o BT INVESTMENT FUNDS o
INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation primarily from foreign equity securities,
or other securities with equity characteristics.
PROSPECTUS
- --------------------------------------------------------------------------------
JANUARY 31, 1998
AS REVISED
JANUARY 11, 1999
BT Investment Funds (the "Trust") is an open-end, management investment company
(mutual fund) which consists of a number of separate investment funds.
Please read this Prospectus carefully before investing and retain it for future
reference. It contains important information about the International Equity
Fund (the "Fund") that you should know and can refer to in deciding whether the
Fund's goals match your own.
A Statement of Additional Information ("SAI") with the same date has been filed
with the Securities and Exchange Commission ("SEC"), and is incorporated herein
by reference. You may request a copy of the SAI or a paper copy of this
prospectus, if you have received your prospectus electronically, free of charge
by calling the Fund's Service Agent at 1-800-730-1313. The SAI, material
incorporated by reference into this document, and other information regarding
the Trust is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE
BY INVESTING ALL OF ITS INVESTABLE ASSETS ("ASSETS") IN THE INTERNATIONAL
EQUITY PORTFOLIO (THE "PORTFOLIO"), A SEPARATE DIVERSIFIED INVESTMENT COMPANY
WITH AN IDENTICAL INVESTMENT OBJECTIVE. THE INVESTMENT PERFORMANCE OF THE FUND
WILL CORRESPOND DIRECTLY TO THE INVESTMENT PERFORMANCE OF THE PORTFOLIO. SEE
"SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE" HEREIN.
BANKERS TRUST COMPANY ("BANKERS TRUST") IS THE INVESTMENT ADVISER (THE
"ADVISER") OF THE PORTFOLIO. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, BANKERS TRUST OR ANY OTHER BANKING OR
DEPOSITORY INSTITUTION. SHARES ARE NOT FEDERALLY GUARANTEED OR INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE U.S. GOVERNMENT, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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.
ICC DISTRIBUTORS, INC.
Two Portland Square, Portland, Maine 04101
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PAGE
- --------------------------------------------------------------------------------
The Fund ..................................................................... 3
Who May Want To Invest ....................................................... 3
Investment Principles and Risks .............................................. 3
Summary of Fund Expenses ..................................................... 4
Financial Highlights ......................................................... 5
Investment Objective and Policies ............................................ 6
Risk Factors: Matching the Fund to Your Investment Needs ..................... 8
Net Asset Value ............................................................. 11
Purchase and Redemption of Shares ........................................... 11
Dividends, Distributions and Taxes .......................................... 16
Performance Information and Reports ......................................... 16
Management of the Trust and Portfolio ....................................... 17
Additional Information ...................................................... 20
- --------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------
The Fund's investment objective is long-term capital appreciation from
investment in foreign equity securities (or other securities with equity
characteristics); the production of any current income is incidental to this
objective. The Portfolio invests primarily in established companies based in
developed countries outside the United States, but the Portfolio may also
invest in emerging market securities.
The Trust seeks to achieve the investment objective of the Fund by investing
all the Assets of the Fund in the Portfolio.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
- --------------------------------------------------------------------------------
The Fund is designed for investors who are willing to accept short-term foreign
stock market fluctuations in pursuit of potentially higher long-term returns.
The Fund invests for capital appreciation and does not pursue income.
In addition, the Fund may also be appropriate for investors who want to pursue
their investment goals in markets outside the United States. By including
international investments in your portfolio, you can achieve an extra level of
diversification and also participate in opportunities around the world.
The Fund is not in itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision. When investors sell their Fund shares, they may be worth more or less
than what they originally paid for them.
- --------------------------------------------------------------------------------
INVESTMENT PRINCIPLES AND RISKS
- --------------------------------------------------------------------------------
The value of the Portfolio's investments varies based on many factors. Stock
values fluctuate, sometimes dramatically, in response to the activities of
individual companies and general market and economic conditions. Over time,
however, stocks have shown greater long-term growth potential than other types
of securities.
Because many foreign investments are denominated in foreign currencies, changes
in the value of these currencies can significantly affect the Fund's share
price. General economic factors in the various world markets can
also impact the value of an investor's investment, especially for securities in
emerging markets. Many investments in emerging markets can be considered
speculative, and therefore may offer higher total return potential, but
significantly greater risk.
Bankers Trust may use various investment techniques to hedge the Portfolio's
risks, but there is no guarantee that these strategies will work as intended.
When an investor sells their Fund shares ("Shares"), they may be worth more or
less than what they originally paid for them. See "Risk Factors: Matching the
Fund to Your Investment Needs" herein for more information.
3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses are paid out of the assets of the Portfolio and
Fund. The Portfolio pays an investment advisory fee and an administrative
services fee to Bankers Trust. The Fund incurs expenses such as maintaining
shareholder records and furnishing shareholder statements. The Fund must
provide financial reports.
The following table provides (i) a summary of estimated expenses relating to
purchases and sales of the shares of the Fund and the annual operating expenses
of the Fund and the expenses of the Portfolio, as a percentage of average net
assets of the Fund and (ii) an example illustrating the dollar cost of such
expenses on a $1,000 investment in the Fund. THE TRUSTEES OF THE TRUST BELIEVE
THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND AND THE PORTFOLIO WILL BE
LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH THE FUND WOULD INCUR IF
THE TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND THE ASSETS OF THE
FUND WERE INVESTED DIRECTLY IN THE TYPE OF SECURITIES BEING HELD BY THE
CORRESPONDING PORTFOLIO.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ANNUAL OPERATING EXPENSES
(as a percentage of the average daily net assets of the Fund)
..........................................................................
Investment advisory fee (after reimbursements or waivers) 0.58%
12b-1 fees None
Other expenses (after reimbursements or waivers) 0.92%
.........................................................................
Total operating expenses (after reimbursements or waivers) 1.50%
..........................................................................
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 Years 5 years 10 years
<S> <C> <C> <C> <C>
............................................................................................................................
You would pay the following expenses on a $1,000 investment, assuming:
(1) 5% annual return and (2) redemption at the end of each time period: $15 $47 $82 $179
</TABLE>
The expense table and the example above show the costs and expenses that an
investor will bear directly or indirectly as a shareholder of the Fund. Bankers
Trust has voluntarily agreed to waive a portion of its investment advisory fee
with respect to the Portfolio. Without such waiver, the Portfolio's investment
advisory fee would be equal to 0.65%. The expense table and the example reflect
a voluntary undertaking by Bankers Trust to waive or reimburse expenses such
that the total aggregate operating expenses will not exceed 1.50% of the Fund's
average daily net assets annually. In the absence of this undertaking, for the
fiscal year ended September 30, 1997, "Total Operating Expenses" would have
been 1.68% of the Fund's average daily net assets annually. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover, while each example
assumes a 5% annual return, actual performance will vary and may result in a
return greater or less than 5%.
The Fund is distributed by ICC Distributors, Inc. ("ICC" or the "Distributor")
to investors, including customers of Bankers Trust or to customers of another
bank or a dealer or other institution that has a sub-shareholder servicing
agreement with Bankers Trust (along with Bankers Trust, a "Service Agent").
Some Service Agents may impose certain conditions on their customers in
addition to or different from those imposed by the Fund and may charge their
customers a direct fee for their services, including transaction fees on
purchases and redemptions of Fund shares. Each Service Agent has agreed to
transmit to shareholders who are its customers appropriate disclosures of any
fees that it may charge them directly.
For more information with respect to the expenses of the Fund and the Portfolio
see "Management of the Trust and Portfolio" herein.
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table shows selected data for a Share outstanding, total
investment return, ratios to average net assets and other supplemental data of
the Fund for each period indicated and has been audited by
PricewaterhouseCoopers, the Fund's independent accountants, whose report
thereon appears in the Fund's Annual Report which is incorporated by reference.
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, FOR THE PERIOD DECEMBER 31,
------------------------- JANUARY 1, 1995 TO ----------------------
1997 1996 SEPTEMBER 30, 1995* 1994 1993
------------ ------------ -------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD .................... $ 16.77 $ 15.47 $ 13.37 $ 13.18 $ 9.75
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .................................. 0.09 0.18 0.14 0.10 0.05
Net Realized and Unrealized Gain on Investments,
Options, Foreign Currencies and Forward Foreign
Currency Contracts ................................... 5.63 1.80 1.97 0.44 3.60
-------- -------- ------- ------- -------
Total from Investment Operations ........................ 5.72 1.98 2.11 0.54 3.65
-------- -------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income .................................. 0.16 ( 0.31) ( 0.00) ( 0.09) ( 0.15)
Net Realized Gain from Investment Transactions ......... 0.20 ( 0.37) ( 0.01) ( 0.26) ( 0.07)
-------- -------- -------- ------- -------
Total Distributions ..................................... 0.36 ( 0.68) ( 0.01) ( 0.35) ( 0.22)
-------- -------- -------- ------- -------
Net Asset Value, End of Period .......................... $ 22.13 $ 16.77 $ 15.47 $ 13.37 $ 13.18
======== ======== ======== ======= =======
Total Investment Return ................................. 34.76% 13.42% 15.82 % 4.12% 37.38%
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) ............... $525,520 $161,692 $ 82,807 $56,020 $33,869
Ratios to Average Net Assets:
Net Investment Income ................................ 0.53% 0.91% 1.55%** 0.84% 0.79%
Expenses, Including Expenses of the
International Equity Portfolio ...................... 1.50% 1.50% 1.50%** 1.50% 1.50%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust ....................................... 0.18% 0.26% 0.33%** 0.37% 0.62%
</TABLE>
* On August 2, 1995, the Board of Trustees approved the change of the
fiscal year end from December 31 to September 30.
** Annualized
Further information about the Fund's performance is contained in the Fund's
Annual Report dated September 30, 1997, which can be obtained free of charge.
5
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is long-term capital appreciation from
investment in foreign equity securities (or other securities with equity
characteristics); the production of any current income is incidental to this
objective.
The Trust seeks to achieve the investment objective of the Fund by investing
all the Assets of the Fund in the Portfolio, which has the same investment
objective as the Fund. Since the investment characteristics of the Fund will
correspond directly to the Portfolio, the following is a discussion of the
various investments of and techniques employed by the Portfolio. Additional
information about the investment policies of the Portfolio appears in "Risk
Factors: Matching the Fund to your Investment Needs" herein and in the SAI.
There can be no assurances that the investment objective of either the Fund or
the Portfolio will be achieved. The investment objective of the Fund and the
Portfolio is not a fundamental policy and may be changed upon notice to, but
without the approval of, the Fund's shareholders or the Portfolio's investors,
respectively. See "Special Information Concerning Master-Feeder Fund Structure"
herein.
INTERNATIONAL EQUITY PORTFOLIO
Under normal circumstances, the Portfolio invests at least 65% of the value of
its total assets in the equity securities of foreign issuers, consisting of
common stock and other securities with equity characteristics. These issuers
are primarily established companies based in developed countries outside the
United States. However, the Portfolio may also invest in securities of issuers
in emerging market countries. See "Risk Factors: Matching the Fund to Your
Investment Needs -- Risks of Investing in Foreign Securities" and " -- Risks of
Investing in Emerging Markets" herein. Investments in these countries will be
based on what the Adviser believes to be an acceptable degree of risk in
anticipation of superior returns. The Portfolio will at all times be invested
in the securities of issuers based in at least three countries other than the
United States. For further discussion of the unique risks associated with
investing in foreign securities in both developed and underdeveloped countries,
see "Risk Factors: Matching the Fund to Your Investment Needs," and "Additional
Information" herein and the SAI.
The Portfolio's investments will generally be diversified among at least three
countries other than the United States. Criteria for determining the
appropriate distribution of investments among various countries and regions
include the prospects for relative growth among foreign countries, expected
levels of inflation, government policies influencing business conditions, the
outlook for currency relationships and the range of alternative opportunities
available to international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Portfolio. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, managerial
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Portfolio may invest in securities of companies
having various levels of net worth, including smaller companies whose
securities may be more volatile than securities offered by larger companies
with higher levels of net worth.
In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, the Portfolio may
choose to invest only at the market level. Here, the Portfolio may seek to
achieve country exposure through use of options or futures based on an
established local index. Similarly, country exposure may also be achieved
through investments in other registered investment companies. Restrictions on
both these types of investments are fully explained herein and in the SAI.
The remainder of the Portfolio's assets will be invested in dollar and
non-dollar denominated short-term instruments. These investments are subject to
the conditions described in "Short-Term Instruments" below.
EQUITY INVESTMENTS. The Portfolio invests primarily in common stocks and other
securities with equity characteristics. For purposes of the Portfolio's policy
of investing at least 65% of the value of its total assets in the equity
securities of foreign issuers, "equity securities" are defined as common stock,
preferred stock, trust or limited partnership interests, rights and warrants,
and convertible securities, (consisting of debt securities or preferred stock
that may be converted into common stock or that carry the right to purchase
common stock). The Portfolio invests in securities listed on foreign or
domestic securities exchanges and securities traded in foreign or domestic
over-the-counter markets, in addition to investment in restricted or unlisted
securities.
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
With respect to certain countries in which capital markets are either less
developed or not easily accessed, investments by the Portfolio may be made
through investment in other investment companies that in turn are authorized to
invest in the securities of such countries. Investment in other investment
companies is limited in amount by the Investment Company Act of 1940 (the "1940
Act"), will involve the indirect payment of a portion of the expenses,
including advisory fees, of such other investment companies and may result in a
duplication of fees and expenses.
SHORT-TERM INSTRUMENTS. The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its objective
and long-term investment perspective. However, the Portfolio's assets may be
invested in short-term instruments with remaining maturities of 397 days or
less (or in money market mutual funds) to meet anticipated redemptions and
expenses or for day-to-day operating purposes and when, in Bankers Trust's
opinion, it is advisable to adopt a temporary defensive position because of
unusual and adverse conditions affecting the equity markets. In addition, when
the Portfolio experiences large cash inflows through the sale of securities and
desirable Equity securities that are consistent with the Portfolio's investment
objective are unavailable in sufficient quantities or at attractive prices, the
Portfolio may hold short-term investments for a limited time pending
availability of such Equity securities. Short-term instruments consist of
foreign and domestic: (i) short-term obligations of sovereign governments,
their agencies, instrumentalities, authorities or political subdivisions; (ii)
other short-term debt securities rated Aa or higher by Moody's Investors
Service, Inc. ("Moody's") or AA or higher by Standard & Poor's Ratings Group
("S&P") or, if unrated, of comparable quality in the opinion of Bankers Trust;
(iii) commercial paper; (iv) bank obligations, including negotiable
certificates of deposit, time deposits and bankers' acceptances; and (v)
repurchase agreements. At the time the Portfolio invests in commercial paper,
bank obligations or repurchase agreements, the issuer or the issuer's parent
must have outstanding debt rated Aa or higher by Moody's or AA or higher by S&P
or outstanding commercial paper or bank obligations rated Prime-1 by Moody's or
A-1 by S&P; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of Bankers Trust. These instruments may be
denominated in U.S. dollars or in foreign currencies and will have been
determined to be of high quality by a nationally recognized statistical rating
organization, or if unrated, by Bankers Trust. For more information on these
rating categories see "Appendix" in the SAI.
ADDITIONAL INVESTMENT TECHNIQUES
The Portfolio may also utilize the following investments and investment
techniques and practices: American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs"), when-issued
and delayed delivery securities, Rule 144A securities, securities lending,
repurchase agreements, foreign currency exchange transactions, options on
foreign currencies, options on stocks, options on foreign stock indices,
futures contracts on foreign stock indices and options on futures contracts.
See "Additional Information" herein for further information.
ADDITIONAL INVESTMENT LIMITATIONS
As a diversified fund, no more than 5% of the assets of the Portfolio may be
invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Portfolio's assets may be invested
without regard to this limitation. The Portfolio will not invest more than 25%
of its assets in the securities of issuers in any one industry. These are
fundamental investment policies of the Portfolio which may not be changed
without investor approval. No more than 15% of the Portfolio's net assets may
be invested in illiquid or not readily marketable securities (including
repurchase agreements and time deposits with remaining maturities of more than
seven calendar days). Additional investment policies of the Portfolio are
contained in the SAI.
7
<PAGE>
- --------------------------------------------------------------------------------
RISK FACTORS: MATCHING THE FUND TO YOUR INVESTMENT NEEDS
- --------------------------------------------------------------------------------
By itself, the Fund does not constitute a balanced investment plan; the Fund
seeks long-term capital appreciation from investment primarily in the Equity
securities (or other securities with equity characteristics) of foreign
issuers. Changes in domestic and foreign interest rates may affect the value of
the Portfolio's investments, and rising interest rates can be expected to
reduce the Fund's share value. A description of a number of investments and
investment techniques available to the Portfolio, including foreign investments
and the use of options and futures, and certain risks associated with these
investments and techniques is included under "Additional Information" herein.
The Fund's share price and total return fluctuate and your investment may be
worth more or less than your original cost when you redeem your shares.
RISKS OF INVESTING IN FOREIGN SECURITIES
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities
of companies organized and operated in the United States. Although the
Portfolio intends to invest primarily in securities of established companies
based in developed countries, investors should realize that the value of the
Portfolio's investments may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it
may also be more difficult to obtain and enforce a judgment against a foreign
issuer. In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial
reporting requirements applicable to issuers in the United States. Any foreign
investments made by the Portfolio must be made in compliance with U.S. and
foreign currency restrictions and tax laws restricting the amounts and types of
foreign investments.
The Portfolio may invest in the securities of issuers based in underdeveloped
countries. Investment in securities of issuers based in underdeveloped
countries entails all of the risks of investing in securities of foreign
issuers outlined in this section to a heightened degree. These heightened risks
include: (i) greater risks of expropriation, confiscatory taxation,
nationalization, and less social, political and economic stability; (ii) the
smaller size of the market for such securities and a low or nonexistent volume
of trading, resulting in lack of liquidity and in price volatility; and (iii)
certain national policies which may restrict the Portfolio's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes
in exchange rates. Generally, the Portfolio's currency exchange transactions
will be conducted on a spot (i.e., cash) basis at the spot rate prevailing in
the currency exchange market. The cost of the Portfolio's currency exchange
transactions will generally be the difference between the bid and offer spot
rate of the currency being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange rates, the
Portfolio is authorized to enter into certain foreign currency exchange
transactions. See "Additional Information" herein.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange, Inc. (the "NYSE"). Accordingly, the
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of U.S. companies. Moreover,
the settlement periods for foreign securities, which are often longer than
those for securities of U.S. issuers, may affect portfolio liquidity. In buying
and selling securities on foreign exchanges, the Portfolio normally pays fixed
commissions that are generally higher than the negotiated commissions charged
in the United States. In addition, there is generally less government
supervision and regulation of securities exchanges, brokers and issuers in
foreign countries than in the United States.
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Further information about the foreign securities in which the Portfolio may
invest, including a further discussion of related risks and special
considerations is contained in the SAI.
RISKS OF INVESTING IN EMERGING MARKETS
The world's industrialized markets generally include but are not limited to the
following: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States; the world's emerging
markets generally include but are not limited to the following: Argentina,
Botswana, Bolivia, Brazil, Bulgaria, Chile, China, Colombia, Costa Rica, the
Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, the
Ivory Coast, Jordan, Korea, Mexico, Morocco, Nicaragua, Nigeria, Pakistan,
Peru, the Philippines, Poland, Romania, Russia, Slovakia, Slovenia, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela,
Vietnam and Zimbabwe.
Investment in securities of issuers based in underdeveloped emerging markets
entails all of the risks of investing in securities of foreign issuers outlined
in this section to a heightened degree. These heightened risks include: (i)
greater risks of expropriation, confiscatory taxation, nationalization, and
less social, political and economic stability; (ii) the smaller size of the
market for such securities and a low or nonexistent volume of trading,
resulting in lack of liquidity and in price volatility; and (iii) certain
national policies which may restrict the Portfolio's investment opportunities
including restrictions on investing in issuers or industries deemed sensitive
to relevant national interests.
In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of a Portfolio to make intended security purchases due to
settlement problems could cause the Portfolio to miss attractive investment
opportunities. Inability to dispose of a security due to settlement problems
could result either in losses to the Portfolio due to subsequent declines in
the value of the security or, if the Portfolio has entered into a contract to
sell the security, could result in possible liability to the purchaser.
Further information about the foreign markets in which a Portfolio may invest,
including a further discussion of related risks and special considerations is
contained in the SAI.
THE EURO
On January 1, 1999, eleven countries of the European Economic and Monetary
Union (EMU) began implementing a plan to replace their national currencies with
a new currency, the euro. Full conversion to the euro is slated to occur by
July 1, 2002.
Although it is impossible to predict the impact of the conversion to the euro
on the Fund, the risks may include: 1) changes in the relative strength and
value of the U.S. dollar or other major currencies; 2) adverse effects on the
business or financial condition of European issuers that the Fund holds in its
portfolio; 3) that the systems used to purchase and sell securities may not
work; 4) uncertainty about how existing financial contracts will be treated
after euro implementation; and 5) unpredictable effects on trade and commerce
generally.
These and other factors could increase volatility in financial markets
worldwide and could adversely affect the value of securities held by the Fund.
PORTFOLIO TURNOVER
Bankers Trust intends to manage the Portfolio actively in pursuit of its
investment objective. The Portfolio does not expect to trade in securities for
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held. The Portfolio's portfolio turnover
rates for the fiscal years ended September 30, 1997 and 1996, were 63% and 68%,
respectively.
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
"derivatives." Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and
9
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
options are commonly used for traditional hedging purposes to attempt to
protect a fund from exposure to changing interest rates, securities prices or
currency exchange rates and for cash management purposes as a low cost method
of gaining exposure to a particular securities market without investing
directly in those securities. However, some derivatives are used for leverage,
which tends to magnify the effects of an instrument's price changes as market
conditions change. Leverage involves the use of a small amount of money to
control a large amount of financial assets and can, in some circumstances, lead
to significant losses. Bankers Trust, as the Portfolio's Adviser will use
derivatives only in circumstances where the Adviser believes they offer the
most economic means of improving the risk/reward profile of the Portfolio.
Derivatives will not be used to increase portfolio risk above the level that
could be achieved using only traditional investment securities or to acquire
exposure to changes in the value of assets or indices that by themselves would
not be purchased for the Portfolio. The use of derivatives for non-hedging
purposes may be considered speculative. A description of the derivatives that
the Portfolio may use and some of their associated risks is found under
"Additional Information" herein.
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE
Unlike other open-end management investment companies (mutual funds) which
directly acquire and manage their own portfolio securities, the Fund seeks to
achieve its investment objective by investing all of its Assets in the
Portfolio, a separate registered investment company with the same investment
objective as the Fund. Therefore, an investor's interest in the Portfolio's
securities is indirect. In addition to selling a beneficial interest to the
Fund, the Portfolio may sell beneficial interests to other mutual funds or
institutional investors. Such investors will invest in the Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in the Portfolio are not
required to sell their shares at the same public offering price as the Fund due
to variations in sales commissions and other operating expenses. Therefore,
investors in the Fund should be aware that these differences may result in
differences in returns experienced by investors in the different funds that
invest in the Portfolio. Such differences in returns are also present in other
mutual fund structures. Information concerning other holders of interests in
the Portfolio is available from Bankers Trust at 1-800-730-1313.
The master-feeder fund structure is relatively complex, so shareholders should
carefully consider this investment approach.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher
pro rata operating expenses, thereby producing lower returns (however, this
possibility exists as well for traditionally structured funds which have large
institutional investors). Additionally, the Portfolio may become less diverse,
resulting in increased portfolio risk. Also, funds with a greater pro rata
ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Except as permitted by the SEC, whenever the Trust
is requested to vote on matters pertaining to the Portfolio, the Trust will
hold a meeting of shareholders of the Fund and will cast all of its votes in
the same proportion as the votes of the Fund's shareholders. Fund shareholders
who do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing the Fund's shareholders not voting
will be voted by the Trustees or officers of the Trust in the same proportion
as the Fund shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting redemption requests, such as borrowing.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the Assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the
investment policies described below with respect to the Portfolio.
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's investment objective is not a fundamental policy and may be changed
upon 30 days prior written notice to, but without approval of, the Fund's
shareholders. If there is a change in the Fund's investment objective, the
Fund's shareholders should consider whether the Fund remains an appropriate
investment in light of their then-current needs.
See "Investment Objective, Policies and Restrictions" in the SAI for a
description of the additional fundamental policies of the fund that cannot be
changed without approval by a "vote of a majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Fund.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value ("NAV") per share of the Fund is calculated on each day on
which the NYSE is open (each such day being a "Valuation Day"). The NYSE is
currently open on each day, Monday through Friday, except (a) January 1st,
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 last
Thursday in November) and December 25th; and (b) the preceding Friday or the
subsequent Monday when one of the calendar determined holidays falls on a
Saturday or Sunday, respectively.
The NAV per share of the Fund is calculated once on each Valuation Day as of
the close of regular trading on the NYSE (the "Valuation Time"), which is
currently 4:00 p.m., Eastern time or in the event that the NYSE closes early,
at the time of such early closing. The NAV per share of the Fund is computed by
dividing the value of the Fund's Assets (i.e., the value of its investment in
the Portfolio and other assets), less all liabilities, by the total number of
its shares outstanding as of the Valuation Time. The Portfolio's securities and
other assets are valued primarily on the basis of market quotations or, if
quotations are not readily available, by a method which the Portfolio's Board
of Trustees believes accurately reflects fair value.
Under procedures adopted by the Board, a NAV for a Fund later determined to
have been inaccurate for any reason will be recalculated. Purchases and
redemptions made at a NAV determined to have been inaccurate will be adjusted,
although in certain circumstances, such as where the difference between the
original NAV and the recalculated NAV divided by the recalculated NAV is 0.005
(1/2 of 1%) or less or shareholder transactions are otherwise insubstantially
affected, further action is not required.
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
The Trust accepts purchase orders for shares of the Fund at the NAV per share
next determined after the order is received on each Valuation Day. See "Net
Asset Value" herein. Shares of the Fund may be available through Investment
Professionals, such as broker/dealers and investment advisers (including
Service Agents).
Purchase orders for shares of the Fund (including those purchased through a
Service Agent) that are transmitted to the Trust's Transfer Agent (the
"Transfer Agent"), prior to the Valuation Time on any Valuation Day will be
effective at that day's Valuation Time. The Trust and Transfer Agent reserve
the right to reject any purchase order.
Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. It is the responsibility of each Service
Agent to transmit to the Transfer Agent purchase and redemption orders and to
transmit to Bankers Trust as the Trust's custodian (the "Custodian") purchase
payments by the following business day (trade date + 1) after an order for
shares is placed. A shareholder must settle with the Service Agent for his or
her entitlement to an effective purchase or redemption order as of a particular
time. Because Bankers Trust is the Custodian and Transfer Agent of the Trust,
11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 brokers to accept on
the Trust's behalf purchase and redemption orders. Such brokers are authorized
to designate other 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 broker or, if applicable, a
broker'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 broker
or the broker's authorized designee.
Certificates for shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.
If orders are placed through an Investment Professional, it is the
responsibility of the Investment Professional to transmit the order to buy
shares to the Transfer Agent before 4:00 p.m. Eastern time.
The Transfer Agent must receive payment within one business day after an order
for shares is placed; otherwise, the purchase order may be canceled and the
investor could be held liable for resulting fees and/or losses.
<TABLE>
<S> <C>
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500
For retirement accounts 500
Through automatic investment plans 1,000
TO ADD TO AN ACCOUNT $ 250
For retirement accounts 100
Through automatic investment plan 100
MINIMUM BALANCE $1,000
For retirement accounts None
</TABLE>
IF YOU ARE NEW TO BT INVESTMENT FUNDS, complete and sign an account application
and mail it along with your check to the address listed below. If there is no
account application accompanying this Prospectus, call the BT Service Center at
1-800-730-1313.
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
IF YOU ALREADY HAVE MONEY INVESTED IN A FUND IN THE BT FAMILY OF FUNDS, you
can:
o Mail an account application with a check,
o Wire money into your account,
o Open an account by exchanging from another fund in the BT Family of Funds, or
o Contact your Service Agent or Investment Professional.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need a special application. Contact your
Investment Professional or call BT Retirement Services Center at 1-800-677-7596
for more information and a retirement account application.
12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT BUYING SHARES
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<S> <C> <C>
BY WIRE Call the BT Service Center at 1-800-730-1313 Call your Investment Professional or wire
to receive wire instructions for account additional investment to:
establishment.
ROUTING NO.: 021001033
ATTN: Bankers Trust/IFTC Deposit
DDA NO.: 00-226-296
FBO: (Account name)
(Account number)
CREDIT: BT Investment International Equity
Fund-463
BY PHONE Contact your Service Agent, Investment Contact your Service Agent, Investment
Professional, or call BT's Service Center Professional, or call BT's Service Center at
at 1-800-730-1313. If you are an existing 1-800-730-1313. If you are an existing
shareholder, you may exchange from another shareholder, you may exchange from another
BT account with the same registration, BT account with the same registration,
including, name, address, and taxpayer ID including, name, address, and taxpayer ID
number. number.
BY MAIL Complete and sign the account application. Make your check payable to the complete
Make your check payable to the complete name of the Fund of your choice. Indicate
name of the Fund of your choice. Mail to the your Fund account number on your check and
appropriate address indicated on the mail to the address printed on your account
application. statement.
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares. Your shares shall be sold at the next
NAV calculated after an order is received by the Transfer Agent. Redemption
requests should be transmitted by customers in accordance with procedures
established by the Transfer Agent and the Shareholder's Service Agent.
Redemption requests for shares of the Fund received by the Service Agent and
transmitted to the Transfer Agent prior to the Valuation Time on each Valuation
Day will be effective at that day's Valuation Time and the redemption proceeds
normally will be delivered to the shareholder's account the next day, but in
any event within seven calendar days following receipt of the request.
Service Agents may allow redemptions or exchanges by telephone and may disclaim
liability for following instructions communicated by telephone that the Service
Agent reasonably believes to be genuine. The Service Agent must provide the
investor with an opportunity to choose whether or not to utilize the telephone
redemption or exchange privilege. The Transfer Agent and the Service Agent must
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Shareholder Servicing Agent does not do so, it
may be liable for any losses due to unauthorized or fraudulent instructions.
Such procedures may include, among others, requiring some form of personal
identification prior to acting upon instructions received by telephone,
providing written confirmation of such transactions and/or tape recording of
telephone instructions.
Redemption orders are processed without charge by the Trust. A Service Agent
may on at least 30 days' notice involuntarily redeem a shareholder's account
with the Fund having a balance below the minimum, but not if an account is
below the minimum due to a change in market value. See "Minimum Investments"
above for minimum balance amounts.
TO SELL SHARES IN A RETIREMENT ACCOUNT, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be
13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
requested by phone or in writing. For information on retirement distributions,
contact your Service Agent or call the BT Service Center at 1-800-730-1313.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR NON-RETIREMENT ACCOUNT SHARES,
leave at least $1,000 worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE you will need to sign up for these services in
advance when completing your account application.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE to protect you and Bankers
Trust from fraud. Redemption requests in writing must include a signature
guarantee if any of the following situations apply:
o Your account registration has changed within the last 30 days,
o The check is being mailed to a different address than the one on your account
(record address),
o The check is being made payable to someone other than the account owner,
o The redemption proceeds are being transferred to a BT account with a
different registration, or
o You wish to have redemption proceeds wired to a non-predesignated bank
account.
A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
ADDITIONAL INFORMATION ABOUT SELLING SHARES
BY WIRE - You must sign up for the wire feature before using it. To verify that
it is in place, call 1-800-730-1313. Minimum wire: $1,000. Your wire redemption
request must be received by the Transfer Agent before 4:00 p.m. Eastern time
for money to be wired on the next business day.
IN WRITING - Write a signed "letter of instruction" with your name, the Fund's
name and Fund's number, your Fund account number, the dollar amount or number
of Shares to be redeemed, and mail to one of the following addresses:
BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
Overnight mailings:
BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716
For Trust accounts, the trustee must sign the letter indicating capacity as
trustee. If the trustee's name is not on the account registration, provide a
copy of the trust document certified within the last 60 days.
For a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.
Unless otherwise instructed, the Transfer Agent will send a check to the
account address of record. The Trust reserves the right to close investor
accounts via 30 day notice in writing if the Fund account balance falls below
the Fund minimums.
INVESTOR SERVICES
BT Investment Funds provide a variety of services to help you manage your
account.
INFORMATION SERVICES
STATEMENTS AND REPORTS that your Investment Professional or the Transfer Agent
may send to you include the following:
o Confirmation statements (after every transaction that affects your account
balance, including distributions or your account registration)
o Account statements (monthly)
o Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed,
even if you have more than one account in the Fund. Call your Investment
Professional or the BT Service Center at 1-800-730-1313 if you need additional
copies of financial reports.
EXCHANGE PRIVILEGE
Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered
14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
in their state. To make an exchange, follow the procedures indicated in "How to
Buy Shares" and "How to Sell Shares" herein. Before making an exchange, please
note the following:
o Call your Service Agent for information and a prospectus. Read the prospectus
for relevant information.
o Your new account will have the identical account registration including the
same name, address and taxpayer identification number as your existing
account(s).
o Each exchange represents the sale of shares of one fund and the purchase of
shares of another, which may produce a gain or loss for tax purposes. Your
Service Agent will receive a written confirmation of each exchange
transaction.
Exchanges out of a Fund may be limited to four per calendar year and that they
may have tax consequences for you. The Fund reserves the right to terminate or
modify the exchange privilege in the future. Shareholders will be given 30
days' notice prior to any termination or modification of the exchange
privilege.
SYSTEMATIC PROGRAMS
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO BT INVESTMENT FUNDS
<TABLE>
<CAPTION>
MINIMUM MINIMUM
INITIAL SUBSEQUENT FREQUENCY SETTING UP OR CHANGING
<S> <C> <C> <C>
$1,000 $100 Monthly, bimonthly, For a new account, complete the appropriate section on the
quarterly or semi- application.
annually
For existing accounts, call your Investment Professional for an
application. To change the amount or frequency of your
investment, contact your Investment Professional directly or
call 1-800-730-1313. Call at least 10 business days prior to
your next scheduled investment date.
</TABLE>
SYSTEMATIC WITHDRAWAL PROGRAM lets you set up periodic redemptions from your
account.
<TABLE>
<CAPTION>
MINIMUM FREQUENCY SETTING UP OR CHANGING
<S> <C> <C> <C>
$100 Monthly, quarterly, semi- To establish, call your Investment Professional or call
annually or annually 1-800-730-1313 after your account is open. The accounts
from which the withdrawals will be processed must have
a minimum balance of $10,000, other than retirement
accounts subject to required minimum distributions.
</TABLE>
TAX-SAVING RETIREMENT PLANS
Retirement plans offer significant tax savings and are available to
individuals, partnerships, small businesses, corporations, nonprofit
organizations and other institutions. Contact Bankers Trust for further
information. Bankers Trust can set up your new account in the Fund under a
number of several tax-savings or tax-deferred plans. Minimums may differ from
those listed elsewhere in this Prospectus.
o INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): personal savings plans that offer tax
advantages for individuals to set aside money for retirement and allow new
contributions of $2,000 per tax year.
o ROLLOVER IRAS: tax-deferred retirement accounts that retain the special tax
advantages of lump sum distributions from qualified retirement plans and
transferred IRA accounts.
15
<PAGE>
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS. The Fund distributes substantially all of its net investment
income and capital gains to shareholders annually. Unless a shareholder
instructs the Trust to pay such dividends and distributions in cash, they will
be automatically reinvested in additional shares of the Fund.
FEDERAL TAXES. The Fund intends to qualify the Fund as a regulated investment
company, as defined in the Internal Revenue Code of 1986, as amended (the
"Code"). Provided the Fund meets the requirements imposed by the Code and
distributes all of its income and gains, the Fund will not pay any federal
income or excise taxes. The Portfolio will also not be required to pay any
federal income or excise taxes.
Distributions from the Fund's income and short-term capital gains are taxed as
dividends, and long-term capital gain distributions are taxed as long-term
capital gains. The Fund's distributions are taxable when they are paid, whether
you take them in cash or reinvest them in additional shares. Distributions
declared in December and paid in January are taxable as if paid on December 31.
The Fund will send each shareholder a tax statement by January 31 showing the
tax status of the distributions received in the past year.
CAPITAL GAINS. You may realize a capital gain or loss when you redeem (sell) or
exchange shares. Because the tax treatment also depends on your purchase price
and your personal tax position, you should keep your regular account statements
to use in determining your tax.
"BUYING A DIVIDEND". On the ex-date for a distribution from income and/or
capital gains, the Fund's share value is reduced by the amount of the
distribution. If you buy shares just before the ex-date ("buying a dividend"),
you will pay the full price for the shares and then receive a portion of the
price back as a taxable distribution.
OTHER TAX INFORMATION. In addition to federal taxes, you may be subject to
state or local taxes on your investment, depending on the laws in your area.
Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Investors
should consult their tax advisor for specific details on state, local or
foreign taxes. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to determine the effective
rate of foreign tax in advance since the amount of the Portfolio's assets to be
invested in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of the value
of the Portfolio's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, it may make an election pursuant
to which certain foreign taxes paid by it would be treated as having been paid
directly by shareholders of the entities, such as the Fund, which have invested
in the Portfolio. Pursuant to such election, the amount of foreign taxes paid
will be included in the income of Fund shareholders, and Fund shareholders
(except tax-exempt shareholders) may, subject to certain limitations, claim
either a credit or deduction for the taxes. Each Fund shareholder will be
notified after the close of the Portfolio's taxable year whether the foreign
taxes paid will "pass through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion which represents income derived from sources within
each such country.
The amount of foreign taxes for which a shareholder may claim a credit in any
year will generally be subject to a separate limitation for "passive income,"
which includes, among other items of income, dividends, interest and certain
foreign currency gains. Because capital gains realized by the Portfolio on the
sale of foreign securities will be treated as U.S.-source income, the available
credit of foreign taxes paid with respect to such gains may be restricted by
this limitation.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION AND REPORTS
- --------------------------------------------------------------------------------
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to the Morgan Stanley Capital
International Europe, Australia, Far East ("MSCI EAFE") Index, the Morgan
Stanley Capital International Gross Domestic Product ("MSCI GDP") weighted EAFE
Index, and the Lipper International Average or other various unmanaged indices
or results of other mutual funds or investment or savings vehicles. From time
to time, fund rankings may be quoted
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
from various sources, such as Lipper Analytical Services, Inc., Value Line, and
Morningstar, Inc.
The Trust may provide period and average annualized "total return" quotations
for the Fund. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return
which assumes that the period total return is generated over a one-year period,
and that all dividends and capital gain distributions are reinvested. An
annualized total return will be higher than a period total return if the period
is shorter than one year, because of the compounding effect.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the
Portfolio and changes in the Fund's expenses. In addition, during certain
periods for which total return may be provided, Bankers Trust, as Adviser,
Service Agent or Administrator may have voluntarily agreed to waive portions of
their fees on a month-to-month basis. Such waivers will have the effect of
increasing the Fund's net income (and therefore its total return) during the
period such waivers are in effect.
Shareholders will receive financial reports semi-annually that include the
Portfolio's financial statements, including a listing of investment securities
held by the Portfolio at those dates. Annual reports are audited by independent
accountants.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST AND PORTFOLIO
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
The affairs of the Trust and the Portfolio are managed under the supervision of
their respective Boards of Trustees. By virtue of the responsibilities assumed
by Bankers Trust, the administrator of the Trust and Portfolio, neither the
Trust nor the Portfolio requires employees other than its executive officers.
None of the executive officers of the Trust or the Portfolio devotes full time
to the affairs of the Trust or the Portfolio.
The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) (the "Independent Trustees") of the Trust or of the Portfolio, as the
case may be, have adopted written procedures reasonably appropriate to deal
with potential conflicts of interest, up to and including creating separate
boards of trustees, arising from the fact that several of the same individuals
are trustees of the Trust and of the Portfolio. For more information with
respect to the Trustees of both the Trust and the Portfolio, see "Management of
the Trust and Portfolios" in the SAI.
INVESTMENT ADVISER
The Trust has not retained the services of an investment adviser since the
Trust seeks to achieve the investment objective of the Fund by investing all
the Assets of the Fund in the Portfolio. The Portfolio has retained the
services of Bankers Trust as Adviser.
BANKERS TRUST COMPANY AND ITS AFFILIATES
Bankers Trust Company, a New York banking corporation with principal offices at
130 Liberty Street, (One Bankers Trust Plaza), New York, New York 10006, is a
wholly owned subsidiary of Bankers Trust New York Corporation. Bankers Trust
conducts a variety of general banking and trust activities and is a major
wholesale supplier of financial services to the international and domestic
institutional markets. As of March 31, 1997, Bankers Trust Corporation was the
seventh largest bank holding company in the United States with total assets of
over $150 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 90 offices in more than 50
countries. Investment management is a core business of Bankers Trust, built on
a tradition of excellence from its roots as a trust bank founded in 1903. The
scope of Bankers Trust's investment management capability is unique due to its
leadership positions in both active and passive quantitative management and its
presence in major
17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
equity and fixed income markets around the world. Bankers Trust is one of the
nation's largest and most experienced investment managers with over $300
billion in assets under management globally.
Bankers Trust has more than 50 years of experience managing retirement assets
for the nation's largest corporations and institutions. In the past, these
clients have been serviced through separate account and commingled fund
structures. Now, the BT Family of Funds brings Bankers Trust's extensive
investment management expertise -- once available to only the largest
institutions in the U.S. -- to individual investors. Bankers Trust's officers
have had extensive experience in managing investment portfolios having
objectives similar to those of the Portfolio.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Portfolio, manages the Portfolio in accordance with the
Portfolio's investment objective and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who provide
research services to the Portfolio. Bankers Trust may utilize the expertise of
any of its worldwide subsidiaries and affiliates to assist it in its role as
Adviser.
All orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge
for the transaction does not exceed usual and customary levels. The Portfolio
will not invest in obligations for which Bankers Trust or any of its affiliates
is the ultimate obligor or accepting bank. The Portfolio may, however, invest
in the obligations of correspondents and customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio, computed daily and paid monthly, at the annual rate of 0.65% (before
waiver) of the average daily net assets of the Portfolio. 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 to the Fund.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Trust and the
Portfolio described in this Prospectus and the SAI without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
PORTFOLIO MANAGERS
Michael Levy, Managing Director of Bankers Trust and co-lead manager of the
Portfolio, has been a manager of the Portfolio since joining Bankers Trust in
1993. Mr. Levy is Bankers Trust's international equity strategist and is head
of the international equity team. He has served in each of these capacities
since 1993. The international equity team is responsible for the day to day
management of the Portfolio as well as other international equity portfolios
managed by Bankers Trust. Mr. Levy's experience prior to joining Bankers Trust
includes investment banking and equity analysis with Oppenheimer & Company. He
has twenty-six years of business experience, of which sixteen years have been
in the investment industry.
Robert Reiner, Managing Director of Bankers Trust and co-lead manager of the
Portfolio, has been a manager of the Portfolio since joining Bankers Trust in
1994. At Bankers Trust, he has been involved in developing analytical and
investment tools for the group's international equity team; his primary focus
has been on Japanese and European markets. Prior to joining Bankers Trust, he
was an equity analyst and also provided macroeconomic coverage for Scudder,
Stevens & Clark from 1993 to 1994. He previously served as Senior Analyst at
Sanford C. Bernstein & Co. from 1991 to 1992, and was instrumental in the
development of Bernstein's International Value Fund. Mr. Reiner spent more than
nine years at Standard & Poor's Corporation, where he was a member of its
international ratings group. His tenure included manag-ing the day to day
operations of the Standard & Poor's Corporation Tokyo office for three years.
Julie Wang, Principal of Bankers Trust and co-manager of the Portfolio, has
been a manager of the Portfolio
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
since joining Bankers Trust in 1994. Ms. Wang has primary focus on the
Asia-Pacific region and the Portfolio's emerging market exposure. Prior to
joining Bankers Trust, Ms. Wang was an investment manager at American
International Group, where she advised in the management of $7 billion of
assets in Southeast Asia, including private and listed equities, bonds, loans
and structured products. Ms. Wang received her B.A.(economics) from Yale
University and her MBA from the Wharton School.
ADMINISTRATOR
Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the NAV of the Fund and generally assists the Board of Trustees of
the Trust in all aspects of the administration and operation of the Trust. The
Administration and Services Agreement provides for the Trust to pay Bankers
Trust a fee, computed daily and paid monthly, at the annual rate of 0.85% of
the average daily net assets of the Fund.
Under an Administration and Services Agreement with the Portfolio, Bankers
Trust calculates the value of the assets of the Portfolio and generally assists
the Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay Bankers Trust a fee, computed daily and paid monthly,
at the annual rate of 0.15% of the average daily net assets of the Portfolio.
Under each Administration and Services Agreement, Bankers Trust may delegate
one or more of its responsibilities to others, including affiliates of ICC, at
Bankers Trust's expense. For more information, see the SAI.
DISTRIBUTOR
ICC Distributors, Inc. is the principal distributor for shares of the Fund. In
addition, ICC and its affiliates provide the Trust with office facilities, and
currently provide administration and distribution services for other registered
investment companies. The principal business address of ICC and its affiliates
is Two Portland Square, Portland, ME 04101.
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 acts as Custodian of the assets of the Trust and the Portfolio
and serves as the Transfer Agent for the Trust and the Portfolio under the
Administration and Services Agreement with the Trust and the Portfolio.
ORGANIZATION OF THE TRUST
The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of separate series, par value $0.001 per share.
The shares of the other series of the Trust are offered through separate
prospectuses. No series of shares has any preference over any other series.
The Trust is an entity commonly known as a "Massachusetts business trust."
Under Massachusetts law, shareholders of such a business trust may, under
certain circumstances, be held personally liable as partners for its
19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of the Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote. Shareholders of
the Fund are not entitled to vote on Trust matters that do not affect the Fund.
There normally will be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees. Any
Trustee may be removed from office upon the vote of shareholders holding at
least two-thirds of the Trust's outstanding shares at a meeting called for that
purpose. The Trustees are required to call such a meeting upon the written
request of shareholders holding at least 10% of the Trust's outstanding shares.
The Portfolio, in which all the Assets of the Fund will be invested, is
organized as a trust under the laws of the State of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (e.g., other investment companies, insurance company separate
accounts and common and commingled trust funds) will each be liable for all
obligations of the Portfolio. However, the risk of the Fund incurring financial
loss on account of such liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio.
Each series in the Trust will not be involved in any vote involving a Portfolio
in which it does not invest its Assets. Shareholders of all of the series of
the Trust will, however, vote together to elect Trustees of the Trust and for
certain other matters. Under certain circumstances, the shareholders of one or
more series could control the outcome of these votes.
As of December 31, 1997, Charles Schwab & Co., San Francisco, California, owned
approximately 24% of the voting securities for the Fund, and, therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of its shareholders.
EXPENSES OF THE FUND AND PORTFOLIO
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by Bankers Trust or Edgewood,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses and costs associated with
regulatory compliance and maintaining legal existence and shareholder
relations. The Portfolio bears its own expenses. Operating expenses for the
Portfolio generally consist of all costs not specifically borne by Bankers
Trust or Edgewood, including investment advisory and administration and
services fees, fees for necessary professional services, amortization of
organizational expenses, the costs associated with regulatory compliance and
maintaining legal existence and investor relations.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS, GLOBAL DEPOSITARY RECEIPTS AND EUROPEAN
DEPOSITARY RECEIPTS. ADRs, GDRs and EDRs are certificates evidencing ownership
of shares of a foreign-based issuer held in trust by a bank or similar
financial institution. Designed for use in U.S., international and European
securities markets, respectively, ADRs, GDRs and EDRs are alternatives to the
purchase of the underlying securities in their national markets and currencies.
ADRs, GDRs and EDRs are subject to the same risks as the foreign securities to
which they relate.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date
of the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments.
20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
When entering into a when-issued or delayed delivery transaction, the Portfolio
will rely on the other party to consummate the transaction; if the other party
fails to do so, the Portfolio may be disadvantaged.
RULE 144A SECURITIES. The Portfolio may purchase securities in the United
States that are not registered for sale under federal securities laws but which
can be resold to institutions under the SEC Rule 144A. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities are treated as exempt from the Portfolio's 15% limit on illiquid
securities. Under the supervision of the Board of Trustees of the Portfolio,
Bankers Trust determines the liquidity of restricted securities and, through
reports from Bankers Trust, the Board will monitor trading activity in
restricted securities. If institutional trading in restricted securities were
to decline, the liquidity of the Portfolio could be adversely affected.
SECURITIES LENDING. The Portfolio is permitted to lend up to 30% of the total
value of its securities. These loans must be secured continuously by cash or as
securities issued or guaranteed by the United States government, its agencies
and instrumentalities or by a letter of credit at least equal to the market
value of the securities loaned plus accrued income. By lending its securities,
the Portfolio may increase its income by continuing to receive income on the
loaned securities as well as by the opportunity to receive interest on the
collateral. During the term of the loan, the Portfolio continues to bear the
risk of fluctuations in the price of the loaned securities. In lending
securities to brokers, dealers and other organizations, the Portfolio is
subject to risk which, like those associated with other extensions of credit,
include delays in receiving additional collateral, in recovery should the
borrower fail financially, and possible loss of collateral. Cash collateral may
be invested in a money market fund managed by Bankers Trust (or its affiliates)
and Bankers Trust may serve as the Portfolio's lending agent and may share in
revenue received from securities lending transactions as compensation for this
service.
REPURCHASE AGREEMENTS. In a repurchase agreement the Portfolio buys a security
and simultaneously agrees to sell it back at a higher price at a future date.
In the event of the bankruptcy of the other party to either a repurchase
agreement or a securities loan, the Portfolio could experience delays in
recovering either its cash or the securities it lent. To the extent that, in
the meantime, the value of the securities repurchased had decreased or the
value of the securities lent had increased, the Portfolio could experience a
loss. In all cases, Bankers Trust must find the creditworthiness of the other
party to the transaction satisfactory. A repurchase agreement is considered a
collateralized loan under the 1940 Act.
INVESTMENT COMPANIES. With respect to certain countries in which capital
markets are either less developed or not easily accessed, investments by the
Portfolio may be made through investment in other registered investment
companies that in turn are authorized to invest in the securities of such
countries. Investments in other investment companies may also be made for other
purposes, such as noted herein under "Short-Term Instruments," and are limited
in amount by the 1940 Act, (except the Portfolios may exceed the applicable
percentage limits to the extent permitted by an exemptive order of the SEC),
will involve the indirect payment of a portion of the expenses, including
advisory fees, of such other investment companies and may result in a
duplication of fees and expenses.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolio from time to time may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Portfolio either enters
into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or uses forward contracts to
purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract is an obligation by the Portfolio to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract. Forward foreign currency exchange contracts establish
an exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward foreign currency exchange
contract generally has no deposit requirement and is traded at a net price
without commission. The Portfolio maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the
21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
prices of the Portfolio's securities or in foreign exchange rates, or prevent
loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes
in foreign currency exchange rates that would adversely affect a portfolio
position or an anticipated investment position. Since consideration of the
prospect for currency parities will be incorporated into Bankers Trust's
long-term investment decisions, the Portfolio will not routinely enter into
foreign currency hedging transactions with respect to security transactions;
however, Bankers Trust believes that it is important to have the flexibility to
enter into foreign currency hedging transactions when it determines that the
transactions would be in the Portfolio's best interest. Although these
transactions tend to minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit any potential gain
that might be realized should the value of the hedged currency increase. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The
Portfolio may use options on a foreign currency to cross-hedge, which involves
writing or purchasing options on one currency to hedge against changes in
exchange rates for a different, but related currency. As with other types of
options, however, the writing of an option on a foreign currency will
constitute only a partial hedge up to the amount of the premium received, and
the Portfolio could be required to purchase or sell a foreign currency at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may be used to hedge against fluctuations in
exchange rates although, in the event of exchange rate movements adverse to the
Portfolio's position, it may forfeit the entire amount of the premium plus
related transaction costs. In addition, the Portfolio may purchase call options
on a foreign currency when the Adviser anticipates that the currency will
appreciate in value.
There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Portfolio is unable to
effect a closing purchase transaction with respect to covered options it has
written, the Portfolio will not be able to sell the underlying currency or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Portfolio is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs
upon the purchase or sale of underlying currency. The Portfolio pays brokerage
commissions or spreads in connection with its options transactions.
If the Portfolio is unable to effect a closing purchase transaction with
respect to covered options it has written, the Portfolio will not be able to
sell the underlying currency or dispose of assets held in a segregated account
until the options expire or are exercised. Similarly, if the Portfolio is
unable to effect a closing sale transaction with respect to options it has
purchased, it would have to exercise the options in order to realize any profit
and will incur transaction costs upon the purchase or sale of underlying
currency. The Portfolio pays brokerage commissions or spreads in connection
with its options transactions.
As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. In some circumstances,
the Portfolio's ability to terminate over-the-counter options ("OTC Options")
may be more limited than with exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. Provided that a dealer or institutional trading market in such
securities exists, these restricted securities are not covered by the
Portfolio's 15% limit on illiquid securities.
OPTIONS ON STOCKS. The Portfolio may write and purchase put and call options on
stocks. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
option period. A covered call option, which is a call option with respect to
which the Portfolio owns the underlying stock, sold by the Portfolio exposes
the Portfolio during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying stock or to possible
continued holding of a stock which might otherwise have been sold to protect
against depreciation in the market price of the stock. A covered put option
sold by the Portfolio exposes the Portfolio during the term of the option to a
decline in price of the underlying stock. A put option sold by the Portfolio is
covered when, among other things, cash or liquid securities are placed in a
segregated account to fulfill the obligations undertaken.
To close out a position when writing covered options, the Portfolio may make a
"closing purchase transaction," which involves purchasing an option on the same
stock with the same exercise price and expiration date as the option which it
has previously written on the stock. The Portfolio will realize a profit or
loss for a closing purchase transaction if the amount paid to purchase an
option is less or more, as the case may be, than the amount received from the
sale thereof. To close out a position as a purchaser of an option, the
Portfolio may make a "closing sale transaction," which involves liquidating the
Portfolio's position by selling the option previously purchased.
The Portfolio intends to treat OTC Options purchased and the assets used to
"cover" OTC Options written as not readily marketable and therefore subject to
the limitations described in "Investment Restrictions" in the SAI.
OPTIONS ON FOREIGN STOCK INDICES. The Portfolio may purchase and write put and
call options on foreign stocks indices listed on domestic and foreign stock
exchanges. The Portfolio may also purchase and write OTC Options on foreign
stock indices. These OTC Options would be subject to the same liquidity and
credit risks noted above with respect to OTC Options on foreign currencies. A
stock index fluctuates with changes in the market values of the stocks included
in the index.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties" and
individually referred to as "Counterparty") through direct bilateral agreement
with the Counterparty. In contrast to exchange listed options, which generally
have standardized terms and performance mechanics, all of the terms of an OTC
Option, including such terms as method of settlement, term exercise price,
premium, guaranties and security, are set by negotiation of the parties.
Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC Option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC Option
it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will
lose any premium it paid for the option as well as any anticipated benefit of
the transaction. Thus, Bankers Trust must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC Option will be
met.
Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to
(a) the amount, if any, by which the fixed exercise price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing
value of the underlying index on the date of exercise, multiplied by (b) a
fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars or a foreign currency, as the case may be, times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.
To the extent permitted by U.S. federal or state securities laws, the Portfolio
may invest in options on foreign stock indices in lieu of direct investment in
foreign securities. The Portfolio may also use foreign stock index options for
hedging purposes.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock
23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
prices in the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Portfolio of options on stock indices
will be subject to Bankers Trust's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price
of individual stocks.
FUTURES CONTRACTS ON FOREIGN STOCK INDICES. The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of foreign securities ("Futures
Contracts"). This investment technique is designed only to hedge against
anticipated future change in general market prices which otherwise might either
adversely affect the value of securities held by the Portfolio or adversely
affect the prices of securities which are intended to be purchased at a later
date for the Portfolio. A Futures Contract may also be entered into to close
out or offset an existing futures position.
In general, each transaction in Futures Contracts involves the establishment of
a position which will move in a direction opposite to that of the investment
being hedged. If these hedging transactions are successful, the futures
positions taken for the Portfolio will rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments that are being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not
be achieved or a loss may be realized.
Although Futures Contracts would be entered into for hedging purposes only,
such transactions do involve certain risks. These risks could include a lack of
correlation between the Futures Contract and the foreign equity market being
hedged, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance
than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted and
maintained as a good-faith deposit against performance of obligations under
Futures Contracts written for the Portfolio. The Portfolio may not purchase or
sell a Futures Contract if immediately thereafter its margin deposits on its
outstanding Futures Contracts would exceed 5% of the market value of the
Portfolio's total assets.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may invest in options on such
futures contracts for similar purposes.
All options that the Portfolio writes will be covered under applicable
requirements of the SEC.
There can be no assurance that the use of these portfolio strategies will be
successful.
ASSET COVERAGE. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment leverage,
the Portfolio will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities or by
segregating liquid assets with the Portfolio's Custodian or futures commission
merchant in an amount at all times equal to or exceeding the Portfolio's
commitment with respect to these instruments or contracts.
24
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
BT INVESTMENT FUNDS
INTERNATIONAL EQUITY FUND
INVESTMENT ADVISER AND ADMINISTRATOR OF THE PORTFOLIO
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
DISTRIBUTOR
ICC DISTRIBUTORS
Two Portland Square
Portland, ME 04101
CUSTODIAN AND TRANSFER AGENT
BANKERS TRUST COMPANY
(One Bankers Trust Plaza)
New York, NY 10006
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS
250 West Pratt Street
Baltimore, MD 21201
COUNSEL
WILLKIE FARR & GALLAGHER
787 7th Avenue
New York, NY 10022
----------
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statements of Additional Information or the Trust's official sales literature
in connection with the offering of the Trust's shares and, if given or made,
such other information or representations must not be relied on as having been
authorized by the Trust. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
----------
