As filed with the Commission on March 15, 1999
1933 Act File No. 33-07404
1940 Act File No. 811-4760
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ...............................
Post-Effective Amendment No. 60 ................................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 60 ............................................... X
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BT INVESTMENT FUNDS
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
(410) 895-5000
(Registrant's Telephone Number)
Daniel O. Hirsch Copies To: Burton M .Leibert, Esq.
One South Street Willkie Farr & Gallagher
Baltimore, MD 21202 One Citicorp Center
(Name and Address of Agent for Service) 153 East 53rd Street
New York, New York 10022
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on April 30, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
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[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
PROSPECTUS: MARCH 22, 1999
BT MUTUAL FUNDS (LOGO)
QUANTITATIVE EQUITY FUND
With the goal of achieving a total return greater than that of the S&P 500 Index
through investment in stocks of acquisition targets
TRUST: BT INVESTMENT FUNDS
INVESTMENT ADVISER: BANKERS TRUST COMPANY
[Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.]
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QUANTITATIVE EQUITY FUND
OVERVIEW OF THE QUANTITATIVE EQUITY FUND
Goal
Core Strategy
Investment Strategies
Principal Risks of Investing in the Fund
Who Should Consider Investing in the Fund
Total Returns, After Fees and Expenses
Annual Fund Operating Expenses
A DETAILED LOOK AT THE QUANTITATIVE EQUITY FUND
Objective
Strategy
Principal Investments
Investment Process
Prior Performance of a Similar Portfolio
Risks
Management of the Fund
Calculating the Fund's Share Price
Performance Information
Dividends and Distributions
Tax Considerations
Buying and Selling Fund Shares
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OVERVIEW
OF THE QUANTITATIVE EQUITY FUND
GOAL: The Fund seeks a total return greater than that of the S&P 500 Index.
CORE STRATEGY: The Fund follows an integrated strategy that utilizes derivative
instruments and stocks of the S&P 500 Index along with the stocks of acquisition
targets.
INVESTMENT STRATEGIES
The Fund invests in derivative instruments or common stocks of companies in the
S&P 500 Index to seek to match the total return of the S&P 500 Index (we refer
to this portion of the Fund's assets as the "S&P 500 Index Assets").
Additionally, to seek to exceed the returns of the S&P 500 Index, the Fund
invests in the stocks of acquisition targets in publicly announced transactions
(we refer to this portion of the Fund's assets as the "Merger Arbitrage
Assets"). The Investment Adviser uses proprietary quantitative models to select
securities for the Fund's Merger Arbitrage Assets.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. The risks associated with the Fund's S&P 500
Index Assets include the risk that:
o Stocks could decline generally or could underperform other investments.
o Returns on large U.S. companies' stocks could trail the returns from stocks
of medium or small companies. Each type of stock tends to go through cycles
of overperformance and underperformance in comparison to the overall stock
market.
o The Fund may not be able to mirror the S&P 500 Index closely enough to track
its performance for a number of reasons, including the Fund's cost to buy
and sell securities, the flow of money into and out of the Fund and the
underperformance of stocks selected by the Investment Adviser.
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o The Fund could suffer losses on its derivative positions if they are not
well correlated with the securities for which they are acting as a
substitute or if the Fund cannot close out its positions.
The risks associated with the Fund's Merger Arbitrage Assets include the risk
that:
o The volume of transactions in the mergers and acquisitions marketplace
becomes insufficient to meet the Fund's goal.
o Acquisition transactions are renegotiated, terminated or delayed.
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In addition to these risks, the Fund is a non-diversified investment company.
The Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers than diversified funds, providing a greater
possibility that the performance of a single issuer could impact the overall
value of the Fund more than in a diversified fund.
WHO SHOULD CONSIDER INVESTING IN THE FUND
The Quantitative Equity Fund requires a minimum investment of $10,000. Shares of
the Fund are generally available to private banking, brokerage and institutional
clients of Bankers Trust and its affiliates and to customers of institutions
that have a sub-shareholder servicing agreement with Bankers Trust (we refer to
these institutions as "Service Agents").
You should consider investing in the Quantitative Equity Fund if you are seeking
long-term capital appreciation. There is, of course, no guarantee that the Fund
will realize its goal. Moreover, you should be willing to accept greater
short-term fluctuation in the value of your investment than you would typically
experience by investing in bond or money market funds.
You should not consider investing in the Quantitative Equity Fund if you are
pursuing a short-term financial goal, if you seek regular income or if you
cannot tolerate fluctuations in the value of your investments.
The Fund by itself does not constitute a balanced investment program.
Diversifying your investments may improve your long-run investment return and
lower the volatility of your overall investment portfolio.
AN INVESTMENT IN THE QUANTITATIVE EQUITY FUND IS NOT A DEPOSIT OF BANKERS TRUST
COMPANY OR ANY OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
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TOTAL RETURNS, AFTER FEES AND EXPENSES
The Fund does not have a full calendar year of annual operating performance to
report.
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ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS)
The Annual Fees and Expenses table to the right describes the fees and expenses
you may pay if you buy and hold shares of the Quantitative Equity Fund.(1)
ANNUAL FEES AND EXPENSES
PERCENTAGE OF
AVERAGE DAILY NET
ASSETS
------
Management Fees 0.50%
Distribution and Service (12b-1) Fees None
Other Expenses 0.68%
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Total Fund Operating Expenses 1.18%
-----
- -----------------
(1) Information is based on estimated amounts for the current fiscal year.
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Less Fee Waivers or Expense 0.28%(2)
Reimbursement -----
NET EXPENSES 0.90%
----
- ---------------------
(2) Bankers Trust has agreed, for a 16-month period from the Fund's fiscal year
end of December 31, 1998, to waive its fees and reimburse expenses so that
total expenses will not exceed 0.90%. We expect to continue this waiver
beyond the 16-month period.
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Expense Example. The example below illustrates the expenses you will incur on a
$10,000 investment in the Fund. The numbers assume that the Fund earned an
annual return of 5% over the periods shown, that the Fund's operating expenses
remained the same, and you sold your shares at the end of the period.
Expense Example(3)
1 year 3 years
------ -------
$92 $346
------ -------
You may use this hypothetical example to compare the Fund's estimated expenses
with other funds. Your actual costs may be higher or lower.
- ----------------
(3) Based on expenses, after fee waivers and reimbursements for the first 16
months only.
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A DETAILED LOOK
AT THE QUANTITATIVE EQUITY FUND
OBJECTIVE
The Fund seeks a total return greater than that of the S&P 500 Index. The Fund
invests for long-term capital appreciation, not income; any dividend and
interest income is secondary to the pursuit of its objective. While we give
priority to capital appreciation, we cannot offer any assurance of achieving
this objective.
[THE STANDARD & POOR'S COMPOSITE STOCK PRICE INDEX ("S&P 500 INDEX") IS A
WELL-KNOWN STOCK MARKET INDEX THAT INCLUDES COMMON STOCKS OF 500 COMPANIES FROM
SEVERAL INDUSTRIAL SECTORS REPRESENTING A SIGNIFICANT PORTION OF THE MARKET
VALUE OF ALL STOCKS PUBLICLY TRADED IN THE UNITED STATES, MOST OF WHICH ARE
TRADED ON THE NEW YORK STOCK EXCHANGE. STOCKS IN THE S&P 500 INDEX ARE WEIGHTED
ACCORDING TO THEIR MARKET CAPITALIZATION (THE NUMBER OF SHARES OUTSTANDING
MULTIPLIED BY THE STOCK'S CURRENT PRICE).]
STRATEGY
The Fund is designed to provide investors with access to a quantitatively
managed portfolio that seeks to provide superior investment returns relative to
those that could be achieved from the general U.S. equity market as measured by
the S&P 500 Index.
The Fund invests in derivative instruments or common stocks of companies in the
S&P 500 Index in order to replicate as closely as possible, with respect to this
portion of the Fund's assets, the total return of the S&P 500 Index.
To pursue its investment objective of exceeding the return of the S&P 500 Index,
the Fund also invests in the stocks of acquisition targets in publicly announced
transactions. The selection of investments is based on quantitative models that
are proprietary to Bankers Trust Company.
PRINCIPAL INVESTMENTS
The Fund invests in stocks and derivative instruments, such as futures contracts
on the S&P 500 Index, options, Standard & Poor's Depository Receipts and equity
swap contracts. The Fund also invests in shares of U.S. companies that are
targets of publicly announced acquisitions.
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INVESTMENT PROCESS
S&P 500 Index Assets
A portion of the Fund's investments is designed to provide a return that matches
the return of the S&P 500 Index. These investments include one or more of the
following: derivative instruments, including futures contracts on the S&P 500
Index, options on common stocks, options on futures, options on indices and
equity swap contracts; Standard & Poor's Depositary Receipts; and shares of S&P
500 Index mutual funds. We may also purchase certain stocks included in the S&P
500 Index, excluding Bankers Trust Corporation. Through these investments, we
maintain full or near full exposure to the broad equity market.
Merger Arbitrage Assets
Another portion of the Fund's investments is designed to provide additional
total return. This portion invests in the common stocks of companies that are
the targets of publicly announced acquisitions. The selection of these
investments is based on a proprietary quantitative model that provides a
disciplined approach to both the timing and quantity of shares purchased. In
general, the selection of investments will also be limited by the following
criteria:
o An announced acquisition that is selected based on specific,
unambiguous events;
o An acquisition price that is structured to include at least 50%
cash; and
o An acquisition target with a minimum market capitalization of $500
million.
Merger arbitrage is a specialized investment approach designed to profit from
the successful completion of proposed mergers, acquisitions and other types of
corporate reorganizations. Merger arbitrage seeks to capture the difference
between the price of an acquisition target's shares immediately after a bid is
announced and the anticipated takeover payout amount.
Reserve Assets
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The Fund will also invest a portion of its assets in money market instruments
and money market funds as a reserve for changes in allocation among the Fund's
equity investments and to cover its derivative positions.
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Fund sells and replaces the value of its securities within a given period. We
expect the Fund to have a high portfolio turnover rate. High turnover can
increase the Fund's transaction costs, thereby lowering its returns. It may also
increase your tax liability.
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PRIOR PERFORMANCE OF A SIMILAR PORTFOLIO
The information provided here presents the performance of the BT Pyramid
Quantitative Merger Arbitrage Fund (the "Portfolio"), an unregistered commingled
fund managed by Bankers Trust since December 31, 1989. Our decision to establish
the Portfolio was supported by the results of a back test of the investment
strategy over the 1984-89 period. In managing the Fund, we will employ
substantially the same investment objectives, policies and strategies that we
employed in managing the Portfolio. However, in managing the Fund, we will be
subject to certain rules (e.g., limits on the percentage of assets invested in
securities of issuers in a single industry and requirements on distributing
income to shareholders) that did not apply to the Portfolio. In addition, the
continuous offering of the Fund's shares and the Fund's obligation to redeem its
shares will likely cause the Fund to experience cash flows different from those
of the Portfolio. Moreover, the way of calculating the performance of the
Portfolio, which values its assets at the end of each month, differs from the
method employed by mutual funds, which among other things value their assets on
a daily basis. All of these factors may affect the performance of the Fund and
cause it to differ from that of the Portfolio. Certain of these factors may
adversely affect the Fund's performance.
The Portfolio is available only to institutional investors, including other
commingled funds we manage. Management fees and expenses incurred in the
operation of the Portfolio are paid directly by its investors rather than by the
Portfolio. Accordingly, the performance results for the Portfolio have been
adjusted to reflect an overall expense ratio of 0.90%, which is the same as that
expected to be borne by the Fund. Returns of the Portfolio are compared to the
S&P 500 Index. Unlike Portfolio returns, those of the S&P 500 Index do not
reflect fees and expenses. Both the returns of the Portfolio and the S&P 500
Index reflect the reinvestment of dividends and distributions.
[SIDEBAR: The performance data represent the prior performance of the Portfolio,
not the prior performance of the Fund, and should not be considered an
indication of future performance of the Fund.]
- -------------- ------------------ ------------------ ------------------------
Portfolio S&P 500 Index
Year Returns with Fees Returns Difference
- -------------- ------------------ ------------------ ------------------------
1990 5.82% -3.10% 8.92%
- -------------- ------------------ ------------------ ------------------------
1991 29.30% 30.40% -1.10%
- -------------- ------------------ ------------------ ------------------------
1992 7.42% 7.61% -0.19%
- -------------- ------------------ ------------------ ------------------------
1993 10.87% 10.04% 0.83%
- -------------- ------------------ ------------------ ------------------------
1994 0.94% 1.32% -0.38%
- -------------- ------------------ ------------------ ------------------------
1995 39.38% 37.54% 1.84%
- -------------- ------------------ ------------------ ------------------------
1996 24.61% 22.94% 1.67%
- -------------- ------------------ ------------------ ------------------------
1997 35.98% 33.35% 2.63%
- -------------- ------------------ ------------------ ------------------------
1998 35.69% 28.58% 7.11%
- -------------- ------------------ ------------------ ------------------------
Average Annual Total Returns
- -------------- ------------------ ------------------ ------------------------
1 year 35.69% 28.58% 7.11%
- -------------- ------------------ ------------------ ------------------------
3 years 31.98% 28.13% 3.85%
- -------------- ------------------ ------------------ ------------------------
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- -------------- ------------------ ------------------ ------------------------
Portfolio S&P 500 Index
Year Returns with Fees Returns Difference
- -------------- ------------------ ------------------ ------------------------
5 years 26.46% 24.03% 2.43%
- -------------- ------------------ ------------------ ------------------------
Since 20.28% 17.86% 2.42%
inception
12/31/89
- -------------- ------------------ ------------------ ------------------------
In the 96 rolling 12-month periods ending December 31, 1998, the Portfolio, net
of a 0.90% expense ratio, had a positive total return in 95 of the 96 periods
and outperformed the S&P 500 Index in 61 of the 96 periods (64% of the time).
The table below shows performance statistics of the Portfolio, net of a 0.90%
expense ratio, relative to the S&P 500 Index. The statistics are based on the 96
rolling 12-month periods ending December 31, 1998, and illustrate the frequency
with which the Portfolio outperformed the Index.
<TABLE>
<CAPTION>
- ------------------------------------------------ --------------------- ----------------
Amount by which return of Portfolio, after Number of Periods Percent of
fees, exceeded return of S&P 500 Index 1 Total Periods
- ------------------------------------------------ --------------------- ----------------
<S> <C> <C>
100 basis points 56 58%
- ------------------------------------------------ --------------------- ----------------
50 basis points 59 61%
- ------------------------------------------------ --------------------- ----------------
25 basis points 61 64%
- ------------------------------------------------ --------------------- ----------------
</TABLE>
1 One basis point equals 1/100th of 1 percent (0.01%)
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RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH INVESTING IN THE
FUND, AS WELL AS INVESTING IN GENERAL. ALTHOUGH WE ATTEMPT TO ASSESS THE
LIKELIHOOD THAT THESE RISKS MAY ACTUALLY OCCUR AND TO LIMIT THEM, WE MAKE NO
GUARANTEE THAT WE WILL SUCCEED.
Primary Risks
Market Risk. Although individual stocks can outperform their markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of an entire market. Because part of the Fund's strategy is to produce
returns that closely track those of the S&P 500 Index, we expect the value of
the Fund's shares to rise and fall with the broad equity market. Market risk is
common to most investments -- including stocks and bonds, and the mutual funds
that invest in them.
Tracking Error. There are several reasons that the Fund's S&P 500 Index Assets
may not track the Index exactly:
o Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
o The composition of the Index and the stocks held by the Fund may
occasionally diverge.
o The timing and magnitude of cash inflows from investors buying shares
could create large balances of uninvested cash. Conversely, the timing and
magnitude of cash outflows to investors selling shares could require large
ready reserves of uninvested cash. Either situation would likely cause the
Fund's performance to deviate from the "fully invested" Index.
Futures and Options. The Fund invests in stock index futures or options, which
are types of derivatives. The Fund invests in derivatives to keep cash on hand
to invest in stocks of acquisition targets. Risks associated with derivatives
include the risk that the Fund cannot sell the derivative because of an illiquid
secondary market.
Because the Fund invests in futures contracts and options on futures contracts
for non-hedging purposes, the initial margin and premiums required to make those
investments will not exceed 5% of the Fund's net asset value after taking into
account unrealized profits and losses on the contracts. Futures contracts and
options on futures contracts used for non-hedging purposes involve greater risks
than stock investments.
Exposure Risk. Certain investment techniques increase a fund's exposure to a
security, index or its investment portfolio. Exposure is the fund's maximum
potential gain or loss from an investment. Certain investments designed to
replicate the S&P 500 Index returns (such as options and futures) may have the
effect of magnifying declines as well as increases in a fund's net asset value.
Risks of Derivative Instruments. The use of derivatives requires special skills,
knowledge and investment techniques that differ from those required for normal
portfolio management. Gains or
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losses from positions in a derivative instrument may be much greater than the
derivative's original cost.
Regulatory Risk. Positions in futures and options on futures will be entered
into only to the extent they constitute permissible positions for a fund not
regulated as a commodity pool, according to applicable rules of the Commodity
Futures Trading Commission. At times, the Fund may be constrained in its ability
to close positions on futures, options on futures or other derivatives when it
would be most advantageous to do so. These regulatory constraints may have an
adverse effect on fund management or performance.
Merger Arbitrage Risk. The Fund's strategy relies on sufficient volume of
activity within the mergers and acquisitions marketplace. The mergers and
acquisitions marketplace can produce unforeseeable results. Merger and
acquisition transactions may be renegotiated, terminated or delayed due to, for
example, disagreements among the parties, lack of financing, failure to secure
regulatory approvals, fluctuations in the market or third party action. In the
event these transactions fail to close or close at a less than expected price
per share, the Fund may realize losses or a lower return than anticipated. The
length of time that the Fund's assets must be committed to any given transaction
will affect the rate of return realized by the Fund.
Non-Diversification Risk. The Fund is a non-diversified investment company. The
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers than diversified funds, providing a greater
possibility that the performance of a single issuer could impact the overall
value of the Fund more than in a diversified fund.
Secondary Risks
Pricing Risk. When price quotations for securities are not readily available, we
determine their value by the method that most accurately reflects their current
worth in the judgement of the Board of Trustees. This procedure implies an
unavoidable risk, the risk that our prices are higher or lower than the prices
that the securities might actually command if we sold them. If we have valued
the securities too highly, you may end up paying too much for Fund shares when
you buy. If we underestimate their price, you may not receive the full market
value for your Fund shares when you sell. Pricing Standard & Poor's Depository
Receipts may also involve risk because their price is based on a basket of
stocks, rather than one stock.
Year 2000 Risk. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies or in which it invests will not accommodate the changeovers necessary
from dates in the year 1999 to dates in the year 2000. These risks could
adversely affect: o The companies in which the Fund invests, which could impact
the value of the Fund's investments;
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o Our ability to service your Fund account, including our ability to meet
your requests to buy and sell Fund shares; and
o Our ability to trade securities held by the Fund or to accurately price
securities held by the Fund.
We are working both internally and with our business partners and service
providers to address this problem. If we -- or our business partners, service
providers, government agencies or other market participants -- do not succeed,
it could materially affect shareholder services or the value of the Fund shares.
MANAGEMENT OF THE FUND
Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf.
Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006, acts
as the Fund's investment adviser. As investment adviser, Bankers Trust makes the
Fund's investment decisions and assumes responsibility for the securities the
Fund owns. It buys and sells securities for the Fund and conducts the research
that leads to the purchase and sale decisions. Bankers Trust will receive a fee
of 0.50% of the Fund's average daily net assets for its services in the current
fiscal year.
As of December 31, 1998, Bankers Trust was the eighth largest bank holding
company in the United States with total assets of approximately $156 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 96 offices in more than 43 countries.
Bankers Trust's officers bring wide experience to managing the Fund. The firm's
own record dates back to its founding as a trust company in 1903. It has
invested retirement assets on behalf of the nation's largest corporations and
institutions for more than 50 years. Today, the assets under its global
management exceed $338 billion. The scope of the firm's capability is broad: it
is a leader in both the active and passive quantitative investment disciplines
and maintains a major presence in stock and bond markets worldwide.
The Investment Adviser is a wholly owned subsidiary of Bankers Trust
Corporation. Bankers Trust Corporation has entered into an Agreement and Plan of
Merger with Deutsche Bank AG, dated as of November 30, 1998, under which Bankers
Trust Corporation would merge with and into a subsidiary of Deutsche Bank AG.
Deutsche Bank AG is a major global banking institution that is engaged in a wide
range of financial services, including retail and commercial banking, investment
banking and insurance. The transaction is contingent upon various regulatory
approvals, as well as the approval of the Fund's shareholders. If the
transaction is approved and
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completed, Deutsche Bank AG, as the Investment Adviser's new parent company,
will control the operations of the Investment Adviser. The Investment Adviser
believes that, under this new arrangement, the services provided to the Fund
will be maintained at their current level.
Portfolio Manager. SID HOOTS, Managing Director of Bankers Trust and Lead
Manager of the Fund.
o Joined Bankers Trust in 1983 and the Portfolio in 1989.
o Head of Bankers Trust's Quantitative Domestic Equity Research Group.
o 15 years of investment experience.
o Bachelor's degree from Duke University, MBA from University of Chicago.
Other Services. Bankers Trust provides the administrative functions--such as
portfolio accounting, legal services and others--for the Fund. In addition,
Bankers Trust -- or your broker or financial advisor -- performs the
administrative functions necessary to establish and maintain your account. In
addition to setting up the account and processing your purchase and sale orders,
these functions include: o keeping accurate, up-to-date records for your
individual Fund account; o implementing any changes you wish to make in your
account information; o processing your requests for cash dividends and
distributions from the
Fund;
o answering your questions on the Fund's investment performance or
administration;
o sending proxy reports and updated prospectus information to you; and
o collecting your executed proxies.
Brokers and financial advisors may charge additional fees only for those
services not otherwise included in the Bankers Trust servicing agreement, such
as cash management or special trust or retirement-investment reporting.
CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of the Fund's shares (also known as the "Net Asset
Value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business.
The formula calls for deducting all of the Fund's liabilities from the total
value of its assets--the market value of the securities it holds, plus its cash
reserves--and dividing the result by the number of shares outstanding.
We value the securities in the Fund at their stated market value if price
quotations are available. When price quotes for a particular security are not
readily available, we determine their value by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees.
[SIDEBAR: The New York Stock Exchange is open every week Monday through Friday,
except when the following holidays are celebrated: New Year's Day, Martin Luther
King, Jr. Day (the third Monday in January), 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 fourth Thursday
in November) and Christmas Day.]
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PERFORMANCE INFORMATION
The Fund's performance information can be used in advertisements that appear in
various publications. It may be compared to the performance of various indexes
and investments for which reliable performance data is available. The Fund's
performance may also be compared to averages, performance rankings, or other
information prepared by recognized mutual fund statistical services.
DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains distributions, if any, are paid annually. We
automatically reinvest all dividends and any capital gains, unless you tell us
otherwise.
TAX CONSIDERATIONS
The Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from the Fund's holdings. Your taxes will
vary from year to year, based on the amount of capital gains distributions and
dividends paid out by the Fund. You owe taxes whether you receive cash or choose
to have distributions and dividends reinvested. Distributions and dividends
usually create the following tax liability:
Transaction Tax status
- ----------- ----------
Income dividends Ordinary income
Short-term capital gains distributions Ordinary income
Long-term capital gains distributions Capital gains
Every year the Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a capital
gain or loss:
Transaction Tax status
- ----------- ----------
Your sale of shares owned more than one year Capital gains or losses
Your sale of shares owned for one year or less Gains are treated as ordinary
income; losses are subject to
special rules
The tax considerations for tax deferred accounts or non-taxable entities will be
different.
BECAUSE EACH INVESTOR'S TAX CIRCUMSTANCES ARE UNIQUE AND BECAUSE THE TAX LAWS
ARE SUBJECT TO CHANGE, WE RECOMMEND THAT YOU CONSULT YOUR TAX ADVISOR ABOUT YOUR
INVESTMENT.
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BUYING AND SELLING FUND SHARES
Shares of the Fund are only sold to private banking, brokerage and
institutional clients of Bankers Trust and its affiliates and to customers of
Service Agents. Shares of the Fund may also be sold to employees of Bankers
Trust and its affiliates, their spouses and minor children. Investors who are
customers of Service Agents should contact their Service Agent with respect to a
proposed investment and then follow the procedures adopted by the Service Agent
for making purchases. Shares that are purchased or sold through omnibus accounts
maintained by securities firms may be subject to a service fee or commission for
such transactions.
We may close your Fund account on 30 days' notice if it fails to meet minimum
balance requirements for any reason other than a change in market value. In
addition, if your sell order exceeds $250,000, we reserve the right to redeem it
"in kind" with a pro-rata distribution of securities actually held by the Fund,
rather than in cash.
We reserve the right to reject any purchase order. Your broker or financial
advisor may charge transaction fees on the purchase and sale of Fund shares.
Exchange Privileges. You can exchange all or part of your shares for another BT
Mutual Fund up to four times a year. Before buying shares through an exchange
you should be sure to get a copy of that fund's prospectus and read it
carefully. Please note also that you may have to pay taxes on the shares you
sell in an exchange.
Account minimums. The Fund requires a minimum investment of $10,000 to open most
accounts, $250 for subsequent investments, and a minimum balance of $1,000 to
maintain them. It requires a $500 minimum investment to open a retirement
account, $100 for subsequent investments, but imposes no minimum balance.
Automatic investment accounts, which credit money from your checking account to
the purchase of Fund shares bi-weekly, monthly, quarterly, or semi-annually,
call for a minimum $1,000 opening investment and at least $100 for each
succeeding purchase of shares.
The Fund's Statement of Additional Information contains complete information on
buying and selling Fund shares and maintaining a Fund account. If you wish to
obtain a free copy of the Fund's Statement of Additional Information, please
call BT Mutual Funds at 1-800-949-9940.
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[BACK COVER]
Bankers trust (logo)
Additional information about the Fund's investments and performance will be
available in the Fund's annual and semi-annual reports to shareholders. In the
Fund's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
You can find more detailed information about the Fund in the current Statement
of Additional Information, dated March 22, 1999, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
incorporated by reference. To receive your free copy of the Statement of
Additional Information, or if you have questions about investing in the Fund,
write to us at:
Bankers Trust
130 Liberty Street
Mail Stop 2355
New York, New York 10006
or call our toll-free number: 1-800-949-9940
You can find reports and other information about the Fund on the SEC website
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. For information on the Public Reference Room,
call the SEC at 1-800-SEC-0330.
Quantitative Equity Fund CUSIP #055922652
BT Investment Funds Product Code
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
811-4760
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STATEMENT OF ADDITIONAL INFORMATION
March 22, 1999
BT Investment Funds
Quantitative Equity Fund
BT Investment Funds (the "Trust") is an open-end management investment company
comprised of several funds. The Quantitative Equity Fund (the "Fund") is a
separate series of the Trust and offers one class of shares ("Shares").
The Fund seeks to provide a total return greater than that of the Standard &
Poor's Stock Price Index of 500 Common Stocks (the "S&P 500 Index" or the
"Index").
Shares of the Fund are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trust's Distributor, to private banking, brokerage and institutional clients
of Bankers Trust Company ("Bankers Trust") and its affiliates and to customers
of Service Agents. Shares of the Fund may also be sold to employees of Bankers
Trust and its affiliates, their spouses and minor children.
The Fund's Prospectus dated March 22, 1999 provides the basic information
investors should know before investing. 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 the Fund's Prospectus. You may request a copy of a
Prospectus or an additional copy of this SAI free of charge by calling the Trust
at 1-800-949-9940 or by contacting your Service Agent. Capitalized terms not
otherwise defined in this SAI have the meanings accorded to them in the Fund's
Prospectus.
BANKERS TRUST COMPANY
Investment Adviser and Administrator
ICC DISTRIBUTORS, INC.
Distributor
P.O. BOX 7558
PORTLAND, MAINE 04101
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2
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TABLE OF CONTENTS Page
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives.................................................
Investment Policies...................................................
Investment Restrictions...............................................
Portfolio Transactions and Brokerage Commissions......................
PERFORMANCE INFORMATION...................................................
Standard Performance Information......................................
Comparison of Fund Performance........................................
Economic and Market Information.......................................
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND................
Valuation of Securities..............................................
Purchases of Shares..................................................
Minimum Investments..................................................
Additional Information About Buying Shares........................
Redemption of Shares.................................................
Additional Information About Selling Shares.......................
Exchange Privilege................................................
Redemptions and Purchases in Kind.................................
Trading in Foreign Securities........................................
MANAGEMENT OF THE TRUST AND THE PORTFOLIOS................................
Trustees of the Trust.................................................
Officers of the Trust.................................................
Trustee Compensation Table............................................
Officers of the Fund..................................................
Investment Adviser....................................................
Administrator.........................................................
Distributor...........................................................
Service Agent.........................................................
Custodian and Transfer Agent..........................................
Use of Name...........................................................
Banking Regulatory Matters............................................
Counsel and Independent Accountants...................................
ORGANIZATION OF THE TRUST.................................................
TAXATION..................................................................
Taxation of the Funds.................................................
Foreign Securities....................................................
Distributions.........................................................
Sale of Shares........................................................
Foreign Withholding Taxes.............................................
Backup Withholding....................................................
Foreign Shareholders..................................................
Other Taxation........................................................
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APPENDIX..................................................................
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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objectives
The Fund seeks a total return greater than that of the S&P 500 Index. The Fund
follows an integrated strategy that utilizes derivative instruments and stocks
of the S&P 500 Index along with the stocks of acquisition targets. There can, of
course, be no assurance that the Fund will achieve its investment objective.
Investment Policies
S&P 500 Index Assets. To match the performance of the S&P 500 Index, the Fund
invests in one or more of the following instruments: derivative instruments,
including futures contracts on the S&P 500 Index, options on common stocks,
options on futures, options on indices, and equity swap contracts; Standard &
Poor's Depositary Receipts; and shares of S&P 500 Index mutual funds. The Fund
may also purchase a basket of stocks representing companies included in the S&P
500 Index, excluding Bankers Trust Corporation. Under normal circumstances, the
Fund expects to expose between 85% and 95% of the net assets of the Fund to the
S&P 500 Index through investment in these instruments or the underlying stocks
of the S&P 500 Index.
When the Fund has cash from new investments in the Fund or holds a portion of
its assets in money market instruments, it may enter into the above instruments
to maintain full or near full exposure to the broad equity market. Strategies
the Fund could use to accomplish this include purchasing futures contracts,
writing put options, and purchasing call options. When the Fund wishes to sell
securities, because of shareholder redemptions otherwise, it may use stock index
futures or options to hedge against market risk until the sale can be completed.
These strategies could include selling futures contracts, writing call options,
and purchasing put options.
Bankers Trust will choose among the above instruments based on its judgment of
how best to meet the Fund's goals. In selecting futures and options, Bankers
Trust will assess such factors as current and anticipated stock prices, relative
liquidity and price levels in the options and futures markets compared to the
securities markets, and the Fund's cash flow and cash management needs. If
Bankers Trust judges these factors incorrectly, or if price changes in the
Fund's futures and options positions are not well correlated with those of its
other investments, the Fund could be hindered in the pursuit of its objective
and could suffer losses. The Fund could also be exposed to risks if it can not
close out its futures or options positions because of an illiquid secondary
market.
The S&P 500 Index is a well-known stock market index that includes common stocks
of 500 companies from several sectors of the economy representing a significant
portion of the market value of all common stocks publicly traded in the United
States. Stocks in the S&P 500 Index are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by the stock's
current price). The composition of the S&P 500 Index is determined by Standard &
Poor's Corporation ("S&P") and is based on such factors as the market
capitalization and trading activity of each stock and its adequacy as a
representation of stocks in a particular industry group, and may be changed from
time to time.
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the owners of the Fund or any
member of the public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the S&P
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500 Index to track general stock market performance. S&P does not guarantee the
accuracy and/or the completeness of the S&P 500 Index or any data included
therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
the Fund, owners of the Fund, or any other person or entity from the use of the
S&P 500 Index or any data included therein. S&P makes no express or implied
warranties and hereby expressly disclaims all such warranties of merchantability
or fitness for a particular purpose or use with respect to the S&P 500 Index or
any data included therein.
The ability of the Fund to meet its investment objective depends to some extent
on the cash flow experienced by the Fund, since investments and redemptions by
shareholders will generally require the Fund to purchase or sell securities.
Bankers Trust will make investment changes to accommodate cash flow in an
attempt to maintain the similarity of the Fund to the S&P 500 Index. You should
also be aware the S&P 500 Index is a model portfolio, the performance of which
does not take into account brokerage commissions and other costs of investing,
unlike the Fund which must bear these costs. Finally, since with respect to this
element of the Fund's strategy the Fund seeks to track the S&P 500 Index,
Bankers Trust generally will not attempt to judge the merits of any particular
stock as an investment.
Merger Arbitrage Assets. To achieve a total return greater than the S&P 500
Index, the Fund invests in the equity securities of acquisition targets of
publicly announced transactions that are generally structured to include at
least 50% cash consideration.
The Fund purchases shares of acquisition targets based on specific events that
trigger a merger arbitrage opportunity and these shares are sold when the
acquisition is consummated or the transaction is abandoned. Merger arbitrage is
a specialized investment approach generally designed to profit from the
successful completion of proposed mergers, acquisitions and other types of
corporate reorganizations. Through this investment strategy the Fund seeks to
capture the differential between the post bona fide bid stock price of the
shares of the acquisition target and the anticipated takeover payout.
Our proprietary quantitative models developed for this strategy provide a
disciplined approach to both the timing and quantity of shares purchased of an
acquisition target following the public announcement of the acquisition. Our
research confirms that different types of bidders (e.g., friendly, hostile,
management) lead to different outcomes in merger and acquisition contests and
supports the practice of varying the level of our investment in an acquisition
target based on the type of bidder.
The Fund imposes limits on the amount of its net assets that are invested in any
one security at the time of purchase: 5% in any one management buyout
transaction, 17% in any one hostile takeover; 12% in any one friendly
transaction. Generally, an acquisition target with a minimum market
capitalization of $500 million is used as a guideline, though the Fund may
purchase shares of corporations with smaller market capitalizations.
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Reserve Assets. As a reserve for changes in allocation in the Fund's equity
investments and to cover the Fund's open positions resulting from its
investments in derivative instruments, the Fund also invests its assets in money
market instruments or money market funds.
Equity Investments. The Fund invests in common stocks and other securities with
equity characteristics. The Fund invests only in securities listed on foreign or
domestic securities exchanges.
Foreign Securities. The Fund may purchase common stocks of foreign corporations.
The Fund's investments in the securities of foreign issuers may be made 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, and while designed for use as alternatives to the purchase of the
underlying securities in their national markets and currencies, are subject to
the same risks as the foreign securities to which they relate.
Standard & Poor's Depository Receipts. SPDRs represent an ownership interest in
a unit investment trust ("UIT") which holds a portfolio of common stocks that
closely tracks the price performance and dividend yield of the S&P 500 Index.
SPDRs may be obtained from the UIT or purchased in the secondary market as SPDRs
listed on the American Stock Exchange. The price of SPDRs is based on the
securities held by the UIT. Accordingly, the level of risk involved in the
purchase or sale of a SPDR is similar to the risk involved in the purchase or
sale of traditional common stock, with the exception that the pricing mechanism
for SPDRs is based on a basket of stocks. Disruptions in the markets for the
securities underlying SPDRs purchased or sold by the Fund could result in losses
on SPDRs.
Securities of the Investment Companies. The Fund may invest in securities of
other investment companies (including SPDRs) to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Fund's total assets and (iii)
when added to all other investment company securities held by the Fund, do not
exceed 10% of the value of the Fund's total assets.
The Fund will not invest in excess of 10% of its total assets in the aggregate
in SPDRs or in excess of 5% of its total assets in SPDRs issued by a single unit
investment trust.
When-Issued and Delayed Delivery Securities. The Fund 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 Fund until
settlement takes place. The Fund 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 Fund will rely on the other party to consummate the
transaction; if the other party fails to do so, the Fund may be disadvantaged.
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Equity Swaps. Swaps are privately negotiated, off-exchange two-party contracts
to exchange or swap returns (or differentials in rates of return) earned or
realized on particular predetermined investments or instruments, at specified
dates in the future. The Fund will invest in equity swap contracts, whereby the
counterparty agrees to pay the Fund the amount, if any, by which the notional
amount of the equity swap contract would have increased in value had it been
invested in the basket of stocks comprising the S&P 500 Index, plus dividends
that would have been received on those stocks. The Fund agrees to pay to the
counterparty a floating rate of interest (typically the London Inter Bank
Offered Rate) on the notional amount of the equity swap contract plus the
amount, if any, by which that notional amount would have decreased in value had
it been invested in such stocks. Therefore, the return to the Fund on any equity
swap contract should be the gain or loss on the notional amount plus dividends
on the stocks comprising the S&P 500 Index (as if the Fund had invested the
notional amount in stocks comprising the S&P 500 Index) less the interest paid
by the Fund on the notional amount. Therefore, the Fund will generally realize a
loss if the value of the S&P 500 Index declines and will generally realize a
gain if the value of the S&P 500 Index rises. The Fund will enter into equity
swap contracts only on a net basis, i.e., where the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of any payments. If there is a default by the counterparty to an equity
swap contract, the Fund will be limited to contractual remedies pursuant to the
agreements related to the transaction.
Whether the Fund's use of equity swap contracts will be successful in achieving
its investment objective depends on the Adviser's ability to predict correctly
whether certain types of investments are likely to produce greater returns than
other investments.
There is no assurance that the equity swap contract counterparties will be able
to meet their obligations or that, in the event of default, the Fund will
succeed in pursuing contractual remedies. The Fund thus assumes the risk that it
may be delayed in or prevented from obtaining payments owed to it pursuant to
these contracts. The Fund will closely monitor the credit of equity swap
contract counterparties in order to minimize this risk.
The Fund will not use equity swap contracts for leverage.
The Fund will not enter into any equity swap contract unless, at the time of
entering into such transaction, the unsecured senior debt of the counterparty or
its guarantor is rated at least A by Moody's Investor Services ("Moody's") or
Standard and Poors ("S&P"). In addition, the staff of the Securities and
Exchange Commission (the "SEC") considers equity swap contracts to be illiquid
securities. Consequently, while the staff maintains this position, the Fund will
not invest in equity swap contracts if, as a result of the investment, the total
value of such investments together with that of all other illiquid securities
which the Fund owns would exceed 15% of the Fund's net assets.
Repurchase Agreements. In a repurchase agreement the Fund 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 Fund 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 Fund could experience a loss. In all cases, Bankers Trust must
find the creditworthiness of the other party
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to the transaction satisfactory. A repurchase agreement is considered a
collateralized loan under the 1940 Act.
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 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 the Fund's
holdings under the supervision of the Trust'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). If institutional trading in restricted securities were to decline,
the liquidity of the Fund could be adversely affected.
Index Futures Contracts and Options on Index Futures
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Index Futures Contracts. The Fund may enter into contracts providing for the
making and acceptance of a cash settlement based upon changes in the value of
the Index or other equity indices. 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.
At the same time a futures contract relating to the Index or other equity
indices is purchased or sold, the Fund 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 Fund would provide or receive cash that
reflects any decline or increase in the contract's value.
Futures contracts by their terms call for the actual delivery or acquisition of
an underlying instrument or, in the case of index futures, for cash settlement.
In most cases the contractual obligation is fulfilled before the date of the
contract by entering into an offsetting contract. The offsetting of a
contractual obligation is accomplished by entering into an opposite position on
a commodities exchange in the same 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 Fund will incur brokerage fees when it enters into 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 trends by the Adviser may still not result in a
successful transaction.
In addition, futures contracts entail risks. If the Fund has insufficient cash,
it may have to sell securities from its portfolio to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
Options on Index Futures Contracts. The Fund may purchase and write options on
futures contracts with respect to the Index or other equity indices. The
purchase of a call option on an Index futures
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contract is similar in some respects to the purchase of a call option on such an
index. 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
securities, it may or may not be less risky than ownership of the futures
contract or underlying securities. As with the purchase of futures contracts,
when the Fund is not fully invested it may purchase a call option on an index
futures contract to hedge against a market advance.
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The writing of a call option on a futures contract with respect to the Index
constitutes a partial hedge against declining prices of the underlying
securities. If the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the option premium which
provides a partial hedge against any decline that may have occurred in the
Fund's holdings. The writing of a put option on an index futures contract
constitutes a partial hedge against increasing prices of the underlying
securities. If the futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Fund intends to purchase. If a put or call option the Fund has written is
exercised, the Fund 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 Fund'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 with respect to the Index is
similar in some respects to the purchase of protective put options on the Index.
For example, the Fund may purchase a put option on an index futures contract to
hedge against the risk of lowering securities values.
The amount of risk the Fund assumes when it purchases an option on a futures
contract with respect to the Index is the premium paid for the option plus
related transaction costs. In addition to the correlation risks discussed above,
the purchase of such 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.
Options on Securities. The Fund 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 Fund 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 Fund.
When the Fund 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 Fund 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 Fund has no control, the Fund must sell the
underlying security to the option holder at the exercise price. By writing a
covered call option, the Fund 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. In addition, the Fund may continue to hold a stock which might
otherwise have been sold to protect against depreciation in the market price of
the stock.
A put option sold by the Fund is covered when, among other things, cash or
liquid securities are placed in a segregated account to fulfill the obligations
undertaken. When the Fund writes a covered put option, it gives the purchaser of
the option the right to sell the underlying security to the Fund at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Fund will realize income in the amount of the premium
received for writing the
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option. If the put option is exercised, a decision over which the Fund has no
control, the Fund must purchase the underlying security from the option holder
at the exercise price. By writing a covered put option, the Fund, 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 Fund will only write
put options involving securities for which a determination is made at the time
the option is written that the Fund wishes to acquire the securities at the
exercise price.
The Fund 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 Fund 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. Where the Fund
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. To close out a position as a purchaser of an option, the Fund, may make
a "closing sale transaction" which involves liquidating the Fund's position by
selling the option previously purchased.
When the Fund writes an option, an amount equal to the net premium received by
the Fund is included in the liability section of the Fund'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 Fund enters into a
closing purchase transaction, the Fund 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 Fund 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 Fund.
The Fund may purchase call and put options on any securities in which it may
invest. The Fund 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 Fund, in exchange for the premium paid, to purchase a security
at a specified price during the option period. The Fund 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.
The Fund 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 Fund, in exchange for the premium paid, to sell a security, which
may or may not be held in the Fund'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 Fund's holdings. Put options
also may be purchased by the Fund for the purpose of affirmatively benefiting
from a decline in the price of securities which the Fund
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does not own. The Fund 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.
The Fund has adopted certain other nonfundamental policies concerning option
transactions which are discussed below.
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.
The Fund may only engage in exchange-traded options transactions.
Options on Securities Indices. In addition to options on securities, the Fund
may also purchase and write (sell) call and put options on the Index and other
securities indices in an attempt to increase income. Such options give the
holder the right to receive a cash settlement during the term of the option
based upon the difference between the exercise price and the value of the index.
Such options will be used for the purposes described above under "Options on
Securities."
Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the Fund
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 Fund 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.
Because options on securities indices require settlement in cash, the Adviser
may be forced to liquidate portfolio securities to meet settlement obligations.
Over-the-counter Options. The Fund may purchase over-the-counter ("OTC") or
dealer options or sell covered OTC options. Unlike exchange-listed options where
an intermediary or clearing corporation, such as the Options Clearing
Corporation ("OCC"), assures that all transactions in such options are properly
executed, the responsibility for performing all transactions with respect to OTC
options rests solely with the writer and the holder of those options. A listed
call option writer, for example, is obligated to deliver the underlying
securities to the clearing organization if the option is exercised, and the
clearing organization is then obligated to pay the writer the exercise price of
the option. If the Fund were to purchase a dealer option, however, it would rely
on the dealer from whom it purchased the option to perform if the option were
exercised. If the dealer fails
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to honor the exercise of the option by the Fund, the Fund would lose the premium
it paid for the option and the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while OTC or
dealer options do not. Consequently, the Fund will generally be able to realize
the value of a dealer option it has purchased only be exercising it or reselling
it to the dealer who issued it. Similarly, when the Fund writes a dealer option,
it generally will be able to close out the option prior to its expiration only
by entering into a closing purchase transaction with the dealer to which the
Fund originally wrote the option. Although the Fund will seek to enter into
dealer options only with dealers who will agree to and that are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate a dealer option at a favorable
price at any time prior to expiration. The inability to enter into a closing
transaction may result in material losses to the Fund. Until the Fund, as a
covered OTC call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
to cover the written option until the option expires or is exercised. This
requirement may impair the Fund's ability to sell portfolio securities at a time
when such sale might be advantageous.
Asset Coverage. The Fund will cover its transactions in futures and related
options, as well as in when-issued and delayed delivery, as required under
applicable interpretations of the SEC, either by owning the underlying
securities or by segregating liquid assets with the Fund's custodian in an
amount at all times equal to or exceeding the Fund's commitment with respect to
these instruments or contracts.
Short-term Instruments. As a reserve for merger arbitrage opportunities and to
cover the Fund's open positions resulting from its investment in derivative
instruments, the Fund will invest in short-term instruments. In addition, when
advisable to adopt a temporary defensive position in response to extraordinary
political, economic or stock-market events, the Fund may invest up to 100% of
the Fund's assets in such short-term instruments. 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 Fund invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent if providing a guarantee, 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.
Certificates of Deposit and Banker's 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
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exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings see Appendix.
U.S. Government Obligations. The Fund may invest in direct obligations issued by
the U.S. Treasury or in obligations issued or guaranteed by the U.S. Treasury or
by agencies or instrumentalities of the U.S. government ("U.S. Government
Obligations"). Certain short-term U.S. Government Obligations, such as those
issued by the Government National Mortgage Association, are supported by the
"full faith and credit" of the U.S. government; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow money from the U.S. Treasury; others, such as those of the
Federal National Mortgage Association are solely the obligations of the issuing
entity but are supported by the discretionary authority of the U.S. government
to purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored instrumentalities if it
is not obligated to do so by law.
Lending of Fund Securities. The Fund has the authority to lend up to 30% of the
total value of its portfolio securities to brokers, dealers and other financial
organizations. These loans must be secured continuously by cash or securities
issued or guaranteed by the United States government, its agencies or
instrumentalities or by a letter of credit at least equal to the market value of
the securities on loans plus accrued income. The Fund will not lend securities
to Bankers Trust, ICC Distributors or their affiliates. By lending its
securities, the Fund may increase its income by continuing to receive payments
in respect of dividends and 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 a fee paid by the borrower when irrevocable letters of credit and
U.S. government obligations are used as collateral. During the term of the loan,
the Fund continues to bear the risk of fluctuations in the price of the loaned
securities. 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. The Fund will
adhere to the following conditions whenever its securities are loaned: (i) the
Fund must receive at least 100 percent collateral 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 Fund must be able to terminate the loan at any time; (iv) the Fund
must receive substitute payments in respect of all
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dividends, interest or other distributions on the loaned securities; and (v)
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 retain the right to terminate the loan and recall and
vote the securities. Upon receipt of appropriate regulatory approval, cash
collateral may be invested in a money market fund managed by Bankers Trust (or
its affiliates) and Bankers Trust may serve as the Fund's lending agent and may
share in revenue received from securities lending transactions as compensation
for this service.
Foreign Securities. Although the Fund intends to invest primarily in securities
of U.S. companies, the Fund may hold securities of non-U.S. issuers and
investors should realize that the value of the Fund'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 Fund'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 Fund 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, and the Fund holds various foreign currencies
from time to time, the value of the net assets of the Fund as measured in U.S.
dollars will be affected favorably or unfavorably by changes in exchange rates.
Generally, the Fund'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 Fund'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, the Fund is authorized to enter into certain foreign currency
exchange transactions.
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 NYSE. Accordingly, the Fund'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 Fund 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.
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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 of
the Trust (the "Board of Trustees"). After purchase by the Fund, an obligation
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Fund. Neither event would require the Fund to eliminate the
obligation from its portfolio, but Bankers Trust will consider such an event in
its determination of whether the Fund should continue to hold the obligation. A
description of the ratings is included in the Appendix to this SAI.
Investment Restrictions
Fundamental Policies. The following investment restrictions are "fundamental
policies" of the Fund and may not be changed without the approval of a "majority
of the outstanding voting securities" of the Fund. "Majority of the outstanding
voting securities" under the 1940 Act, and as used in this SAI and the
Prospectus, means, with respect to the Fund, the lesser of (i) 67% or more of
the outstanding voting securities of the Fund present at a meeting, if the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy or (ii) more than 50% of the outstanding voting
securities of the Fund. The Fund's objective is a fundamental policy and may not
be changed without shareholder approval. Whenever the Trust is requested to vote
on a fundamental policy of the Fund, 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 Fund
meeting. The percentage of the Trust's votes representing Fund shareholders not
voting will be voted by the Trustees of the Trust (the "Trustees") in the same
proportion as the Fund's shareholders who do, in fact, vote.
As a matter of fundamental policy, the Fund may not (except that no investment
restriction of the Fund shall prevent the Fund from investing all of its assets
in an open-end investment company with substantially the same investment
objectives):
(1) borrow money (including through reverse repurchase agreements or dollar roll
transactions), except that the Fund may borrow for temporary or emergency
purposes up to 1/3 of its total assets. The Fund may pledge, mortgage or
hypothecate not more than 1/3 of such assets to secure such borrowings 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;
(2) underwrite securities issued by other persons except insofar as the Fund
(Trust) 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 Fund's
portfolio securities and provided that any such loans not exceed 30% of the
Fund's total assets (taken at market value); (b)
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through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt securities of
types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein), interests in
oil, gas or mineral leases, commodities or commodity contracts (except futures
and option contracts) in the ordinary course of business (except that the Fund
(Trust) may hold and sell, for the Fund's portfolio, real estate acquired as a
result of the Fund's ownership of securities);
(5) 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;
Additional Restrictions. The following are non-fundamental policies. In order to
comply with certain statutes and policies, the Trust, on behalf of the Fund,
will not as a matter of operating policy (except that no operating policy shall
prevent the Fund from investing all of its assets in an open-end investment
company with substantially the same investment objectives):
(i) 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;
(ii) 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
Fund, and the value of securities of any one issuer in which the Fund is
short exceeds the lesser of 2.0% of the value of the 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 Fund contemporaneously owns or
where the Fund has the right to obtain securities equivalent in kind and
amount to those sold, i.e., short sales against the box.) (The Fund
currently does not intend to engage in short selling);
(iii) invest for the purpose of exercising control or management of another
company;
(iv) purchase securities issued by any investment company (except when such
purchase, though not made in the open market, is part of a plan of merger
or consolidation); if such purchase at the time thereof would cause: (a)
more than 10% of the Fund's total assets (taken at the greater of cost or
market value) (except the Fund may exceed the applicable percentage limits
to the extent permitted by an exemptive order of the SEC) to be invested
in the securities of such issuers; (b) more than 5% of the Fund's total
assets (taken at the greater of cost or market value) (except the Fund may
exceed the applicable percentage limits to the extent permitted by an
exemptive order of the SEC) 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 Fund;
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(v) invest more than 15% of the 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
to be liquid);
(vi) 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 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% of the Fund's net assets; (c) the securities
subject to the exercise of the call written by the Fund must be owned by
the Fund at the time the call is sold and must continue to be owned by the
Fund until the call has been exercised, has lapsed, or the Fund has
purchased a closing call, and such purchase has been confirmed, thereby
extinguishing the Fund's obligation to deliver securities pursuant to the
call it has sold; and (d) at the time a put is written, the 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
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 Fund has
purchased a closing put, which is a put of the same series as the one
previously written); and
(vii) 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 Fund's total net assets; and (c) the aggregate
margin deposits required on all such futures or options thereon, other
than options on stocks, held at any time do not exceed 5% of the Fund's
net 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.
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 the Fund, 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 the
Fund are frequently placed by the Adviser with the issuer or a primary or
secondary market-maker for
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these securities on a net basis, without any brokerage commission being paid by
the Fund. 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 the Fund 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 Fund to
reported commissions paid by others. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, when placing portfolio transactions for the Fund 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 Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
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 Fund'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 the Fund and to the Adviser, it is the opinion of the
management of the Fund 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 Fund, and not all
such information is used
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by the Adviser in connection with the Fund. 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 Fund.
In certain instances there may be securities which are suitable for the Fund as
well as for one or more of the Adviser's other clients. Investment decisions for
the Fund and for the Adviser's other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling that same
security. Some simultaneous transactions are inevitable when several clients
receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
PERFORMANCE INFORMATION
Standard Performance Information
From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature, shareholder reports or other communications to
shareholders or prospective shareholders. These performance figures are
calculated in the following manner:
Total Return: A Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000 (made
at the maximum public offering price with all distributions reinvested)
to reach the value of that investment at the end of the periods. A Fund
may also calculate total return figures which represent aggregate
performance over a period or year-by-year performance.
Performance results: Any total return quotation provided for a Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and public offering price
of shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the corresponding Fund, but also on
changes in the current value of such securities and on changes in the
expenses of the Fund and the corresponding Fund. 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.
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Performance information may include the Fund's investment results and/or
comparisons of its investment results to the S&P 500 Index., or various other
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 Shares. The Shares' "total return" refers to the change in the value of
an investment in the Shares over a stated period based on any change in net
asset value per Share and including the value of any Shares purchased 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 gains 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 Fund and
changes in the Shares' expenses. In addition, during certain periods for which
total return may be provided, Bankers Trust, as Adviser, Shareholder Service
Agent or Administrator, or ICC Distributors, may have voluntarily agreed to
waive portions of their fees on a month-to-month basis. Such waivers will have
the effect of increasing Shares' net income (and therefore its total return)
during the period such waivers are in effect.
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, Barron's, Business Week, Changing
Times, Consumer Digest, Financial Times, Financial World, Forbes, Fortune,
Global Investor, Investor's Daily, Lipper Analytical Services, Inc.'s Mutual
Fund Performance Analysis, Money, Morningstar Inc., New York Times, Personal
Investing News, Personal Investor, Success, U.S. News and World Report,
ValueLine, Wall Street Journal, Weisenberger Investment Companies Services,
Working Women.
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Economic and Market Information
Advertising and sales literature of a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect the Funds. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund industry,
including the growth of the industry, from sources such as the Investment
Company Institute ("ICI"). For example, according to the ICI, thirty-seven
percent of American households are pursuing their financial goals through mutual
funds. These investors, as well as businesses and institutions, have entrusted
over $4.4 trillion to the more than 6,700 funds available.
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND
Valuation of Securities
The net asset value ("NAV") per Share 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 is computed by dividing the
value of the Fund's assets (i.e., the value of its investment and other assets),
less all liabilities attributable to the Shares, by the total number of Shares
outstanding as of the Valuation Time. The Fund'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 Board of Trustees believes accurately
reflects fair value.
Under procedures adopted by the Board of Trustees, a NAV for the 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.
Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost,
which approximates market value.
Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by the 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.
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<PAGE>
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
ofpurchase, 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 the Fund purchases securities which are restricted as to
resale or for which current market quotations are not readily available, the
Adviser will value such securities based upon all relevant factors as outlined
in FRR 1.
Purchase of 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. Shares of the
Fund are only sold to private banking, brokerage and institutional clients of
Bankers Trust and its affiliates and to customers of Service Agents. Shares may
also be sold to employees of Bankers Trust and its affiliates, their spouses and
minor children. Investors who are customers of Service Agents should contact
their Service Agent with respect to a proposed investment and then follow the
procedures adopted by the Service Agent for making purchases. Shares that are
purchased or sold through omnibus accounts maintained by securities firms may be
subject to a service fee or commission for such transactions.
Purchase orders for Shares (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 4:00 p.m. Eastern time 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.
The Trust and Bankers Trust have authorized one or more Service Agents to accept
on the Trust's behalf purchase and redemption orders. Such Service Agents are
authorized to designate other
25
<PAGE>
intermediaries to accept purchase and redemption orders on the Trust's behalf.
The Transfer Agent will be deemed to have received a purchase or redemption
order when an authorized Service Agent or, if applicable, a Service Agent's
authorized designee, accepts the order. Customer orders will be priced at the
Fund's NAV next computed after they are accepted by an authorized Service Agent
or the Service Agent's authorized designee.
Certificates for Shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.
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 $10,000
To add to an account $250
Minimum account balance $1,000
The Fund and its service providers reserve the right to, from time to time in
their discretion, waive or reduce the investment minimums.
Additional Information About Buying Shares
HOW TO OPEN YOUR FUND ACCOUNT
Contact your Service Agent or your Bankers Trust client representative.
WIRE TRANSFERS:
BUYING: You may only buy shares by wire if your account is authorized to do so.
Please note that you or your Service Agent must call the BT Service Center at
1-800-730-1313 to notify us in advance of a wire transfer purchase. Inform the
BT Representative of the amount of your purchase and receive your trade
confirmation number. Instruct your bank to send payment by wire using the wire
instructions noted below. All wires must be received by 4:00 p.m. Eastern time
the next business day to receive the prior day's price.
ROUTING NO: 021001033
ATTN: Bankers Trust/BT Funds
DDA NO: 00-226-296
FBO: (Account name)
(Account number)
CREDIT: Quantitative Equity Fund - 812
26
<PAGE>
See your account statement for the account name and number.
SELLING: You may only sell shares by wire if your account is authorized to do
so. For your protection, you may not change the wire instructions relating to
the destination bank account over the phone. To sell by wire, contact your
Service Agent. The minimum redemption by wire is $1,000. We must receive your
order by 4:00 p.m. Eastern time to wire your account the next business day.
Redemption of 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 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 Service Agent does not do so, it may be liable for
any losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring some form of personal identification prior to
acting upon instructions received by telephone, providing written confirmation
of such transactions and/or tape recording of telephone instructions.
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.
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,
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<PAGE>
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.
IMPORTANT INFORMATION ABOUT BUYING AND SELLING SHARES
o After receiving your order, we buy or sell your shares at the next price
calculated on a day the New York Stock Exchange is open for business.
o We accept payment for shares only in U.S. dollars by check, bank or
Federal Funds wire transfer, or by electronic bank transfer.
o We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large it is made "in-kind").
o You may place orders to buy and sell over the phone by calling your
Service Agent. If you pay for shares by check and the check fails to
clear, or if you order shares by phone and fail to pay for them by 4:00
p.m. Eastern time the next business day, we have the right to cancel your
order, hold you liable or charge you or your account for any losses or
fees a fund or its agents have incurred. To sell shares, you must state
whether you would like to receive the proceeds by wire or check. For your
protection, you may not change your account address over the phone.
o We do not issue share certificates.
o We process all orders free of charge.
o Unless otherwise instructed, we normally mail a check for the proceeds
from the sale of your shares to your account address the next business day
and no later than seven days. We reserve the right to close your account
on 30 days' notice if it fails to meet minimum balance requirements for
any reason other than a change in market value.
o Selling shares of Trust accounts and Business or Organization accounts may
require additional documentation. Please contact your Service Agent for
more information.
o During periods of heavy market activity, you may have trouble reaching the
BT Service Center by telephone. If this occurs, you should make your
request by mail.
Exchange Privilege
Shareholders may exchange their Shares for shares of certain other funds in the
BT Family of Funds registered in their state. 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.
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<PAGE>
o Complete and sign an application, taking care to register your new account
in the same name, address and taxpayer identification number as your
existing account(s).
o Each exchange represents the sale of shares of one fund and the purchase
of shares of another, which may produce a gain or loss for tax purposes.
Your Service Agent will receive a written confirmation of each exchange
transaction.
o Exchanges out of the Fund may be limited to four per calendar year and any
exchange may have tax consequences for you.
o The Fund reserves the right to terminate or modify the exchange privilege
in the future.
Please note the following conditions:
o The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number. o If you are using the exchange feature to
open a new account, we cannot activate the account until we receive your
completed application.
Redemptions and Purchases in Kind
The Trust, on behalf of the Fund, reserves 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, and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made to a Fund
shareholder in securities, an investor, including the Fund, may incur
transaction expenses in converting these securities into cash. The Trust, on
behalf of the Fund, has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Fund is 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 at the beginning of the period.
The 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
further 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. In addition, securities accepted in payment for shares must: (i) meet the
investment objective and policies of the Fund; (ii) be acquired by the Fund for
investment and not for resale; (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. The Fund reserves the right to
accept or reject at its own option any and all securities offered in payment for
its shares.
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<PAGE>
Trading in Foreign Securities
Trading in foreign cities may be completed at times which vary from the closing
of NYSE. In computing the net asset value, the Fund values foreign securities at
the latest closing price on the primary exchange on which they are traded
immediately prior to the closing of the NYSE. Similarly, foreign securities
quoted in foreign currencies are translated into U.S. dollars at the foreign
exchange rates.
Occasionally, events that affect values and exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.
MANAGEMENT OF THE TRUST AND THE FUND
The affairs of the Trust and the Fund are managed under the supervision of the
Board of Trustees. By virtue of the responsibilities assumed by Bankers Trust,
the administrator of the Trust, the Trust does not require employees other than
its executive officers. None of the executive officers of the Trust devotes full
time to the affairs of the Trust or the Fund.
The Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Trust and the
Fund. In addition, the Trustees review contractual arrangements with companies
that provide services to the Fund and review the Funds' performance.
The Trustees and officers of the Trust, their birthdate and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period.
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<PAGE>
Trustees of the Trust
S. LELAND DILL (birthdate: March 28, 1930) -- Trustee; Retired; Director, 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; John Bates Clark
Professor of Economics, Columbia University Distinguished Fellow, American
Economics Association; Fellow, American Academy of Arts and Sciences; Fellow,
Econometric Society; Former Chairman, Columbia University Department of
Economics; Former Director, National Bureau of Economic Research. His address is
35 Claremont Avenue, New York, New York 10027 and 8 Island View Drive, Sherman,
CT 06784.
PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) -- Trustee; Principal, Philip
Saunders Associates (Economic and Finance Consulting); former Director of
Financial Industry Consulting, Wolf & Company; President, John Hancock Home
Mortgage Corporation; and Senior Vice President of Treasury and Financial
Services, John Hancock Mutual Life Insurance Company, Inc. His address is 445
Glen Road, Weston, Massachusetts 02193.
Officers of the Trust
Unless otherwise specified, each officer listed below holds the same position
with the Trust and each Portfolio.
JOHN Y. KEFFER (birthdate: July 15, 1942) -- President and Chief Executive
Officer; President, Forum Financial Group. His address is Two Portland Square,
Portland, Maine 04101.
JOSEPH A. FINELLI (birthdate: January 24, 1957) -- Treasurer; Vice President, BT
Alex. Brown Incorporated and Vice President, Investment Company Capital Corp.
(registered investment adviser), September 1995-Present; Formerly, Vice
President and Treasurer, The Delaware Group of Funds (registered investment
companies) and Vice President, Delaware Management Company Inc. (investments),
1980-August 1995. His address is One South Street, Baltimore, Maryland 21202.
DANIEL O. HIRSCH (birthdate: March 27, 1954) -- Secretary; Principal, BT Alex.
Brown since July 1998; Assistant General Counsel in the Office of the General
Counsel at the United States Securities and Exchange Commission from 1993 to
1998. His address is 2901 Dorset Avenue, Chevy Chase, Maryland 20815.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust. No director, officer or employee of ICC Distributors or
any of its affiliates will receive any compensation from the Trust for serving
as an officer or Trustee of the Trust.
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<PAGE>
Trustee Compensation Table
<TABLE>
<CAPTION>
NAME OF PERSON, POSITION AGGREGATE COMPENSATION FROM BT TOTAL COMPENSATION FROM FUND
- ------------------------ INVESTMENT FUNDS COMPLEX PAID TO TRUSTEES
---------------- ------------------------
<S> <C> <C>
S. Leland Dill, Trustee $14,471 $35,000
Kelvin J. Lancaster, Trustee $24,339 $35,000
Philip Saunders, Jr., Trustee $14,325 $35,000
</TABLE>
*The information provided is for the BT Investment Funds, which is comprised of
17 funds, for the year ended December 31, 1998.
***Aggregated information is furnished for the BT Family of Funds which consists
of the following: BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual
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, Intermediate Tax Free Portfolio, Asset
Management Portfolio, Equity 500 Index Portfolio and Capital Appreciation
Portfolio for the year ended December 31, 1998.
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, 1998, 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).
Investment Adviser
Bankers Trust Company, a New York banking corporation, is a wholly owned
subsidiary of Bankers Trust Corporation. Bankers Trust conducts a variety of
general banking and trust activities and is a major wholesale supplier of
financial services to the international and domestic institutional markets. As
of December 31, 1998, Bankers Trust Corporation was the seventh largest bank
holding company in the United States with total assets of over $156 billion. 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 over $336 billion in assets under management globally.
Under the terms of the Fund's investment advisory agreement with Bankers Trust
(the "Advisory Agreement"), Bankers Trust manages the Fund subject to the
supervision and direction of the Board of Trustees. Bankers Trust will: (i) act
in strict conformity with the Fund'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 the Fund in accordance with the Fund's investment objectives,
restrictions and policies; (iii) make investment decisions for the Fund; and
(iv) place purchase and sale orders for securities and other financial
instruments on behalf of the Fund.
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<PAGE>
All orders for investment transactions on behalf of the Fund are placed by
Bankers Trust with broker-dealer 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 Fund only if Bankers Trust believes that the affiliate's charge for the
transaction does not exceed usual and customary levels. The Fund will not invest
in obligations for which Bankers Trust or any of its affiliates is the ultimate
obligor or accepting bank. The Fund may, however, invest in the obligations of
correspondents and customers of Bankers Trust.
Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The Trust and the Fund bear certain other expenses
incurred in their operation, including: taxes, interest, brokerage fees and
commissions, if any; fees of Trustees or officers of the Trust who are not
officers, directors or employees of Bankers Trust, ICC Distributors 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; and any
extraordinary expenses.
Under the Advisory Agreement, Bankers Trust receives a fee from the Fund,
computed daily and paid monthly based on a percentage of the average daily net
assets of the Fund. Under certain circumstances, Bankers Trust has agreed to pay
fees to certain securities brokers, dealers and other entities that facilitate
the sale of Fund Shares, and in connection therewith provide administrative,
shareholder or distribution related services to the Fund or its shareholders.
Fees paid to entities that administer mutual fund "supermarkets" may be higher
than fees paid for other types of services.
Bankers Trust may have deposit, loan and other commercial banking relationships
with the issuers of obligations which may be purchased on behalf of the Fund,
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
Fund 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 Fund, Bankers Trust
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Fund is a customer of Bankers Trust, its
parent or its subsidiaries or affiliates and, in dealing with its customers,
Bankers Trust, its parent, subsidiaries and affiliates will not inquire or take
into consideration whether securities of such customers are held by any fund
managed by Bankers Trust or any such affiliate.
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<PAGE>
Administrator
Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee, computed daily and paid monthly, at the annual rate of
0.15% of the average daily net assets of the Fund. Under the Administration and
Services Agreement, Bankers Trust may delegate one or more of its
responsibilities to others, including affiliates of ICC Distributors, at Bankers
Trust's expense.
Under the Administration and Services Agreement, Bankers Trust is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees reasonably deem necessary for the proper administration of the Trust or
the Fund. Bankers Trust will generally assist in all aspects of the Fund's
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 Trusts and the Fund 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.
Distributor
ICC Distributors is the principal distributor for shares of the Fund. ICC
Distributors is a registered broker/dealer and is unaffiliated with Bankers
Trust. The principal business address of ICC Distributors is P.O. Box 7558,
Portland, Maine 04101.
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<PAGE>
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. 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, 130 Liberty Avenue (One Bankers Trust Plaza), New York, New York
10006, serves as Custodian for the Trust and for the Fund pursuant to the
administration and services agreements. As Custodian, it holds the Fund's
assets. Bankers Trust also serves as transfer agent of the Trust and of the Fund
pursuant to the respective administration and services agreement. Under its
transfer agency agreement with the Trust, Bankers Trust maintains the
shareholder account records for the 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 Fund
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
Each Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
their names for so long as Bankers Trust serves as investment adviser to the
Fund. The Trust have 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, their shareholders or activities.
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<PAGE>
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Fund contemplated by the Advisory Agreements
and other activities for the Trust and the Fund described in the Prospectus 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 Trusts and the Fund. 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, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust and the Fund. Ernst & Young LLP, 787 Seventh
Avenue, New York, New York 10019, acts as Independent Accountants of the Trust
and the Fund.
ORGANIZATION OF THE TRUST
The Trust was organized on July 21, 1986, under the name BT Tax-Free Investment
Trust, and assumed its current name on May 16, 1988. The Trust offers shares of
beneficial interest of separate series, par value $0.001 per share. Trustees of
the Trust established and designated one class of shares of beneficial interest
of the Fund. The Trust reserves the right to add additional series in the
future. The Trust also reserves the right to issue additional classes of shares
of the Fund. No series of shares will have any preference over any other series.
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. 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 shares of the series participate equally in the earnings, dividends and
assets of the particular series. The Trust may create and issue additional
series of shares. The Trust's Declaration of Trust permits the Trustees to
divide or combine the shares into a greater or lesser number of shares
36
<PAGE>
without thereby changing the proportionate beneficial interest in series. Each
share represents an equal proportionate interest in a series with each other
share. Shares when issued are fully paid and non-assessable, except as set forth
below. Shareholders are entitled to one vote for each share held.
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.
The Trust is an entity commonly known as a "Massachusetts business trust."
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.
Whenever the Trust is requested to vote on matters pertaining to the Fund, the
Trust will vote its shares without a meeting of shareholders of the Fund if the
proposal is one, which if made with respect to the Fund, would not require the
vote of shareholders of the Fund as long as such action is permissible under
applicable statutory and regulatory requirements. For all other matters
requiring a vote, a Trust will hold a meeting of shareholders of the Fund and,
at the meeting of the investors in the Fund, the Trust will cast all of its
votes in the same proportion as votes in all its shares at the Fund meeting,
other investors with a greater pro rata ownership of the Fund could have
effective voting control of the operations of the Fund.
TAXATION
Taxation of the Fund
The Trust intends to qualify annually and to elect the Fund to be treated as a
regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must, among other things:
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at
37
<PAGE>
least 50% of the market value of the Fund's assets is represented by cash and
cash items (including receivables), U.S. government securities, the securities
of other regulated investment companies and other securities, with such other
securities of any one issuer limited for thepurposes of this calculation to an
amount not greater than 5% of the value of the Fund's total assets and not
greater than 10% of the outstanding voting securities of such issuer and (ii)
not more than 25% of the value of its total assets is invested in the securities
of any one issuer (other than U.S. government securities or the securities of
other regulated investment companies); and (c) distribute at least 90% of its
investment company taxable income (which includes, among other items, dividends,
interest and net short-term capital gains in excess of net long-term capital
losses) and its net tax-exempt interest income, if any, each taxable year.
As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains. Amounts not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute during each calendar year an amount equal to the sum of: (1) at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year; (2) at least 98% of its capital gains in excess
of its capital losses (adjusted for certain ordinary losses, as prescribed by
the Code) for the one-year period ending on October 31 of the calendar year; and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement
Each Fund shareholder will also receive, if appropriate, various written notices
after the close of the Fund's prior taxable year as to the federal income status
of his dividends and distributions which were received from the Fund during the
Fund's prior taxable year. Shareholders should consult their tax advisers as to
any state and local taxes that may apply to these dividends and distributions.
The dollar amount of dividends excluded from Federal income taxation and the
dollar amount subject to such income taxation, if any, will vary for each
shareholder depending upon the size and duration of each shareholder's
investment in the Fund.
Foreign Securities
Income from investments in foreign securities may be subject to 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 Fund's assets to be invested in
various countries will vary.
38
<PAGE>
If the Fund is liable for foreign taxes, and if more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of stocks or
securities of foreign corporations, the Fund may make an election pursuant to
which certain foreign taxes paid by it would be treated as having been paid
directly by its shareholders. Pursuant to such election, the amount of foreign
taxes paid will be included in the income of the Fund's shareholders, and the
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 Fund'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 Fund on the sale
of foreign securities will be treated as U.S. source income, the available
credit of foreign taxes paid with respect to such gains may be restricted by
this limitation.
Distributions
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends-received deduction. The Taxpayer
Relief Act of 1997 created additional categories of capital gains taxable at
different rates. The categories of gain and related rates will be passed through
to shareholders in capital gain dividends. Shareholders receiving distributions
in the form of additional shares, rather than cash, generally will have a cost
basis in each such share equal to the net asset value of a share of the Fund on
the reinvestment date. Shareholders will be notified annually as to the U.S.
Federal tax status of distributions.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other disposition of
Shares of the Fund, or upon receipt of a distribution in complete liquidation of
a Fund, generally will be a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
Shares. Any loss realized on a sale or exchange will be disallowed to the extent
the Shares disposed of are replaced (including Shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the Shares. In such a case, the basis of
the Shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund Shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such Shares.
39
<PAGE>
Foreign Withholding Taxes
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries.
Backup Withholding
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. Federal income tax liability.
Foreign Shareholders
The tax consequences to a foreign shareholder of an investment in the Fund may
be different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in the Fund.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor the Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as
regulated investment companies under Subchapter M of the Code.
Fund shareholders may be subject to state and local taxes on the 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.
40
<PAGE>
APPENDIX
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 it's 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.
Fitch Investors Service and Duff & Phelps Commercial Paper Ratings:
Commercial paper rated "Fitch-1" is considered to be the highest grade paper and
is regarded as having the strongest degree of assurance for timely payment.
"Fitch-2" is considered very good grade paper and reflects an assurance of
timely payment only slightly less in degree than the strongest issue.
Commercial paper issued rated "Duff 1" by Duff & Phelps, Inc. have the following
characteristics: very high certainty of timely payment, excellent liquidity
factors supported by strong fundamental protection factors, and risk factors
which are very small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small risk factors
and good access to capital markets.
41
<PAGE>
Investment Adviser and Administrator of each Portfolio
BANKERS TRUST COMPANY
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
Independent Accountants
ERNST & YOUNG LLP
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#: 055922652
42
<PAGE>
PART C OTHER INFORMATION
ITEM 23.
(a) (i) Declaration of Trust dated July 21, 1986; 1
(ii) Supplement to Declaration of Trust dated October 20,
1986; 1
(iii) Second Supplement to Declaration of Trust dated May 16,
1988; 1
(b) By-Laws; 1
(c) Incorporated by reference to Exhibit (b) above;
(d) Investment Advisory Contract dated December 31, 1998 - Filed
herewith;
(e) (i) Distribution Agreement dated August 11, 1998; 5
(ii) Appendix A dated December 9, 1998 to Distribution
Agreement; 7
(f) Bonus or Profit Sharing Contracts -- Not applicable;
(g) Custodian Agreement dated July 1, 1996; 2
(i) Amendment No. 2 to Exhibit A of the Custodian Agreement
dated October 8, 1997; 3
(ii) Amendment No. 3 to Exhibit A of the Custodian Agreement
dated June 10, 1998; 7
(iii) Amendment No. 4 to Exhibit A of the Custodian Agreement
dated December 9, 1998; 7
(iv) Cash Services Addendum to Custodian Agreement dated
December 18, 1997; 4
(h) (i) Administration and Services Agreement dated October 28,
1992; 8
(ii) Exhibit D to the Administration and Services Agreement
as of October 28, 1992, as revised December 9, 1998; 7
(iii) Agreement to Provide Shareholder Services for BT
PreservationPlus Income Fund as of June 10, 1998; 5
(iv) Shareholder Services Plan for BT PreservationPlus Income
Fund as of June 10, 1998; 5
(v) Expense Limitation Agreement dated September 30, 1998 on
behalf of Intermediate Tax Free Fund, International
Equity Fund, Capital Appreciation Fund, Pacific Basin
Equity Fund, Latin American Equity Fund, Small Cap Fund,
International Small Company Equity Fund and Global
Emerging Markets Equity Fund; 6
(vi) Expense Limitation Agreement dated December 31, 1998 on
behalf of Cash Management Fund, Tax Free Money Fund, NY
Tax Free Money Fund, Treasury Money Fund and
Quantitative Equity Fund - filed herewith.
(i) Legal Opinion - Filed herewith;
(j) Other Opinions -- Not applicable;
(k) Omitted Financial Statements -- Not applicable;
(l) Initial Capital Agreements -- Not applicable;
(m) Rule 12b-1 Plans -- Not applicable;
(n) Financial Data Schedule -- Not applicable;
(o) Rule 18f-3 Plan -- Not applicable.
- -----------------------------------
<PAGE>
1. Incorporated by reference to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A ("Registration
Statement") as filed with the Securities and Exchange Commission
("Commission") on July 31, 1995.
2. Incorporated by reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement as filed with the Commission on July
1, 1997.
3. Incorporated by reference to Post-Effective Amendment No. 46 to
Registrant's Registration Statement as filed with the Commission on
January 28, 1998.
4. Incorporated by reference to Post-Effective Amendment No. 50 to
Registrant's Registration Statement as filed with the Commission on June
30, 1998.
5. Incorporated by reference to Post-Effective Amendment No. 55 to
Registrant's Registration Statement as filed with the Commission on
November 25, 1998.
6. Incorporated by reference to Post-Effective Amendment No. 56 to
Registrant's Registration Statement as filed with the Commission on
January 28, 1999.
7. Incorporated by reference to Post-Effective Amendment No. 57 to
Registrant's Registration Statement as filed with the Commission on
February 8, 1999.
8. Incorporated by reference to Post-Effective Amendment No. 29 to
Registrant's Registration Statement as filed with the Commission on
November 8, 1993.
ITEM 24. Persons Controlled by or Under Common Control with Registrant:
Not applicable.
ITEM 25. Indemnification:
Incorporated by reference to Post-Effective Amendment No. 38 to Registrant's
Registration Statement as filed with the Commission on April 29, 1996.
ITEM 26. Business and Other Connections of Investment Adviser:
Bankers Trust Company ("Bankers Trust") serves as investment adviser to the
Fund's Portfolio. Bankers Trust, a New York banking corporation, is a wholly
owned subsidiary of Bankers Trust Corporation. Bankers Trust conducts a variety
of commercial banking and trust activities and is a major wholesale supplier of
financial services to the international institutional market. To the knowledge
of the Trust, none of the directors or officers of Bankers Trust, except those
set forth below, is or has been at anytime during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers also hold various
positions with and engage in business for Bankers Trust Corporation. Set forth
below are the names and principal businesses of the directors and officers of
Bankers Trust who are or during the past two fiscal years have been engaged in
any other business, profession, vocation or employment of a substantial nature.
These persons may be contacted c/o Bankers Trust, 130 Liberty Street, New York,
New York 10006.
George B. Beitzel, International Business Machines Corporation ("IBM"), Old
Orchard Road, Armonk, NY 10504. Director, Bankers Trust; Retired Senior Vice
President and Director, IBM; Director, Computer Task Group; Director, Phillips
Petroleum Company; Director, Caliber Systems, Inc. (formerly, Roadway Services
Inc.); Director, Rohm and Haas Company; Director,
<PAGE>
TIG Holdings; Chairman Emeritus, Amherst College; and Chairman, Colonial
Williamsburg Foundation.
Richard H. Daniel, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Vice Chairman and Chief Financial Officer, Bankers Trust and Bankers Trust
Corporation; Beneficial owner, General Partner, Daniel Brothers, Daniel Lingo &
Assoc., Daniel Pelt & Assoc.; and beneficial owner, Rhea C. Daniel Trust.
Philip A. Griffiths, Bankers Trust, 130 Liberty Street, New York, New York
10006. Director, Institute for Advanced Study; Director, Bankers Trust;
Chairman, Committee on Science, Engineering and Public Policy of the National
Academies of Sciences and Engineering & the Institute of Medicine; Chairman and
member, Nominations Committee and Committee on Science and Engineering
Indicators, National Science Board; and Trustee, North Carolina School of
Science and Mathematics and the Woodward Academy.
William R. Howell, J.C. Penney Company, Inc., P.O. Box 10001, Plano, TX
75301-0001. Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers
Trust; Director, Exxon Corporation; Director, Halliburton Company; Director,
Warner-Lambert Corporation; Director, The Williams Companies, Inc.; and
Director, National Retail Federation.
Vernon E. Jordan, Jr., Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New
Hampshire Ave., N.W., Washington, DC 20036. Senior Partner, Akin, Gump, Strauss,
Hauer & Feld, LLP; Director, Bankers Trust; Director, American Express Company;
Director, Dow-Jones, Inc.; Director, J.C. Penney Company, Inc.; Director, Revlon
Group Incorporated; Director, Ryder System, Inc.; Director, Sara Lee
Corporation; Director, Union Carbide Corporation; Director, Xerox Corporation;
Trustee, Brookings Institution; Trustee, The Ford Foundation; and Trustee,
Howard University.
David Marshall, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Chief Information Officer and Executive Vice President, Bankers Trust
Corporation; Senior Managing Director, Bankers Trust.
Hamish Maxwell, Philip Morris Companies Inc., 120 Park Avenue, New York, NY
10006. Retired Chairman and Chief Executive Officer, Philip Morris Companies
Inc.; Director, Bankers Trust; Director, The News Corporation Limited; Director,
Sola International Inc.; and Chairman, WWP Group plc.
Frank N. Newman, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Chairman of the Board, Chief Executive Officer and President, Bankers Trust
Corporation and Bankers Trust; Director, Bankers Trust; Director, Dow-Jones,
Inc.; and Director, Carnegie Hall.
N.J. Nicholas Jr., 745 Fifth Avenue, New York, NY 10020. Director, Bankers
Trust; Director, Boston Scientific Corporation; and Director, Xerox Corporation.
<PAGE>
Russell E. Palmer, The Palmer Group, 3600 Market Street, Suite 530,
Philadelphia, PA 19104. Chairman and Chief Executive Officer, The Palmer Group;
Director, Bankers Trust; Director, Allied-Signal Inc.; Director, Federal Home
Loan Mortgage Corporation; Director, GTE Corporation; Director, The May
Department Stores Company; Director, Safeguard Scientifics, Inc.; and Trustee,
University of Pennsylvania.
Donald L. Staheli, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Chairman of the Board and Chief Executive Officer, Continental Grain Company;
Director, Bankers Trust; Director, ContiFinancial Corporation; Director,
Prudential Life Insurance Company of America; Director, Fresenius Medical Care,
A.g.; Director, America-China Society; Director, National Committee on United
States-China Relations; Director, New York City Partnership; Chairman,
U.S.-China Business Council; Chairman, Council on Foreign Relations; Chairman,
National Advisor Council of Brigham Young University's Marriott School of
Management; Vice Chairman, The Points of Light Foundation; and Trustee, American
Graduate School of International Management.
Patricia Carry Stewart, Bankers Trust, Office of the Secretary, 130 Liberty
Street, New York, NY 10006. Director, Bankers Trust; Director, CVS Corporation;
Director, Community Foundation for Palm Beach and Martin Counties; Trustee
Emeritus, Cornell University.
George J. Vojta, Bankers Trust, 130 Liberty Street, New York, NY 10006. Vice
Chairman, Bankers Trust Corporation and Bankers Trust; Director, Bankers Trust;
Director, Alicorp S.A.; Director; Northwest Airlines; Director, Private Export
Funding Corp.; Director, New York State Banking Board; Director, St.
Lukes-Roosevelt Hospital Center; Partner, New York City Partnership; and
Chairman, Wharton Financial Services Center.
Paul A. Volcker, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Director, Bankers Trust; Director, American Stock Exchange; Director, Nestle
S.A.; Director, Prudential Insurance Company; Director, UAL Corporation;
Chairman, Group of 30; North American Chairman, Trilateral Commission;
Co-Chairman, Bretton Woods Committee; Co-Chairman, U.S./Hong Kong Economic
Cooperation Committee; Director, American Council on Germany; Director, Aspen
Institute; Director, Council on Foreign Relations; Director, The Japan Society;
and Trustee, The American Assembly.
Melvin A. Yellin, Bankers Trust, 130 Liberty Street, New York, New York 10006.
Senior Managing Director and General Counsel, Bankers Trust Corporation and
Bankers Trust; Director, 1136 Tenants Corporation; and Director, ABA Securities
Association.
Item 27. Principal Underwriters:
(a) ICC Distributors, Inc., the Distributor for shares of the Registrant, also
acts as principal underwriter for the following open-end investment companies:
BT Advisor Funds, BT Institutional Funds, and BT Pyramid Mutual Funds.
<PAGE>
(b) Unless otherwise stated, the principal business address for the following
persons is Two Portland Square, Portland, Maine 04101.
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
---------------- ---------------- ---------------
John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None
(c) None
ITEM 28. Location of Accounts and Records:
BT Investment Funds (Registrant): One South Street, Baltimore, MD 21202
Bankers Trust (Investment Adviser, Administrator, Custodian and Transfer Agent):
130 Liberty Street, New York, NY 10006
ICC Distributors, Inc. (Distributor): Two Portland Square, Portland, Maine 04101
ITEM 29. Management Services:
Not applicable.
ITEM 30. Undertakings:
The Registrant undertakes to comply with Section 16(c) of the 1940 Act as though
such provisions of the Act were applicable to the Registrant except that the
request referred to in the third full paragraph thereof may only be made by
shareholders who hold in the aggregate at least 10% of the outstanding shares of
the Registrant, regardless of the net asset value or values of shares held by
such requesting shareholders.
<PAGE>
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, BT INVESTMENT FUNDS, certifies
that it meets all of the requirements for effectiveness of this registration
statement under Rule 485(b) under the Securities Act and has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Baltimore and the State of
Maryland on the 15th day of March, 1999.
BT INVESTMENT FUNDS
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
March 15, 1999
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
persons in the capacity and on the date indicated:
NAME TITLE DATE
- ---- ----- ----
By: /s/ Daniel O. Hirsch Secretary March 15, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons
Listed Below)
/s/ John Y. Keffer* President and
John Y. Keffer Chief Executive Officer
/s/ Joseph A. Finelli* Treasurer (Principal
Joseph A. Finelli Financial and
Accounting Officer)
/s/ S. LELAND DILL** Trustee
S. Leland Dill
/s/ KELVIN J. LANCASTER** Trustee
Kelvin J. Lancaster
/s/ PHILIP SAUNDERS, JR.** Trustee
Philip Saunders, Jr.
* By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 57 to Registrant's Registration Statement as filed with the Commission on
February 8, 1999.
<PAGE>
** By Power of Attorney - Incorporated by reference to Post-Effective Amendment
No. 45 to Registrant's Registration Statement as filed with the Commission on
September 10, 1997.
<PAGE>
BT INVESTMENT FUNDS
One South Street
Baltimore, Maryland 21202
March 15, 1999
EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, Northwest
Washington, DC 20549
Re: BT INVESTMENT FUNDS (the "Trust")
1933 Act File No. 33-07404
1940 Act File No. 811-4760
Dear Sir or Madam:
Post-Effective No. 60 under the Securities Act of 1933, as amended (the
"1933 Act") and Amendment No. 60 under the Investment Company Act of 1940 to the
Registration Statement of the above-referenced Trust is hereby electronically
transmitted. This filing is being made pursuant to paragraph (b) of Rule 485
under the 1933 Act. Also, this is to confirm that the BT Pyramid Quantitative
Merger Arbitrage Fund is the only fund managed by Bankers Trust that has
substantially the same investment objectives, policies and strategies as the
Quantitative Equity Fund.
If you have any questions regarding this filing, please call me at (410)
895-3776.
Very truly yours,
Daniel O. Hirsch
Secretary
Enclosures
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of December 31, 1998 by and between BT INVESTMENT
FUNDS, a Massachusetts business trust (herein called the "Trust") and BANKERS
TRUST COMPANY (herein called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940;
WHEREAS, the Trust desires to retain the Investment Adviser to render
investment advisory and other services to the Trust with respect to certain of
its series of shares of beneficial interests as may currently exist or be
created in the future (each, a "Fund") as listed on Exhibit A hereto, and the
Investment Adviser is willing to so render such services on the terms
hereinafter set forth;
NOW, THEREFORE, this Agreement
W I T N E S S E T H:
In consideration of the promises and mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Investment Adviser to act
as investment adviser to each Fund for the period and on the terms set forth in
this Agreement. The Investment Adviser accepts such appointment and agrees to
render the services herein set forth for the compensation herein provided.
2. Management. Subject to the supervision of the Board of Trustees of
the Trust, the Investment Adviser will provide a continuous investment program
for the Fund, including investment research and management with respect to all
securities, investments, cash and cash equivalents in the Fund. The Investment
Adviser will determine from time to time what securities and other investments
will be purchased, retained or sold by each Fund. The Investment Adviser will
provide the services rendered by it hereunder in accordance with the investment
objective(s) and policies of each Fund as stated in the Fund's then-current
prospectus and statement of additional information (or the Fund's then current
registration statement on Form N-1A as filed with the Securities and Exchange
Commission (the "SEC") and the then-current offering memorandum if the Fund is
not registered under the Securities Act of 1933, as amended ("1933 Act"). The
Investment Adviser further agrees that it:
(a) will conform with all applicable rules and regulations of the
SEC (herein called the "Rules") and with the 1933 Act; as amended, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Investment
Company Act of 1940, as amended (the "1940 Act"); and the Investment Advisers
Act of 1940, as amended (the "Advisers Act"), and will, in addition, conduct its
activities under this Agreement in accordance with regulations of the Board of
Governors of the Federal Reserve System
<PAGE>
pertaining to the investment advisory activities of bank holding companies and
their subsidiaries;
(b) will place orders pursuant to its investment determinations
for each Fund either directly with the issuer or with any broker or dealer
selected by it. In placing orders with brokers and dealers, the Investment
Adviser will use its reasonable best efforts to obtain the best net price and
the most favorable execution of its orders, after taking into account all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. Consistent with this
obligation, the Investment Adviser may, to the extent permitted by law, purchase
and sell portfolio securities to and from brokers and dealers who provide
brokerage and research services (within the meaning of Section 28(e) of the 1934
Act) to or for the benefit of any fund and/or other accounts over which the
Investment Adviser or any or its affiliates exercises investment discretion.
Subject to the review of the Trust's Board of Trustees from time to time with
respect to the extent and continuation of the policy, the Investment Adviser is
authorized to pay to a broker or dealer who provides such brokerage and research
services a commission for effecting a securities transaction which is in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction if the Investment Adviser determines in good faith
that such commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the overall responsibilities of the
Investment Adviser with respect to the accounts as to which it exercises
investment discretion; and
(c) will maintain books and records with respect to the
securities transactions of each Fund and will render to the Trust's Board of
Trustees such periodic and special reports as the Board may request.
3. Services Not Exclusive. The investment advisory services rendered by
the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to render similar services to others so long as
its services under this Agreement are not impaired thereby.
4. Books and Records. In compliance with the requirements of Rule 31a-3
of the Rules under the 1940 Act, the Investment Adviser hereby agrees that all
records which it maintains for the Trust are the property of the Trust and
further agrees to surrender promptly to the Trust any of such records upon
request of the Trust. The Investment Adviser further agrees to preserve for the
periods prescribed by Rule 31 a-2 under the 1940 Act the records required to be
maintained by Rule 31 a-1 under the 1940 Act and to comply in full with the
requirements of Rule 204-2 under the Advisers Act pertaining to the maintenance
of books and records.
2
<PAGE>
5. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of purchasing securities (including brokerage
commissions, if any) for the Fund.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Trust will pay the Investment Adviser, and the
Investment Adviser will accept as full compensation therefor, fees, computed
daily and payable monthly, on an annual basis equal to the percentage set forth
on Exhibit A hereto of that Fund's average daily net assets.
7. Limitation of Liability of the Investment Adviser: Indemnification.
(a) The Investment Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by a Fund in connection with
the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement;
(b) Subject to the exceptions and limitations contained in
Section 7(c) below:
(i) the Investment Adviser (hereinafter referred to as a
"Covered Person") shall be indemnified by the respective Fund to the fullest
extent permitted by law, against liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or proceeding
in which he becomes involved, as a party or otherwise, by virtue or his being or
having been the Investment Adviser of the Fund, and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or thereafter,
and the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(c) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body
before which the proceeding was brought (A) to be liable to the Trust or to one
or more Funds' investors by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, or (B) not to have acted in good faith in the
3
<PAGE>
reasonable belief that his action was in the best interest of a Fund; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(A) by the court or other body approving the
settlement; or
(B) by at least a majority of those Trustees who
are neither Interested Persons of the Trust nor are parties to the matter based
upon a review of readily available facts (as opposed to a full trial-type
inquiry); or
(C) by written opinion of independent legal
counsel based upon a review of readily available facts (as opposed to a full
trial-type inquiry); provided, however, that any investor in a Fund may, by
appropriate legal proceedings, challenge any such determination by the Trustees
or by independent counsel.
(d) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the successors and assigns of
such person. Nothing contained herein shall affect any rights to indemnification
to which Trust personnel and any other persons, other than a Covered Person, may
be entitled by contract or otherwise under law.
(e) Expenses in connection with the preparation and presentation
of a defense to any claim, suit or proceeding of the character described in
subsection (b) of this Section 7 may be paid by the Trust on behalf of the
respective Fund from time to time prior to final disposition thereto upon
receipt of an undertaking by or on behalf of such Covered Person that such
amount will be paid over by him to the Trust on behalf of the respective Fund if
it is ultimately determined that he is not entitled to indemnification under
this Section 7; provided, however, that either (i) such Covered Person shall
have provided appropriate security for such undertaking or (ii) the Trust shall
be insured against losses arising out of any such advance payments, or (iii)
either a majority of the Trustees who are neither Interested Persons of the
Trust nor parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily available facts
as opposed to a trial-type inquiry or full investigation, that there is reason
to believe that such Covered Person will be entitled to indemnification under
this Section 7.
8. Duration and Termination. This Agreement shall be effective as to a
Fund as of the date the Fund commences investment operations after this
Agreement shall have
4
<PAGE>
been approved by the Board of Trustees of the Trust with respect to that Fund
and the Investor(s) in the Fund in the manner contemplated by Section 15 of the
1940 Act and, unless sooner terminated as provided herein, shall continue until
the second anniversary of such date. Thereafter, if not terminated, this
Agreement shall continue in effect as to such Fund for successive periods of 12
months each, provided such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Board of Trustees
of the Trust who are not parties to this Agreement or Interested Persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval, or (b) by Vote of a Majority of the Outstanding Voting Securities of
the Trust; provided, however, that this Agreement may be terminated by the Trust
at any time, without the payment of any penalty, by the Board of Trustees of the
Trust, by Vote of a Majority of the Outstanding Voting Securities of the Trust
on 60 days' written notice to the Investment Adviser, or by the Investment
Adviser as to the Trust at any time, without payment of any penalty, on 90 days'
written notice to the Trust. This Agreement will immediately terminate in the
event of its assignment (as used in this Agreement, the terms "Vote of a
Majority of the Outstanding Voting Securities," "Interested Person" and
"Assignment' shall have the same meanings as such terms have in the 1940 Act and
the rules and regulatory constructions thereunder.)
9. Amendment of this Agreement. No material term of this Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of a material term of this
Agreement shall be effective with respect to a Fund, until approved by Vote of a
Majority of the Outstanding Voting Securities of that Fund.
10. Representations and Warranties. The Investment Adviser hereby
represents and warrants as follows:
(a) The Investment Adviser is exempt from registration under the
1940 Act:
(b)The Investment Adviser has all requisite authority to enter
into, execute, deliver and perform its obligations under this Agreement;
(c) This Agreement is legal, valid and binding, and enforceable
in accordance with its terms; and
(d) The performance by the Investment Adviser of its obligations
under this Agreement does not conflict with any law to which it is subject.
11. Covenants. The Investment Adviser hereby covenants and agrees that,
so long as this Agreement shall remain in effect:
5
<PAGE>
(a) The Investment Adviser shall remain either exempt from, or
registered under, the registration provisions of the Advisers Act; and
(b) The performance by the Investment Adviser of its obligations
under this Agreement shall not conflict with any law to which it is then
subject.
12. Notices. Any notice required to be given pursuant to this Agreement
shall be deemed duly given if delivered or mailed by registered mail, postage
prepaid, (a) to the Investment Adviser, Mutual Funds Services, 130 Liberty
Street (One Bankers Trust Plaza), New York, New York 10006 or (b) to the Trust,
c/o BT Alex. Brown, Inc., One South Street, Baltimore, Maryland 21230.
13. Waiver. With full knowledge of the circumstances and the effect of
its action, the Investment Adviser hereby waives any and all rights which it may
acquire in the future against the property of any investor in a Fund, other than
shares in that Fund, which arise out of any action or inaction of the Trust
under this Agreement.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by the
laws of the Commonwealth of Massachusetts, without reference to principles of
conflicts of law. The Trust is organized under the laws of the Commonwealth of
Massachusetts pursuant to a Declaration of Trust dated July 21, 1986. No
Trustee, officer or employee of the Trust shall be personally bound by or liable
hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
BT INVESTMENT FUNDS
By: /s/ Daniel O. Hirsch
------------------------------
Name: Daniel O. Hirsch
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ Brian W. Wixted
------------------------------
Name: Brian W. Wixted
Title: Vice President
7
<PAGE>
EXHIBIT A
TO
INVESTMENT ADVISORY AGREEMENT
MADE AS OF DECEMBER 31, 1998
BETWEEN
BT INVESTMENT FUNDS AND BANKERS TRUST COMPANY
Fund Investment Advisory Fee
- ---- -----------------------
Quantitative Equity Fund 0.50%
8
<PAGE>
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 31st day of
December, 1998 by and between BT INVESTMENT FUNDS, a Massachusetts Business
trust (the "Trust"), CASH MANAGEMENT PORTFOLIO, TAX FREE MONEY PORTFOLIO, NY TAX
FREE MONEY PORTFOLIO AND TREASURY MONEY PORTFOLIO, each a New York trust (each a
"Portfolio Trust"), and BANKERS TRUST, a New York corporation (the "Adviser"),
with respect to the following:
WHEREAS, the Adviser serves as BT Investment Funds' Investment Adviser
pursuant to an Investment Advisory Agreement dated December 31, 1998, the
Adviser serves as the Cash Management Portfolio's, Tax Free Money Portfolio's,
NY Tax Free Money Portfolio's and Treasury Money Portfolios' Investment Adviser
pursuant to Investment Advisory Agreements dated April 23, 1990, and as
re-approved thereafter, and the Adviser serves as the Trust's Administrator
pursuant to an Administration and Services Agreement dated October 28, 1992
(collectively, the "Agreements"); and
WHEREAS, the Adviser has voluntarily agreed, under the Agreements, to
waive its fees and reimburse expenses so that the total operating expenses for
each of the Trust's series (each a "Fund," collectively the "Funds") and each
Portfolio Trust's series (each a "Portfolio," collectively the "Portfolios")
will not exceed the percentage of average daily net assets as set forth on
Exhibit A; and
WHEREAS, the Trust and the Adviser desire to formalize this voluntary
fee waiver and expense reimbursement arrangement for a 16-month period beginning
on December 31, 1998 and ending on April 30, 2000.
NOW, in consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. The Adviser agrees to waive its fees and reimburse expenses for a
16-month period from December 31, 1998 to April 30, 2000 to the
extent necessary so that each Fund's total annual operating
expenses do not exceed the percentage of average daily net assets
set forth on Exhibit A.
2. Upon the termination of the Investment Advisory Agreement or the
Administration Agreement, this Agreement shall automatically
terminate.
3. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a
term or provision of the Investment
<PAGE>
Company Act of 1940 (the "1940 Act") shall be resolved by
reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or
in the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission ("SEC") issued pursuant to said Act. In addition,
where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or
order of the SEC, such provision shall be deemed to incorporate
the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance
with the laws of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL]
BT INVESTMENT FUNDS
Attest: /s/ Amy M. Olmert By: /s/ Daniel O. Hirsch
----------------------- ---------------------------
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
CASH MANAGEMENT PORTFOLIO
Attest: /s/ Amy M. Olmert By: /s/ Daniel O. Hirsch
----------------------- ---------------------------
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
TAX FREE MONEY PORTFOLIO
Attest: /s/ Amy M. Olmert By: /s/ Daniel O. Hirsch
----------------------- ---------------------------
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
NY TAX FREE MONEY PORTFOLIO
Attest: /s/ Amy M. Olmert By: /s/ Daniel O. Hirsch
----------------------- ---------------------------
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
TREASURY MONEY PORTFOLIO
Attest: /s/ Amy M. Olmert By: /s/ Daniel O. Hirsch
----------------------- ---------------------------
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
BANKERS TRUST
Attest: /s/ Amy M. Olmert By: /s/ Brian W. Wixted
----------------------- ---------------------------
Name: Amy M. Olmert Name: Brian W. Wixted
Title: Principal
<PAGE>
Exhibit A
Total Fund Operating Expenses
Fund (as a percentage of average daily net assets)
- ---- ---------------------------------------------
Cash Management Fund 0.75%
Tax Free Money Fund 0.75%
NY Tax Free Money Fund 0.75%
Treasury Money Fund 0.75%
Quantitative Equity Fund 0.90%
<PAGE>
Bingham Dana LLP
150 Federal Street
Boston, MA 01220
March 15, 1999
BT Investment Funds
One South Street
Baltimore, Maryland 21202
Re: Registration Statement on Form N-1A under the Securities Act of
1933
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to BT Investment Funds
(the "Trust") on behalf of its series Quantitative Equity Fund (the "Fund") in
connection with the Trust's Registration Statement on Form N-1A to be filed on
or about March 15, 1999 (as so amended the "Registration Statement") with
respect to the Fund's shares of beneficial interest, par value $0.01 per share
(the "Shares"). You have requested that we deliver this opinion to you in
connection with the Trust's filing of such Registration Statement.
In connection with the furnishing of this opinion, we have examined the
following documents:
(a) a certificate dated as of a recent date of the Secretary of
the Commonwealth of Massachusetts as to the existence of the Trust;
(b) a copy, certified by the Secretary of the Commonwealth of
Massachusetts, of the Trust's Declaration of Trust dated July 21, 1986,
and all amendments thereto on file with the Secretary of the
Commonwealth (the "Declaration of Trust") ;
(c) a Certificate executed by an appropriate officer of the
Trust, certifying as to, and attaching copies of, the Trust's
Declaration of Trust, By-Laws, and certain resolutions adopted by the
Trustees of
<PAGE>
BT Investment Funds
March 15, 1999
Page 2
the Trust on December 9, 1998 and March 8, 1999 designating the Fund as
a series of the Trust and authorizing the issuance of the Shares (the
"Resolutions");
(d) a draft dated as of February 26, 1999 of the Fund's
prospectus and a draft dated February 22, 1999 of the Fund's Statement
of Additional Information each to be included in the Registration
Statement.
In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all of the documents reviewed by us as
copies, the authenticity and completeness of all original documents reviewed by
us in original or copy form and the legal competence of each individual
executing any document. We have assumed that the Registration Statement, as
filed with the Securities and Exchange Commission, will be in substantially the
form of the drafts referred to in paragraph (d) above and that the minutes
setting forth the Resolutions will be approved by the Trustees of the Trust in
substantially the form attached to the Certificate referred to in paragraph (c)
above.
This opinion is based entirely on our review of the documents listed
above and such investigation of law as we have deemed necessary or appropriate.
We have made no other review or investigation of any kind whatsoever, and we
have assumed, without independent inquiry, the accuracy of the information set
forth in such documents.
This opinion is limited solely to the internal substantive laws of the
Commonwealth of Massachusetts as applied by courts located in such Commonwealth,
except that we express no opinion as to any Massachusetts securities law.
We understand that all of the foregoing assumptions and limitations are
acceptable to you.
Based upon and subject to the foregoing, please be advised that it is
our opinion that:
1. The Trust is duly organized and existing under the Trust's
Declaration of Trust and the laws of the Commonwealth of Massachusetts as a
voluntary association with transferable shares of beneficial interest commonly
referred to as a "Massachusetts business trust."
<PAGE>
BT Investment Funds
March 15, 1999
Page 3
2. The Shares, when issued and sold in accordance with the Trust's
Declaration of Trust, the Resolutions and By-Laws and for the consideration
described in the Registration Statement, will be legally issued, fully paid and
non-assessable, except that, as set forth in the Registration Statement,
shareholders of the Fund may under certain circumstances be held personally
liable for its obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Bingham Dana LLP
BINGHAM DANA LLP
