The Portfolio may enter into contracts
providing for the making and acceptance of a cash settlement based upon
changes in the value of an index of securities ("Futures Contracts"). This
investment technique is designed only to hedge against anticipated future
change in general market prices which otherwise might either adversely
affect the value of securities held by the Portfolio or adversely affect
the prices of securities which are intended to be purchased at a later date
for the Portfolio. A Futures Contract may also be entered into to close out
or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to that
of the investment being hedged. If these hedging transactions are
successful, the futures positions taken for the Portfolio will rise in
value by an amount which approximately offsets the decline in value of the
portion of the Portfolio's investments that are being hedged. Should
general market prices move in an unexpected manner, the full anticipated
benefits of Futures Contracts may not be achieved or a loss may be
realized.
Although Futures Contracts would be entered into for hedging purposes only,
such transactions do involve certain risks. These risks could include a
lack of correlation between the Futures Contract and the equity market
being hedged, a potential lack of liquidity in the secondary market and
incorrect assessments of market trends which may result in poorer overall
performance than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted
and maintained as a good-faith deposit against performance of obligations
under Futures Contracts written for the Portfolio. The Portfolio may not
purchase or sell a Futures Contract if immediately thereafter its margin
deposits on its outstanding Futures Contracts would exceed 5% of the market
value of the Portfolio's total assets.
Options on Futures Contracts. The Portfolio may invest in options on such
Futures Contracts for similar purposes.
Foreign Currency Exchange Transactions. Because the Portfolio may buy and
sell securities denominated in currencies other than the U.S. dollar and
receives interest, dividends and sale proceeds in currencies other than the
U.S. dollar, the Portfolio from time to time may enter into foreign
currency exchange transactions to convert to and from different foreign
currencies and to convert foreign currencies to and from the U.S. dollar.
The Portfolio either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market
or uses forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract. Forward
foreign currency exchange contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has
no deposit requirement and is traded at a net price without commission. The
Portfolio maintains with its custodian a segregated account of high grade
liquid assets in an amount at least equal to its obligations under each
forward foreign currency exchange contract. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the
prices of the Portfolio's securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions
or changes in foreign currency exchange rates that would adversely affect a
portfolio position or an anticipated investment position. Since
consideration of the prospect for currency parities will be incorporated
into Bankers Trust's long-term investment decisions, the Portfolio will not
routinely enter into foreign currency hedging transactions with respect to
security transactions; however, Bankers Trust believes that it is important
to have the flexibility to enter into foreign currency hedging transactions
when it determines that the transactions would be
22
in the Portfolio's best interest. Although these transactions tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might
be realized should the value of the hedged currency increase. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward
contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
Options on Foreign Currencies. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. The Portfolio may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different, but related currency. As with
other types of options, however, the writing of an option on foreign
currency will constitute only a partial hedge up to the amount of the
premium received, and the Portfolio could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may be used to hedge
against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the
entire amount of the premium plus related transaction costs. In addition,
the Portfolio may purchase call options on currency when the Adviser
anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange
will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect
to covered options it has written, the Portfolio will not be able to sell
the underlying currency or dispose of assets held in a segregated account
until the options expire or are exercised. Similarly, if the Portfolio is
unable to effect a closing sale transaction with respect to options it has
purchased, it would have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of
underlying currency. The Portfolio pays brokerage commissions or spreads in
connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which
may not be present in the case of exchange-traded currency options. The
Portfolio's ability to terminate OTC Options will be more limited than with
exchange-traded options. It is also possible that broker-dealers
participating in OTC Options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position,
the Portfolio will treat purchased OTC Options and assets used to cover
written OTC Options as illiquid securities. With respect to options written
with primary dealers in U.S. government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase
formula.
All options that the Portfolio writes will be covered under applicable
requirements of the SEC.
The Portfolio will write and purchase options only to the extent permitted
by the policies of state securities authorities in states where shares of
the Fund are qualified for offer and sale.
There can be no assurance that the use of these portfolio strategies will
be successful.
Repurchase Agreements. In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price at a
future date. In the event of the bankruptcy of the other party to either a
repurchase agreement or a securities loan, the Portfolio could experience
delays in recovering either its cash or the securities it lent. To the
extent that, in the meantime, the value of the securities repurchased had
decreased or the value of the securities lent had increased, the Portfolio
could experience a loss. In all cases, Bankers Trust must find the
creditworthiness of the other party to the transaction satisfactory. A
repurchase agreement is considered a collateralized loan under the 1940
Act.
Asset Coverage. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment
leverage, the Portfolio will cover such transactions, as required under
applicable interpretations of the SEC, either by owning the underlying
securities or by segregating liquid assets with the Portfolio's Custodian
in an amount at all times equal to or exceeding the Portfolio's commitment
with respect to these instruments or contracts.
23
BT INVESTMENT FUNDS
Small Cap Fund
Investment Adviser of the Portfolio and Administrator
BANKERS TRUST COMPANY
280 Park Avenue
New York, NY 10017
Distributor
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
Custodian and Transfer Agent
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
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.
Cusip #055922769
STA498300 (1/97)
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 31, 1997
BT INVESTMENT FUNDS
INTERMEDIATE TAX FREE FUND
GLOBAL HIGH YIELD SECURITIES FUND
CAPITAL APPRECIATION FUND
SMALL CAP FUND
INTERNATIONAL EQUITY FUND
PACIFIC BASIN FUND
LATIN AMERICAN EQUITY FUND
BT Investment Funds (the "Trust") is comprised of a number of separate
investment funds. The shares of the following funds - Intermediate Tax
Free Fund, Global High Yield Securities Fund, Capital Appreciation Fund,
Small Cap Fund, International Equity Fund, Pacific Basin Equity Fund, and
Latin American Equity Fund (each, a "Fund") - are described herein.
As described in the Prospectuses, the Trust seeks to achieve the
investment objectives of each Fund by investing all the investable assets
("Assets") of the Fund (with the exception of the Global High Yield
Securities Fund) in a diversified open-end management investment company
having the same investment objectives as the Fund. The Global High Yield
Securities Fund invests its Assets in a non-diversified open-end management
investment company (or series thereof). These investment companies (or a
series thereof) are, respectively, Intermediate Tax Free Portfolio, Global
High Yield Securities Portfolio, Capital Appreciation Portfolio, Small Cap
Portfolio, International Equity Portfolio, Pacific Basin Equity Portfolio,
and Latin American Equity Portfoio (collectively, the "Portfolios"). The
Global High Yield Securities Portfolio, Small-Cap Portfolio, Pacific Basin
Equity Portfolio, and Latin American Equity Portfolio are each a series of
BT Investment Portfolios.
Since the investment characteristics of the Funds will correspond
directly to those of the respective Portfolio in which the Fund invests all
of its Assets, the following is a discussion of the various investments of
and techniques employed by each Portfolio. Shares of the Funds are sold by
Edgewood Services, Inc. (`Edgewood''), the Trust's Distributor, to clients
and customers (including affiliates and correspondents) of Bankers Trust
Company ("Bankers Trust"), the Portfolios' investment adviser
(`Adviser''), and to clients and customers of other organizations
The Trust's Prospectuses for each Fund are each dated January 31,
1997. The Prospectuses provide the basic information investors should know
before investing and may be obtained without charge by calling the Trust at
the telephone number listed below or by contacting any Service Agent. This
Statement of Additional Information (`SAI''), which is not a Prospectus,
is intended to provide additional information regarding the activities and
operations of the Trust and should be read in conjunction with that Fund's
Prospectus. This SAI is not an offer of any Fund for which an investor has
not received a Prospectus. Capitalized terms not otherwise defined in this
SAI have the meanings accorded to them in the Trust's Prospectuses.
BANKERS TRUST COMPANY
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
EDGEWOOD SERVICES, INC.
DISTRIBUTOR
CLEARING OPERATIONS PITTSBURGH, PENNSYLVANIA 15230-0897 (800)
730-1313
P.O. BOX 897
TABLE OF CONTENTS
Investment Objectives, Policies and Restrictions 1
Performance Information 29
Valuation of Securities; Redemptions and Purchases in Kind 32
Management of the Trust and Portfolios 34
Organization of the Trust 43
Taxation 44
Financial Statements 46
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(s) 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.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), securities which are otherwise not readily marketable and
repurchase agreements having a remaining maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are
referred to as private placements or restricted securities and are
purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or
other illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect
on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register
such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such
a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act,
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale of such investments to the general public or
to certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission the (the "SEC") has adopted
Rule 144A, which allows a broader institutional trading market for
securities otherwise subject to restriction on their resale to the general
public. Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act of resales of certain securities to qualified
institutional buyers. The Adviser anticipates that the market for certain
restricted securities such as institutional commercial paper will expand
further as a result of this regulation and the development of automated
systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System
sponsored by the National Association of Securities Dealers, Inc.
The Adviser will monitor the liquidity of Rule 144A securities in each
Portfolio's holdings 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 or sellers of the security; (3) dealer undertakings to make a
market in the security and (4) the nature of the security and of the
marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer).
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
GENERAL. The successful use of such instruments draws upon the
Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency
exchange rate movements correctly. Should interest or exchange rates move
in an unexpected manner, a Portfolio may not achieve the anticipated
benefits of futures contracts or options on futures contracts or may
realize losses and thus will be in a worse position than if such strategies
had not been used. In addition, the correlation between movements in the
price of futures contracts or options on futures contracts and movements in
the price of the securities and currencies hedged or used for cover will
not be perfect and could produce unanticipated losses.
FUTURES CONTRACTS. A Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed-income securities, foreign
currencies, or contracts based on financial indices including any index of
U.S. government securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which
have been designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant contract
market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of
the contracts as between the clearing members of the exchange. A Portfolio
may enter into futures contracts which are based on debt securities that
are backed by the full faith and credit of the U.S. Government, such as
long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association (`GNMA'') modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. A Portfolio may also enter into futures
contracts which are based on bonds issued by entities other than the U.S.
government.
At the same time a futures contract is purchased or sold, the
Portfolio must allocate cash or securities as a deposit payment ("initial
deposit"). It is expected that the initial deposit would be approximately
1 1/2% to 5% of a contract's face value. Daily thereafter, the futures
contract is valued and the payment of "variation margin" may be required,
since each day the Portfolio would provide or receive cash that reflects
any decline or increase in the contract's value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the
delivery of securities with a different interest rate from that specified
in the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same
month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the
securities. Since all transactions in the futures market are made, offset
or fulfilled through a clearinghouse associated with the exchange on which
the contracts are traded, the Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of a Portfolio which holds or intends to acquire fixed-income
securities, is to attempt to protect the Portfolio from fluctuations in
interest or foreign exchange rates without actually buying or selling
fixed-income securities or foreign currencies. For example, if interest
rates were expected to increase, the Portfolio might enter into futures
contracts for the sale of debt securities. Such a sale would have much the
same effect as selling an equivalent value of the debt securities owned by
the Portfolio. If interest rates did increase, the value of the debt
security in the Portfolio would decline, but the value of the futures
contracts to the Portfolio would increase at approximately the same rate,
thereby keeping the net asset value of the Portfolio from declining as much
as it otherwise would have. The Portfolio could accomplish similar results
by selling debt securities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures
market is more liquid than the cash market, the use of futures contracts as
an investment technique allows the Portfolio to maintain a defensive
position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline,
futures contracts may be purchased to attempt to hedge against anticipated
purchases of debt securities at higher prices. Since the fluctuations in
the value of futures contracts should be similar to those of debt
securities, a Portfolio could take advantage of the anticipated rise in the
value of debt securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be liquidated and
the Portfolio could then buy debt securities on the cash market. To the
extent a Portfolio enters into futures contracts for this purpose, the
assets in the segregated asset account maintained to cover the Portfolio's
obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio
in an amount equal to the difference between the fluctuating market value
of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such
futures contracts.
The ordinary spreads between prices in the cash and futures market,
due to differences in the nature of those markets, are subject to
distortions. First, all participants in the futures market are subject to
initial deposit and variation margin requirements. Rather than meeting
additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point
of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the Portfolios, if the
Adviser's investment judgment about the general direction of interest rates
is incorrect, a Portfolio's overall performance would be poorer than if it
had not entered into any such contract. For example, if a Portfolio has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of debt securities held in its portfolio and
interest rates decrease instead, the Portfolio will lose part or all of the
benefit of the increased value of its debt securities which it has hedged
because it will have offsetting losses in its futures positions. In
addition, in such situations, if a Portfolio has insufficient cash, it may
have to sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not necessarily
be, at increased prices which reflect the rising market. A Portfolio may
have to sell securities at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. Each Portfolio may purchase and write
options on futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the purchase of
a call option on an individual security. Depending on the pricing of the
option compared to either the price of the futures contract upon which it
is based or the price of the underlying debt securities, it may or may not
be less risky than ownership of the futures contract or underlying debt
securities. As with the purchase of futures contracts, when a Portfolio is
not fully invested it may purchase a call option on a futures contract to
hedge against a market advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency
which is deliverable upon exercise of the futures contract. If the futures
price at expiration of the option is below the exercise price, a Portfolio
will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Portfolio's
portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the security or
foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than
the exercise price, the Portfolio will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
securities which the Portfolio intends to purchase. If a put or call
option the Portfolio has written is exercised, the Portfolio will incur a
loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, the
Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, a Portfolio may purchase a put option on a futures contract to
hedge its portfolio against the risk of rising interest rates.
The amount of risk a Portfolio assumes when it purchases an option on
a futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above,
the purchase of an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value
of the option purchased.
The Board of Trustees of each Portfolio has adopted 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 (except for
Intermediate Tax Free 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 (except for Intermediate Tax Free Portfolio) may write
options on foreign currencies for the same types of hedging purposes. For
example, where a Portfolio anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs, the
options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates
move in the manner projected, will expire unexercised and allow the
Portfolio to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If this
does not occur, the option may be exercised and the Portfolio would be
required to purchase or sell the underlying currency at a loss which may
not be offset by the amount of the premium. Through the writing of options
on foreign currencies, the Portfolio also may be required to forego all or
a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
Each Portfolio (except for Intermediate Tax Free 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 (except for Intermediate Tax Free Portfolio) also
intends to write call options on foreign currencies that are not covered
for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the
Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange
rate. In such circumstances, the Portfolio collateralizes the option by
maintaining in a segregated account with its custodian, cash or U.S.
government securities or other high quality liquid debt securities in an
amount not less than the value of the underlying foreign currency in U.S.
dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS
AND OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by a
Portfolio in futures contracts, options on foreign currencies and forward
contracts are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the SEC. To the
contrary, such instruments are traded through financial institutions acting
as market-makers, although foreign currency options are also traded on
certain national securities exchanges such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no
daily price fluctuation limits, and adverse market movements could
therefore continue to an unlimited extent over a period of time. Although
the purchaser of an option cannot lose more than the amount of the premium
plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose
amounts substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders
on organized exchanges will be available with respect to such transactions.
In particular, all foreign currency option positions entered into on a
national securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of counterparty
default. Further, a liquid secondary market in options traded on a
national securities exchange may be more readily available than in the
over-the-counter market, potentially permitting a Portfolio to liquidate
open positions at a profit prior to exercise or expiration, or to limit
losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-traded
options on foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As
a result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign
currency option exercises, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the
fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit
risks which may not be present in the case of exchange-traded currency
options. A Portfolio's ability to terminate over-the-counter options will
be more limited than with exchange-traded options. It is also possible
that broker-dealers participating in over-the-counter options transactions
will not fulfill their obligations. Until such time as the staff of the
SEC changes its position, each Portfolio will treat purchased over-the-
counter options and assets used to cover written over-the-counter options
as illiquid securities. With respect to options written with primary
dealers in U.S. government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign
exchanges. Such transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected
by: (i) other complex foreign political and economic factors; (ii) lesser
availability than in the United States of data on which to make trading
decisions; (iii) delays in the Portfolio's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in the United
States; (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States; and
(v) lesser trading volume.
OPTIONS ON SECURITIES. Each Portfolio may write (sell) covered call
and put options to a limited extent on its portfolio securities ("covered
options") in an attempt to increase income. However, the Portfolio may
forgo the benefits of appreciation on securities sold or may pay more than
the market price on securities acquired pursuant to call and put options
written by the Portfolio.
When a Portfolio writes a covered call option, it gives the purchaser
of the option the right to buy the underlying security at the price
specified in the option (the "exercise price") by exercising the option at
any time during the option period. If the option expires unexercised, the
Portfolio will realize income in an amount equal to the premium received
for writing the option. If the option is exercised, a decision over which
the Portfolio has no control, the Portfolio must sell the underlying
security to the option holder at the exercise price. By writing a covered
call option, the Portfolio forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security
above the exercise price.
When a Portfolio writes a covered put option, it gives the purchaser
of the option the right to sell the underlying security to the Portfolio at
the specified exercise price at any time during the option period. If the
option expires unexercised, the Portfolio will realize income in the amount
of the premium received for writing the option. If the put option is
exercised, a decision over which the Portfolio has no control, the
Portfolio must purchase the underlying security from the option holder at
the exercise price. By writing a covered put option, the Portfolio, in
exchange for the net premium received, accepts the risk of a decline in the
market value of the underlying security below the exercise price. The
Portfolio will only write put options involving securities for which a
determination is made at the time the option is written that the Portfolio
wishes to acquire the securities at the exercise price.
A Portfolio may terminate its obligation as the writer of a call or
put option by purchasing an option with the same exercise price and
expiration date as the option previously written. This transaction is
called a "closing purchase transaction." The Portfolio will realize a
profit or loss for a closing purchase transaction if the amount paid to
purchase an option is less or more, as the case may be, than the amount
received from the sale thereof. To close out a position as a purchaser of
an option, the Portfolio, may make a `closing sale transaction'' which
involves liquidating the Portfolio's position by selling the option
previously purchased. Where the Portfolio cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold
underlying securities until an option is exercised or expires.
When a Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked to market to
reflect the current market value of the option written. The current market
value of a traded option is the last sale price or, in the absence of a
sale, the mean between the closing bid and asked price. If an option
expires on its stipulated expiration date or if the Portfolio enters into a
closing purchase transaction, the Portfolio will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the premium received
when the option was sold), and the deferred credit related to such option
will be eliminated. If a call option is exercised, the Portfolio will
realize a gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the premium originally received.
The writing of covered call options may be deemed to involve the pledge of
the securities against which the option is being written. Securities
against which call options are written will be segregated on the books of
the custodian for the Portfolio.
A Portfolio may purchase call and put options on any securities in
which it may invest. The Portfolio would normally purchase a call option
in anticipation of an increase in the market value of such securities. The
purchase of a call option would entitle the Portfolio, in exchange for the
premium paid, to purchase a security at a specified price during the option
period. The Portfolio would ordinarily have a gain if the value of the
securities increased above the exercise price sufficiently to cover the
premium and would have a loss if the value of the securities remained at or
below the exercise price during the option period.
A Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective
puts") or securities of the type in which it is permitted to invest. The
purchase of a put option would entitle the Portfolio, in exchange for the
premium paid, to sell a security, which may or may not be held in the
Portfolio's holdings, 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 holdings. Put options also
may be purchased by the Portfolio for the purpose of affirmatively
benefiting from a decline in the price of securities which the Portfolio
does not own. The Portfolio would ordinarily recognize a gain if the value
of the securities decreased below the exercise price sufficiently to cover
the premium and would recognize a loss if the value of the securities
remained at or above the exercise price. Gains and losses on the purchase
of protective put options would tend to be offset by countervailing changes
in the value of underlying portfolio securities.
Each Portfolio has adopted certain other nonfundamental policies
concerning option transactions which are discussed below. The Portfolio's
activities in options may also be restricted by the requirements of the
Internal Revenue Code of 1986, as amended (the "Code"), for qualification
as a regulated investment company.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent
that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying securities markets that cannot be reflected in the option
markets. It is impossible to predict the volume of trading that may exist
in such options, and there can be no assurance that viable exchange markets
will develop or continue.
A Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present,
approximately ten broker-dealers, including several of the largest primary
dealers in U.S. government securities, make these markets. The ability to
terminate over-the-counter option positions is more limited than with
exchange-traded option positions because the predominant market is the
issuing broker rather than an exchange, and may involve the risk that
broker-dealers participating in such transactions will not fulfill their
obligations. To reduce this risk, the Portfolio will purchase such options
only from broker-dealers who are primary government securities dealers
recognized by the Federal Reserve Bank of New York and who agree to (and
are expected to be capable of) entering into closing transactions, although
there can be no guarantee that any such option will be liquidated at a
favorable price prior to expiration. The Adviser will monitor the
creditworthiness of dealers with whom the Portfolio enters into such
options transactions under the general supervision of the Portfolios'
Trustees.
OPTIONS ON SECURITIES INDICES. In addition to options on securities,
each Portfolio (except for Intermediate Tax Free Portfolio) may also
purchase and write (sell) call and put options on securities indices. Such
options give the holder the right to receive a cash settlement during the
term of the option based upon the difference between the exercise price and
the value of the index. Such options will be used for the purposes
described above under "Options on Securities."
The International Equity Portfolio and the Pacific Basin Equity
Portfolio may, to the extent allowed by Federal and state securities laws,
invest in securities indices instead of investing directly in individual
foreign securities.
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close
out options positions on securities indices is more likely to occur,
although the Portfolio generally will only purchase or write such an option
if the Adviser believes the option can be closed out.
Use of options on securities indices also entails the risk that
trading in such options may be interrupted if trading in certain securities
included in the index is interrupted. The Portfolio will not purchase such
options unless the Adviser believes the market is sufficiently developed
such that the risk of trading in such options is no greater than the risk
of trading in options on securities.
Price movements in a Portfolio's holdings 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
(except for Intermediate Tax Free Portfolio) may buy and sell securities
denominated in currencies other than the U.S. dollar and receives interest,
dividends and sale proceeds in currencies other than the U.S. dollar, a
Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to
convert foreign currencies to and from the U.S. dollar. A Portfolio either
enters into these transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or uses forward
contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract. Forward
foreign currency exchange contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally
has no deposit requirement and is traded at a net price without commission.
Each Portfolio maintains with its custodian a segregated account of high
grade liquid assets in an amount at least equal to its obligations under
each forward foreign currency exchange contract. Neither spot transactions
nor forward foreign currency exchange contracts eliminate fluctuations in
the prices of the Portfolio's securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
Each Portfolio (except for Intermediate Tax Free Portfolio) may enter
into foreign currency hedging transactions in an attempt to protect against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term
investment decisions, a Portfolio will not routinely enter into foreign
currency hedging transactions with respect to security transactions;
however, Bankers Trust believes that it is important to have the
flexibility to enter into foreign currency hedging transactions when it
determines that the transactions would be in the Portfolio's best interest.
Although these transactions tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of the
hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of such
securities between the date the forward contract is entered into and the
date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
While these contracts are not presently regulated by the CFTC, the
CFTC may in the future assert authority to regulate forward contracts. In
such event the Portfolio's ability to utilize forward contracts in the
manner set forth in the Prospectus may be restricted. Forward contracts
may reduce the potential gain from a positive change in the relationship
between the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance for the Portfolio
than if it had not entered into such contracts. The use of foreign
currency forward contracts may not eliminate fluctuations in the underlying
U.S. dollar equivalent value of the prices of or rates of return on a
Portfolio's foreign currency denominated portfolio securities and the use
of such techniques will subject a Portfolio to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Portfolio may not always be able to enter into
foreign currency forward contracts at attractive prices and this will limit
the Portfolio's ability to use such contract to hedge or cross-hedge its
assets. Also, with regard to a Portfolio's use of cross-hedges, there can
be no assurance that historical correlations between the movement of
certain foreign currencies relative to the U.S. dollar will continue.
Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying a Portfolio's cross-
hedges and the movements in the exchange rates of the foreign currencies in
which the Portfolio's assets that are the subject of such cross-hedges are
denominated.
SHORT-TERM INSTRUMENTS. When a Portfolio experiences large cash
inflows through the sale of securities and desirable equity securities,
that are consistent with the Portfolio's investment objective, which are
unavailable in sufficient quantities or at attractive prices, each
Portfolio may invest in short-term instruments for a limited time pending
availability of such portfolio securities. Short-term instruments consist
of foreign or domestic: (i) short-term obligations of sovereign
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) other short-term debt securities rated AA or higher by
Standard & Poor's Rating Group (`S&P'') or Aa or higher by Moody's
Investors Services, Inc. (`Moody's'') or, if unrated, of comparable
quality in the opinion of Bankers Trust; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time deposits
and banker's acceptances; and (v) repurchase agreements. At the time the
Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer of the issuer's parent must have outstanding debt
rated AA or higher by S&P or Aa or higher by Moody's or outstanding
commercial paper or bank obligations rated A-1 by S&P or Prime-1 by
Moody's; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of Bankers Trust. These instruments may
be denominated in U.S. dollars or in foreign currencies.
LENDING OF PORTFOLIO SECURITIES. Each Portfolio (except for the
Intermediate Tax Free Portfolio) has the authority to lend portfolio
securities to brokers, dealers and other financial organizations. The
Portfolios will not lend securities to Bankers Trust, Edgewood or their
affiliates. By lending its securities, a Portfolio can increase its income
by continuing to receive interest on the loaned securities as well as by
either investing the cash collateral in short-term securities or obtaining
yield in the form of interest paid by the borrower when U.S. government
obligations are used as collateral. There may be risks of delay in
receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of
the securities fail financially. 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.
LOWER-RATED DEBT SECURITIES ("JUNK BONDS"). The Global High Yield
Securities Portfolio and the Latin American Equity Portfolio may invest in
lower-rated debt securities. While the market for high yield corporate
debt securities has been in existence for many years and has weathered
previous economic downturns, the 1980's brought a dramatic increase in the
use of such securities to fund highly leveraged corporate acquisitions and
restructuring. Past experience may not provide an accurate indication of
future performance of the high yield bond market, especially during periods
of economic recession. In fact, from 1989 to 1991, the percentage of
lower-rated debt securities that defaulted rose significantly above prior
levels.
The market for lower-rated debt securities may be thinner and less
active than that for higher rated debt securities, which can adversely
affect the prices at which the former are sold. If market quotations are
not available, lower- rated debt securities will be valued in accordance
with procedures established by the Board of Trustees, including the use of
outside pricing services. Judgment plays a greater role in valuing high
yield corporate debt securities than is the case for securities for which
more external sources for quotations and last sale information is
available. Adverse publicity and changing investor perception may affect
the ability of outside pricing services to value lower-rated debt
securities and the Global High Yield Securities Portfolio's ability to
dispose of these securities.
Since the risk of default is higher for lower-rated debt securities,
Bankers Trust's research and credit analysis are an especially important
part of managing securities of this type held by the Portfolio. In
considering investments for the Portfolio, Bankers Trust will attempt to
identify those issuers of high yielding debt securities whose financial
conditions are adequate to meet future obligations, have improved or are
expected to improve in the future. Bankers Trust's analysis focuses on
relative values based on such factors as interest on dividend coverage,
asset coverage, earnings prospects and the experience and managerial
strength of the issuer.
The Global High Yield Securities Portfolio may choose, at its expense
or in conjunction with others, to pursue litigation or otherwise exercise
its rights as a security holder to seek to protect the interest of
security holders if it determines this to be in the best interest of the
Global High Yield Securities Fund.
BRADY BONDS. The Global High Yield Securities Portfolio and the Latin
American Equity Portfolio may invest in "Brady bonds," which have been
issued by the governments of Argentina, Brazil, Costa Rica, Mexico,
Nigeria, Philippines, Uruguay and Venezuela. Most Brady bonds are
currently rated below BBB by S&P or Baa by Moody's.
The Brady Plan was conceived by the U.S. Treasury in the 1980's in an
attempt to produce a debt restructuring program which would enable a debt
country to (i) reduce the absolute level of debt of its creditor banks,
and (ii) reschedule its external debt repayments, based upon its ability to
service such debts by persuading its creditor banks to accept a debt write-
off by offering them a selection of options, each of which represented an
attractive substitute for the nonperforming debt. Although it was
envisaged that each debtor country would agree to a unique package of
options with its creditor banks, the plan was that these options would be
based upon the following:(i) a discount bond carrying a market rate of
interest (whether fixed or floating), with principal collateralized by the
debtor country with cash or securities in an amount equal to at least one
year of rolling interest; (ii) a par bond carrying a low rate of interest
(whether fixed or floating), collateralized in the same way as in (i)
above; and (iii) retention of existing debt (thereby avoiding a debt write-
off) coupled with an advance of new money or subscription of new bonds.
The Global High Yield Securities Portfolio and the Latin American
Equity Portfolio may invest in either collateralized or uncollateralized
Brady bonds. U.S. dollar-denominated, collateralized Brady bonds, which
may be fixed rate par bonds or floating rate discount bonds, are
collateralized in full as to principal by U.S. Treasury zero coupon bonds
having the same maturity as the bonds. Interest payments on such bonds
generally are collateralized by cash or securities in an amount that in the
case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at
least one year's rolling interest payments based on the applicable interest
rate at the time and is adjusted at regular intervals thereafter.
MUNICIPAL BONDS. Municipal bonds generally fund longer-term capital
needs than municipal notes and have maturities exceeding one year when
issued. The Intermediate Tax Free Portfolio may invest in municipal bonds.
Municipal bonds include:
GENERAL OBLIGATION BONDS. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of
these obligations are used to fund a wide range of public projects,
including construction or improvement of schools, highways and roads, and
water and sewer systems. The basic security behind general obligation
bonds is the issuer's pledge of its full faith and credit and taxing power
for the payment of principal and interest. The taxes that can be levied
for the payment of debt service may be limited or unlimited as to the rate
or amount of special assessments.
REVENUE BONDS. The principal security for a revenue bond is generally
the net revenues derived from a particular facility, group of facilities
or, in some cases, the proceeds of a special excise tax or other specific
revenue source. Revenue bonds are issued to finance a wide variety of
capital projects, including electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals. Although the principal security behind these
bonds may vary, many provide additional security in the form of a debt
service reserve fund that may be used to make principal and interest
payments on the issuer's obligations. Housing finance authorities have a
wide range of security, including partially or fully insured mortgages,
rent subsidized and/or collateralized mortgages, certificates of deposit
and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability
(without obligation) to make up deficiencies in the debt service reserve
fund.
PRIVATE ACTIVITY BONDS. Private activity bonds, which are considered
municipal obligations if the interest paid thereon is excluded from gross
income for Federal income tax purposes but is a specific tax preference
item for Federal individual and corporate alternative minimum tax purposes,
are issued by or on behalf of public authorities to raise money to finance
various privately-operated facilities such as manufacturing facilities,
certain hospital and university facilities and housing projects. These
bonds are also used to finance public facilities such as airports, mass
transit systems and ports. The payment of the principal and interest on
these bonds is dependent solely on the ability of the facility's user to
meet its financial obligations and generally the pledge, if any, of real
and personal property so financed as security for payment.
MUNICIPAL NOTES. Municipal notes generally fund short-term capital
needs. The Intermediate Tax Free Portfolio may invest in municipal notes,
which include:
TAX ANTICIPATION NOTES. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenue, such as income, sales, use
and business taxes, and are payable from these specific future taxes.
REVENUE ANTICIPATION NOTES. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue sharing programs.
BOND ANTICIPATION NOTES. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. In
most cases, the long-term bonds provide funds for the repayment of these
notes.
MISCELLANEOUS, TEMPORARY AND ANTICIPATORY INSTRUMENTS. These
instruments may include notes issued to obtain interim financing pending
entering into alternate financial arrangements, such as receipt of
anticipated Federal, state or other grants or aid, passage of increased
legislative authority to issue longer-term instruments or obtaining other
refinancing.
CONSTRUCTION LOAN NOTES. Construction loan notes are sold to provide
construction financing. Permanent financing, the proceeds of which are
applied to the payment of construction loan notes, is sometimes provided by
a commitment of the Government National Mortgage Association (`GNMA'') to
purchase the loan, accompanied by a commitment by the Federal Housing
Administration to insure mortgage advances thereunder. In other instances,
permanent financing is provided by commitments of banks to purchase the
loan. TheIntermediate Tax Free Portfolio will only purchase construction
loan notes that are subject to permanent GNMA or bank purchase commitments.
TAX-EXEMPT COMMERCIAL PAPER. The Intermediate Tax Free Portfolio may
invest in tax-exempt commercial paper. Tax-exempt commercial paper is a
short-term obligation with a stated maturity of 365 days or less. It is
issued by agencies of state and local governments to finance seasonal
working capital needs or as short-term financing in anticipation of
longer-term financing.
STANDBY COMMITMENTS. The Intermediate Tax Free Portfolio may acquire
standby commitments or "puts" solely to facilitate portfolio liquidity; the
Portfolio intends to exercise its rights thereunder for trading purposes.
The maturity of a municipal obligation is not to be considered shortened by
any standby commitment to which the obligation is subject. Thus, standby
commitments do not affect the dollar-weighted average maturity of the
Portfolio.
When municipal obligations are subject to puts separate from the
underlying securities, no value is assigned to the put. Because of the
difficulty of evaluating the likelihood of exercise or the potential
benefit of a put, the Board of Trustees has determined that puts shall have
a fair market value of zero, regardless of whether any direct or indirect
consideration was paid.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Portfolio's policy is
to enter into put transactions only with put writers who are approved by
Bankers Trust. It is the Portfolio's general policy to enter into put
transactions only with those put writers which are determined to present
minimal credit risks. In connection with this determination, the Board of
Trustees will review regularly Bankers Trust's list of approved put
writers, taking into consideration, among other things, the ratings, if
available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in
consummating transactions and any collateral arrangements, such as letters
of credit securing the puts written by them. Commercial banks normally
will be members of the Federal Reserve System, and other dealers will be
members of the National Association of Securities Dealers, Inc. or members
of a national securities exchange. Other put writers will have outstanding
debt rated Aa or better by Moody's Investors Services, Inc. (`Moody's'')
or AA or better by Standard & Poor's Ratings Group (`S&P''), or will be of
comparable quality in Bankers Trust's opinion, or such put writers'
obligations will be collateralized and of comparable quality in Bankers
Trust's opinion. The Board of Trustees has directed Bankers Trust not to
enter into put transactions with any put writer that, in the judgment of
Bankers Trust using the above-described criteria, is or becomes a
recognizable credit risk. The Trust is unable to predict whether all or
any portion of any loss sustained could subsequently be recovered from a
put writer in the event that a put writer should default on its obligation
to repurchase an underlying security.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE.
The Global High Yield Securities Portfolio may invest in foreign securities
issued by Eastern European countries. Investments in companies domiciled
in Eastern European countries may be subject to potentially greater risks
than those of other foreign issuers. These risks include: (i) potentially
less social, political and economic stability; (ii) the small current size
of the markets for such securities and the low volume of trading, which
result in less liquidity and in greater price volatility; (iii) certain
national policies which may restrict the Portfolio's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation;
(v) the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property;
(vi) the absence, until recently in certain Eastern European countries, of
a capital market structure or market-oriented economy; and (vii) the
possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in
such countries, or in the Commonwealth of Independent States (consisting of
the Republics of the former Union of Soviet Socialist Republics).
The economic situation remains difficult for Eastern European
countries in transition from central planning, following what has already
been a sizable decline in output. The contraction now appears to be
bottoming out in parts of Eastern Europe. Following three successive years
of output declines, there are preliminary indications of a turnaround in
the former Czech and Slovak Federal Republic, Hungary and Poland; growth in
private sector activity and strong exports now appear to have contained the
fall in output. A number of their governments, including those of Hungary
and Poland, are currently implementing or considering reforms directed at
political and economic liberalization, including efforts to foster multi-
party political systems, decentralize economic planning, and a move toward
free-market economies. But key aspects of the reform and stabilization
efforts have not yet been fully implemented, and there remain risks of
policy slippage. At present, no Eastern European country has a developed
stock market, but Poland, Hungary and the Czech Republic have small
securities markets in operation.
In many other countries of the region, output losses have been even
larger. These declines reflect the adjustment difficulties during the
early stages of the transition, high rates of inflation, the compression of
imports, disruption in trade among the countries of the former Soviet
Union, and uncertainties about the reform process itself. Large-scale
subsidies are delaying industrial restructuring and are exacerbating the
fiscal situation. A reversal of these adverse factors is not anticipated
in the near term, and output is expected to decline further in most of
these countries. In the Russian Federation and most other countries of the
former Soviet Union, economic conditions are of particular concern because
of economic instability due to political unrest and armed conflicts in many
regions. Further, no accounting standards exist in Eastern European
countries. Although certain Eastern European currencies may be convertible
into U.S. dollars, the conversion rates may be artificial to the actual
market values and may be adverse to each Fund's shareholders.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING LATIN AMERICA.
Investing in securities of Latin American issuers may entail risks relating
to the potential political and economic instability of certain Latin
American countries and the risks of expropriation, nationalization,
confiscation or the imposition of restrictions on foreign investment and on
repatriation of capital invested. In the event of expropriation,
nationalization or other confiscation by any country, the Latin American
Equity Fund could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major
securities markets in the U.S. Disclosure and regulatory standards are in
many respects less stringent than U.S. standards. Furthermore, there is a
lower level of monitoring and regulation of the markets and the activities
of investors in such markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to
volume of trading in the securities of U.S. issuers could cause prices to
be erratic for reasons apart from factors that affect the soundness and
competitiveness of the securities issuers. For example, limited market
size may cause prices to be unduly influenced by traders who control large
positions. Adverse publicity and investors' perceptions, whether or not
based on in-depth fundamental analysis, may decrease the value and
liquidity of portfolio securities.
The economies of Latin American countries may be predominantly based
in only a few industries, may be highly vulnerable to changes in local or
global trade conditions, and may suffer from extreme and volatile debt
burdens or inflation rates. Securities of issuers located in Latin America
may have limited marketability and may be subject to more abrupt or erratic
price movements.
Latin American Equity Portfolio invests in securities denominated in
currencies of Latin American countries. Accordingly, changes in the value
of these currencies against the U.S. dollar will result in corresponding
changes in the U.S. dollar value of the Portfolio's assets denominated in
those currencies.
Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk
that certain Latin American countries may restrict the free conversion of
their currencies into other currencies. Further, certain Latin American
currencies may not be internationally traded. Certain of these currencies
have experienced a steep devaluation relative to the U.S. dollar. Any
devaluations in the currencies in which the Portfolio's securities are
denominated may have a detrimental impact on the Fund's net asset value.
The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate
of growth of gross domestic product, the rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Certain Latin American countries have experienced high levels of inflation
which can have a debilitating effect on an economy. Furthermore, certain
Latin American countries may impose withholding taxes on dividends payable
to the Portfolio at a higher rate than those imposed by other foreign
countries. This may reduce the Fund's investment income available for
distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared
moratoria on the payment of principal and/or interest on outstanding debt.
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not
be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's
willingness or ability to repay principal and interest due in a timely
manner may be affected by, among other factors, its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to
which a governmental entity may be subject. Governmental entities may also
be dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and interest
arrearage on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a
governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure
to implement such reforms, achieve such levels of economic performance or
repay principal or interest when due may result in the cancellation of such
third parties' commitments to lend funds to the governmental entity, which
may further impair such debtor's ability or willingness to service its
debts in a timely manner. Consequently, governmental entities may default
on their sovereign debt.
Holders of sovereign debt, including the Portfolio, may be requested
to participate in the rescheduling of such debt and to extend further loans
to governmental entities. There is no bankruptcy proceeding by which
defaulted sovereign debt may be collected in whole or in part.
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and
agriculture. The region has a large population (roughly 300 million)
representing a large domestic market. Economic growth was strong in the
1960's and 1970's, but slowed dramatically (and in some instances was
negative) in the 1980's as a result of poor economic policies, higher
international interest rates, and the denial of access to new foreign
capital. Although a number of Latin American countries are currently
experiencing lower rates of inflation and higher rates of real growth in
gross domestic product (`GDP'') than they have in the past, other Latin
American countries continue to experience significant problems, including
high inflation rates and high interest rates. Capital flight has proven a
persistent problem and external debt has been forcibly rescheduled.
Political turmoil, high inflation, capital repatriation restrictions and
nationalization have further exacerbated conditions.
Large budget deficits and a high level of state ownership in many
productive and service areas have given way to balanced budgets and
privatization in Mexico, Brazil, Chile and Argentina. Changes in political
leadership have encouraged the implementation of market oriented economic
policies such as balanced budgets. Privatization trade reform and monetary
reform have been among the steps taken to modernize the Latin American
economies and to regenerate growth in the region. However, governments of
many Latin American countries have exercised and continue to exercise
substantial influence over many aspects of the private sector through the
ownership or control of many companies, including some of the largest in
those countries. As a result, government actions in the future could have
a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory
taxation, nationalization, political, economic or social instability or
other similar developments, such as military coups, have occurred in the
past and could also adversely affect the Portfolio's investments in this
region.
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and
monetary reform are among the recent steps taken to renew economic growth.
External debt is being restructured and flight capital (domestic capital
that has left the home country) has begun to return. Inflation control
efforts have also been implemented. Free trade zones are being discussed
in various areas around the region, the most notable being a free trade
zone between Mexico and the U.S. Various trade agreements have also been
formed within the region such as the Andean Pact, Mercosur and North
American Free Trade Agreement (NAFTA). The largest of these is NAFTA,
which was implemented on January 1, 1994. Latin American equity markets
can be extremely volatile and in the past have shown little correlation
with the U.S. market. Currencies are typically weak, but most are now
relatively free floating, and it is not unusual for the currencies to
undergo wide fluctuations in value over short periods of time due to
changes in the market.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING THE PACIFIC
BASIN. Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the United States
and European countries. Such instability may result from (i) authoritarian
governments or military involvement in political and economic decision-
making; (ii) popular unrest associated with demands for improved political,
economic and social conditions; (iii) internal insurgencies; (iv) hostile
relations with neighboring countries; and (v) ethnic, religious and racial
disaffection.
The economies of most of the Asian countries are heavily dependent
upon international trade and are accordingly affected by protective trade
barriers and the economic conditions of their trading partners,
principally, the United States, Japan, China and the European Community.
The enactment by the United States or other principal trading partners of
protectionist trade legislation, reduction of foreign investment in the
local economies and general declines in the international securities
markets could have a significant adverse effect upon the securities markets
of the Asian countries.
Thailand has been transformed into one of the fastest growing stock
markets in the world. On February 23, 1991, the military staged its 17th
coup since the overthrow of the absolute monarchy in 1932. The newly
appointed government quickly focused on the economy and enacted major tax
revisions, slashing personal income tax and reducing taxes on imports.
Most significantly, it pushed through a 7% value added tax. Released from
political consideration by the coup, the Bank of Thailand was finally able
to implement a monetary tightening. As a result, interest rates rose and
GDP declined to 7.7% from 10% the previous year. The government continues
to move ahead with new projects - especially telecommunications, roads and
port facilities - needed to refurbish the country's overtaxed
infrastructure. Nonetheless, political unrest coupled with the shooting of
anti-government demonstrators in May 1992 has caused many international
businesses to question Thailand's political stability.
Hong Kong's impending return to Chinese dominion in 1997 has not
initially had a positive effect on its economic growth which was vigorous
in the 1980's. However, authorities in Beijing have agreed to maintain a
capitalist system for 50 years that, along with Hong Kong's economic
growth, continued to further strong stock market returns. In preparation
for 1997, Hong Kong has to develop trade with China, where it is the
largest foreign investor, while also maintaining its long-standing export
relationship with the United States. Spending on infrastructure
improvements is a significant priority of the colonial government while the
private sector continues to diversify abroad based on its position as an
established international trade center in the Far East.
In terms of GDP, industrial standards and level of education, South
Korea is second only to Japan in Asia. It enjoys the benefits of a
diversified economy with well developed sectors in electronics, automotive,
textiles and shoe manufacturing, steel and shipbuilding among others. The
driving force behind the economy's dynamic growth has been the planned
development of an export-oriented economy in a vigorously entrepreneurial
society. Real GDP grew about 7.5% in 1991. Labor unrest was noticeably
calmer, unemployment averaged a low of 2.3%, and investment was strong.
Inflation rates, however, are beginning to challenge South Korea's strong
economic performance. In addition, the international situation between
South and North Korea continues to improve. Both Koreas joined the United
Nations separately in late 1991, creating another forum for negotiation and
joint cooperation.
Indonesia is a mixed economy with many socialist institutions and
central planning, but has recently placed emphasis on deregulation and
private enterprise. Like Thailand, Indonesia has extensive natural wealth,
yet with a large and rapidly increasingly population, it remains a poor
country. Agriculture, including forestry and fishing, is an important
sector, accounting for 21% of GDP and over 50% of the labor force. Once
the world's largest rice importer, Indonesia is now nearly self-sufficient.
The Malaysian economy continued to perform well, growing at an average
annual rate of 9% from 1987 through 1991. This placed Malaysia as one of
the fastest growing economies in the Asian-Pacific region. Malaysia has
become the world's third-largest producer of semiconductor devices (after
the U.S. and Japan) and the world's largest exporter of semiconductor
devices. More remarkable is the country's ability to achieve rapid
economic growth with relative price stability (2% inflation over the past
five years) as the government followed prudent fiscal/monetary policies.
Malaysia's high export dependence level leaves it vulnerable to a recession
in the OECD countries or a fall in world commodity prices.
Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived
from its entrepot history. During the 1970's and early 1980's, the economy
expanded rapidly, achieving an average annual growth rate of 9%. Per
capita GDP is among the highest in Asia. Singapore holds a position as a
major oil refining and services center.
FOREIGN SECURITIES: SPECIAL CONSIDERATIONS CONCERNING CHINA AND CHINA
REGION. China's economic reform plan was designed to bring in foreign
investment capital and technological skills. The result has been a move
towards a more mixed economy away from the previous centrally planned
economy. The process of devolving responsibility for all aspects of
enterprise to local management and authorities continues, even though the
system of socialism with Chinese characteristics involves considerable
influence by the central government on production and marketing.
In order to attract foreign investment, China has since 1978
designated certain areas of the country where overseas investors can
receive special investment incentives and tax concessions. There are five
Special Economic Zones (Shenzhen, Shantou and Zhuhai in Guangdong Province,
Xiamen in Fujian Province and Hainan Island, which itself is a province).
Fourteen coastal cities have been designated as `open cities'' and certain
Open Economic Zones have been established in coastal areas. Shanghai has
established the Pudong New Area. Twenty-seven High and New Technology
Industrial Development Zones have been approved where preferential
treatment is given to enterprises which are confirmed as technology
intensive.
China has had for many centuries a well deserved reputation for being
closed to foreigners, with trade with the outside world being carried on
under terms of extreme restriction and under central control. Such
conditions were maintained in the first thirty years of the Communist
regime which began in 1949; however, there have been several stages of
evolution, from the institution of an industrialization program in the
1950s to a modernization policy commencing in 1978 which combined economic
development with the beginnings of opening the country.
The securities markets in the China region are substantially smaller,
less liquid and more volatile than the major securities markets in the
United States. A high proportion of the shares of many Chinese issuers may
be held by a limited number of persons and financial institutions, which
may limit the number of shares available for investment by the Portfolio.
Similarly, volume and liquidity in the bond markets in China are less than
in the United States and, at times, price volatility can be greater than in
the United States. A limited number of issuers in Chinese securities
markets may represent a disproportionately large percentage of market
capitalization and trading value. The limited liquidity of securities
markets in China may also affect the Portfolio's ability to acquire or
dispose of securities at the price and time it wishes to do so.
Accordingly, during periods of rising securities prices in the more
illiquid Chinese securities markets, the Portfolio's ability to participate
fully in such price increases may be limited by its investment policy of
investing not more than 15% of its net assets in illiquid securities.
Conversely, the Portfolio's inability to dispose fully and promptly of
positions in declining markets will cause the Portfolio's net asset value
to decline as the value of the unsold positions is marked to lower prices.
In addition, the Chinese securities markets are susceptible to being
influenced by large investors trading significant blocks of securities.
The Chinese, Hong Kong and Taiwan stock markets are undergoing a
period of growth and change which may result in trading volatility and
difficulties in the settlement and recording of transactions, and in
interpreting and applying the relevant law and regulations.
China governmental actions can have a significant effect on the
economic conditions in China, which could adversely affect the value and
liquidity of the Portfolio's investments. Although the Chinese government
has recently begun to institute economic reform policies, there can be no
assurances that it will continue to pursue such policies or, if it does,
that such policies will succeed.
The securities industry in China is not well developed. China has no
securities laws of nationwide applicability. The municipal securities
regulations adopted by Shanghai and Shenzhen municipalities are very new,
as are their respective securities exchanges and other self-regulatory
organizations. In addition, Chinese stockbrokers and other intermediaries
may not perform as well as their counterparts in the United States and
other more developed securities markets. The prices at which the Portfolio
may acquire investments may be affected by trading by persons with material
non-public information and by securities transactions by brokers in
anticipation of transactions by the Portfolio in particular securities.
China does not have a comprehensive system of laws, although
substantial changes have occurred in this regard in recent years. The
corporate form of organization has only recently been permitted in China
and national regulations governing corporations were introduced only in May
1992. Prior to the introduction of such regulations, Shanghai had adopted a
set of corporate regulations applicable to corporations located or listed
in Shanghai, and the relationship between the two sets of regulations is
not clear. Consequently, until a firmer legal basis is provided, even such
fundamental corporate law tenets as the limited liability status of Chinese
issuers and their authority to issue shares remain open to question. Laws
regarding fiduciary duties of officers and directors and the protection of
shareholders are not well developed. China's judiciary is relatively
inexperienced in enforcing the laws that exist, leading to a higher than
usual degree of uncertainty as to the outcome of any litigation. Even where
adequate law exists in China, it may be impossible to obtain swift and
equitable enforcement of such law, or to obtain enforcement of the judgment
by a court of another jurisdiction. The bankruptcy laws pertaining to state
enterprises have rarely been used and are untried in regard to an
enterprise with foreign shareholders, and there can be no assurance that
such shareholders, including the Portfolio, would be able to realize the
value of the assets of the enterprise or receive payment in convertible
currency. As the Chinese legal system develops, the promulgation of new
laws, changes to existing laws and the preemption of local laws by national
laws may adversely affect foreign investors, including the Portfolio. The
uncertainties faced by foreign investors in China are exacerbated by the
fact that many laws, regulations and decrees of China are not publicly
available, but merely circulated internally.
Exports continue to rise strongly, although China remains vulnerable
to United States economic conditions and possible trade sanctions, unless
it liberalizes current import restrictions and improves its human rights
record. However, imports are also expected to rise and may outstrip exports
in terms of growth rates.
There are currently two officially recognized securities exchanges in
China -- The Shanghai Securities Exchange which opened in December 1990 and
The Shenzhen Stock Exchange which opened in July 1991. Shares traded on
these Exchanges are two types -- `A'' shares which can be traded only by
Chinese investors and `B'' shares which can be traded only by individuals
and corporations not resident in China.
In Shanghai, all `B'' shares are denominated in Chinese renminbi
(`RMB''), but all transactions in ``B'' shares must be settled in U.S.
dollars, and all distributions made on `B'' shares are payable in U.S.
dollars, the exchange rate being the weighted average exchange rate for the
U.S. dollar as published by the Shanghai Foreign Exchange Adjustment
Centre.
In Shenzhen, the purchase and sale prices for `B'' shares are quoted
in Hong Kong dollars. Dividends and other lawful revenue derived from `B''
shares are calculated in RMB but payable in Hong Kong dollars, the rate of
exchange being the average rate published by Shenzhen Foreign Exchange
Adjustment Centre.
There are no foreign exchange restrictions on the repatriation of
gains made on or income derived from `B'' shares, subject to the payment
of taxes imposed by China thereon.
Company law relating to companies limited by shares and regulations
regarding the issuing of shares by equity joint ventures have not yet been
developed on a national basis. The Shenzhen municipality issued regulations
in 1992 relating to joint stock companies, and the Shanghai municipality
has a draft joint stock company law under review. Regulations governing the
trading of securities on both the Shenzhen and the Shanghai stock exchanges
have been issued by each municipality; there is no national securities
legislation as yet.
Economies of countries in the China region may differ favorably or
unfavorably from the U.S. economy in such respects as rate of growth of
gross domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As an export-driven
economy, the economy of China is affected by developments in the economies
of its principal trading partners. Revocation by the United States of
China's `Most Favored Nation'' trading status, which the U.S. President
and Congress reconsider annually, would adversely affect the trade and
economic development of China and Hong Kong. Hong Kong and Taiwan have
limited natural resources, resulting in dependence on foreign sources for
certain raw materials and economic vulnerability to global fluctuations of
price and supply.
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 Portfolio to eliminate the
obligation from its portfolio, but Bankers Trust will consider such an
event in its determination of whether a Portfolio should continue to hold
the obligation. A description of the ratings is included in the Funds'
Prospectus.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of
each Fund and each Portfolio and may not be changed with respect to the
Fund or the Portfolio without the approval of a "majority of the
outstanding voting securities" of the Fund or the Portfolio, as the case
may be. "Majority of the outstanding voting securities" under the
Investment Company Act of 1940, as amended (the "1940 Act"), and as used in
this SAI and the Prospectuses, means, with respect to the Fund (or the
Portfolio), the lesser of (i) 67% or more of the outstanding voting
securities of the Fund (or of the total beneficial interests of the
Portfolio) present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund (or of the total beneficial
interests of the Portfolio) are present or represented by proxy or (ii)
more than 50% of the outstanding voting securities of the Fund (or of the
total beneficial interests of the Portfolio). Whenever the Trust is
requested to vote on a fundamental policy of a Portfolio, the Trust will
hold a meeting of the corresponding Fund's shareholders and will cast its
vote as instructed by that Fund's shareholders. Fund shareholders who do
not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting
will be voted by the Trustees of the Trust in the same proportion as the
Fund shareholders who do, in fact, vote.
As a matter of fundamental policy, no Portfolio (or Fund) may (except that
no investment restriction of a Fund shall prevent a Fund from investing 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) net assets, it may borrow money
(but only as a temporary measure for extraordinary or emergency
purposes in the case of the Small Cap Portfolio (Fund), Capital
Appreciation Portfolio (Fund), International Equity Portfolio
(Fund), and Intermediate Tax Free Portfolio (Fund)), and enter into
reverse repurchase agreements or dollar roll transactions, and
except that it may pledge, mortgage or hypothecate not more than
1/3 of such assets to secure such borrowings (it is intended that
money would be borrowed only from banks and only either to
accommodate requests for the withdrawal of beneficial interests
(redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements,
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction and except that assets may be pledged to secure letters
of credit solely for the purpose of participating in a captive
insurance company sponsored by the Investment Company Institute;
for additional related restrictions, see clause (i) under the
caption "Additional Restrictions" below (as an operating policy,
the Portfolios may not engage in dollar-roll transactions);
(2) underwrite securities issued by other persons except insofar as
the Portfolios (Trust or the Funds) may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of
the Portfolio's (Fund's) portfolio securities and provided that any
such loans not exceed 30% of the Portfolio's (Fund's) total assets
(taken at market value); (b) through the use of repurchase
agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types
distributed publicly or privately (under current regulations, the
Portfolio's (Fund's) fundamental policy with respect to 20% risk
weighing for financial institutions prevent the Portfolio (Fund)
from engaging in securities lending);
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (except futures and option
contracts) in the ordinary course of business (except that the
Portfolio (Trust) may hold and sell, for the Portfolio's (Fund's)
portfolio, real estate acquired as a result of the Portfolio's
(Fund's) ownership of securities);
(5) concentrate its investments in any particular industry (excluding
U.S. government securities), but if it is deemed appropriate for
the achievement of a Portfolio's (Fund's) investment objective(s),
up to 25% of its total assets may be invested in any one industry;
and
(6) issue any senior security (as that term is defined in the
1940 Act) if such issuance is specifically prohibited by the
1940 Act or the rules and regulations promulgated thereunder,
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation
margin, are not considered to be the issuance of a senior security
for purposes of this restriction.
As an operating policy, except as otherwise noted, no Portfolio will
invest in another open-end registered investment company. This operating
policy does not apply to the Intermediate Tax Free Portfolio, Capital
Appreciation Portfolio, or International Equity Portfolio.
ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and
policies, each Portfolio (or the Trust, on behalf of each Fund) will not as
a matter of operating policy (except that no operating policy shall prevent
a Fund from investing all of its Assets in an open-end investment company
with substantially the same investment objectives):
(i) borrow money (including through reverse repurchase or
forward roll transactions) for any purpose in excess of 5% (10%
with respect to Intermediate Tax Free Portfolio (Fund)) 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) except for Intermediate Tax Free Portfolio (Fund), sell
securities it does not own (short sales) 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 that the Portfolio (Fund)
contemporaneously owns or where the Portfolio has the right to
obtain securities equivalent in kind and amount to those sold,
i.e., short sales against the box.) (the Portfolios (Funds)
currently do not engage in short selling);
(v) with respect to Intermediate Tax Free Portfolio (Fund), (a)
sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided
that if such right is conditional the sale is made upon the same
conditions; and (b) make short sales of securities or maintain a
short position, unless at all times when a short position is open
it owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue and equal in
amount to, the securities sold short, and unless not more than
10% of the Portfolio's (Fund's) net assets (taken at market
value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one
time (the Portfolio (Fund) has no current intention to engage in
short selling);
(vi) invest for the purpose of exercising control or management of
another company;
(vii) 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
(1) the Portfolio's investment adviser waives the investment
advisory fee with respect to assets invested in other open-end
investment companies and (2) the Portfolio incurs no sales charge
in connection with the investment;
(viii) except for Intermediate Tax Free Portfolio (Fund),
invest more than 10% of the Portfolio's (Fund's) total assets
(taken at the greater of cost or market value) in securities
(excluding Rule 144A securities) that are restricted as to resale
under the 1933 Act;
(ix) except for Intermediate Tax Free Portfolio (Fund), invest
more than 15% of the Portfolio's (Fund's) total assets (taken at
the greater of cost or market value) in (a) securities (excluding
Rule 144A securities) that are restricted as to resale under the
1933 Act, and (b) securities that are issued by issuers which
(including predecessors) have been in operation less than three
years (other than U.S. government securities), provided, however,
that no more than 5% of the Portfolio's (Fund's) total assets are
invested in securities issued by issuers which (including
predecessors) have been in operation less than three years;
(x) except for Intermediate Tax Free Portfolio (Fund), 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 Rule 144A
securities deemed by the Board of Trustees of the Portfolio
(Trust) to be liquid);
(xi) with respect to Intermediate Tax Free Portfolio (Fund),
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 not including (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 have determined that the
commercial paper is equivalent quality and is liquid;
(xii) with respect to Intermediate Tax Free Portfolio, (a)
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), and (b) no more than 5% of the Portfolio's (Fund's)
total assets will be invested in securities issued by issuers
which (including predecessors) have been in operation less than
three years;
(xiii) except for Capital Appreciation Portfolio (Fund) and
International Equity Portfolio (Fund), with respect to 75% (50%
in the case of Global High Yield Securities Portfolio (Fund)) 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;
(xiv) with respect to Capital Appreciation Portfolio (Fund)
and International Equity Portfolio (Fund), with respect to 75% of
its assets, invest more than 5% of its total assets in the
securities (excluding U.S. government securities) of any one
issuer;
(xv) except for Capital Appreciation Portfolio (Fund) and
International Equity Portfolio (Fund), with respect to 75% (50%
in the case of Global High Yield Securities Portfolio (Fund)) of
the Portfolio's (Fund's) total assets, invest more than 5% of its
total assets in the securities (excluding U.S. government
securities) of any one issuer and in the case of Global High
Yield Securities Portfolio (Fund) invest more than 25% of its
total assets in any one issuer;
(xvi) invest in securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer
or Trustee of the Portfolio (Trust), or is an officer or director
of the Adviser, if after the purchase of the securities of such
issuer for the Portfolio (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;
(xvii) 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 (with the exception of the
Pacific Basin Equity Portfolio (Fund) which may invest up to 10%
of its net assets in warrants) would be invested in warrants not
listed on a recognized United States or foreign stock exchange
(New York or American Stock Exchange with respect to the
Intermediate Tax Free Portfolio (Fund)), to the extent permitted
by applicable state securities laws;
(xviii) 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 OCC, except for put and
call options issued by non-U.S. entities or listed on non-U.S.
securities or commodities exchanges; (b) the aggregate value of
the obligations underlying the puts determined as of the date the
options are sold shall not exceed 5% (50% with respect to
Intermediate Tax Free Portfolio (Fund)) 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
(xix) buy and sell puts and calls on securities, stock index
futures or options on stock index futures, or financial futures
or options on financial futures unless such options are written
by other persons and: (a) the options or futures are offered
through the facilities of a national securities association or
are listed on a national securities or commodities exchange,
except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all such options which are held at any
time do not exceed 20% of the Portfolio's (Fund's) total net
assets; and (c) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5%
of the Portfolio's (Fund's) total assets.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment, in net
or total assets or in the change of securities rating of the investment, or
any other later change.
Each Fund will comply with the state securities laws and regulations
of all states in which it is registered. Each Portfolio will comply with
the permitted investments and investment limitations in the securities laws
and regulations of all states in which the corresponding Fund, or any other
registered investment company investing in the Portfolio, is registered.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for each
Portfolio, the selection of brokers, dealers and futures commission
merchants to effect transactions and the negotiation of brokerage
commissions, if any. Broker-dealers may receive brokerage commissions on
portfolio transactions, including options, futures and options on futures
transactions and the purchase and sale of underlying securities upon the
exercise of options. Orders may be directed to any broker-dealer or
futures commission merchant, including to the extent and in the manner
permitted by applicable law, Bankers Trust or its subsidiaries or
affiliates. Purchases and sales of certain portfolio securities on behalf
of a Portfolio are frequently placed by the Adviser with the issuer or a
primary or secondary market-maker for these securities on a net basis,
without any brokerage commission being paid by the Portfolio. Trading
does, however, involve transaction costs. Transactions with dealers
serving as market-makers reflect the spread between the bid and asked
prices. Transaction costs may also include fees paid to third parties for
information as to potential purchasers or sellers of securities. Purchases
of underwritten issues may be made which will include an underwriting fee
paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for
the purchase and sale of securities for a Portfolio taking into account
such factors as price, commission (negotiable in the case of national
securities exchange transactions), if any, size of order, difficulty of
execution and skill required of the executing broker-dealer through
familiarity with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Portfolio to reported commissions paid
by others. The Adviser reviews on a routine basis commission rates,
execution and settlement services performed, making internal and external
comparisons.
The Adviser is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for a Portfolio with a broker to pay a brokerage commission
(to the extent applicable) in excess of that which another broker might
have charged for effecting the same transaction on account of the receipt
of research, market or statistical information. The term "research, market
or statistical information" includes advice as to the value of securities;
the advisability of investing in, purchasing or selling securities; the
availability of securities or purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other
policies as the Trustees of the Portfolio may determine, the Adviser may
consider sales of shares of the Trust and of other investment company
clients of Bankers Trust as a factor in the selection of broker-dealers to
execute portfolio transactions. Bankers Trust will make such allocations
if commissions are comparable to those charged by nonaffiliated, qualified
broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research
information in managing the Portfolio's assets, as well as the assets of
other clients.
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or
dealers or groups thereof. In effecting transactions in over-the-counter
securities, orders are placed with the principal market-makers for the
security being traded unless, after exercising care, it appears that more
favorable results are available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to a Portfolio and to the Adviser, it is
the opinion of the management of the Portfolios that such information is
only supplementary to the Adviser's own research effort, since the
information must still be analyzed, weighed and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services
to clients other than the Portfolios, and not all such information is used
by the Adviser in connection with the Portfolios. Conversely, such
information provided to the Adviser by brokers and dealers through whom
other clients of the Adviser effect securities transactions may be useful
to the Adviser in providing services to the Portfolios.
In certain instances there may be securities which are suitable for a
Portfolio as well as for one or more of the Adviser's other clients.
Investment decisions for a Portfolio and for the Adviser's other clients
are made with a view to achieving their respective investment objectives.
It may develop that a particular security is bought or sold for only one
client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the
same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized
that in some cases this system could have a detrimental effect on the price
or volume of the security as far as a Portfolio is concerned. However, it
is believed that the ability of a Portfolio to participate in volume
transactions will produce better executions for the Portfolio.
For the period from January 1, 1996 to September 30, 1996, and the
fiscal years ended December 31, 1995 and 1994, Intermediate Tax Free
Portfolio paid no brokerage commissions.
Global High Yield Securities Portfolio paid no brokerage commissions
for the fiscal year ended September 30, 1996, $5,653 for the fiscal year
ended September 30, 1995 and paid no brokerage commissions for the period
from December 14, 1993 (commencement of operations) through September 30,
1994.
For the fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the year ended December 31, 1994,
Capital Appreciation Portfolio paid brokerage commissions in the amount of
$648,897, $247,868 and $162,941, respectively.
Small Cap Portfolio paid brokerage commissions in the amount of
$238,160 for the fiscal year ended September 30, 1996, $70,603 for the
fiscal year ended September 30, 1995 and $20,835 for the period from
October 21, 1993 (commencement of operations) through September 30, 1994.
For the fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the year ended December 31, 1994,
International Equity Portfolio paid brokerage commissions in the amount of
$603,995, $132,894 and $110,580, respectively.
Pacific Basin Equity Portfolio paid brokerage commissions in the
amount of $323,957, for the fiscal year ended September 30, 1996, $192,123
for the fiscal year ended September 30, 1995 and $139,363 for the period
from November 1, 1993 (commencement of operations) through September 30,
1994.
Latin American Equity Portfolio paid brokerage commissions in the
amount of $164,049 for the fiscal year ended September 30, 1996, $202,130
for the fiscal year ended September 30, 1995, and $188,008 for the period
from October 25, 1993 (commencement of operations) through September 30,
1994.
{PRIVATE }PERFORMANCE INFORMATION{TC "PERFORMANCE INFORMATION"}
STANDARD PERFORMANCE INFORMATION
From time to time, quotations of a Fund's performance may be included
in advertisements, sales literature or shareholder reports. These
performance figures are calculated in the following manner:
YIELD: Yields for a Fund used in advertising are computed by dividing
the Fund's interest and dividend income for a given 30-day or one-
month period, net of expenses, by the average number of shares
entitled to receive distributions during the period, dividing this
figure by the Fund's net asset value per share at the end of the
period, and annualizing the result (assuming compounding of income) in
order to arrive at an annual percentage rate. Income is calculated
for purpose of yield quotations in accordance with standardized
methods applicable to all stock and bond mutual funds. Dividends from
equity investments are treated as if they were accrued on a daily
basis, solely for the purpose of yield calculations. In general,
interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from
income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily
income. Capital gains and losses generally are excluded from the
calculation.
Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding assumed in yield calculations, the yield quoted for a Fund
may differ from the rate of distributions of the Fund paid over the
same period or the rate of income reported in the Fund's financial
statements. For the 30-day period ended September 30, 1996, Global
High Yield Fund's yield was 7.30%.
TAX-EQUIVALENT YIELD: The Intermediate Tax Free Fund's tax-equivalent
yield is equal to the Fund's yield divided by (1-Tax Rate).
As of September 30, 1996, the Intermediate Tax Free Fund's tax
equivalent 30-day SEC yield was 5.81%, assuming a maximum Federal tax
rate of 31%. The Intermediate Tax Free Fund's 30-day SEC yield for
the period ended September 30, 1996 was 4.01%.
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.
Global
High Capital
Intermediat Yield Apprecia Small Cap
e Tax Free Securiti tionFund Fund4
Fund1 es 3
Fund2
{ }
Total Return for
the One Year Ended 4.09% 23.31% 12.35 26.41%
September 30, 1996 %
Cumulative Total
Return for the
Period From
Commencement of 23.39% 32.31% 89.09 133.85
Operations Through % %
September 30, 1996
Annualized Total
Return for the
Period From
Commencement of 5.14% 10.54% 19.58 33.46%
Operations Through %
September 30, 1996
1Fund commenced operations on July 20, 1992
2Fund commenced operations on December 14, 1993.
3Fund commenced operations on March 9, 1993.
4Fund commenced operations on October 21, 1993.
Latin
International Pacific Basin American Equity
Equity Fund1 Equity Fund2
Fund3
Total Return
for 1 Year ended
September 30, 1996 13.21% 7.86% 26.00%
Cumulative
Total Return
for the Period from
Commencement of
Operations through
September 30, 1996 83.28% 23.34% 8.91%
Average Annual
Total Return for
the Period from
Commencement of
Operations through
September 30, 1996 15.69% 7.17% 2.95%
1Fund commenced operations on August 4, 1992.
2Fund commenced operations on November 1, 1993August 4, 1992.
3Fund commenced operations on October 25, 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 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 Daily, a daily newspaper that features financial, economic
and business news.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both
specific funds and the mutual fund industry as a whole.
Morningstar Inc., a publisher of financial information and mutual fund
research.
New York Times, a nationally distributed newspaper which regularly
covers financial news.
Personal Investing News, a monthly news publication that often reports
on investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that
includes a "Mutual Funds Outlook" section reporting on mutual fund
performance measures, yields, indices and portfolio holdings.
Success, a monthly magazine targeted to the world of entrepreneurs and
growing business, often featuring mutual fund performance data.
U.S. News and World Report, a national business weekly that
periodically reports mutual fund performance data.
ValueLine, a biweekly publication that reports on the largest 15,000
mutual funds.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
Weisenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient
features, management results, income and dividend records, and price
ranges.
Working Women, a monthly publication that features a "Financial
Workshop" section reporting on the mutual fund/financial industry.
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND
Equity and debt securities (other than short-term debt obligations
maturing in 60 days or less), including listed securities and securities
for which price quotations are available, will normally be valued on the
basis of market valuations furnished by a pricing service. Such market
valuations may represent the last quoted price on the securities major
trading exchange or may be determined through use of matrix pricing. In
matrix pricing, pricing services may use various pricing models, involving
comparable securities, historic relative price movements, economic factors
and dealer quotations. Over-the-counter securities will normally be valued
at the bid price. Short-term debt obligations and money market securities
maturing in 60 days or less are valued at amortized cost, which
approximates market.
Securities for which market quotations are not readily available are
valued by Bankers Trust pursuant to procedures adopted by each Portfolio's
Board of Trustees. It is generally agreed that securities for which market
quotations are not readily available should not be valued at the same value
as that carried by an equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value
are recognized in the codification effected by SEC Financial Reporting
Release No. 1 ("FRR 1" (formerly Accounting Series Release No. 113)) which
concludes that there is "no automatic formula" for calculating the value of
restricted securities. It recommends that the best method simply is to
consider all relevant factors before making any calculation. According to
FRR 1 such factors would include consideration of the:
type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.
To the extent that a Portfolio purchases securities which are
restricted as to resale or for which current market quotations are not
readily 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 withdrawal 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. Each Portfolio
has advised the Trust that the Portfolio will not redeem in kind except in
circumstances in which the Fund is permitted to redeem in kind or unless
requested by the Fund.
Each investor in a Portfolio, including the corresponding Fund, may
add to or reduce its investment in the Portfolio on each day the Portfolio
determines its net asset value. At the close of each such business day,
the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage effective for that day, which represents that investor's share
of the aggregate beneficial interests in the Portfolio. Any additions or
withdrawals which are to be effected as of the close of business on that
day will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio will then be recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the close of business on
such day plus or minus, as the case may be, the amount of net additions to
or withdrawals from the investor's investment in the Portfolio effected as
of the close of business on such day, and (ii) the denominator of which is
the aggregate net asset value of the Portfolio as of the close of business
on such day plus or minus, as the case may be, the amount of net additions
to or withdrawals from the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio
as the close of business on the following business day.
Each Fund (except for Intermediate Tax Free 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 may be a
taxable transaction to the shareholder. (Consult your tax adviser for
future tax guidance.) 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 the market; and
(iv) if stock, have a value which is readily ascertainable as evidenced by
a listing on a stock exchange, over-the-counter market or by readily
available market quotations from a dealer in such securities. Each Fund
reserves the right to accept or reject at its own option any and all
securities offered in payment for its shares.
{PRIVATE }MANAGEMENT OF THE TRUST AND THE PORTFOLIOS{TC "MANAGEMENT OF THE
TRUST AND THE PORTFOLIOS"}
Each Board of Trustees is composed of persons experienced in financial
matters who meet throughout the year to oversee the activities of the Funds
or Portfolios they represent. In addition, the Trustees review contractual
arrangements with companies that provide services to the Funds/Portfolios
and review the Funds' performance.
The Trustees and officers of the Trust and Portfolios, their birthdate
and their principal occupations during the past five years are set forth
below. Their titles may have varied during that period. Unless otherwise
indicated, the address of each officer is Clearing Operations, P.O. Box
897, Pittsburgh, Pennsylvania 05230-0897.
TRUSTEES OF THE TRUST
S. LELAND DILL (birthdate: March 28, 1930 ) -- Trustee; Retired;
Director, Coutts Group; Coutts (U.S.A.) International; Coutts Trust
Holdings Ltd; Director, Zweig Series Trust; formerly Partner of KPMG Peat
Marwick; Director, Vinters International Company Inc.; General Partner of
Pemco (an investment company registered under the 1940 Act). His address
is 5070 North Ocean Drive, Singer Island, Florida 33404.
KELVIN J. LANCASTER (birthdate: December 10, 1924) -- Trustee;
Professor, Department of Economics, Columbia University. His address is
35 Claremont Avenue, New York, New York 10027.
PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) -- 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* (birthdate: September 2, 1951) -- Trustee;
Chairman, Chief Executive Officer and President, Signature Financial Group,
Inc. ("SFG") (since December, 1988) and Signature (since April, 1989). His
address is 6 St. James Avenue, Boston, Massachusetts 02116.
TRUSTEES OF THE PORTFOLIOS
CHARLES P. BIGGAR (birthdate: October 14, 1930) -- 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 (birthdate: March 28, 1930) -- Trustee; Retired;
Director, Coutts Group; Coutts (U.S.A.) International; Coutts Trust
Holdings Ltd; Director, Zweig Series Trust; formerly Partner of KPMG Peat
Marwick; Director, Vinters International Company Inc.; General Partner of
Pemco (an investment company registered under the 1940 Act). His address
is 5070 North Ocean Drive, Singer Island, Florida 33404.
PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) -- 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* (birthdate: September 2, 1951) -- Trustee;
Chairman, Chief Executive Officer and President, SFG (since December, 1988)
and Signature (since April, 1989). His address is 6 St. James Avenue,
Boston, Massachusetts 02116.
* Indicates an `interested person'' (as defined in the 1940 Act) for
the Trust.
OFFICERS OF THE TRUST AND PORTFOLIOS
Unless otherwise specified, each officer listed below holds the same
position with the Trust and each Portfolio.
RONALD M. PETNUCH (birthdate: February 27, 1960) -- President and
Treasurer; Senior Vice President, Federated Services Company (`FSC'');
formerly, Director of Proprietary Client Services, Federated Administrative
Services (`FAS''), and Associate Corporate Counsel, Federated Investors
(`FI'').
CHARLES L. DAVIS, JR. (birthdate: March 23, 1960) -- Vice President
and Assistant Treasurer; Vice President, FAS.
JAY S. NEUMAN (birthdate: April 22, 1950) -- Secretary; Corporate
Counsel, FI.
Messrs. Coolidge, Petnuch, Davis, and Neuman also hold similar
positions for other investment companies for which Signature or Edgewood or
an affiliate, respectively, serves as the principal underwriter.
* Indicates an `interested person'' (as defined in the 1940 Act) for
the Trust.
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 Edgewood or any of its affiliates will receive any compensation
from the Trust or the Portfolios for serving as an officer or Trustee of
the Trust or a Portfolio.
Intermediate Tax Free Fund incurred Trustees fees equal to $2,002 for
the fiscal year ended September 30, 1996. For the same period,
Intermediate Tax Free Portfolio incurred Trustees fees equal to $1,866.
Global High Yield Securities Fund incurred Trustees fees equal to
$2,862 for the fiscal year ended September 30, 1996. For the same period,
Global High Yield Securities Portfolio incurred Trustees fees equal to
$2,638.
Capital Appreciation Fund incurred Trustees fees equal to $2,902 for
the fiscal year ended September 30, 1996. For the same period, Capital
Appreciation Portfolio incurred Trustees fees equal to $2,628.
Small Cap Fund incurred Trustees fees equal to $2,855 for the fiscal
year ended September 30, 1996. For the same period, Small Cap Portfolio
incurred Trustees fees equal to $2,718.
International Equity Fund incurred Trustees fees equal to $2,875 for
the fiscal year ended September 30, 1996 . For the same period,
International Equity Portfolio incurred Trustees fees equal to $3,004.
Pacific Basin Equity Fund incurred Trustees fees equal to $2,875 for
the fiscal year ended September 30, 1996. For the same period, Pacific
Basin Equity Portfolio incurred Trustees fees equal to $2,654.
Latin American Equity Fund incurred Trustees fees equal to $2,767 for
the fiscal year ended September 30, 1996. For the same period, Latin
American Equity Portfolio incurred Trustees fees equal to $2,904.
The following table reflects fees paid to the Trustees of the Trust
and Portfolio for the year ended September 30, 1996.
TRUSTEE COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION FROM FUND COMPLEX*
POSITION FROM TRUST PAID TO TRUSTEES
S. Leland Dill, $10,000 $23,000
Trustee of Trust
and Portfolios
Kelvin J. Lancaster, $13,000 $23,000
Trustee of Trust
Philip Saunders, Jr, $13,000 $23,000
Trustee of Trust
and Portfolios
Philip W. Coolidge, none none
Trustee of Trust
and Portfolios
Charles P. Biggar, none none
Trustee of Portfolios
* Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free
Money Portfolio, International Equity Portfolio, Utility Portfolio, Short
Intermediate US Government Securities Portfolio, Intermediate Tax Free
Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio and
Capital Appreciation Portfolio.
Bankers Trust reimbursed the Funds and Portfolios for a portion of
their Trustees fees for the period above. See "Investment Adviser" and
"Administrator" below.
As of December 31, 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 December 31, 1996, the following shareholders of record owned 5%
or more of the outstanding shares of Intermediate Tax Free Fund: Donaldson
Lufkin Jenrette Securities Corporation, Inc., Jersey City, NJ, owned
approximately 136,317 (6.65%) shares; Batrus & Co., New York, NY, owned
approximately 179,533 (8.75%) shares; Infid & Co., New York, NY, owned
approximately 356,829 (17.04%) shares and Henry Shotmeyer, Sr., New York,
NY, owned approximately 551,074 (26.88%) shares.
As of December 31, 1996, the following shareholders of record owned 5%
or more of the outstanding shares of Global High Yield Securities Fund:
Batrus & Co., New York, NY, owned approximately 111,827 (5.71%) shares and
Infid & Co., New York, NY, owned approximately 1,634,638 (83.49%) shares.
As of December 31, 1996, the following shareholders of record owned 5%
or more of the outstanding shares of Capital Appreciation Fund: Batrus &
Co., New York, NY, owned approximately 1,363,613 (32.91%) shares and Infid
& Co., New York, NY, owned approximately 1,1719,184 (41.49%) shares.
As of December 31, 1996, the following shareholders of record owned 5%
or more of the outstanding shares of Small Cap Fund: Big Woods Partners
II, Rochester, NY, owned approximately 528,788 (5.11%) shares; Charles
Schwab & Co., San Francisco, CA, owned approximately 676,448 (6.54%)
shares; Batrus & Co., New York, NY, owned approximately 1,780,137 (17.22%)
shares; Infid & Co., New York, NY, owned approximately 2,387,089 (23.09%)
shares and Bankers Trust Co.; Jersey City, NJ, acting as Trustee, owned
approximately 3,345,851 (32.36%) shares.
As of December 31, 1996, the following shareholders of record owned 5%
or more of the outstanding shares of International Equity Fund: Bankers
Trust Co., Jersey City, NJ, acting as Trustee, owned approximately
1,182,693 (9.90%) shares; Batrus & Co., New York, NY, owned approximately
1,754,393 (14.69%) shares; Charles Schwab & Co., San Francisco, CA, owned
approximately 1,967,593 (16.48%) shares and Infid & Co., New York, NY,
owned approximately 3,224,028 (27.00%) shares.
As of December 31, 1996, the following shareholders of record owned 5%
or more of the outstanding shares of Pacific Basin Equity Fund: Batrus &
Co., New York, NY, owned approximately 571,948 (21.73%) shares and Infid &
Co., New York, NY, owned approximately 1,539,491 (58.50%) shares.
As of December 31, 1996, the following shareholders of record owned 5%
or more of the outstanding shares of Latin American Equity Fund: Batrus &
Co., New York, NY, owned approximately 154,978 (8.36%) shares; Charles
Schwab & Co., San Francisco, CA, owned approximately 464,092 (25.04%)
shares and Infid & Co., New York, NY, owned approximately 926,714 (50.00%)
shares.
INVESTMENT ADVISER
Under the terms of each Portfolio's investment advisory agreement with
Bankers Trust (the "Advisory Agreement"), Bankers Trust manages the
Portfolio subject to the supervision and direction of the Board of Trustees
of the Portfolio. Bankers Trust will: (i) act in strict conformity with
each Portfolio's Declaration of Trust, the 1940 Act and the Investment
Advisers Act of 1940, as the same may from time to time be amended; (ii)
manage each Portfolio in accordance with the Portfolio's investment
objectives, restrictions and policies; (iii) make investment decisions for
each Portfolio; and (iv) place purchase and sale orders for securities and
other financial instruments on behalf of each Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under each Advisory Agreement. The Trust and each Portfolio bears
certain other expenses incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of Trustees of the
Trust or the Portfolio who are not officers, directors or employees of
Bankers Trust, Edgewood or any of their affiliates; SEC fees and state Blue
Sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; certain insurance premiums; outside auditing and legal
expenses; costs of maintenance of corporate existence; costs attributable
to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports and
meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.
For the period from January 1, 1996 to September 30, 1996, and the
years ended December 31, 1995 and 1994, Bankers Trust earned $67,313,
$96,572, and $117,549, respectively, in compensation for investment
advisory services provided to Intermediate Tax Free Portfolio. During the
same periods, Bankers Trust reimbursed $23,842, $18,572, and $41,555,
respectively, to that Portfolio to cover expenses.
For the fiscal years ended September 30, 1996 and 1995, and the period
from December 14, 1993 (commencement of operations) through September 30,
1994, Bankers Trust accrued $156,634, $141,692, and $66,073, respectively,
in compensation for investment advisory services provided to Global High
Yield Securities Portfolio. During the same periods, Bankers Trust
reimbursed $86,070, $78,840, and $48,741, respectively, to that Portfolio
to cover expenses.
For the fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the year ended December 31, 1994,
Bankers Trust accrued $1,225,764, $482,453, and $329,399, respectively, in
compensation for investment advisory services provided to Capital
Appreciation Portfolio. During the same periods, Bankers Trust reimbursed
$319,524, $131,702, and $114,930, respectively, to that Portfolio to cover
expenses.
For the fiscal years ended September 30, 1996 and 1995, and the period
from October 21, 1993 (commencement of operations) through September 30,
1994, Bankers Trust accrued $1,293,449, $389,015, and $69,420,
respectively, in compensation for investment advisory services provided to
Small Cap Portfolio. During the same periods, Bankers Trust reimbursed
$331,176, $111,862, and $41,110, respectively, to that Portfolio to cover
expenses.
For the fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the year ended December 31, 1994,
Bankers Trust accrued $759,552, $322,696, and $322,489 respectively, in
compensation for investment advisory services provided to International
Equity Portfolio. During the same periods, Bankers Trust reimbursed
$229,297, $108,743, and $117,653 , respectively, to that Portfolio to cover
expenses.
For the fiscal years ended September 30, 1996 and 1995, and the period
from November 1, 1993 (commencement of operations) through September 30,
1994, Bankers Trust accrued $211,122, $173,591, and $116,020, respectively,
in compensation for investment advisory services provided to Pacific Basin
Equity Portfolio. During the same periods, Bankers Trust reimbursed
$30,450, $47,338, and $40,461, respectively, to that Portfolio to cover
expenses.
For the fiscal years ended September 30, 1996 and 1995, and the period
from October 25, 1993 (commencement of operations) through September 30,
1994, Bankers Trust accrued $151,004, $173,145, and $102,872, respectively,
in compensation for investment advisory services provided to Latin American
Equity Portfolio. During the same periods, Bankers Trust reimbursed
$46,928, $138,351, and $81,307, respectively, to that Portfolio to cover
expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on
behalf of the Portfolios, including outstanding loans to such issuers which
could be repaid in whole or in part with the proceeds of securities so
purchased. Such affiliates deal, trade and invest for their own accounts
in such obligations and are among the leading dealers of various types of
such obligations. Bankers Trust has informed the Portfolios that, in
making its investment decisions, it does not obtain or use material inside
information in its possession or in the possession of any of its
affiliates. In making investment recommendations for the Portfolios,
Bankers Trust will not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by a Portfolio is a customer of
Bankers Trust, its parent or its subsidiaries or affiliates and, in dealing
with its customers, Bankers Trust, its parent, subsidiaries and affiliates
will not inquire or take into consideration whether securities of such
customers are held by any fund managed by Bankers Trust or any such
affiliate.
Each Fund's prospectus contains disclosure as to the amount of Bankers
Trust's investment advisory and administration and services fees, including
waivers thereof. Bankers Trust may not recoup any of its waived investment
advisory or administration and services fees. Such waivers by Bankers
Trust shall stay in effect for at least 12 months.
SUB-INVESTMENT ADVISER
Bankers Trust has entered into a sub-investment advisory agreement
(the "Sub-Advisory Agreement") with BT Fund Managers International Limited
("BT Fund Managers International") a wholly owned subsidiary of Bankers
Trust Australia Limited ("BTAL") in Sydney. BTAL is a wholly owned
subsidiary of Bankers Trust New York Corporation. Under the Sub-Advisory
Agreement, Bankers Trust may receive investment advice and research
services with respect to companies based in the Pacific Basin and may grant
BT Fund Managers International investment management authority as well as
the authority to buy and sell securities if Bankers Trust believes it would
be beneficial to the Portfolio.
BTAL, which was granted a banking license in 1986, is the parent of
Bankers Trust Australia Group which has offices is Sydney, Melbourne,
Perth, Brisbane, Adelaide, London and Hong Kong. A representative office
of Bankers Trust Company was opened in Australia in 1966 and Australian
merchant banking operations commences in 1969. A related organization,
Bankers Trust New Zealand Limited, was established in 1986. Although BTAL
has not previously served as investment adviser for a registered investment
company, BTAL provides investment services for a range of clients.
ADMINISTRATOR
Under the administration and services agreements, Bankers Trust is
obligated on a continuous basis to provide such administrative services as
the Board of Trustees of the Trust and each Portfolio reasonably deem
necessary for the proper administration of the Trust or a Portfolio.
Bankers Trust will generally assist in all aspects of the Funds' and
Portfolios' operations; supply and maintain office facilities (which may be
in Bankers Trust's own offices), statistical and research data, data
processing services, clerical, accounting, bookkeeping and recordkeeping
services (including without limitation the maintenance of such books and
records as are required under the 1940 Act and the rules thereunder, except
as maintained by other agents), executive and administrative services, and
stationery and office supplies; prepare reports to shareholders or
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC and various state
Blue Sky authorities; supply supporting documentation for meetings of the
Board of Trustees; provide monitoring reports and assistance regarding
compliance with Declarations of Trust, by-laws, investment objectives and
policies and with Federal and state securities laws; arrange for
appropriate insurance coverage; calculate net asset values, net income and
realized capital gains or losses; and negotiate arrangements with, and
supervise and coordinate the activities of, agents and others to supply
services.
Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement"), FSC performs such sub-administration duties for the Trust and
the Portfolios as from time to time may be agreed upon by Bankers Trust and
FSC. The Sub-Administration Agreement provides that FSC will receive such
compensation as from time to time may be agreed upon by FSC and Bankers
Trust. All such compensation will be paid by Bankers Trust.
For the period from January 1, 1996 to September 30, 1996, and the
years ended December 31, 1995 and 1994, Bankers Trust earned $67,185,
$96,355, and $117,245, respectively, in compensation for administrative and
other services provided to the Intermediate Tax Free Fund. During the same
periods, Bankers Trust reimbursed $40,323, $48,616, and $63,823,
respectively, to cover expenses. For the period from January 1, 1996 to
September 30, 1996, and the years ended December 31, 1995 and 1994, Bankers
Trust earned $8,414, $12,072, and $14,693, respectively, in compensation
for administrative and other services provided to Intermediate Tax Free
Portfolio.
For the fiscal years ended September 30, 1996 and 1995, and the period
from December 14, 1993 (commencement of operations) through September 30,
1994, Bankers Trust accrued $185,042, $167,703, and $78,503, respectively,
in compensation for administrative and other services provided to Global
High Yield Securities Fund. During the same periods, Bankers Trust
reimbursed $109,939, $74,013, and $40,342, respectively, to cover expenses.
For the same periods, Bankers Trust received $39,158, $35,342, and $16,518,
respectively, in compensation for administrative and other services
provided to Global High Yield Securities Portfolio.
For the fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the year ended December 31, 1994,
Bankers Trust accrued $405,364, $229,796, and $165,092, respectively, in
compensation for administrative and other services provided to the Capital
Appreciation Fund. During the same periods, Bankers Trust reimbursed
$57,379, $48,877, and $79,097, respectively, to cover expenses. For the
fiscal year ended September 30, 1996, the period from January 1, 1995 to
September 30, 1995, and the year ended December 31, 1994, Bankers Trust
received $188,579, $74,224, and $50,677, respectively, in compensation for
administrative and other services provided to Capital Appreciation
Portfolio.
For the fiscal years ended September 30, 1996 and 1995, and the period
from October 21, 1993 (commencement of operations) through September 30,
1994, Bankers Trust accrued $1,285,892, $388,661, and $69,395,
respectively, in compensation for administrative and other services
provided to Small Cap Fund. During the same periods, Bankers Trust
reimbursed $109,960, $92,321, and $51,004, respectively, to cover expenses.
For the same periods, Bankers Trust received $198,992, $59,848, and
$10,680, respectively, in compensation for administrative and other
services provided to Small Cap Portfolio.
For the fiscal year ended September 30, 1996, the period from January
1, 1995 to September 30, 1995, and the year ended December 31, 1994,
Bankers Trust accrued $982,662, $421,538, and $421,138, respectively, in
compensation for administrative and other services provided to the
International Equity Fund. During the same periods, Bankers Trust
reimbursed $74,494, $52,956, and $66,603, respectively, to cover expenses.
For the fiscal year ended September 30, 1996, the period from January 1,
1995 to September 30, 1995, and the year ended December 31, 1994, Bankers
Trust received $175,281, $74,468, and $74,420, respectively, in
compensation for administrative and other services provided to
International Equity Portfolio.
For the fiscal years ended September 30, 1996 and 1995, and the period
from November 1, 1993 (commencement of operations) through September 30,
1994, Bankers Trust accrued $210,057, $173,407, and $115,972, respectively,
in compensation for administrative and other services provided to Pacific
Basin Equity Fund. During the same periods, Bankers Trust reimbursed
$56,703, $72,263, and $51,932, respectively, to cover expenses. For the
same periods, Bankers Trust received $70,374, $57,864, and $38,673,
respectively, in compensation for administrative and other services
provided to Pacific Basin Equity Portfolio.
For the fiscal years ended September 30, 1996 and 1995, and the period
from October 25, 1993 (commencement of operations) through September 30,
1994, Banker Trust accrued $143,318, $162,746, and $97,763, respectively,
in compensation for administrative and other services provided to Latin
American Equity Fund. During the same periods, Bankers Trust reimbursed
$53,312, $63,765, and $49,325, respectively, to cover expenses. For the
same periods, Bankers Trust received $30,201, $34,629, and $20,574,
respectively, in compensation for administrative and other services
provided to Latin American Equity Portfolio.
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 SAI, the most
restrictive annual expense limitation applicable to any Fund is 2.50% of
the Fund's first $30 million of average annual net assets, 2.00% of the
next $70 million of average annual net assets and 1.50% of the remaining
average annual net assets.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust, 280 Park Avenue, New York, New York 10017, serves as
Custodian for the Trust and for each Portfolio pursuant to the
administration and services agreements. As Custodian, it holds the Funds'
and each Portfolio's assets. Bankers Trust also serves as transfer agent
of the Trust and of each Portfolio pursuant to the respective
administration and services agreement. Under its transfer agency agreement
with the Trust, Bankers Trust maintains the shareholder account records for
each Fund, handles certain communications between shareholders and the
Trust and causes to be distributed any dividends and distributions payable
by the Trust. Bankers Trust may be reimbursed by the Funds or the
Portfolios for its out-of-pocket expenses. Bankers Trust will comply with
the self-custodian provisions of Rule 17f-2 under the 1940 Act.
USE OF NAME
The Trust and Bankers Trust have agreed that the Trust may use "BT" as
part of its name for so long as Bankers Trust serves as investment adviser
to the Portfolios. The Trust has acknowledged that the term "BT" is used
by and is a property right of certain subsidiaries of Bankers Trust and
that those subsidiaries and/or Bankers Trust may at any time permit others
to use that term.
The Trust may be required, on 60 days' notice from Bankers Trust at
any time, to abandon use of the acronym "BT" as part of its name. If this
were to occur, the Trustees would select an appropriate new name for the
Trust, but there would be no other material effect on the Trust, its
shareholders or activities.
BANKING REGULATORY MATTERS
Bankers Trust has been advised by its counsel that in its opinion
Bankers Trust may perform the services for the Portfolios contemplated by
the Advisory Agreements and other activities for the Funds and the
Portfolios described in the Prospectuses and this SAI without violation of
the Glass-Steagall Act or other applicable banking laws or regulations.
However, counsel has pointed out that future changes in either Federal or
state statutes and regulations concerning the permissible activities of
banks or trust companies, as well as future judicial or administrative
decisions or interpretations of present and future statutes and
regulations, might prevent Bankers Trust from continuing to perform those
services for the Trust and the Portfolios. State laws on this issue may
differ from the interpretations of relevant Federal law and banks and
financial institutions may be required to register as dealers pursuant to
state securities law. If the circumstances described above should change,
the Boards of Trustees would review the relationships with Bankers Trust
and consider taking all actions necessary in the circumstances.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022-4669, serves as Counsel to the Trust and each
Portfolio. Coopers & Lybrand L.L.P., 1100 Main Street, Suite 900, Kansas
City, Missouri 64105 acts as Independent Accountants of the Trust and each
Portfolio.
ORGANIZATION OF THE TRUST
Shares of the Trust do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of
Trustees can elect all Trustees. Shares are transferable but have no
preemptive, conversion or subscription rights. Shareholders generally vote
by Fund, except with respect to the election of Trustees and the
ratification of the selection of independent accountants.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of this
disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Trust or a Trustee. The Declaration of Trust
provides for indemnification from the Trust's property for all losses and
expenses of any shareholder held personally liable for the obligations of
the Trust. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations, a possibility that
the Trust believes is remote. Upon payment of any liability incurred by
the Trust, the shareholder paying the liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in a manner so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the
Trust.
The Trust was organized under the name BT Tax-Free Investment Trust
and assumed its current name of BT Investment Funds on May 16, 1988.
Except as described below, whenever the Trust is requested to vote on
a fundamental policy of the Portfolio, the Trust will hold a meeting of the
Fund's shareholders and will cast its vote as instructed by the Fund's
shareholders. Fund shareholders who do not vote will not affect the
Trust's votes at the Portfolio meeting. The percentage of the Trust's
votes representing Fund shareholders not voting will be voted by the
Trustees of the Trust in the same proportion as the Fund shareholders who
do, in fact, vote.
Except as described below, whenever the Fund is requested to vote on
matters pertaining to the Portfolio, the Fund will hold a meeting of its
shareholders and will cast its votes proportionately as instructed by Fund
shareholders. However, subject to applicable statutory and regulatory
requirements, the Fund would not request a vote of its shareholders with
respect to (a) any proposal relating to the Portfolio, which proposal, if
made with respect to the Fund, would not require the vote of the
shareholders of the Fund, or (b) any proposal with respect to the Portfolio
that is identical in all material respects to a proposal that has
previously been approved by shareholders of the Fund. Any proposal
submitted to holders in the Portfolio, and that is not required to be voted
on by shareholders of the Fund, would nonetheless be voted on by the
Trustees of the Trust.
TAXATION
TAXATION OF THE FUNDS
The Trust intends to qualify annually and to elect each Fund to be
treated as a regulated investment company under the Code.
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
Funds intend to distribute to their shareholders, at least annually,
substantially all of their investment company taxable income and net
capital gains, and therefore do not anticipate incurring Federal income tax
liability.
Each Fund shareholder will also receive, if appropriate, various
written notices after the close of the Fund's prior taxable year as to the
Federal income status of his dividends and distributions which were
received from the Fund during the Fund's prior taxable year. Shareholders
should consult their tax advisers as to any state and local taxes that may
apply to these dividends and distributions. The dollar amount of dividends
excluded from Federal income taxation and the dollar amount subject to such
income taxation, if any, will vary for each shareholder depending upon the
size and duration of each shareholder's investment in the Fund. To the
extent that the Fund earns taxable net investment income, the Fund intends
to designate as taxable dividends the same percentage of each dividend as
its taxable net investment income bears to its total net investment income
earned. Therefore, the percentage of each dividend designated as taxable,
if any, may vary.
INTERMEDIATE TAX FREE PORTFOLIO
TAX-EXEMPT INTEREST. Investment in the Intermediate Tax Free Fund
would not be suitable for tax-exempt institutions, qualified retirement
plans, H.R. 10 plans and individual retirement accounts since such
investors would not gain any additional tax benefit from the receipt of
tax-exempt income.
Because the Intermediate Tax Free Fund will distribute exempt-interest
dividends, all or a portion of any interest on indebtedness incurred by a
shareholder to purchase or carry shares of the Fund will not be deductible
for Federal personal income tax purposes. In addition, the Code may
require a shareholder of the Fund, if he receives exempt-interest
dividends, to treat as taxable income a portion of certain otherwise
nontaxable social security and railroad retirement benefit payments.
Furthermore, that portion of any exempt-interest dividend paid by the Fund
which represents income from private activity bonds held by the Fund may
not retain its tax-exempt status in the hands of a shareholder who is a
"substantial user" of a facility financed by such bonds, or a "related
person" thereof. Moreover, as noted in the Prospectus of the Fund, (i)
some or all of the Fund's dividends and distributions may be specific
preference items, or a component of an adjustment item, for purposes of the
Federal individual and corporate alternative minimum taxes and (ii) the
receipt of the Fund's dividends and distributions may affect a corporate
shareholder's Federal "environmental" tax liability. In addition, the
receipt of Fund dividends and distributions may affect a foreign corporate
shareholder's Federal "branch profits" tax liability and a Subchapter S
corporate shareholder's Federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisers as to whether they are
(i) "substantial users" with respect to a facility or "related" to such
users within the meaning of the Code and (ii) subject to a Federal
alternative minimum tax, the federal "environmental" tax, the Federal
"branch profits" tax or the Federal "excess net passive income" tax.
In the case of the Intermediate Tax Free Fund, these statements will
also designate the amount of exempt-interest dividends that is a specific
preference item for purposes of the Federal individual and corporate
alternative minimum taxes.
GLOBAL HIGH YIELD SECURITIES PORTFOLIO, PACIFIC BASIN EQUITY PORTFOLIO
AND LATIN AMERICAN EQUITY PORTFOLIO
FOREIGN SECURITIES. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to
determine the effective rate of foreign tax in advance since the amount of
the Portfolio's assets to be invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, it may make an
election pursuant to which certain foreign taxes paid by it would be
treated as having been paid directly by shareholders of the entities, such
as the corresponding Fund, which have invested in the Portfolio. Pursuant
to such election, the amount of foreign taxes paid will be included in the
income of the corresponding Fund's shareholders, and such Fund shareholders
(except tax-exempt shareholders) may, subject to certain limitations, claim
either a credit or deduction for the taxes. Each such Fund shareholder
will be notified after the close of the Portfolio's taxable year whether
the foreign taxes paid will "pass through" for that year and, if so, such
notification will designate (a) the shareholder's portion of the foreign
taxes paid to each such country and (b) the portion which represents income
derived from sources within each such country.
The amount of foreign taxes for which a shareholder may claim a credit
in any year will generally be subject to a separate limitation for "passive
income," which includes, among other items of income, dividends, interest
and certain foreign currency gains. Because capital gains realized by the
Portfolio on the sale of foreign securities will be treated as U.S. source
income, the available credit of foreign taxes paid with respect to such
gains may be restricted by this limitation.
TAXATION OF THE PORTFOLIOS
The Portfolios are not subject to Federal income taxation. Instead,
the Fund and other investors investing in a Portfolio must take into
account, in computing their Federal income tax liability, their share of
the Portfolio's income, gains, losses, deductions, credits and tax
preference items, without regard to whether they have received any cash
distributions from the Portfolio.
Distributions received by a Fund (other than Intermediate Tax Free
Fund) from the corresponding Portfolio generally will not result in the
Fund recognizing any gain or loss for Federal income tax purposes, except
that: (1) gain will be recognized to the extent that any cash distributed
exceeds the Fund's basis in its interest in the Portfolio prior to the
distribution; (2) income or gain may be realized if the distribution is
made in liquidation of the Fund's entire interest in the Portfolio and
includes a disproportionate share of any unrealized receivables held by the
Portfolio; and (3) loss may be recognized if the distribution is made in
liquidation of the Fund's entire interest in the Portfolio and consists
solely of cash and/or unrealized receivables. A Fund's basis in its
interest in the corresponding Portfolio generally will equal the amount of
cash and the basis of any property which the Fund invests in the Portfolio,
increased by the Fund's share of income from the Portfolio, and decreased
by the amount of any cash distributions and the basis of any property
distributed from the Portfolio.
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under
current law, neither the Trust nor any Fund is liable for any income or
franchise tax in the Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M
of the Code. The investment by each Fund in the corresponding Portfolio
does not cause the Fund to be liable for any income or franchise tax in the
State of New York.
Each Portfolio is organized as a New York trust. Each Portfolio is
not subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts.
Fund shareholders may be subject to state and local taxes on their
Fund distributions. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund.
FINANCIAL STATEMENTS
The financial statements for each Fund or Portfolio for the period
ended September 30, 1996, are incorporated herein by reference to the
Annual Report to shareholders for each Fund dated September 30, 1996. A
copy of a Fund's Annual Report may be obtained without charge by contacting
the respective Fund.
INVESTMENT ADVISER OF EACH PORTFOLIO AND ADMINISTRATOR
BANKERS TRUST COMPANY
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
COUNSEL
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statements of Additional Information or the Trust's official sales
literature in connection with the offering of the Trust's shares and, if
given or made, such other information or representations must not be relied
on as having been authorized by the Trust. Neither the Prospectuses nor
this Statement of Additional Information constitutes an offer in any state
in which, or to any person to whom, such offer may not lawfully be made.
CUSIP # 055922801
CUSIP # 055922777
CUSIP # 055922819
CUSIP # 055922769
CUSIP#055922868
CUSIP # 055922736
CUSIP # 055922785
COMBINV400 (1/97)
