As filed with the Commission on October 22, 1999
1933 Act File No. 33-07404
1940 Act File No. 811-4760
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 64................... X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 64.................................... X
BT INVESTMENT FUNDS
(Exact Name of Registrant as Specified in Charter)
One South Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices)
(410) 895-3433
(Registrant's Telephone Number)
Daniel O. Hirsch, Esq. Copies to: Burton M. Leibert, Esq.
One South Street Willkie Farr & Gallagher
Baltimore, Maryland 21202 787 Seventh Ave
(Name and Address of Agent New York, New York 10019
for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On July 31, 1999, pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] On December 31, 1999, pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
PROSPECTUS: December 31, 1999
BT Mutual Funds (logo)
QUANTITATIVE EQUITY - INVESTMENT CLASS
WITH THE GOAL OF ACHIEVING A TOTAL RETURN GREATER THAN THAT OF THE S&P 500 INDEX
THROUGH INVESTMENT IN STOCKS OF ACQUISITION TARGETS
TRUST: BT INVESTMENT FUNDS
INVESTMENT ADVISER: BANKERS TRUST COMPANY
[Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.]
QUANTITATIVE EQUITY - INVESTMENT CLASS
OVERVIEW OF QUANTITATIVE EQUITY - INVESTMENT CLASS
Goal
Core Strategy
Investment Policies and Strategies
Principal Risks of Investing in the Fund
Who Should Consider Investing in the Fund
Total Returns, After Fees and Expenses
Annual Fund Operating Expenses
A DETAILED LOOK AT QUANTITATIVE EQUITY - INVESTMENT CLASS
Objective
Strategy
Principal Investments
Investment Process
QEF - Inv Class Page 1
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Prior Performance of a Similar Portfolio
Risks
Management of the Fund
Calculating the Fund's Share Price
Performance Information
Dividends and Distributions
Tax Considerations
Buying and Selling Fund Shares
OVERVIEW
of Quantitative Equity - Investment Class
GOAL: The Fund seeks a total return greater than that of the S&P 500 Index.
CORE STRATEGY: The Fund follows an integrated strategy that utilizes derivative
instruments and stocks of the S&P 500 Index along with the stocks of acquisition
targets.
INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio, seeks
to achieve that objective by investing in derivative instruments or common
stocks of companies in the S&P 500 Index to seek to match the total return of
the S&P 500 Index (we refer to this portion of the Fund's assets as the "S&P 500
Index Assets"). Additionally, the Fund seeks to exceed the returns of the S&P
500 Index by investing in the stocks of acquisition targets in publicly
announced transactions (we refer to this portion of the Fund's assets as the
"Merger Arbitrage Assets"). The Investment Adviser uses proprietary quantitative
models to select securities for the Fund's Merger Arbitrage Assets.
QEF - Investment Class Page 2
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PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. The risks associated with the Fund's S&P 500
Index Assets include the risks that:
o Stocks could decline generally or could underperform other investments.
o Returns on large U.S. companies' stocks could trail the returns from stocks of
medium or small companies. Each type of stock tends to go through cycles of
overperformance and underperformance in comparison to the overall stock
market.
o The Fund may not be able to mirror the S&P 500 Index closely enough to track
its performance for a number of reasons, including the Fund's cost to buy and
sell securities, the flow of money into and out of the Fund and the Investment
Adviser's selection of stocks that may underperform.
o The Fund could suffer losses on its derivative positions if they are not well
correlated with the securities for which they are acting as a substitute or if
the Fund cannot close out its positions.
The risks associated with the Fund's Merger Arbitrage Assets include the risks
that:
o The volume of transactions in the mergers and acquisitions marketplace becomes
insufficient to meet the Fund's goal.
o Acquisition transactions are renegotiated, terminated or delayed.
In addition to these risks, the Fund is a non-diversified investment company.
The Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers than a diversified fund, providing a greater
possibility that the performance of a single issuer could impact the overall
value of the Fund more than in a diversified fund.
WHO SHOULD CONSIDER INVESTING IN THE FUND
Shares of Quantitative Equity - Investment Class are available to private
banking, brokerage and institutional clients of Bankers Trust and its affiliates
and customers of institutions that have a
QEF - Investment Class Page 3
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sub-shareholder servicing agreement with Bankers Trust (we refer to these
institutions as "Service Agents").
You should consider investing in the Fund if you are seeking long-term capital
appreciation. There is, of course, no guarantee that the Fund will realize its
goal. Moreover, you should be willing to accept greater short-term fluctuations
in the value of your investment than you would typically experience by investing
in bond or money market funds.
You should not consider investing in the Fund if you are pursuing a short-term
financial goal, if you seek regular income or if you cannot tolerate
fluctuations in the value of your investments.
The Fund by itself does not constitute a balanced investment program.
Diversifying your investments may improve your long-run investment return and
lower the volatility of your overall investment portfolio.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF BANKERS TRUST COMPANY OR ANY OTHER
BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
TOTAL RETURNS, AFTER FEES AND EXPENSES
The Fund does not have a full calendar year of annual operating performance to
report.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS)
The Annual Fees and Expenses table to the right describes the fees and expenses
you may pay if you buy and hold shares of the Fund.
Expense Example. The example below illustrates the expenses you will incur on a
$10,000 investment in the Fund. The example assumes that the Fund earned an
annual return of 5% over the periods shown, that the Fund's operating expenses
remained the same and you sold your shares at the end of the period.
QEF - Investment Class Page 4
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You may use this hypothetical example to compare the Fund's estimated expenses
with other funds. Your actual costs may be higher or lower.
Annual Fees and Expenses(1)
Percentage of average
daily net assets
- --------------------------------------------------- -------------------------
Management fees 0.50%
- --------------------------------------------------- -------------------------
Distribution and service (12b-1) fees None
- --------------------------------------------------- -------------------------
Other fund operating expenses 0.68%
- --------------------------------------------------- -------------------------
Total fund operating expenses 1.18%
- --------------------------------------------------- -------------------------
Less: fee waiver or expense reimbursement (0.28)%(2)
- --------------------------------------------------- -------------------------
NET EXPENSES 0.90%
=================================================== =========================
Expense Example(3)
1 year 3 years
- ----------------------------------
$92 $346
- -------------------
(1) Information is based on estimated amounts for the current fiscal year.
(2) Bankers Trust has agreed, for a 16-month period from the Fund's fiscal year
end of December 31, 1998, to waive its fees and reimburse expenses so that
total expenses will not exceed 0.90%. We expect to continue this waiver
beyond the 16-month period.
(3) Based on expenses, after fee waivers and reimbursements for the first 16
months only.
QEF - Investment Class Page 5
<PAGE>
A DETAILED LOOK
at Quantitative Equity - Investment Class
OBJECTIVE
The Fund seeks a total return greater than that of the S&P 500 Index. The Fund
invests for long-term capital appreciation, not income; any dividend and
interest income is secondary to the pursuit of its objective. While we give
priority to capital appreciation, we cannot offer any assurance of achieving
this objective.
CAPTION: The Standard & Poor's Composite Stock Price Index ("S&P 500 Index") is
a well-known stock market index that includes common stocks of 500 companies
from several industrial sectors representing a significant portion of the market
value of all stocks publicly traded in the United States, most of which are
traded on the New York Stock Exchange. Stocks in the S&P 500 Index are weighted
according to their market capitalization (the number of shares outstanding
multiplied by the stock's current price).
STRATEGY
The Fund is designed to provide investors with access to a quantitatively
managed portfolio that seeks to provide superior investment returns relative to
those that could be achieved from the general U.S. equity market as measured by
the S&P 500 Index.
The Fund invests in derivative instruments or common stocks of companies in the
S&P 500 Index in order to replicate as closely as possible, with respect to this
portion of the Fund's assets, the total return of the S&P 500 Index.
To pursue its investment objective of exceeding the return of the S&P 500 Index,
the Fund also invests in the stocks of acquisition targets in publicly announced
transactions. The selection of investments is based on quantitative models that
are proprietary to Bankers Trust Company.
QEF - Investment Class Page 6
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PRINCIPAL INVESTMENTS
The Fund invests in derivative instruments, such as futures contracts on the S&P
500 Index and options. The Fund also invests in shares of U.S. companies that
are targets of publicly announced acquisitions.
CAPTION: Generally, a derivative is a financial arrangement that derives its
value from a traditional security (like a stock or bond), asset or index.
CAPTION: Futures and options on futures contracts are used as a low-cost method
for gaining exposure to a particular securities market without investing
directly in those securities.
INVESTMENT PROCESS
S&P 500 INDEX ASSETS
A portion of the Fund's investments is designed to provide a return that matches
the return of the S&P 500 Index. These investments include one or more of the
following: derivative instruments, including futures contracts on the S&P 500
Index, options on common stocks, options on futures; Standard & Poor's
Depositary Receipts; and shares of S&P 500 Index mutual funds. We may also
purchase certain stocks included in the S&P 500 Index. Through these
investments, we maintain full or near full exposure to the broad equity market.
MERGER ARBITRAGE ASSETS
Another portion of the Fund's investments is designed to provide additional
total return. This portion invests in the common stocks of companies that are
the targets of publicly announced acquisitions. The selection of these
investments is based on a proprietary quantitative model that provides a
disciplined approach to both the timing and quantity of shares purchased. In
general, the selection of investments will also be limited by the following
criteria:
o An announced acquisition that is selected based on specific, unambiguous
events.
o An acquisition price that is structured to include at least 50% cash.
o An acquisition target with a minimum market capitalization of $500 million.
QEF - Investment Class Page 7
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Merger arbitrage is a specialized investment approach designed to profit from
the successful completion of proposed mergers, acquisitions and other types of
corporate reorganizations. It seeks to capture the difference between the price
of an acquisition target's shares after a bid is announced and the anticipated
takeover payout amount.
RESERVE ASSETS
The Fund will also invest a portion of its assets in money market instruments
and money market funds as a reserve for changes in allocation among the Fund's
equity investments and to cover its derivative positions.
PRIOR PERFORMANCE OF A SIMILAR PORTFOLIO
The information provided here presents the performance of the BT Pyramid
Quantitative Merger Arbitrage Fund (the "Portfolio"), an unregistered commingled
fund managed by Bankers Trust since December 31, 1989. Our decision to establish
the Portfolio was supported by the results of a back test of the investment
strategy over the 1984-89 period. In managing the Fund, we will employ
substantially the same investment objectives, policies and strategies that we
employed in managing the Portfolio. However, in managing the Fund, we are
subject to certain rules (e.g., limits on the percentage of assets invested in
securities of issuers in a single industry and requirements on distributing
income to shareholders) that did not apply to the Portfolio. In addition, the
continuous offering of the Fund's shares and the Fund's obligation to redeem its
shares will likely cause the Fund to experience cash flows different from those
of the Portfolio. Moreover, the way of calculating the performance of the
Portfolio, which values its assets at the end of each month, differs from the
method employed by mutual funds, which among other things value their assets on
a daily basis. All of these factors may affect the performance of the Fund and
cause it to differ from that of the Portfolio. Certain of these factors may
adversely affect the Fund's performance.
The Portfolio is available only to institutional investors, including other
commingled funds we manage. Management fees and expenses incurred in the
operation of the Portfolio are paid
QEF - Investment Class Page 8
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directly by its investors rather than by the Portfolio. Accordingly, the
performance results for the Portfolio have been adjusted to reflect an overall
expense ratio of 0.90%, which is the same as that expected to be borne by the
Fund. Returns of the Portfolio are compared to the S&P 500 Index. Unlike
Portfolio returns, those of the S&P 500 Index do not reflect fees and expenses.
Both the returns of the Portfolio and the S&P 500 Index reflect the reinvestment
of dividends and distributions.
Year Portfolio Returns with Fees S&P 500 Index Returns Difference
- -------- ----------------------------- ------------------------- ---------------
1990 5.82% -3.10% 8.92%
- -------- ----------------------------- ------------------------- ---------------
1991 29.30% 30.40% -1.10%
- -------- ----------------------------- ------------------------- ---------------
1992 7.42% 7.61% -0.19%
- -------- ----------------------------- ------------------------- ---------------
1993 10.87% 10.04% 0.83%
- -------- ----------------------------- ------------------------- ---------------
1994 0.94% 1.32% -0.38%
- -------- ----------------------------- ------------------------- ---------------
1995 39.38% 37.54% 1.84%
- -------- ----------------------------- ------------------------- ---------------
1996 24.61% 22.94% 1.67%
- -------- ----------------------------- ------------------------- ---------------
1997 35.98% 33.35% 2.63%
- -------- ----------------------------- ------------------------- ---------------
1998 35.69% 28.58% 7.11%
FOOTNOTE: The performance data represent the prior performance of the Portfolio,
not the prior performance of the Fund, and should not be considered an
indication of future performance of the Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Portfolio Returns with Fees S&P 500 Index Returns Difference
- ----------------------------- ------------------------------ ------------------------ ------------------
1 year 35.69% 28.58% 7.10%
- ----------------------------- ------------------------------ ------------------------ ------------------
3 years 31.98% 28.13% 3.75%
- ----------------------------- ------------------------------ ------------------------ ------------------
5 years 26.46% 24.03% 2.43%
- ----------------------------- ------------------------------ ------------------------ ------------------
Since inception (12/ 31/89) 20.28% 17.86% 2.41%
</TABLE>
In the 96 rolling 12-month periods ending December 31, 1998, the Portfolio, net
of a 0.90% expense ratio, had a positive total return in 95 of the 96 periods
and outperformed the S&P 500 Index in 61 of the 96 periods (64% of the time).
The next table shows performance statistics of the Portfolio, net of a 0.90%
expense ratio, relative to the S&P 500 Index. The statistics are based on the 96
rolling 12-month periods ending December 31, 1998, and illustrate the frequency
with which the Portfolio outperformed the Index.
QEF - Investment Class Page 9
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<TABLE>
<CAPTION>
<S> <C> <C>
Amount by which return of Portfolio, after fees,
exceeded return of S&P 500 Index(1) Number of periods Percent of total periods
- --------------------------------------------------- ---------------------- ---------------------------
100 basis points 56 58%
- --------------------------------------------------- ---------------------- ---------------------------
50 basis points 59 61%
- --------------------------------------------------- ---------------------- ---------------------------
25 basis points 61 64%
</TABLE>
(1)One basis point equals 1/100th of 1 percent (0.01%).
RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH INVESTING IN THE
FUND, AS WELL AS INVESTING IN GENERAL. ALTHOUGH WE ATTEMPT TO ASSESS THE
LIKELIHOOD THAT THESE RISKS MAY ACTUALLY OCCUR AND TO LIMIT THEM, WE MAKE NO
GUARANTEE THAT WE WILL SUCCEED.
PRIMARY RISKS
Market Risk. Although individual stocks can outperform their markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of an entire market. Because part of the Fund's strategy is to produce
returns that closely track those of the S&P 500 Index, we expect the value of
the Fund's shares to rise and fall with the broad equity market. Market risk is
common to most investments--including stocks and bonds, and the mutual funds
that invest in them.
Tracking Error. There are several reasons that the Fund's S&P 500 Index Assets
may not track the Index exactly:
o Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
o The composition of the Index and the stocks held by the Fund may occasionally
diverge.
o The timing and magnitude of cash inflows from investors buying shares could
create large balances of uninvested cash. Conversely, the timing and magnitude
of cash outflows to investors selling shares could require large ready
reserves of uninvested cash. Either situation would likely cause the Fund's
performance to deviate from the "fully invested" Index.
QEF - Investment Class Page 10
<PAGE>
Futures and Options. The Fund invests in stock index futures or options, which
are types of derivatives. The Fund invests in derivatives to keep cash on hand
to invest in stocks of acquisition targets as well as to meet other obligations
of the Fund.
Because the Fund invests in futures contracts and options on futures contracts
for non-hedging purposes, the initial margin and premiums required to make those
investments will not exceed 5% of the Fund's net asset value after taking into
account unrealized profits and losses on the contracts. Futures contracts and
options on futures contracts used for non-hedging purposes involve greater risks
than stock investments.
Exposure Risk. Certain investment techniques increase a fund's exposure to a
security, index or its investment portfolio. Exposure is the fund's maximum
potential gain or loss from an investment. Certain investments designed to
replicate the S&P 500 Index returns (such as options and futures) may have the
effect of magnifying declines as well as increases in a fund's net asset value.
Derivative Instruments Risk. The use of derivatives requires special skills,
knowledge and investment techniques that differ from those required for normal
portfolio management. Gains or losses from positions in a derivative instrument
may be much greater than the derivative's original cost. Risks associated with
derivatives include:
o the risk that the derivative is not well correlated with the security for
which it is acting as a substitute;
o derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities; and
o the risk that the Fund cannot sell the derivative because of an illiquid
secondary market.
Regulatory Risk. Positions in futures and options on futures will be entered
into only to the extent they constitute permissible positions for a fund not
regulated as a commodity pool, according to applicable rules of the Commodity
Futures Trading Commission. At times, the Fund may be constrained in its ability
to close positions on futures, options on futures or other derivatives
QEF - Investment Class Page 11
<PAGE>
when it would be most advantageous to do so. These regulatory constraints may
have an adverse effect on fund management or performance.
Merger Arbitrage Risk. The Fund's strategy relies on sufficient volume of
activity within the mergers and acquisitions marketplace. The mergers and
acquisitions marketplace can produce unforeseeable results. Merger and
acquisition transactions may be renegotiated, terminated or delayed due to, for
example, disagreements among the parties, lack of financing, failure to secure
regulatory approvals, fluctuations in the market or third party action. In the
event these transactions fail to close or close at a less than expected price
per share, the Fund may realize losses or a lower return than anticipated. The
length of time that the Fund's assets must be committed to any given transaction
will affect the rate of return realized by the Fund.
Non-Diversification Risk. The Fund is a non-diversified investment company. The
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers than diversified funds, providing a greater
possibility that the performance of a single issuer could impact the overall
value of the Fund more than in a diversified fund.
CAPTION: PORTFOLIO TURNOVER. The portfolio turnover rate measures the frequency
that the Fund sells and replaces the value of its securities within a given
period. We expect the Fund to have a high portfolio turnover rate. High turnover
can increase a Fund's transaction costs, thereby lowering its returns. It may
also increase your tax liability.
SECONDARY RISKS
Pricing Risk. When price quotations for securities are not readily available, we
determine their value by the method that most accurately reflects their current
worth in the judgement of the Board of Trustees. This procedure implies an
unavoidable risk, the risk that our prices are higher or lower than the prices
that the securities might actually command if we sold them. If we have valued
the securities too highly, you may end up paying too much for Fund shares when
you buy. If we underestimate their price, you may not receive the full market
value for your Fund shares when you sell.
QEF - Investment Class Page 12
<PAGE>
Year 2000 Risk. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies or in which it invests will not accommodate the changeovers necessary
from dates in the year 1999 to dates in the year 2000.
These risks could adversely affect:
o The companies in which the Fund invests, which could impact the value of the
Fund's investments;
o Our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and
o Our ability to trade securities held by the Fund or to accurately price
securities held by the Fund.
We are working both internally and with our business partners and service
providers to address this problem. If we--or our business partners, service
providers, government agencies or other market participants--do not succeed, it
could materially affect shareholder services or the value of the Fund's shares.
Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. For temporary defensive purposes, we may invest a
substantial portion of the Fund's assets in cash and money market instruments.
To the extent we find it necessary to invest in such securities, the Fund will
not be invested to meet its investment objective.
MANAGEMENT OF THE FUND
Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf.
Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006, acts
as the Fund's investment adviser. As investment adviser, Bankers Trust makes the
Fund's investment decisions and assumes
QEF - Investment Class Page 13
<PAGE>
responsibility for the securities the Fund owns. It buys and sells securities
for the Fund and conducts the research that leads to the purchase and sale
decisions. Bankers Trust will receive a fee of 0.50% of the Fund's average daily
net assets for its services in the current fiscal year.
As of June 30, 1999, Bankers Trust had total assets under management of
approximately $287 billion. Bankers Trust is dedicated to servicing the needs of
corporations, governments, financial institutions, and private clients and has
invested retirement assets on behalf of the nation's largest corporations and
institutions for more than 50 years. The scope of the firm's capability is
broad: it is a leader in both the active and passive quantitative investment
disciplines and maintains a major presence in stock and bond markets worldwide.
At a Special Meeting of Shareholders held on October 8, 1999, shareholders of
the Fund approved a new investment advisory agreement with Morgan Grenfell, Inc.
As of October 6, 1999, Morgan Grenfell, Inc. has been renamed Deutsche Asset
Management Inc. ("DAMI"). The new investment advisory agreement with DAMI may be
implemented within two years of the date of the special meeting upon approval of
a majority of the members of the Board of Trustees who are not "interested
persons" ("Independent Trustees"). Shareholders of the Fund also approved a new
sub-investment advisory agreement among the Trust, DAMI and Bankers Trust under
which Bankers Trust may perform certain of DAMI's responsibilities, at DAMI's
expense, upon approval of the Independent Trustees, within two years of the date
of the special meeting. Under the new investment advisory agreements and new
sub-advisory agreement, the compensation paid and the services provided would be
the same as those under the Advisory Agreement with Bankers Trust.
DAMI. DAMI is located at 885 Third Avenue, 32nd Floor, New York, New York 10022.
DAMI provides a full range of investment advisory services to institutional
clients. DAMI serves as investment adviser to ten other investment companies and
as sub-adviser to five other investment companies.
On March 11, 1999, Bankers Trust announced that it had reached an agreement with
the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that
QEF - Investment Class Page 14
<PAGE>
occurred between 1994 and early 1996. Bankers Trust pleaded guilty to misstating
entries in the bank's books and records and agreed to pay a $63.5 million fine
to state and federal authorities. On July 26, 1999, the federal criminal
proceedings were concluded with Bankers Trust's formal sentencing. The events
leading up to the guilty pleas did not arise out of the investment advisory or
mutual fund management activities of Bankers Trust or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust would not
be able to continue to provide investment advisory services to the Fund. The SEC
has granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.
Portfolio Managers. The following portfolio managers are responsible for the
day-to-day management of the master portfolio's investments:
Craig Russell
o Managing Director of Bankers Trust and portfolio manager for the portfolio.
o Joined Bankers Trust in 1992 and the Fund in July 1999.
o Over 10 years of financial industry experience.
o Bachelor's degree in engineering from the University of Michigan.
Manish Keshive
o Vice President of Bankers Trust and portfolio manager for the portfolio.
o Joined Bankers Trust in 1996 and the Fund in July 1999.
o Analyst and Trader for the Fund since inception.
o Bachelor's degree in Technology, Indian Institute of Technology in 1993, M.S.,
Massachusetts Institute of Technology in 1995.
Other Services. Bankers Trust provides administrative functions--such as
portfolio accounting, legal services and others--for the Fund. In addition,
Bankers Trust--or your broker or financial
QEF - Investment Class Page 15
<PAGE>
advisor--performs the functions necessary to establish and maintain your
account. In addition to setting up the account and processing your purchase and
sale orders, these functions include:
o keeping accurate, up-to-date records for your individual Fund account;
o implementing any changes you wish to make in your account information;
o processing your requests for cash dividends and distributions from the Fund;
o answering your questions on the Fund's investment performance or
administration;
o sending proxy reports and updated prospectus information to you; and
o collecting your executed proxies.
Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management or special trust or retirement investment reporting.
Organizational Structure. The Fund is a "feeder fund" that invests all of its
assets in a "master portfolio," the Quantitative Equity Portfolio. The Fund and
its master portfolio have the same investment objective. The master portfolio is
advised by Bankers Trust.
The master portfolio may accept investments from other feeder funds. A feeder
bears the master portfolio's expenses in proportion to its assets. Each feeder
can set its own transaction minimums, fund-specific expenses and other
conditions. This arrangement allows a Fund's Trustees to withdraw the Fund's
assets from the master portfolio if they believe doing so is in the
shareholder's best interests. If the Trustees withdraw the Fund's assets, they
would then consider whether the Fund should hire its own investment adviser,
invest in a different master portfolio or take other action.
CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of the Fund's shares (also known as the "net asset
value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business.
QEF - Investment Class Page 16
<PAGE>
The formula calls for deducting all of the Fund's liabilities from the total
value of its assets--the market value of the securities it holds, plus its cash
reserves--and dividing the result by the number of shares outstanding.
We value the securities in the Fund at their stated market value if price
quotations are available. When price quotes for a particular security are not
readily available, we determine their value by the method that most accurately
reflects their current worth in the judgment of the Board of Trustees.
CAPTION: THE EXCHANGE IS OPEN every week Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day
(the first Monday in September), Thanksgiving Day (the fourth Thursday in
November) and Christmas Day.
PERFORMANCE INFORMATION
The Fund's performance information can be used in advertisements that appear in
various publications. It may be compared to the performance of various indexes
and investments for which reliable performance data is available. The Fund's
performance may also be compared to averages, performance rankings, or other
information prepared by recognized mutual fund statistical services.
DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains distributions, if any, are paid annually. We
automatically reinvest all dividends and any capital gains, unless you tell us
otherwise.
TAX CONSIDERATIONS
The Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from the Fund's holdings. Your taxes will
vary from year to year, based on the amount of capital gains distributions and
dividends paid out by the Fund. You owe taxes whether you receive cash or choose
to have distributions and dividends reinvested. Distributions and dividends
usually create the following tax liability:
QEF - Investment Class Page 17
<PAGE>
TRANSACTION TAX STATUS
- --------------------------------------------- -------------------------
Income dividends Ordinary income
Short-term capital gains distributions Ordinary income
Long-term capital gains distributions Capital gains
Every year the Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a capital
gain or loss:
<TABLE>
<CAPTION>
<S> <C>
TRANSACTION TAX STATUS
- ------------------------------------------------ ---------------------------------------------------------
Your sale of shares owned more than one year Capital gains or losses
Your sale of shares owned for one year or less Gains treated as ordinary income; losses subject to
special rules
</TABLE>
The tax considerations for tax deferred accounts or non-taxable entities will be
different.
Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about your
investment.
BUYING AND SELLING FUND SHARES
Shares of the Fund are sold only to 1) private banking, brokerage and
institutional clients of Bankers Trust and its affiliates; 2) customers of
Service Agents; and 3) employees of Bankers Trust and its affiliates, their
spouses and minor children. Investors who are customers of Service Agents should
contact their Service Agent with respect to a proposed investment and then
follow the procedures adopted by the Service Agent for making purchases. Shares
that are purchased or sold through omnibus accounts maintained by securities
firms may be subject to a service fee or commission for such transactions.
We may close your Fund account on 30 days' notice if it fails to meet minimum
balance requirements for any reason other than a change in market value. In
addition, if your sell order exceeds $250,000, we reserve the right to redeem it
"in kind" with a pro-rata distribution of securities actually held by the Fund,
rather than in cash.
We reserve the right to reject any purchase order. Your broker or financial
advisor may charge transaction fees on the purchase and sale of Fund shares.
QEF - Investment Class Page 18
<PAGE>
Exchange Privileges. You can exchange all or part of your shares for another BT
Mutual Fund up to four times a year (from the date of your first exchange).
Before buying shares through an exchange you should be sure to get a copy of
that fund's prospectus and read it carefully. Please note also that you may have
to pay taxes on the shares you sell in an exchange.
Minimum Account Investments
To open an account $ 2,500
To add to an account $ 250
Minimum account balance $ 1,000
To open a retirement account $ 500
To add to a retirement account $ 100
Minimum retirement account balance None
Automatic investment accounts, which credit money from your checking account to
the purchase of Fund shares bi-weekly, monthly, quarterly, or semi-annually,
call for a minimum $1,000 opening investment and at least $100 for each
succeeding purchase of shares.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS COMPLETE INFORMATION ON
BUYING AND SELLING FUND SHARES AND MAINTAINING A FUND ACCOUNT. IF YOU WISH TO
OBTAIN A FREE COPY OF THE FUND'S STATEMENT OF ADDITIONAL INFORMATION, PLEASE
CALL BT MUTUAL FUNDS AT 1-800-949-9940.
QEF - Investment Class Page 19
<PAGE>
(Bankers Trust Architects of Value logo)
Additional information about the Fund's investments and performance is available
in the Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
You can find more detailed information about the Fund in the current Statement
of Additional Information, dated March 22, 1999, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
incorporated by reference into this Prospectus. To receive your free copy of the
Statement of Additional Information, the annual or semi-annual report, or if you
have questions about investing in the Fund, write to us at:
130 LIBERTY STREET
MAIL STOP 2355
NEW YORK, NEW YORK 10006
or call our toll-free number: 1-800-949-9940
You can find reports and other information about the Fund on the SEC website
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. For information on the Public Reference Room,
call the SEC at 1-800-SEC-0330.
Quantitative Equity - Investment Class CUSIP #055922652
BT INVESTMENT FUNDS 811-4760
812PRO (12/99)
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
QEF - Inv Class Page 1
<PAGE>
PROSPECTUS: __________, 1999
BT Mutual Funds (logo)
QUANTITATIVE EQUITY - INSTITUTIONAL CLASS
WITH THE GOAL OF ACHIEVING A TOTAL RETURN GREATER THAN THAT OF THE S&P 500 INDEX
THROUGH INVESTMENT IN STOCKS OF ACQUISITION TARGETS
TRUST: BT INVESTMENT FUNDS
INVESTMENT ADVISER: BANKERS TRUST COMPANY
[Like shares of all mutual funds, these securities have not been approved or
disapproved by the Securities and Exchange Commission nor has the Securities and
Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.]
<PAGE>
QUANTITATIVE EQUITY - INSTITUTIONAL CLASS
OVERVIEW OF QUANTITATIVE EQUITY - INSTITUTIONAL CLASS
Goal
Core Strategy
Investment Policies and Strategies
Principal Risks of Investing in the Fund
Who Should Consider Investing in the Fund
Total Returns, After Fees and Expenses
Annual Fund Operating Expenses
A DETAILED LOOK AT QUANTITATIVE EQUITY - INSTITUTIONAL CLASS
Objective
Strategy
Principal Investments
Investment Process
Prior Performance of a Similar Portfolio
Risks
Management of the Fund
Calculating the Fund's Share Price
Performance Information
Dividends and Distributions
Tax Considerations
Buying and Selling Fund Shares
OVERVIEW
of Quantitative Equity - Institutional Class
GOAL: The Fund seeks a total return greater than that of the S&P 500 Index.
<PAGE>
CORE STRATEGY: The Fund follows an integrated strategy that utilizes derivative
instruments and stocks of the S&P 500 Index along with the stocks of acquisition
targets.
INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio, seeks
to achieve that objective by investing in derivative instruments or common
stocks of companies in the S&P 500 Index to seek to match the total return of
the S&P 500 Index (we refer to this portion of the Fund's assets as the "S&P 500
Index Assets"). Additionally, the Fund seeks to exceed the returns of the S&P
500 Index by investing in the stocks of acquisition targets in publicly
announced transactions (we refer to this portion of the Fund's assets as the
"Merger Arbitrage Assets"). The Investment Adviser uses proprietary quantitative
models to select securities for the Fund's Merger Arbitrage Assets.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. The risks associated with the Fund's S&P 500
Index Assets include the risks that:
o Stocks could decline generally or could underperform other investments.
o Returns on large U.S. companies' stocks could trail the returns from stocks of
medium or small companies. Each type of stock tends to go through cycles of
overperformance and underperformance in comparison to the overall stock
market.
o The Fund may not be able to mirror the S&P 500 Index closely enough to track
its performance for a number of reasons, including the Fund's cost to buy and
sell securities, the flow of money into and out of the Fund and the Investment
Adviser's selection of stocks that may underperform.
- -2-
<PAGE>
o The Fund could suffer losses on its derivative positions if they are not well
correlated with the securities for which they are acting as a substitute or if
the Fund cannot close out its positions.
The risks associated with the Fund's Merger Arbitrage Assets include the risks
that:
o The volume of transactions in the mergers and acquisitions marketplace becomes
insufficient to meet the Fund's goal.
o Acquisition transactions are renegotiated, terminated or delayed.
In addition to these risks, the Fund is a non-diversified investment company.
The Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers than a diversified fund, providing a greater
possibility that the performance of a single issuer could impact the overall
value of the Fund more than in a diversified fund.
WHO SHOULD CONSIDER INVESTING IN THE FUND
The Fund requires a minimum investment of $250,000. Shares of the Fund are
available to private banking, brokerage and institutional clients of Bankers
Trust and its affiliates and customers of institutions that have a
sub-shareholder servicing agreement with Bankers Trust (we refer to these
institutions as "Service Agents").
You should consider investing in Quantitative Equity - Institutional Class if
you are seeking long-term capital appreciation. There is, of course, no
guarantee that the Fund will realize its goal. Moreover, you should be willing
to accept greater short-term fluctuations in the value of your investment than
you would typically experience by investing in bond or money market funds.
You should not consider investing in the Fund if you are pursuing a short-term
financial goal, if you seek regular income or if you cannot tolerate
fluctuations in the value of your investments.
The Fund by itself does not constitute a balanced investment program.
Diversifying your investments may improve your long-run investment return and
lower the volatility of your overall investment portfolio.
- -3-
<PAGE>
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF BANKERS TRUST COMPANY OR ANY OTHER
BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
TOTAL RETURNS, AFTER FEES AND EXPENSES
The Fund does not have a full calendar year of annual operating performance to
report.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES PAID FROM FUND ASSETS)
The Annual Fees and Expenses table to the right describes the fees and expenses
you may pay if you buy and hold shares of the Fund.
Expense Example. The example below illustrates the expenses you will incur on a
$10,000 investment in the Fund. The example assumes that the Fund earned an
annual return of 5% over the periods shown, that the Fund's operating expenses
remained the same and you sold your shares at the end of the period.
You may use this hypothetical example to compare the Fund's estimated expenses
with other funds. Your actual costs may be higher or lower.
Annual Fees and Expenses(1)
Percentage of average
daily net assets
- -------------------------------------------------- --------------------------
Management fees 0.50%
- -------------------------------------------------- --------------------------
Distribution and service (12b-1) fees None
- -------------------------------------------------- --------------------------
Other fund operating expenses ____%
- -------------------------------------------------- --------------------------
Total fund operating expenses ____%
- -------------------------------------------------- --------------------------
Less: fee waiver or expense reimbursement ____%(2)
- -------------------------------------------------- --------------------------
NET EXPENSES 0.65%
- -------------------------------------------------- --------------------------
- ----------------
(1) Information is based on estimated amounts for the current fiscal year.
(2) Bankers Trust has agreed, for a 16-month period from the Fund's fiscal year
end of December 31, 1998, to waive its fees and reimburse expenses so that
total expenses will not exceed 0.65%. We expect to continue this waiver
beyond the 16-month period.
- -4-
<PAGE>
Expense Example(3)
1 year 3 years
- ----------------------- --------------------
$----- $-----
- ----------------
(3) Based on expenses, after fee waivers and reimbursements for the first 16
months only.
- -5-
<PAGE>
A DETAILED LOOK
at Quantitative Equity - Institutional Class
OBJECTIVE
The Fund seeks a total return greater than that of the S&P 500 Index. The Fund
invests for long-term capital appreciation, not income; any dividend and
interest income is secondary to the pursuit of its objective. While we give
priority to capital appreciation, we cannot offer any assurance of achieving
this objective.
CAPTION: The Standard & Poor's Composite Stock Price Index ("S&P 500 Index") is
a well-known stock market index that includes common stocks of 500 companies
from several industrial sectors representing a significant portion of the market
value of all stocks publicly traded in the United States, most of which are
traded on the New York Stock Exchange. Stocks in the S&P 500 Index are weighted
according to their market capitalization (the number of shares outstanding
multiplied by the stock's current price).
STRATEGY
The Fund is designed to provide investors with access to a quantitatively
managed portfolio that seeks to provide superior investment returns relative to
those that could be achieved from the general U.S. equity market as measured by
the S&P 500 Index.
The Fund invests in derivative instruments or common stocks of companies in the
S&P 500 Index in order to replicate as closely as possible, with respect to this
portion of the Fund's assets, the total return of the S&P 500 Index.
To pursue its investment objective of exceeding the return of the S&P 500 Index,
the Fund also invests in the stocks of acquisition targets in publicly announced
transactions. The selection of investments is based on quantitative models that
are proprietary to Bankers Trust Company.
- -6-
<PAGE>
PRINCIPAL INVESTMENTS
The Fund invests in derivative instruments, such as futures contracts on the S&P
500 Index and options. The Fund also invests in shares of U.S. companies that
are targets of publicly announced acquisitions.
CAPTION: Generally, a DERIVATIVE is a financial arrangement that derives its
value from a traditional security (like a stock or bond), asset or index.
CAPTION: FUTURES and options on futures contracts are used as a low-cost method
for gaining exposure to a particular securities market without investing
directly in those securities.
INVESTMENT PROCESS
S&P 500 INDEX ASSETS
A portion of the Fund's investments is designed to provide a return that matches
the return of the S&P 500 Index. These investments include one or more of the
following: derivative instruments, including futures contracts on the S&P 500
Index, options on common stocks, options on futures; Standard & Poor's
Depositary Receipts; and shares of S&P 500 Index mutual funds. We may also
purchase certain stocks included in the S&P 500 Index. Through these
investments, we maintain full or near full exposure to the broad equity market.
MERGER ARBITRAGE ASSETS
Another portion of the Fund's investments is designed to provide additional
total return. This portion invests in the common stocks of companies that are
the targets of publicly announced acquisitions. The selection of these
investments is based on a proprietary quantitative model that provides a
disciplined approach to both the timing and quantity of shares purchased. In
general, the selection of investments will also be limited by the following
criteria:
o An announced acquisition that is selected based on specific, unambiguous
events.
o An acquisition price that is structured to include at least 50% cash.
o An acquisition target with a minimum market capitalization of $500 million.
- -7-
<PAGE>
Merger arbitrage is a specialized investment approach designed to profit from
the successful completion of proposed mergers, acquisitions and other types of
corporate reorganizations. It seeks to capture the difference between the price
of an acquisition target's shares after a bid is announced and the anticipated
takeover payout amount.
RESERVE ASSETS
The Fund will also invest a portion of its assets in money market instruments
and money market funds as a reserve for changes in allocation among the Fund's
equity investments and to cover its derivative positions.
PRIOR PERFORMANCE OF A SIMILAR PORTFOLIO
The information provided here presents the performance of the BT Pyramid
Quantitative Merger Arbitrage Fund (the "Portfolio"), an unregistered commingled
fund managed by Bankers Trust since December 31, 1989. Our decision to establish
the Portfolio was supported by the results of a back test of the investment
strategy over the 1984-89 period. In managing the Fund, we will employ
substantially the same investment objectives, policies and strategies that we
employed in managing the Portfolio. However, in managing the Fund, we are
subject to certain rules (e.g., limits on the percentage of assets invested in
securities of issuers in a single industry and requirements on distributing
income to shareholders) that did not apply to the Portfolio. In addition, the
continuous offering of the Fund's shares and the Fund's obligation to redeem its
shares will likely cause the Fund to experience cash flows different from those
of the Portfolio. Moreover, the way of calculating the performance of the
Portfolio, which values its assets at the end of each month, differs from the
method employed by mutual funds, which among other things value their assets on
a daily basis. All of these factors may affect the performance of the Fund and
cause it to differ from that of the Portfolio. Certain of these factors may
adversely affect the Fund's performance.
The Portfolio is available only to institutional investors, including other
commingled funds we manage. Management fees and expenses incurred in the
operation of the Portfolio are paid directly by its investors rather than by the
Portfolio. Accordingly, the performance results for the Portfolio have been
adjusted to reflect an overall expense ratio of 0.90%, which is greater than
- -8-
<PAGE>
the Fund's expense ratio of 0.65%. Returns of the Portfolio are compared to the
S&P 500 Index. Unlike Portfolio returns, those of the S&P 500 Index do not
reflect fees and expenses. Both the returns of the Portfolio and the S&P 500
Index reflect the reinvestment of dividends and distributions.
Year Portfolio Returns with Fees S&P 500 Index Returns Difference
- ----------- ----------------------------- ------------------------- ------------
1990 5.82% -3.10% 8.92%
- ----------- ----------------------------- ------------------------- ------------
1991 29.30% 30.40% -1.10%
- ----------- ----------------------------- ------------------------- ------------
1992 7.42% 7.61% -0.19%
- ----------- ----------------------------- ------------------------- ------------
1993 10.87% 10.04% 0.83%
- ----------- ----------------------------- ------------------------- ------------
1994 0.94% 1.32% -0.38%
- ----------- ----------------------------- ------------------------- ------------
1995 39.38% 37.54% 1.84%
- ----------- ----------------------------- ------------------------- ------------
1996 24.61% 22.94% 1.67%
- ----------- ----------------------------- ------------------------- ------------
1997 35.98% 33.35% 2.63%
- ----------- ----------------------------- ------------------------- ------------
1998 35.69% 28.58% 7.11%
FOOTNOTE: The performance data represent the prior performance of the Portfolio,
not the prior performance of the Fund, and should not be considered an
indication of future performance of the Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Portfolio Returns with Fees S&P 500 Index Returns Difference
- -------------------------------- ------------------------------ ---------------------------- -------------
1 year 35.69% 28.58% 7.10%
- -------------------------------- ------------------------------- ---------------------------- ------------
3 years 31.98% 28.13% 3.75%
- -------------------------------- ------------------------------- ---------------------------- ------------
5 years 26.46% 24.03% 2.43%
- -------------------------------- ------------------------------- ---------------------------- ------------
Since inception (12/ 31/89) 20.28% 17.86% 2.41%
</TABLE>
In the 96 rolling 12-month periods ending December 31, 1998, the Portfolio, net
of a 0.90% expense ratio, had a positive total return in 95 of the 96 periods
and outperformed the S&P 500 Index in 61 of the 96 periods (64% of the time).
The next table shows performance statistics of the Portfolio, net of a 0.90%
expense ratio, relative to the S&P 500 Index. The statistics are based on the 96
rolling 12-month periods ending December 31, 1998, and illustrate the frequency
with which the Portfolio outperformed the Index.
<TABLE>
<CAPTION>
<S> <C> <C>
Amount by which return of Portfolio, after fees,
exceeded return of S&P 500 Index(1) Number of periods Percent of total periods
- ---------------------------------------------------------- -------------------------- -------------------------------
</TABLE>
- -9-
<PAGE>
- ---------------------------- --------------- ------------
100 basis points 56 58%
- ---------------------------- --------------- ------------
50 basis points 59 61%
- ---------------------------- --------------- ------------
25 basis points 61 64%
(1) One basis point equals 1/100th of 1 percent (0.01%).
RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH INVESTING IN THE
FUND, AS WELL AS INVESTING IN GENERAL. ALTHOUGH WE ATTEMPT TO ASSESS THE
LIKELIHOOD THAT THESE RISKS MAY ACTUALLY OCCUR AND TO LIMIT THEM, WE MAKE NO
GUARANTEE THAT WE WILL SUCCEED.
PRIMARY RISKS
Market Risk. Although individual stocks can outperform their markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of an entire market. Because part of the Fund's strategy is to produce
returns that closely track those of the S&P 500 Index, we expect the value of
the Fund's shares to rise and fall with the broad equity market. Market risk is
common to most investments--including stocks and bonds, and the mutual funds
that invest in them.
Tracking Error. There are several reasons that the Fund's S&P 500 Index Assets
may not track the Index exactly:
o Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
o The composition of the Index and the stocks held by the Fund may occasionally
diverge.
o The timing and magnitude of cash inflows from investors buying shares could
create large balances of uninvested cash. Conversely, the timing and magnitude
of cash outflows to investors selling shares could require large ready
reserves of uninvested cash. Either situation would likely cause the Fund's
performance to deviate from the "fully invested" Index.
- -10-
<PAGE>
Futures and Options. The Fund invests in stock index futures or options, which
are types of derivatives. The Fund invests in derivatives to keep cash on hand
to invest in stocks of acquisition targets as well as to meet other obligations
of the Fund.
Because the Fund invests in futures contracts and options on futures contracts
for non-hedging purposes, the initial margin and premiums required to make those
investments will not exceed 5% of the Fund's net asset value after taking into
account unrealized profits and losses on the contracts. Futures contracts and
options on futures contracts used for non-hedging purposes involve greater risks
than stock investments.
Exposure Risk. Certain investment techniques increase a fund's exposure to a
security, index or its investment portfolio. Exposure is the fund's maximum
potential gain or loss from an investment. Certain investments designed to
replicate the S&P 500 Index returns (such as options and futures) may have the
effect of magnifying declines as well as increases in a fund's net asset value.
Derivative Instruments Risk. The use of derivatives requires special skills,
knowledge and investment techniques that differ from those required for normal
portfolio management. Gains or losses from positions in a derivative instrument
may be much greater than the derivative's original cost. Risks associated with
derivatives include:
o the risk that the derivative is not well correlated with the security for
which it is acting as a substitute;
o derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities; and
o the risk that the Fund cannot sell the derivative because of an illiquid
secondary market.
Regulatory Risk. Positions in futures and options on futures will be entered
into only to the extent they constitute permissible positions for a fund not
regulated as a commodity pool, according to applicable rules of the Commodity
Futures Trading Commission. At times, the Fund may be constrained in its ability
to close positions on futures, options on futures or other derivatives when it
would be most advantageous to do so. These regulatory constraints may have an
adverse effect on fund management or performance.
- -11-
<PAGE>
Merger Arbitrage Risk. The Fund's strategy relies on sufficient volume of
activity within the mergers and acquisitions marketplace. The mergers and
acquisitions marketplace can produce unforeseeable results. Merger and
acquisition transactions may be renegotiated, terminated or delayed due to, for
example, disagreements among the parties, lack of financing, failure to secure
regulatory approvals, fluctuations in the market or third party action. In the
event these transactions fail to close or close at a less than expected price
per share, the Fund may realize losses or a lower return than anticipated. The
length of time that the Fund's assets must be committed to any given transaction
will affect the rate of return realized by the Fund.
Non-Diversification Risk. The Fund is a non-diversified investment company. The
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers than diversified funds, providing a greater
possibility that the performance of a single issuer could impact the overall
value of the Fund more than in a diversified fund.
CAPTION: PORTFOLIO TURNOVER. The portfolio turnover rate measures the frequency
that the Fund sells and replaces the value of its securities within a given
period. We expect the Fund to have a high portfolio turnover rate. High turnover
can increase a Fund's transaction costs, thereby lowering its returns. It may
also increase your tax liability.
SECONDARY RISKS
Pricing Risk. When price quotations for securities are not readily available, we
determine their value by the method that most accurately reflects their current
worth in the judgement of the Board of Trustees. This procedure implies an
unavoidable risk, the risk that our prices are higher or lower than the prices
that the securities might actually command if we sold them. If we have valued
the securities too highly, you may end up paying too much for Fund shares when
you buy. If we underestimate their price, you may not receive the full market
value for your Fund shares when you sell.
Year 2000 Risk. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies or in which it invests will not accommodate the changeovers necessary
from dates in the year 1999 to dates in the year 2000.
These risks could adversely affect:
- -12-
<PAGE>
o The companies in which the Fund invests, which could impact the value of the
Fund's investments;
o Our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and
o Our ability to trade securities held by the Fund or to accurately price
securities held by the Fund.
We are working both internally and with our business partners and service
providers to address this problem. If we--or our business partners, service
providers, government agencies or other market participants--do not succeed, it
could materially affect shareholder services or the value of the Fund's shares.
Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. For temporary defensive purposes, we may invest a
substantial portion of the Fund's assets in cash and money market instruments.
To the extent we find it necessary to invest in such securities, the Fund will
not be invested to meet its investment objective.
MANAGEMENT OF THE FUND
Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf.
Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006, acts
as the Fund's investment adviser. As investment adviser, Bankers Trust makes the
Fund's investment decisions and assumes responsibility for the securities the
Fund owns. It buys and sells securities for the Fund and conducts the research
that leads to the purchase and sale decisions. Bankers Trust will receive a fee
of 0.50% of the Fund's average daily net assets for its services in the current
fiscal year.
As of June 30, 1999, Bankers Trust had total assets under management of
approximately $287 billion. Bankers Trust is dedicated to servicing the needs of
corporations, governments, financial
- -13-
<PAGE>
institutions, and private clients and has invested retirement assets on behalf
of the nation's largest corporations and institutions for more than 50 years.
The scope of the firm's capability is broad: it is a leader in both the active
and passive quantitative investment disciplines and maintains a major presence
in stock and bond markets worldwide.
At a Special Meeting of Shareholders held on October 8, 1999, shareholders of
the Fund approved a new investment advisory agreement with Morgan Grenfell, Inc.
As of October 6, 1999, Morgan Grenfell, Inc. has been renamed Deutsche Asset
Management Inc. ("DAMI"). The new investment advisory agreement with DAMI may be
implemented within two years of the date of the special meeting upon approval of
a majority of the members of the Board of Trustees who are not "interested
persons" ("Independent Trustees"). Shareholders of the Fund also approved a new
sub-investment advisory agreement among the Trust, DAMI and Bankers Trust under
which Bankers Trust may perform certain of DAMI's responsibilities, at DAMI's
expense, upon approval of the Independent Trustees, within two years of the date
of the special meeting. Under the new investment advisory agreements and new
sub-advisory agreement, the compensation paid and the services provided would be
the same as those under the Advisory Agreement with Bankers Trust.
DAMI. DAMI is located at 885 Third Avenue, 32nd Floor, New York, New York 10022.
DAMI provides a full range of investment advisory services to institutional
clients. DAMI serves as investment adviser to ten other investment companies and
as sub-adviser to five other investment companies.
On March 11, 1999, Bankers Trust announced that it had reached an agreement with
the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
Bankers Trust pleaded guilty to misstating entries in the bank's books and
records and agreed to pay a $63.5 million fine to state and federal authorities.
On July 26, 1999, the federal criminal proceedings were concluded with Bankers
Trust's formal sentencing. The events leading up to the guilty pleas did not
arise out of the investment advisory or mutual fund management activities of
Bankers Trust or its affiliates.
- -14-
<PAGE>
As a result of the plea, absent an order from the SEC, Bankers Trust would not
be able to continue to provide investment advisory services to the Fund. The SEC
has granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.
Portfolio Managers. The following portfolio managers are responsible for the
day-to-day management of the master portfolio's investments:
Craig Russell
o Managing Director of Bankers Trust and portfolio manager for the portfolio.
o Joined Bankers Trust in 1992 and the Fund in July 1999.
o Over 10 years of financial industry experience.
o Bachelor's degree in engineering from the University of Michigan.
Manish Keshive
o Vice President of Bankers Trust and portfolio manager for the portfolio.
o Joined Bankers Trust in 1996 and the Fund in July 1999.
o Analyst and Trader for the Fund since inception.
o Bachelor's degree in Technology, Indian Institute of Technology in 1993, M.S.,
Massachusetts Institute of Technology in 1995.
Other Services. Bankers Trust provides administrative functions--such as
portfolio accounting, legal services and others--for the Fund. In addition,
Bankers Trust--or your broker or financial advisor--performs the functions
necessary to establish and maintain your account. In addition to setting up the
account and processing your purchase and sale orders, these functions include:
o keeping accurate, up-to-date records for your individual Fund account;
o implementing any changes you wish to make in your account information;
o processing your requests for cash dividends and distributions from the Fund;
- -15-
<PAGE>
o answering your questions on the Fund's investment performance or
administration;
o sending proxy reports and updated prospectus information to you; and
o collecting your executed proxies.
Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management or special trust or retirement investment reporting.
Organizational Structure. The Fund is a "feeder fund" that invests all of its
assets in a "master portfolio," the Quantitative Equity Portfolio. The Fund and
its master portfolio have the same investment objective. The master portfolio is
advised by Bankers Trust.
The master portfolio may accept investments from other feeder funds. A feeder
bears the master portfolio's expenses in proportion to its assets. Each feeder
can set its own transaction minimums, fund-specific expenses and other
conditions. This arrangement allows a Fund's Trustees to withdraw the Fund's
assets from the master portfolio if they believe doing so is in the
shareholder's best interests. If the Trustees withdraw the Fund's assets, they
would then consider whether the Fund should hire its own investment adviser,
invest in a different master portfolio or take other action.
CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of the Fund's shares (also known as the "net asset
value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business.
The formula calls for deducting all of the Fund's liabilities from the total
value of its assets--the market value of the securities it holds, plus its cash
reserves--and dividing the result by the number of shares outstanding.
We value the securities in the Fund at their stated market value if price
quotations are available. When price quotes for a particular security are not
readily available, we determine their value by
- -16-
<PAGE>
the method that most accurately reflects their current worth in the judgment of
the Board of Trustees.
CAPTION: THE EXCHANGE IS OPEN every week Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day
(the first Monday in September), Thanksgiving Day (the fourth Thursday in
November) and Christmas Day.
PERFORMANCE INFORMATION
The Fund's performance information can be used in advertisements that appear in
various publications. It may be compared to the performance of various indexes
and investments for which reliable performance data is available. The Fund's
performance may also be compared to averages, performance rankings, or other
information prepared by recognized mutual fund statistical services.
DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains distributions, if any, are paid annually. We
automatically reinvest all dividends and any capital gains, unless you tell us
otherwise.
TAX CONSIDERATIONS
The Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from the Fund's holdings. Your taxes will
vary from year to year, based on the amount of capital gains distributions and
dividends paid out by the Fund. You owe taxes whether you receive cash or choose
to have distributions and dividends reinvested. Distributions and dividends
usually create the following tax liability:
TRANSACTION TAX STATUS
- -------------------------------------------- -----------------------
Income dividends Ordinary income
Short-term capital gains distributions Ordinary income
Long-term capital gains distributions Capital gains
Every year the Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a capital
gain or loss:
- -17-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TRANSACTION TAX STATUS
- ------------------------------------------------- ---------------------------------------------------------
Your sale of shares owned more than one year Capital gains or losses
Your sale of shares owned for one year or less Gains treated as ordinary income; losses subject to
special rules
</TABLE>
The tax considerations for tax deferred accounts or non-taxable entities will be
different.
Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about your
investment.
BUYING AND SELLING FUND SHARES
Shares of the Fund are sold only to 1) private banking, brokerage and
institutional clients of Bankers Trust and its affiliates; 2) customers of
Service Agents; and 3) employees of Bankers Trust and its affiliates, their
spouses and minor children. Investors who are customers of Service Agents should
contact their Service Agent with respect to a proposed investment and then
follow the procedures adopted by the Service Agent for making purchases. Shares
that are purchased or sold through omnibus accounts maintained by securities
firms may be subject to a service fee or commission for such transactions.
We may close your Fund account on 30 days' notice if it fails to meet minimum
balance requirements for any reason other than a change in market value. In
addition, if your sell order exceeds $250,000, we reserve the right to redeem it
"in kind" with a pro-rata distribution of securities actually held by the Fund,
rather than in cash.
We reserve the right to reject any purchase order. Your broker or financial
advisor may charge transaction fees on the purchase and sale of Fund shares.
Exchange Privileges. You can exchange all or part of your shares for another BT
Mutual Fund up to four times a year (from the date of your first exchange).
Before buying shares through an exchange you should be sure to get a copy of
that fund's prospectus and read it carefully. Please note also that you may have
to pay taxes on the shares you sell in an exchange.
Minimum Account Investments
To open an account $250,000
- -18-
<PAGE>
To add to an account $25,000
Minimum account balance [$10,000]
The Fund and its service providers reserve the right to, from time to time, at
their discretion, waive or reduce the investment minimums. Shares of the Fund
may be offered to employees of Bankers Trust, their spouses and minor children
without regard to the minimum investment requirements.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS COMPLETE INFORMATION ON
BUYING AND SELLING FUND SHARES AND MAINTAINING A FUND ACCOUNT. IF YOU WISH TO
OBTAIN A FREE COPY OF THE FUND'S STATEMENT OF ADDITIONAL INFORMATION, PLEASE
CALL BT MUTUAL FUNDS AT 1-800-949-9940.
- -19-
<PAGE>
(Bankers Trust Architects of Value logo)
Additional information about the Fund's investments and performance is available
in the Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
You can find more detailed information about the Fund in the current Statement
of Additional Information, dated __________, 1999, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
incorporated by reference into this Prospectus. To receive your free copy of the
Statement of Additional Information, the annual or semi-annual report, or if you
have questions about investing in the Fund, write to us at:
130 LIBERTY STREET
MAIL STOP 2355
NEW YORK, NEW YORK 10006
or call our toll-free number: 1-800-__________
You can find reports and other information about the Fund on the SEC website
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. For information on the Public Reference Room,
call the SEC at 1-800-SEC-0330.
Quantitative Equity - Institutional Class CUSIP #__________
BT INVESTMENT FUNDS 811-4760
Product Code [_____]
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101
- -20-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
BT INVESTMENT FUNDS
Quantitative Equity
Investment Class
Institutional Class
BT Investment Funds (the "Trust") is an open-end management investment company
comprised of several funds. The Quantitative Equity Fund (the "Fund") is a
separate series of the Trust and offers two classes of shares. The Investment
class shares and Institutional class shares (individually and collectively
referred to as "shares" as the context may require) of the Fund are described in
this Statement of Additional Information. The Fund seeks to provide a total
return greater than that of the Standard & Poor's Stock Price Index of 500
Common Stocks (the "S&P 500 Index" or the "Index").
As described in the Prospectuses, the Trust seeks the investment objective of
the Fund by investing all the investable assets ("Assets") of the Fund in a
diversified open-end management investment company having the same investment
objective as such Fund. This investment company is the Quantitative Equity
Portfolio (the "Portfolio"), which is a series of BT Investment Portfolios.
Shares of the Fund are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trust's Distributor, to private banking, brokerage and institutional clients of
Bankers Trust Company ("Bankers Trust") and its affiliates and to customers of
Service Agents. Shares of the Fund may also be sold to employees of Bankers
Trust and its affiliates, their spouses and minor children.
The Fund's Prospectuses dated __________, 1999 provide the basic information
investors should know before investing. This Statement of Additional Information
("SAI"), which is not a Prospectus, is intended to provide additional
information regarding the activities and operations of the Trust and should be
read in conjunction with the Fund's Prospectuses. You may request a copy of a
Prospectus or an additional copy of this SAI free of charge by calling the BT
Mutual Funds at 1-800-949-9940 or by contacting your Service Agent. Capitalized
terms not otherwise defined in this SAI have the meanings accorded to them in
the Fund's Prospectuses. The financial statements for the Fund for the fiscal
period ended June 30, 1999, are incorporated herein by reference to the
Semi-Annual Report to shareholders for the Fund dated June 30, 1999. A copy of
the Fund's Semi-Annual Report may be obtained without charge by calling the Fund
at the telephone number listed below.
BANKERS TRUST COMPANY
Investment Adviser and Administrator
ICC DISTRIBUTORS, INC.
Distributor
Two Portland Square
Portland, Maine 04101
1-800-949-9940
<PAGE>
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.............................3
Investment Objective.....................................................3
Investment Policies......................................................3
Index Futures Contracts and Options on Index Futures.....................6
Investment Restrictions.................................................12
Portfolio Transactions and Brokerage Commissions........................14
Comparison of Fund Performance..........................................16
Economic and Market Information.........................................17
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND.................17
Valuation of Securities.................................................17
Purchase of Shares......................................................18
Additional Information About Buying Shares..............................18
Redemption of Shares....................................................18
Exchange Privilege......................................................20
Redemptions and Purchases in Kind.......................................20
Trading in Foreign Securities...........................................21
MANAGEMENT OF THE TRUST AND THE PORTFOLIO..................................21
Trustees of the Trust and Portfolio.....................................22
Officers of the Trust...................................................23
Trustee Compensation Table..............................................23
Investment Adviser......................................................24
Bankers Trust Company and Its Affiliates................................24
Administrator...........................................................25
Custodian and Transfer Agent............................................25
Distributor.............................................................26
Service Agent...........................................................26
Use of Name.............................................................26
Banking Regulatory Matters..............................................26
Counsel and Independent Accountants.....................................26
ORGANIZATION OF THE TRUST..................................................27
TAXATION...................................................................27
Taxation of the Fund....................................................27
Taxation of the Portfolio...............................................28
Foreign Securities......................................................28
Distributions...........................................................29
Sale of Shares..........................................................29
Foreign Withholding Taxes...............................................29
Backup Withholding......................................................29
Foreign Shareholders....................................................29
Other Taxation..........................................................30
FINANCIAL STATEMENTS.......................................................30
APPENDIX...................................................................30
2
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
The Fund seeks a total return greater than that of the S&P 500 Index. The Fund
follows an integrated strategy that utilizes derivative instruments and stocks
of the S&P 500 Index along with the stocks of acquisition targets. There can, of
course, be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
The Fund seeks its investment objective by investing all of its Assets in the
Portfolio. The Trust may withdraw the Fund's 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 Fund to do so. Since the investment characteristics of the Fund
will correspond directly to those of the Portfolio, the following is a
discussion of the various investments of and techniques employed by the
Portfolio.
S&P 500 INDEX ASSETS. To match the performance of the S&P 500 Index, the
Portfolio invests in one or more of the following instruments: derivative
instruments, including futures contracts on the S&P 500 Index, options on common
stocks, options on futures, options on indices, and equity swap contracts;
Standard & Poor's Depositary Receipts; and shares of S&P 500 Index mutual funds.
The Portfolio may also purchase a basket of stocks representing companies
included in the S&P 500 Index. Under normal circumstances, the Portfolio expects
to expose between 85% and 95% of the net assets of the Portfolio to the S&P 500
Index through investment in these instruments or the underlying stocks of the
S&P 500 Index.
When the Portfolio has cash from new investments in the Portfolio or holds a
portion of its assets in money market instruments, it may enter into the above
instruments to maintain full or near full exposure to the broad equity market.
Strategies the Portfolio could use to accomplish this include purchasing futures
contracts, writing put options, and purchasing call options. When the Portfolio
wishes to sell securities, because of shareholder redemptions or otherwise, it
may use stock index futures or options to hedge against market risk until the
sale can be completed. These strategies could include selling futures contracts,
writing call options, and purchasing put options.
Bankers Trust will choose among the above instruments based on its judgment of
how best to meet the Portfolio's goals. In selecting futures and options,
Bankers Trust will assess such factors as current and anticipated stock prices,
relative liquidity and price levels in the options and futures markets compared
to the securities markets, and the Portfolio's cash flow and cash management
needs. If Bankers Trust judges these factors incorrectly, or if price changes in
the Portfolio's futures and options positions are not well correlated with those
of its other investments, the Portfolio could be hindered in the pursuit of its
objective and could suffer losses. The Portfolio could also be exposed to risks
if it can not close out its futures or options positions because of an illiquid
secondary market.
The S&P 500 Index is a well-known stock market index that includes common stocks
of 500 companies from several sectors of the economy representing a significant
portion of the market value of all common stocks publicly traded in the United
States. Stocks in the S&P 500 Index are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by the stock's
current price). The composition of the S&P 500 Index is determined by Standard &
Poor's Corporation ("S&P") and is based on such factors as the market
capitalization and trading activity of each stock and its adequacy as a
representation of stocks in a particular industry group, and may be changed from
time to time.
The Portfolio is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the owners of the Portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the Portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P does not guarantee the
accuracy and/or the completeness of the S&P 500 Index or any data included
therein.
S&P makes no warranty, express or implied, as to the results to be obtained by
the Portfolio, owners of the Portfolio, or any other person or entity from the
use of the S&P 500 Index or any data included therein. S&P makes no express or
implied warranties and hereby expressly disclaims all such warranties of
merchantability or fitness for a particular purpose or use with respect to the
S&P 500 Index or any data included therein.
3
<PAGE>
The ability of the Portfolio to meet its investment objective depends to some
extent on the cash flow experienced by the Portfolio, since investments and
redemptions by shareholders will generally require the Portfolio to purchase or
sell securities. Bankers Trust will make investment changes to accommodate cash
flow in an attempt to maintain the similarity of the Portfolio to the S&P 500
Index. You should also be aware that the S&P 500 Index is a model portfolio, the
performance of which does not take into account brokerage commissions and other
costs of investing, unlike the Portfolio which must bear these costs. Finally,
since with respect to this element of the Portfolio's strategy the Portfolio
seeks to track the S&P 500 Index, Bankers Trust generally will not attempt to
judge the merits of any particular stock as an investment.
MERGER ARBITRAGE ASSETS. To achieve a total return greater than the S&P 500
Index, the Portfolio invests in the equity securities of acquisition targets of
publicly announced transactions that are generally structured to include at
least 50% cash consideration.
The Portfolio purchases shares of acquisition targets based on specific events
that trigger a merger arbitrage opportunity and these shares are sold when the
acquisition is consummated or the transaction is abandoned. Merger arbitrage is
a specialized investment approach generally designed to profit from the
successful completion of proposed mergers, acquisitions and other types of
corporate reorganizations. Through this investment strategy the Portfolio seeks
to capture the differential between the post bona fide bid stock price of the
shares of the acquisition target and the anticipated takeover payout.
Our proprietary quantitative models developed for this strategy provide a
disciplined approach to both the timing and quantity of shares purchased of an
acquisition target following the public announcement of the acquisition. Our
research confirms that different types of bidders (e.g., friendly, hostile,
management) lead to different outcomes in merger and acquisition contests and
supports the practice of varying the level of our investment in an acquisition
target based on the type of bidder.
The Portfolio imposes limits on the amount of its net assets that are invested
in any one security at the time of purchase: 5% in any one management buyout
transaction, 17% in any one hostile takeover; 12% in any one friendly
transaction. Generally, an acquisition target with a minimum market
capitalization of $500 million is used as a guideline, though the Portfolio may
purchase shares of corporations with smaller market capitalizations.
RESERVE ASSETS. As a reserve for changes in allocation in the Portfolio's equity
investments and to cover the Portfolio's open positions resulting from its
investments in derivative instruments, the Portfolio also invests its assets in
money market instruments or money market funds.
EQUITY INVESTMENTS. The Portfolio invests in common stocks and other securities
with equity characteristics. The Portfolio invests only in securities listed on
foreign or domestic securities exchanges.
FOREIGN SECURITIES. The Portfolio may purchase common stocks of foreign
corporations. The Portfolio's investments in the securities of foreign issuers
may be made directly or in the form of American Depositary Receipts ("ADRs"),
Global Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or
other similar securities representing securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities they represent, and while designed for use as alternatives to the
purchase of the underlying securities in their national markets and currencies,
are subject to the same risks as the foreign securities to which they relate.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS"). SPDRs represent an ownership
interest in a unit investment trust ("UIT") which holds a portfolio of common
stocks that closely tracks the price performance and dividend yield of the S&P
500 Index. SPDRs may be obtained from the UIT or purchased in the secondary
market as SPDRs listed on the American Stock Exchange. The price of SPDRs is
based on the securities held by the UIT. Accordingly, the level of risk involved
in the purchase or sale of a SPDR is similar to the risk involved in the
purchase or sale of traditional common stock, with the exception that the
pricing mechanism for SPDRs is based on a basket of stocks. Disruptions in the
markets for the securities underlying SPDRs purchased or sold by the Portfolio
could result in losses on SPDRs.
4
<PAGE>
SECURITIES OF THE INVESTMENT COMPANIES. The Portfolio may invest in securities
of other investment companies (including SPDRs) to the extent permitted under
the Investment Company Act of 1940, as amended (the "1940 Act"). Presently,
under the 1940 Act, the Portfolio may hold securities of another investment
company in amounts which (i) do not exceed 3% of the total outstanding voting
stock of such company, (ii) do not exceed 5% of the value of the Portfolio's
total assets and (iii) when added to all other investment company securities
held by the Portfolio, do not exceed 10% of the value of the Portfolio's total
assets.
The Portfolio will not invest in excess of 10% of its total assets in the
aggregate in SPDRs or in excess of 5% of its total assets in SPDRs issued by a
single unit investment trust.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be
disadvantaged.
EQUITY SWAPS. Swaps are privately negotiated, off-exchange two-party contracts
to exchange or swap returns (or differentials in rates of return) earned or
realized on particular predetermined investments or instruments, at specified
dates in the future. The Portfolio will invest in equity swap contracts, whereby
the counterparty agrees to pay the Portfolio the amount, if any, by which the
notional amount of the equity swap contract would have increased in value had it
been invested in the basket of stocks comprising the S&P 500 Index, plus
dividends that would have been received on those stocks. The Portfolio agrees to
pay to the counterparty a floating rate of interest (typically the London Inter
Bank Offered Rate) on the notional amount of the equity swap contract plus the
amount, if any, by which that notional amount would have decreased in value had
it been invested in such stocks. Therefore, the return to the Portfolio on any
equity swap contract should be the gain or loss on the notional amount plus
dividends on the stocks comprising the S&P 500 Index (as if the Portfolio had
invested the notional amount in stocks comprising the S&P 500 Index) less the
interest paid by the Portfolio on the notional amount. Therefore, the Portfolio
will generally realize a loss if the value of the S&P 500 Index declines and
will generally realize a gain if the value of the S&P 500 Index rises. The
Portfolio will enter into equity swap contracts only on a net basis, i.e., where
the two parties' obligations are netted out, with the Portfolio paying or
receiving, as the case may be, only the net amount of any payments. If there is
a default by the counterparty to an equity swap contract, the Portfolio will be
limited to contractual remedies pursuant to the agreements related to the
transaction.
Whether the Portfolio's use of equity swap contracts will be successful in
achieving its investment objective depends on the Adviser's ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments.
There is no assurance that the equity swap contract counterparties will be able
to meet their obligations or that, in the event of default, the Portfolio will
succeed in pursuing contractual remedies. The Portfolio thus assumes the risk
that it may be delayed in or prevented from obtaining payments owed to it
pursuant to these contracts. The Portfolio will closely monitor the credit of
equity swap contract counterparties in order to minimize this risk. The
Portfolio will not use equity swap contracts for leverage.
The Portfolio will not enter into any equity swap contract unless, at the time
of entering into such transaction, the unsecured senior debt of the counterparty
or its guarantor is rated at least A by Moody's Investor Services ("Moody's") or
Standard and Poor's ("S&P"). In addition, the staff of the Securities and
Exchange Commission (the "SEC") considers equity swap contracts to be illiquid
securities. Consequently, while the staff maintains this position, the Portfolio
will not invest in equity swap contracts if, as a result of the investment, the
total value of such investments together with that of all other illiquid
securities which the Portfolio owns would exceed 15% of the Portfolio's net
assets.
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
5
<PAGE>
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.
ILLIQUID SECURITIES. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a remaining maturity of longer than seven days. Securities which have not
been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.
The SEC has adopted Rule 144A, which allows a broader institutional trading
market for securities otherwise subject to restriction on their resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act of resales of certain securities to qualified
institutional buyers. The Adviser anticipates that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this regulation and the development of automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National Association
of Securities Dealers, Inc.
The Adviser will monitor the liquidity of Rule 144A securities in the
Portfolio's holdings under the supervision of the Trust's Board of Trustees. In
reaching liquidity decisions, the Adviser will consider, among other things, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers and other potential purchasers or sellers of the security;
(3) dealer undertakings to make a market in the security and (4) the nature of
the security and of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer). If institutional trading in restricted securities were to decline,
the liquidity of the Portfolio could be adversely affected.
INDEX FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES
INDEX FUTURES CONTRACTS. The Portfolio may enter into contracts providing for
the making and acceptance of a cash settlement based upon changes in the value
of the Index or other equity indices. U.S. futures contracts have been designed
by exchanges which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC"), and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.
At the same time a futures contract relating to the Index or other equity
indices is purchased or sold, the Portfolio must allocate cash or securities as
a deposit payment ("initial deposit"). It is expected that the initial deposit
would be approximately 1 1/2% to 5% of a contract's face value. Daily
thereafter, the futures contract is valued and the payment of "variation margin"
may be required, since each day the Portfolio would provide or receive cash that
reflects any decline or increase in the contract's value.
6
<PAGE>
Futures contracts by their terms call for the actual delivery or acquisition of
an underlying instrument or, in the case of index futures, for cash settlement.
In most cases the contractual obligation is fulfilled before the date of the
contract by entering into an offsetting contract. The offsetting of a
contractual obligation is accomplished by entering into an opposite position on
a commodities exchange in the same futures contract calling for delivery in the
same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities.
Since all transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the contracts are
traded, the Portfolio will incur brokerage fees when it enters into futures
contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general trends by the Adviser may still not result in a
successful transaction.
In addition, futures contracts entail risks. If the Portfolio has insufficient
cash, it may have to sell securities from its portfolio to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Portfolio may have
to sell securities at a time when it may be disadvantageous to do so.
OPTIONS ON INDEX FUTURES CONTRACTS. The Portfolio may purchase and write options
on futures contracts with respect to the Index or other equity indices. The
purchase of a call option on an Index futures contract is similar in some
respects to the purchase of a call option on such an index. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying securities, it may or may not
be less risky than ownership of the futures contract or underlying securities.
As with the purchase of futures contracts, when the Portfolio is not fully
invested it may purchase a call option on an index futures contract to hedge
against a market advance.
The writing of a call option on a futures contract with respect to the Index
constitutes a partial hedge against declining prices of the underlying
securities. If the futures price at expiration of the option is below the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred in the
Portfolio's holdings. The writing of a put option on an index futures contract
constitutes a partial hedge against increasing prices of the underlying
securities. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract with respect to the Index is
similar in some respects to the purchase of protective put options on the Index.
For example, the Portfolio may purchase a put option on an index futures
contract to hedge against the risk of lowering securities values.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract with respect to the Index is the premium paid for the option
plus related transaction costs. In addition to the correlation risks discussed
above, the purchase of such an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased.
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OPTIONS ON SECURITIES. The Portfolio may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options") in
an attempt to increase income. However, the Portfolio may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Portfolio.
When the Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price. In addition, the Portfolio may continue to
hold a stock which might otherwise have been sold to protect against
depreciation in the market price of the stock.
A put option sold by the Portfolio is covered when, among other things, cash or
liquid securities are placed in a segregated account to fulfill the obligations
undertaken. When the Portfolio writes a covered put option, it gives the
purchaser of the option the right to sell the underlying security to the
Portfolio at the specified exercise price at any time during the option period.
If the option expires unexercised, the Portfolio will realize income in the
amount of the premium received for writing the option. If the put option is
exercised, a decision over which the Portfolio has no control, the Portfolio
must purchase the underlying security from the option holder at the exercise
price. By writing a covered put option, the Portfolio, in exchange for the net
premium received, accepts the risk of a decline in the market value of the
underlying security below the exercise price. The Portfolio will only write put
options involving securities for which a determination is made at the time the
option is written that the Portfolio wishes to acquire the securities at the
exercise price.
The Portfolio may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." The Portfolio will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. Where the Portfolio
cannot effect a closing purchase transaction, it may be forced to incur
brokerage commissions or dealer spreads in selling securities it receives or it
may be forced to hold underlying securities until an option is exercised or
expires. 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.
When the Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on any securities in which it
may invest. The Portfolio would normally purchase a call option in anticipation
of an increase in the market value of such securities. The purchase of a call
option would entitle the Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. The Portfolio
would ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Portfolio would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a put
option
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would entitle the Portfolio, in exchange for the premium paid, to sell a
security, which may or may not be held in the Portfolio's holdings, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's holdings. Put options also may be purchased by the Portfolio for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Portfolio does not own. The Portfolio would ordinarily recognize a
gain if the value of the securities decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if the value of the
securities remained at or above the exercise price. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying portfolio securities.
The Portfolio has adopted certain other nonfundamental policies concerning
option transactions that are discussed below.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
The Portfolio may only engage in exchange-traded options transactions.
OPTIONS ON SECURITIES INDICES. In addition to options on securities, the
Portfolio may also purchase and write (sell) call and put options on the Index
and other securities indices in an attempt to increase income. Such options give
the holder the right to receive a cash settlement during the term of the option
based upon the difference between the exercise price and the value of the index.
Such options will be used for the purposes described above under "Options on
Securities."
Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the Portfolio
generally will only purchase or write such an option if the Adviser believes the
option can be closed out.
Use of options on securities indices also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. The Portfolio will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Because options on securities indices require settlement in cash, the Adviser
may be forced to liquidate portfolio securities to meet settlement obligations.
OVER-THE-COUNTER OPTIONS. The Portfolio may purchase over-the-counter ("OTC") or
dealer options or sell covered OTC options. Unlike exchange-listed options where
an intermediary or clearing corporation, such as the Options Clearing
Corporation ("OCC"), assures that all transactions in such options are properly
executed, the responsibility for performing all transactions with respect to OTC
options rests solely with the writer and the holder of those options. A listed
call option writer, for example, is obligated to deliver the underlying
securities to the clearing organization if the option is exercised, and the
clearing organization is then obligated to pay the writer the exercise price of
the option. If the Portfolio were to purchase a dealer option, however, it would
rely on the dealer from whom it purchased the option to perform if the option
were exercised. If the dealer fails to honor the exercise of the option by the
Portfolio, the Portfolio would lose the premium it paid for the option and the
expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while OTC or
dealer options do not. Consequently, the Portfolio will generally be able to
realize the value of a dealer option it has purchased only be exercising it or
reselling it to the dealer who issued it. Similarly, when the Portfolio writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Portfolio originally wrote the option. Although the Portfolio will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Portfolio, there can be no assurance that the Portfolio will be able to
liquidate a dealer
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option at a favorable price at any time prior to expiration. The inability to
enter into a closing transaction may result in material losses to the Portfolio.
Until the Portfolio, as a covered OTC call option writer, is able to effect a
closing purchase transaction, it will not be able to liquidate securities (or
other assets) used to cover the written option until the option expires or is
exercised. This requirement may impair the Portfolio's ability to sell portfolio
securities at a time when such sale might be advantageous.
ASSET COVERAGE. The Portfolio will cover its transactions in futures and related
options, as well as in when-issued and delayed delivery, as required under
applicable interpretations of the SEC, either by owning the underlying
securities or by segregating liquid assets with the Portfolio's custodian in an
amount at all times equal to or exceeding the Portfolio's commitment with
respect to these instruments or contracts.
SHORT-TERM INSTRUMENTS. As a reserve for merger arbitrage opportunities and to
cover the Portfolio's open positions resulting from its investment in derivative
instruments, the Portfolio will invest in short-term instruments. In addition,
when advisable to adopt a temporary defensive position in response to
extraordinary political, economic or stock-market events, the Portfolio may
invest up to 100% of the Portfolio's assets in such short-term instruments.
Short-term instruments consist of foreign or domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated AA or higher by Standard & Poor's Rating Group ("S&P") or Aa or higher by
Moody's Investors Services, Inc. ("Moody's") or, if unrated, of comparable
quality in the opinion of Bankers Trust; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time deposits and
banker's acceptances; and (v) repurchase agreements. At the time the Portfolio
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent if providing a guarantee, must have outstanding
debt rated AA or higher by S&P or Aa or higher by Moody's or outstanding
commercial paper or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or,
if no such ratings are available, the instrument must be of comparable quality
in the opinion of Bankers Trust. These instruments may be denominated in U.S.
dollars or in foreign currencies.
CERTIFICATES OF DEPOSIT AND BANKER'S ACCEPTANCES. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings see Appendix.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in direct obligations
issued by the U.S. Treasury or in obligations issued or guaranteed by the U.S.
Treasury or by agencies or instrumentalities of the U.S. government ("U.S.
Government Obligations"). Certain short-term U.S. Government Obligations, such
as those issued by the Government National Mortgage Association, are supported
by the "full faith and credit" of the U.S. government; others, such as those of
the Export-Import Bank of the United States, are supported by the right of the
issuer to borrow money from the U.S. Treasury; others, such as those of the
Federal National Mortgage Association are solely the obligations of the issuing
entity but are supported by the discretionary authority of the U.S. government
to purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored instrumentalities if it
is not obligated to do so by law.
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LENDING OF PORTFOLIO SECURITIES. The Portfolio has the authority to lend up to
30% of the total value of its portfolio securities to brokers, dealers and other
financial organizations. These loans must be secured continuously by cash or
securities issued or guaranteed by the United States government, its agencies or
instrumentalities or by a letter of credit at least equal to the market value of
the securities on loans plus accrued income. The Portfolio will not lend
securities to Bankers Trust, ICC Distributors or their affiliates. By lending
its securities, the Portfolio may increase its income by continuing to receive
payments in respect of dividends and interest on the loaned securities as well
as by either investing the cash collateral in short-term securities or obtaining
yield in the form of a fee paid by the borrower when irrevocable letters of
credit and U.S. government obligations are used as collateral. During the term
of the loan, the Portfolio continues to bear the risk of fluctuations in the
price of the loaned securities. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. The Portfolio will adhere to the following conditions whenever its
securities are loaned: (i) the Portfolio must receive at least 100 percent
collateral from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the securities including accrued interest rises
above the level of the collateral; (iii) the Portfolio must be able to terminate
the loan at any time; (iv) the Portfolio must receive substitute payments in
respect of all dividends, interest or other distributions on the loaned
securities; and (v) voting rights on the loaned securities may pass to the
borrower; provided, however, that if a material event adversely affecting the
investment occurs, the Board of Trustees must retain the right to terminate the
loan and recall and vote the securities. Upon receipt of appropriate regulatory
approval, cash collateral may be invested in a money market fund managed by
Bankers Trust (or its affiliates) and Bankers Trust may serve as the Portfolio's
lending agent and may share in revenue received from securities lending
transactions as compensation for this service.
FOREIGN SECURITIES. Although the Portfolio intends to invest primarily in
securities of U.S. companies, the Portfolio may hold securities of non-U.S.
issuers and 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.
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, the Portfolio is
authorized to enter into certain foreign currency exchange transactions.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the NYSE. Accordingly, the 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.
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SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE. Unlike other
open-end management 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 its Portfolio, a separate registered
investment company with the same investment objectives as the Fund. Therefore,
an investor's interest in the Portfolio's securities is indirect. In addition to
selling a beneficial interest to a 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 sale commissions and
other operating expenses. Therefore, investors in the Fund should be aware that
these differences might result in differences in returns experienced by
investors in the different funds that invest in the Portfolios. Such differences
in returns are also present in other mutual fund structures. Information
concerning other holders of interests in the Portfolio is available by
contacting Bankers Trust at 1-800-949-9940.
The master-feeder structure is relatively complex, so shareholders should
carefully consider this investment approach.
Small 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 with large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in the
Portfolios could have effective voting control of the operation of the
Portfolios. Whenever the Trust is requested to vote in matters pertaining to the
Portfolio, the Trust will, except as permitted by the SEC, hold a meeting of
shareholders of the corresponding Fund and will cast all of its votes in the
same proportion as the votes of the Fund's shareholders. Fund shareholders who
do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting will
be voted by the Trustees or officers of the Trust in the same proportion as the
Fund shareholders who do, in fact, vote. Certain changes in 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 and 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 some other means for meeting redemption requests, such as
borrowing.
The Fund may withdraw its investments from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objectives as the Fund or the retention of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
RATING SERVICES. The ratings of rating services represent their opinions as to
the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial criterion
for selection of portfolio investments, Bankers Trust also makes its own
evaluation of these securities, subject to review by the Board of Trustees of
the Trust (the "Board of Trustees"). After purchase by the Portfolio, an
obligation may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event would require the
Portfolio to eliminate the obligation from its portfolio, but Bankers Trust will
consider such an event in its determination of whether the Portfolio should
continue to hold the obligation. A description of the ratings is included in the
Appendix to this SAI.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES. The following investment restrictions are "fundamental
policies" of the Fund and the Portfolio and may not be changed with respect to
the Fund or the Portfolio without the approval of a "majority of the outstanding
voting
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securities" of the Fund or the Portfolio, as the case may be. "Majority
of the outstanding voting securities" under the 1940 Act, and as used in this
SAI and the Prospectuses, means, with respect to the Fund (or the Portfolio),
the lesser of (i) 67% or more of the outstanding voting securities of the Fund
(or of the total beneficial interests of the Portfolio) present at a meeting, if
the holders of more than 50% of the outstanding voting securities of the Fund
(or of the total beneficial interests of the Portfolio) are present or
represented by proxy or (ii) more than 50% of the outstanding voting securities
of the Fund (or of the total beneficial interests of the Portfolio). Whenever
the Trust is requested to vote on a fundamental policy of the Portfolio, the
Trust will hold a meeting of the Fund's shareholders and will cast its vote as
instructed by that Fund's shareholders.
As a matter of fundamental policy, the Portfolio (or Fund) may not (except that
no investment restriction of the Fund shall prevent it from investing all of its
assets in an open-end investment company with substantially the same investment
objective):
(1) borrow money (including through reverse repurchase agreements or dollar roll
transactions), except that the Portfolio (Fund) may borrow for temporary or
emergency purposes up to 1/3 of its total assets. The Portfolio (Fund) may
pledge, mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and except that
assets may be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment Company
Institute;
(2) underwrite securities issued by other persons except insofar as the
Portfolio (Trust or Fund) may technically be deemed an underwriter under the
1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's (Fund's) total assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt securities of
types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein), interests in
oil, gas or mineral leases, commodities or commodity contracts (except futures
and option contracts) in the ordinary course of business (except that the
Portfolio (Trust or Fund) may hold and sell, for the Portfolio's (Fund's)
portfolio, real estate acquired as a result of the Portfolio's (Fund's)
ownership of securities);
(5) issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder, provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and variation margin,
are not considered to be the issuance of a senior security for purposes of this
restriction;
ADDITIONAL RESTRICTIONS. The following are non-fundamental policies. In order to
comply with certain statutes and policies, the Portfolio (or the Trust on behalf
of the Fund), will not as a matter of operating policy (except that no operating
policy shall prevent the Fund from investing all of its assets in an open-end
investment company with substantially the same investment objectives):
(i) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
(ii) sell securities it does not own (short sales) such that the dollar amount
of such short sales at any one time exceeds 25% of the net equity of the
Portfolio (Fund), and the value of securities of any one issuer in which
the Fund is short exceeds the lesser of 2.0% of the value of the
Portfolio's (Fund's) net assets or 2.0% of the securities of any class of
any U.S. issuer and, provided that short sales may be made only in those
securities which are fully listed on a national securities exchange or a
foreign exchange (This provision does not include the sale of securities
that the Portfolio (Fund)contemporaneously owns or where the
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Portfolio (Fund) has the right to obtain securities equivalent in kind and
amount to those sold, i.e., short sales against the box.) (The Portfolio
(Fund) currently does not intend to engage in short selling);
(iii) invest for the purpose of exercising control or management of another
company;
(iv) purchase securities issued by any investment company (except when such
purchase, though not made in the open market, is part of a plan of merger
or consolidation); if such purchase at the time thereof would cause: (a)
more than 10% of the Portfolio's (Fund's) total assets (taken at the
greater of cost or market value) (except the Portfolio (Fund) may exceed
the applicable percentage limits to the extent permitted by an exemptive
order of the SEC) to be invested in the securities of such issuers; (b)
more than 5% of the Portfolio's (Fund's) total assets (taken at the
greater of cost or market value) (except the Portfolio (Fund) may exceed
the applicable percentage limits to the extent permitted by an exemptive
order of the SEC) to be invested in any one investment company; or (c)
more than 3% of the outstanding voting securities of any such issuer to be
held for the Portfolio (Fund);
(v) invest more than 15% of the Portfolio's (Fund's) net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable (excluding Rule 144A securities deemed by the Board of
Trustees to be liquid);
(vi) write puts and calls on securities unless each of the following conditions
are met: (a) the security underlying the put or call is within the
investment policies of the Portfolio (Fund) and the option is issued by
the OCC, except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b) the aggregate
value of the obligations underlying the puts determined as of the date the
options are sold shall not exceed 5% of the Portfolio's (Fund's) net
assets; (c) the securities subject to the exercise of the call written by
the Portfolio (Fund) must be owned by the Portfolio (Fund) at the time the
call is sold and must continue to be owned by the Portfolio (Fund) until
the call has been exercised, has lapsed, or the Portfolio (Fund) has
purchased a closing call, and such purchase has been confirmed, thereby
extinguishing the Portfolio's (Fund's) obligation to deliver securities
pursuant to the call it has sold; and (d) at the time a put is written,
the Portfolio (Fund) establishes a segregated account with its custodian
consisting of cash or short-term U.S. government securities equal in value
to the amount the Portfolio (Fund) will be obligated to pay upon exercise
of the put (this account must be maintained until the put is exercised,
has expired, or the Portfolio (Fund) has purchased a closing put, which is
a put of the same series as the one previously written); and
(vii) buy and sell puts and calls on securities, stock index futures or options
on stock index futures, or financial futures or options on financial
futures unless such options are written by other persons and: (a) the
options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b)
the aggregate premiums paid on all such options which are held at any time
do not exceed 20% of the Portfolio's (Fund's) total net assets; and (c)
the aggregate margin deposits required on all such futures or options
thereon, other than options on stocks, held at any time do not exceed 5%
of the Portfolio's (Fund's) net assets.
There will be no violation of any investment restriction if that restriction is
complied with at the time the relevant action is taken, notwithstanding a later
change in the market value of an investment, in net or total assets or in the
change of securities rating of the investment, or any other later change.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer
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or futures commission merchant, including to the extent and in the manner
permitted by applicable law, Bankers Trust or its subsidiaries or affiliates.
Purchases and sales of certain portfolio securities on behalf of the Portfolio
are frequently placed by the Adviser with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Portfolio. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers reflect
the spread between the bid and asked prices. Transaction costs may also include
fees paid to third parties for information as to potential purchasers or sellers
of securities. Purchases of underwritten issues may be made which will include
an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for the Portfolio taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, when placing portfolio transactions for the Portfolio with
a broker to pay a brokerage commission (to the extent applicable) in excess of
that which another broker might have charged for effecting the same transaction
on account of the receipt of research, market or statistical information. The
term "research, market or statistical information" includes advice as to the
value of securities; the advisability of investing in, purchasing or selling
securities; the availability of securities or purchasers or sellers of
securities; and furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts.
Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
may determine, the Adviser may consider sales of shares of the Trust and of
other investment company clients of Bankers Trust as a factor in the selection
of broker-dealers to execute portfolio transactions. Bankers Trust will make
such allocations if commissions are comparable to those charged by
nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers and
dealers can be useful to the Portfolio and to the Adviser, it is the opinion of
the management of the Portfolio that such information is only supplementary to
the Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Portfolio, and not
all such information is used by the Adviser in connection with the Portfolio.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system
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could have a detrimental effect on the price or volume of the security as far as
the Portfolio is concerned. However, it is believed that the ability of the
Portfolio to participate in volume transactions will produce better executions
for the Portfolio.
PERFORMANCE INFORMATION
STANDARD PERFORMANCE INFORMATION. From time to time, quotations of a Fund's
performance may be included in advertisements, sales literature, shareholder
reports or other communications to shareholders or prospective shareholders.
These performance figures are calculated in the following manner:
Total Return: A Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000
(made at the maximum public offering price with all distributions
reinvested) to reach the value of that investment at the end of the
periods. A Fund may also calculate total return figures which represent
aggregate performance over a period or year-by-year performance.
Performance results: Any total return quotation provided for a Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and public offering price
of shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the Portfolio, but also on changes
in the current value of such securities and on changes in the expenses
of the Fund and the Portfolio. These factors and possible differences
in the methods used to calculate total return should be considered when
comparing the total return of a Fund to total returns published for
other investment companies or other investment vehicles. Total return
reflects the performance of both principal and income.
Performance information may include the Fund's investment results and/or
comparisons of its investment results to the S&P 500 Index, or various other
unmanaged indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth in this SAI.
From time to time, fund rankings may be quoted from various sources, such as
Lipper Analytical Services, Inc., Value Line, and Morningstar, Inc.
The Trust may provide period and average annualized "total return" quotations
for the shares. The shares' "total return" refers to the change in the value of
an investment in the shares over a stated period based on any change in net
asset value per share and including the value of any shares purchased with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gains distributions are reinvested. Because of
the compounding effect, an annualized total return will be higher than a period
total return if the period is shorter than one year.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the shares' expenses. In addition, during certain periods for which
total return may be provided, Bankers Trust, as Adviser, shareholder Service
Agent or Administrator, or ICC Distributors, may have voluntarily agreed to
waive portions of their fees on a month-to-month basis. Such waivers will have
the effect of increasing shares' net income (and therefore its total return)
during the period such waivers are in effect.
COMPARISON OF FUND PERFORMANCE
Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of the Fund with performance quoted with respect to other investment companies
or types of investments.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for
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administrative and management costs. Evaluations of the Fund's performance made
by independent sources may also be used in advertisements concerning the Fund.
Sources for the Fund's performance information could include the following:
Asian Wall Street Journal, Barron's, Business Week, Changing Times, Consumer
Digest, Financial Times, Financial World, Forbes, Fortune, Global Investor,
Investor's Daily, Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, Money, Morningstar Inc., New York Times, Personal Investing News,
Personal Investor, Success, U.S. News and World Report, ValueLine, Wall Street
Journal, Weisenberger Investment Companies Services, Working Women.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI").
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND
VALUATION OF SECURITIES
The net asset value ("NAV") per share is calculated once on each Valuation Day
as of the close of regular trading on the NYSE (the "Valuation Time"), which is
currently 4:00 p.m., Eastern time or in the event that the NYSE closes early, at
the time of such early closing. The NAV per share is computed by dividing the
value of the Fund's assets (i.e., the value of its investment in the Portfolio
and other assets), less all liabilities attributable to the shares, by the total
number of 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
Board of Trustees believes accurately reflects fair value.
Under procedures adopted by the Board of Trustees, a NAV for the Fund later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at a NAV determined to have been inaccurate will
be adjusted, although in certain circumstances, such as where the difference
between the original NAV and the recalculated NAV divided by the recalculated
NAV is 0.005 (1/2 of 1%) or less or shareholder transactions are otherwise
insubstantially affected, further action is not required.
Equity and debt securities (other than short-term debt obligations maturing in
60 days or less), including listed securities and securities for which price
quotations are available, will normally be valued on the basis of market
valuations furnished by a pricing service. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost,
which approximates market value.
Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by the Board of Trustees. It is
generally agreed that securities for which market quotations are not readily
available should not be valued at the same value as that carried by an
equivalent security which is readily marketable.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of unrestricted
securities of the same class at the time of purchase, special reports
prepared by analysts, information as to any transactions or offers with
respect to the security, existence of merger proposals or tender offers
affecting the security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other relevant
matters.
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To the extent that the Portfolio purchases securities which are restricted as to
resale or for which current market quotations are not readily available, the
Adviser will value such securities based upon all relevant factors as outlined
in FRR 1.
PURCHASE OF SHARES
The Trust accepts purchase orders for shares of the Fund at the NAV per share
next determined after the order is received on each Valuation Day. Shares of the
Fund are only sold to private banking, brokerage and institutional clients of
Bankers Trust and its affiliates and to customers of Service Agents. Shares may
also be sold to employees of Bankers Trust and its affiliates, their spouses and
minor children. Investors who are customers of Service Agents should contact
their Service Agent with respect to a proposed investment and then follow the
procedures adopted by the Service Agent for making purchases. Shares that are
purchased or sold through omnibus accounts maintained by securities firms may be
subject to a service fee or commission for such transactions.
Purchase orders for shares (including those purchased through a Service Agent)
that are transmitted to the Trust's Transfer Agent (the "Transfer Agent"), prior
to the Valuation Time on any Valuation Day will be effective at that day's
Valuation Time. The Trust and Transfer Agent reserve the right to reject any
purchase order.
Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. It is the responsibility of each Service
Agent to transmit to the Transfer Agent purchase and redemption orders and to
transmit to Bankers Trust as the Trust's custodian (the "Custodian") purchase
payments by 4:00 p.m. Eastern time the following business day (trade date + 1)
after an order for shares is placed. A shareholder must settle with the Service
Agent for his or her entitlement to an effective purchase or redemption order as
of a particular time. Because Bankers Trust is the Custodian and Transfer Agent
of the Trust, funds may be transferred directly from or to a customer's account
held with Bankers Trust to settle transactions with the Fund without incurring
the additional costs or delays associated with the wiring of federal funds.
The Trust and Bankers Trust have authorized one or more Service Agents to accept
on the Trust's behalf purchase and redemption orders. Such Service Agents are
authorized to designate other intermediaries to accept purchase and redemption
orders on the Trust's behalf. The Transfer Agent will be deemed to have received
a purchase or redemption order when an authorized Service Agent or, if
applicable, a Service Agent's authorized designee, accepts the order. Customer
orders will be priced at the Fund's NAV next computed after they are accepted by
an authorized Service Agent or the Service Agent's authorized designee.
Certificates for shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.
The Transfer Agent must receive payment within one business day after an order
for Shares is placed; otherwise, the purchase order may be canceled and the
investor could be held liable for resulting fees and/or losses.
MINIMUM INVESTMENTS QUANTITATIVE EQUITY - QUANTITATIVE EQUITY -
INVESTMENT CLASS INSTITUTIONAL CLASS
To open an account $10,000 $250,000
To add to an account $250 $25,000
Minimum account balance $1,000 [$10,000]
The Fund and its service providers reserve the right to, from time to time in
their discretion, waive or reduce the investment minimums.
ADDITIONAL INFORMATION ABOUT BUYING SHARES
HOW TO OPEN YOUR FUND ACCOUNT
Contact your Service Agent or your Bankers Trust client representative.
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WIRE TRANSFERS:
BUYING: You may only buy shares by wire if your account is authorized to do so.
Please note that you or your Service Agent must call the BT Service Center at
1-800-730-1313 to notify us in advance of a wire transfer purchase. Inform the
BT Representative of the amount of your purchase and receive your trade
confirmation number. Instruct your bank to send payment by wire using the wire
instructions noted below. All wires must be received by 4:00 p.m. Eastern time
the next business day to receive the prior day's price.
ROUTING NO: 021001033
ATTN: Bankers Trust/BT Funds
DDA NO: 00-226-296
FBO: (Account name)
(Account number)
CREDIT: Account name and number
See your account statement for the account name and number.
SELLING: You may only sell shares by wire if your account is authorized to do
so. For your protection, you may not change the wire instructions relating to
the destination bank account over the phone. To sell by wire, contact your
Service Agent. The minimum redemption by wire is $1,000. We must receive your
order by 4:00 p.m. Eastern time to wire your account the next business day.
REDEMPTION OF SHARES
You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your shares. Your shares shall be sold at the next
NAV calculated after an order is received by the Transfer Agent. Redemption
requests should be transmitted by customers in accordance with procedures
established by the Transfer Agent and the shareholder's Service Agent.
Redemption requests for Shares received by the Service Agent and transmitted to
the Transfer Agent prior to the Valuation Time on each Valuation Day will be
effective at that day's Valuation Time and the redemption proceeds normally will
be delivered to the shareholder's account the next day, but in any event within
seven calendar days following receipt of the request.
Service Agents may allow redemptions or exchanges by telephone and may disclaim
liability for following instructions communicated by telephone that the Service
Agent reasonably believes to be genuine. The Service Agent must provide the
investor with an opportunity to choose whether or not to utilize the telephone
redemption or exchange privilege. The Transfer Agent and the Service Agent must
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Service Agent does not do so, it may be liable for
any losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring some form of personal identification prior to
acting upon instructions received by telephone, providing written confirmation
of such transactions and/or tape recording of telephone instructions.
To sell shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds which can
be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent.
To sell shares by bank wire you will need to sign up for these services in
advance when completing your account application.
Certain requests must include a signature guarantee to protect you and Bankers
Trust from fraud. Redemption requests in writing must include a signature
guarantee if any of the following situations apply:
o Your account registration has changed within the last 30 days,
o The check is being mailed to a different address than the one on your account
(record address),
o The check is being made payable to someone other than the account owner,
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.
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A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
IMPORTANT INFORMATION ABOUT BUYING AND SELLING SHARES
o After receiving your order, we buy or sell your shares at the next price
calculated on a day the New York Stock Exchange is open for business.
o We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer.
o We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large it is made "in-kind").
o You may place orders to buy and sell over the phone by calling your Service
Agent. If you pay for shares by check and the check fails to clear, or if
you order shares by phone and fail to pay for them by 4:00 p.m. Eastern
time the next business day, we have the right to cancel your order, hold
you liable or charge you or your account for any losses or fees a fund or
its agents have incurred. To sell shares, you must state whether you would
like to receive the proceeds by wire or check. For your protection, you may
not change your account address over the phone.
o We do not issue share certificates.
o We process all orders free of charge.
o Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and
no later than seven days.
o We reserve the right to close your account on 30 days' notice if it fails
to meet minimum balance requirements for any reason other than a change in
market value.
o Selling shares of Trust accounts and Business or Organization accounts may
require additional documentation. Please contact your Service Agent for
more information.
o During periods of heavy market activity, you may have trouble reaching the
BT Service Center by telephone. If this occurs, you should make your
request by mail.
EXCHANGE PRIVILEGE
Shareholders may exchange their shares for shares of certain other funds in the
BT Family of Funds registered in their state. To make an exchange, follow the
procedures indicated in "Purchase of Shares" and "Redemption of Shares" in this
SAI and in "Buying and Selling Fund Shares" in the Prospectuses.
o Call your Service Agent for information and a prospectus. Read the
prospectus for relevant information.
o Complete and sign an application, taking care to register your new account
in the same name, address and taxpayer identification number as your
existing account(s).
o Each exchange represents the sale of shares of one fund and the purchase of
shares of another, which may produce a gain or loss for tax purposes. Your
Service Agent will receive a written confirmation of each exchange
transaction.
o Exchanges out of the Fund may be limited to four per calendar year (from
the date of your first exchange), and any exchange may have tax
consequences for you.
o The Fund reserves the right to terminate or modify the exchange privilege
in the future.
Please note the following conditions:
o The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
o If you are using the exchange feature to open a new account, we cannot
activate the account until we receive your completed application.
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REDEMPTIONS AND PURCHASES IN KIND
The Trust, on behalf of the Fund, and the Portfolio reserve the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by the Trust, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Fund shareholder in securities, an investor, including the Fund, the
shareholder may incur transaction expenses in converting these securities into
cash. The Trust, on behalf of the Fund, and the Portfolio have elected, however,
to be governed by Rule 18f-1 under the 1940 Act as a result of which the Fund
and the Portfolio are obligated to redeem shares or beneficial interests, as the
case may be, with respect to any one investor during any 90-day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund or
the Portfolio, as the case may be, at the beginning of the period.
The Portfolio has agreed to make a redemption in kind to the Fund whenever the
Fund wishes to make a redemption in kind and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of the
Portfolio and in no case will they receive a security issued by the Portfolio.
The Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the Fund is permitted to redeem in kind or
unless requested by the Fund.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Portfolio determines its net asset
value. At the close of each such business day, the value of each investor's
beneficial interest in the Portfolio will be determined by multiplying the net
asset value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals which are to be effected as of the close
of business on that day will then be effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio will then be recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the close of business on such day
plus or minus, as the case may be, the amount of net additions to or withdrawals
from the investor's investment in the Portfolio effected as of the close of
business on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of the close of business on such day plus or
minus, as the case may be, the amount of net additions to or withdrawals from
the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as the close of business on the following
business day.
The Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Net Asset Value" as of the day the Fund receives the securities. This is
a taxable transaction to the shareholder. Securities may be accepted in payment
for shares only if they are, in the judgment of the Adviser, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's Portfolio); (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of market; and (iv) if stock, have a value
which is readily ascertainable as evidenced by a listing on a stock exchange,
over-the-counter market or by readily available market quotations from a dealer
in such securities. The Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.
The Trust, on behalf of the Fund, reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption or
withdrawal by making payment in whole or in part in readily marketable
securities chosen by the Trust, and valued as they are for purposes of computing
the Fund's net asset value (a redemption in kind). If payment is made to a Fund
shareholder in securities, an investor, including the Fund, may incur
transaction expenses in converting these securities into cash. The Trust, on
behalf of the Fund, has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Fund is obligated to redeem shares or
beneficial interests, as the case may be, with respect to any one investor
during any 90-day period, solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of the period.
The Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Net Asset Value" as of the day the Fund receives the securities.
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This may be a taxable transaction to the shareholder. (Consult your tax adviser
for further tax guidance.) Securities may be accepted in payment for shares only
if they are, in the judgment of Bankers Trust, appropriate investments for the
Fund. In addition, securities accepted in payment for shares must: (i) meet the
investment objective and policies of the Fund; (ii) be acquired by the Fund for
investment and not for resale; (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of the market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, over-the-counter market or by readily available market
quotations from a dealer in such securities. The Fund reserves the right to
accept or reject at its own option any and all securities offered in payment for
its shares.
TRADING IN FOREIGN SECURITIES
Trading in foreign cities may be completed at times that vary from the closing
of NYSE. In computing the net asset value, the Fund values foreign securities at
the latest closing price on the primary exchange on which they are traded
immediately prior to the closing of the NYSE. Similarly, foreign securities
quoted in foreign currencies are translated into U.S. dollars at the foreign
exchange rates.
Occasionally, events that affect values and exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
The affairs of the Trust and the Portfolio are managed under the supervision of
the Board of Trustees. By virtue of the responsibilities assumed by Bankers
Trust, the administrator of the Trust, the Trust does not require employees
other than its executive officers. None of the executive officers of the Trust
devotes full time to the affairs of the Trust or the Portfolio.
The Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Trust and the
Portfolio. In addition, the Trustees review contractual arrangements with
companies that provide services to the Portfolio and review the Fund's
performance.
The Trustees and officers of the Trust and Portfolio, their birth dates and
their principal occupations during the past five years are set forth in the next
section. Their titles may have varied during that period.
TRUSTEES OF THE TRUST AND PORTFOLIO
CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the Trust;
Trustee of each of the other investment companies in the BT Fund Complex1;
Retired; former Vice President, International Business Machines ("IBM") and
President, National Services and the Field Engineering Divisions of IBM. His
address is 12 Hitching Post Lane, Chappaqua, New York 10514.
S. LELAND DILL (birth date: March 28, 1930) -- Trustee of the Trust; Trustee of
each of the other investment companies in the BT Fund Complex; Retired;
Director, Coutts (U.S.A.) International; Trustee, Phoenix-Zweig Trust2 and
Phoenix-Euclid Market Neutral Fund2; former Partner, KPMG Peat Marwick;
Director, Vintners International Company Inc.; Director, Coutts Trust Holdings
Ltd., Director, Coutts Group; General Partner, Pemco2. His address is 5070 North
Ocean Drive, Singer Island, Florida 33404.
MARTIN J. GRUBER (birth date: July 15, 1937) -- Trustee of the Trust; Trustee of
each of the other investment companies in the BT Fund Complex; Nomura Professor
of Finance, Leonard N. Stern School of Business, New
- --------------------------------------
(1) The "BT Fund Complex" consists of BT Investment Funds, BT Institutional
Funds, BT Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio,
Intermediate Tax Free Portfolio , Intermediate Tax Free Portfolio, Tax Free
Money Portfolio, NY Tax Free Money Portfolio, Treasury Money Portfolio,
Intermediate Equity Portfolio, Equity 500 Index Portfolio, Capital Appreciation
Portfolio, Asset Management Portfolio and BT Investment Portfolio.
22
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York University (since 1964); Trustee, TIAA2; Trustee, SG Cowen Mutual Funds2;
Trustee, Japan Equity Fund2; Trustee, Taiwan Equity Fund2. His address is 229
South Irving Street, Ridgewood, New Jersey 07450.
RICHARD T. HALE* (birth date: July 17, 1945) -- Trustee of the Trust; Trustee of
each of the other investment companies in the BT Fund Complex; Managing
Director, Deutsche Asset Management; Director, Flag Investors Funds2; Managing
Director, Deutsche Banc Alex. Brown Incorporated; Director and President,
Investment Company Capital Corp. His address is One South Street, Baltimore,
Maryland 21202.
RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the Trust;
Trustee of each of the other investment companies in the BT Fund Complex; Jacob
Safra Professor of International Banking, Professor of Finance and Vice Dean,
The Wharton School, University of Pennsylvania (since 1972). His address is 325
South Roberts Road, Bryn Mawr, Pennsylvania 19010.
BRUCE E. LANGTON (birth date: May 10, 1931) -- Trustee of the Trust; Trustee of
each of the other investment companies in the BT Fund Complex; Retired; Trustee,
Allmerica Financial Mutual Funds (1992-present); Member, Pension and Thrift
Plans and Investment Committee, Unilever U.S. Corporation (1989 to present)2;
Director, TWA Pilots Directed Account Plan and 401(k) Plan (1988 to present)2.
His address is 99 Jordan Lane, Stamford, Connecticut 06903.
PHILIP SAUNDERS, JR. (birth date: October 11, 1935) -- Trustee of the Trust;
Trustee of each of the other investment companies in the BT Fund Complex;
Principal, Philip Saunders Associates (Economic and Financial Analysis); former
Director, Financial Industry Consulting, Wolf & Company; President, John Hancock
Home Mortgage Corporation; Senior Vice President of Treasury and Financial
Services, John Hancock Mutual Life Insurance Company, Inc. His address is 445
Glen Road, Weston, Massachusetts 02193.
HARRY VAN BENSCHOTEN (birth date: February 18, 1928) -- Trustee of the Trust;
Trustee of each of the other investment companies in the BT Fund Complex;
Retired; Director, Canada Life Insurance Corporation of New York.
His address is 6581 Ridgewood Drive, Naples, Florida 34108.
The Board has an Audit Committee that meets with the Trust's independent
accountants to review the financial statements of the Trust, the adequacy of
internal controls and the accounting procedures and policies of the Trust. Each
member of the Board, with the exception of Mr. Hale, is a member of the Audit
Committee.
OFFICERS OF THE TRUST
DANIEL O. HIRSCH (birth date: March 27, 1954) -- Secretary of the Trust;
Director, Deutsche Banc Alex. Brown Incorporated and Investment Company Capital
Corp. since July 1998; Assistant General Counsel, Office of the General Counsel,
United States Securities and Exchange Commission from 1993 to 1998. His address
is One South Street, Baltimore, Maryland 21202.
JOHN A. KEFFER (birth date: July 14, 1942) -- President and Chief Executive
Officer of the Trust; President, Forum Financial Group L.L.C. and its
affiliates; President, ICC Distributors, Inc.3 His address is ICC Distributors,
Inc., Two Portland Square, Portland, Maine 04101.
CHARLES A. RIZZO (birth date: August 5, 1958) Treasurer of the Trust; Vice
President and Department Head, Deutsche Asset Management since 1998; Senior
Manager, PricewaterhouseCoopers LLP from 1993 to 1998. His address is One South
Street, Baltimore, MD 21202.
- -------------------------------
(1)"Interested Person" within the meaning of Section 2(a)(19) of the Act. Mr.
Hale is a Managing Director of Deutsche Asset Management, the U.S. asset
managment unit of Deutsche Bank and its affiliates.
(2)A publicly held company with securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
(3)Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares of
ICC Distributors, Inc.
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Messrs. Hirsch, Keffer and Rizzo also hold similar positions for other
investment companies for which ICC Distributors, or an affiliate serves as the
principal underwriter.
No person who is an officer or director of Bankers Trust Company is an officer
or Trustee of the Trust. No director, officer or employee of ICC Distributors,
Inc. or any of its affiliates will receive any compensation from the Trust for
serving as an officer or Trustee of the Trust.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM TOTAL COMPENSATION FROM BT FUND
NAME OF PERSON, POSITION TRUST(1) COMPLEX PAID TO TRUSTEES1
<S> <C> <C>
Charles P. Biggar, Trustee N/A $36,250
S. Leland Dill, Trustee $14,485 $36,250
Martin J. Gruber, Trustee N/A $36,250
Richard Hale, Trustee N/A N/A
Richard J. Herring, Trustee N/A $35,000
Bruce E. Langton, Trustee N/A $35,000
Philip Saunders, Jr. $14,582 $36, 250
Harry Van Benschoten, Trustee N/A $36, 250
</TABLE>
(1)The information provided is for the BT Investment Funds, comprising 17 funds,
for the year ended December 31, 1998.
INVESTMENT ADVISER
The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
assets of the Fund in the Portfolio. The Portfolio has retained the services of
Bankers Trust as investment adviser.
Under the terms of the Portfolio's investment advisory agreement with Bankers
Trust (the "Advisory Agreement"), Bankers Trust manages the Portfolio subject to
the supervision and direction of the Board of Trustees of the Portfolio. Bankers
Trust will: (i) act in strict conformity with the Portfolio's Declaration of
Trust, the 1940 Act and the Investment Advisers Act of 1940, as the same may
from time to time be amended; (ii) manage the Portfolio in accordance with the
Portfolio's investment objectives, restrictions and policies; (iii) make
investment decisions for the Portfolio; and (iv) place purchase and sale orders
for securities and other financial instruments on behalf of the Portfolio.
Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The Trust and the Portfolio bear certain other
expenses incurred in its operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust or the Portfolio who are
not officers, directors or employees of Bankers Trust, ICC, or any of their
affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; costs of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.
Bankers Trust may have deposit, loan and other commercial banking relationships
with the issuers of obligations which may be purchased on behalf of the
Portfolio, including outstanding loans to such issuers which could be repaid in
whole or in part with the proceeds of securities so purchased. Such affiliates
deal, trade and invest for their own accounts in such obligations and are among
the leading dealers of various types of such obligations. Bankers Trust has
informed the Portfolio that, in making its investment decisions, it does not
obtain or use material inside information in its possession or in the possession
of any of its affiliates. In making investment recommendations for the
Portfolio, Bankers Trust will not inquire or take into consideration whether an
issuer of securities proposed for
24
<PAGE>
purchase or sale by the Portfolio is a customer of Bankers Trust, its parent or
its subsidiaries or affiliates and, in dealing with its customers, Bankers
Trust, its parent, subsidiaries and affiliates will not inquire or take into
consideration whether securities of such customers are held by any fund managed
by Bankers Trust or any such affiliate.
At a Special Meeting held on October 8, 1999, shareholders of the Fund also
approved a new investment advisory agreement with Morgan Grenfell, Inc. As of
October 5, 1999, Morgan Grenfell, Inc. has been renamed Deutsche Asset
Management Inc. ("DAMI"). The new investment advisory agreement with DAMI may be
implemented within two years of the date of the Special Meeting upon approval of
a majority of the members of the Board of Trustees who are not "interested
persons" ("Independent Trustees"). Shareholders of the Fund also approved a new
sub-investment advisory agreement among each Fund or its portfolio, DAMI and
Bankers Trust under which Bankers Trust may perform certain of DAMI's
responsibilities, at DAMI's expense, upon approval of the Independent Trustees,
within two years of the date of the Special Meeting. DAMI is a subsidiary of
Deutsche Asset Management Ltd., a wholly owned subsidiary of Deutsche Morgan
Grenfell Group PLC, an investment holding company which is, in turn, a wholly
owned subsidiary of Deutsche Bank.
BANKERS TRUST COMPANY AND ITS AFFILIATES
Bankers Trust is the principal banking subsidiary of Bankers Trust Corporation.
Bankers Trust Corporation, with principal offices 130 Liberty Street, New York,
New York 10006, is a wholly owned subsidiary of Deutsche Bank. Deutsche Bank is
a banking company with limited liability organized under the laws of the Federal
Republic of Germany. Deutsche Bank is the parent company of a group consisting
of banks, capital markets companies, fund management companies, mortgage banks,
a property finance company, installment financing and leasing companies,
insurance companies, research and consultancy companies and other domestic and
foreign companies.
Bankers Trust, subject to the supervision and direction of the Board of Trustees
of the Portfolio, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its worldwide
subsidiaries and affiliates to assist it in its role as investment adviser. All
orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with brokers, 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
transaction does not exceed usual and customary levels. The Portfolio will not
invest in obligations for which Bankers Trust or any of its affiliates is the
ultimate obligor or accepting bank. The Portfolio may, however, invest in the
obligations of correspondents or customers of Bankers Trust.
Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio computed daily and paid monthly at the annual rate of 0.50% 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.
ADMINISTRATOR
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 rate of 0.15% of the average daily net assets of the Portfolio. Under the
Administration and Services Agreement, Bankers Trust may delegate one or more of
its responsibilities to others at Bankers Trust's expense.
Under the Administration and Services Agreement, Bankers Trust is obligated on a
continuous basis to provide such administrative services as the Board of
Trustees reasonably deems necessary for the proper administration of the
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<PAGE>
Trust or the Portfolio. Bankers Trust will generally assist in all aspects of
the Fund's and Portfolio's operations; supply and maintain office facilities
(which may be in Bankers Trust's own offices), statistical and research data,
data processing services, clerical, accounting, bookkeeping and recordkeeping
services (including, without limitation, the maintenance of such books and
records as are required under the 1940 Act and the rules thereunder, except as
maintained by other agents), executive and administrative services, and
stationery and office supplies; prepare reports to shareholders or investors;
prepare and file tax returns; supply financial information and supporting data
for reports to and filings with the SEC and various state Blue Sky authorities;
supply supporting documentation for meetings of the Board of Trustees; provide
monitoring reports and assistance regarding compliance with the Declaration of
Trust, by-laws, investment objectives and policies and with federal and state
securities laws; arrange for appropriate insurance coverage; calculate net asset
values, net income and realized capital gains or losses; and negotiate
arrangements with, and supervise and coordinate the activities of, agents and
others to supply services.
CUSTODIAN AND TRANSFER AGENT
Bankers Trust, 130 Liberty Street, New York, New York 10006, serves as Custodian
for the Trust and for the Portfolio pursuant to the Administration and Services
Agreement. As Custodian, it holds the Fund's and the Portfolio's assets. Bankers
Trust also serves as transfer agent of the Trust and of the Portfolio pursuant
to the Administration and Services Agreement. Under its transfer agency
agreement with the Trust, Bankers Trust maintains the shareholder account
records for the Fund, handles certain communications between shareholders and
the Trust and causes to be distributed any dividends and distributions payable
by the Trust. Bankers Trust may be reimbursed by the Fund or the Portfolio for
its out-of-pocket expenses. Bankers Trust will comply with the self-custodian
provisions of Rule 17f-2 under the 1940 Act.
DISTRIBUTOR
ICC Distributors is the principal distributor for shares of the Fund. ICC
Distributors is a registered broker/dealer and is unaffiliated with Bankers
Trust. The principal business address of ICC Distributors is Two Portland
Square, Portland, Maine 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.
USE OF NAME
The Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the
Portfolio or the Fund. The Trust has acknowledged that the term "BT" is used by
and is a property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.
26
<PAGE>
The Trust may be required, on 60 days' notice from Bankers Trust at any time, to
abandon use of the acronym "BT" as part of its name. If this were to occur, the
Trustees would select an appropriate new name for the Trust, but there would be
no other material effect on the Trust, its shareholders or activities.
BANKING REGULATORY MATTERS
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolio contemplated by the Advisory
Agreement and other activities for the Portfolio and the Fund described in the
Prospectuses and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent Bankers Trust from continuing to perform
those services for the Portfolio and the Fund. State laws on this issue may
differ from the interpretations of relevant Federal law and banks and financial
institutions may be required to register as dealers pursuant to state securities
law. If the circumstances described above should change, the Board of Trustees
would review the relationships with Bankers Trust and consider taking all
actions necessary in the circumstances.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust and the Portfolio. Ernst & Young LLP, 787 Seventh
Avenue, New York, New York 10019, acts as Independent Accountants of the Trust
and the Portfolio.
ORGANIZATION OF THE TRUST
The Trust was organized on July 21, 1986, under the name BT Tax-Free Investment
Trust, and assumed its current name on May 16, 1988. The Trust offers shares of
beneficial interest of separate series, par value $0.001 per share. Trustees of
the Trust established and designated one class of shares of beneficial interest
of the Fund. The Trust reserves the right to add additional series in the
future. The Trust also reserves the right to issue additional classes of shares
of the Fund. No series of shares will have any preference over any other series.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. Shareholders of the Fund are not entitled to vote on
Trust matters that do not affect the Fund. There normally will be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares.
The shares of the series participate equally in the earnings, dividends and
assets of the particular series. The Trust may create and issue additional
series of shares. The Trust's Declaration of Trust permits the Trustees to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interest in series. Each share
represents an equal proportionate interest in a series with each other share.
Shares when issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each share held.
Shares of the Trust do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund, except with respect
to the election of Trustees and the ratification of the selection of independent
accountants.
The Trust is an entity commonly known as a "Massachusetts business trust."
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the Trust's
property for all losses and
27
<PAGE>
expenses of any shareholder held personally liable for the obligations of the
Trust. Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations, a possibility that the Trust believes
is remote. Upon payment of any liability incurred by the Trust, the shareholder
paying the liability will be entitled to reimbursement from the general assets
of the Trust. The Trustees intend to conduct the operations of the Trust in a
manner so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Trust.
Whenever the Trust is requested to vote on matters pertaining to the Fund, the
Trust will vote its shares without a meeting of shareholders of the Fund if the
proposal is one, which if made with respect to the Fund, would not require the
vote of shareholders of the Fund as long as such action is permissible under
applicable statutory and regulatory requirements. For all other matters
requiring a vote, the Trust will hold a meeting of shareholders of the Fund and,
at the meeting of the investors in the Fund, the Trust will cast all of its
votes in the same proportion as votes in all its shares at the Fund meeting,
other investors with a greater pro rata ownership of the Fund could have
effective voting control of the operations of the Fund.
TAXATION
TAXATION OF THE FUND
The Trust intends to qualify annually and to elect the Fund to be treated as a
regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must, among other things:
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income, if any, each taxable year.
As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains. Amounts not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute during each calendar year an amount equal to the sum of:
(1) at least 98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year;
(2) at least 98% of its capital gains in excess of its capital losses (adjusted
for certain ordinary losses, as prescribed by the Code) for the one-year
period ending on October 31 of the calendar year; and
(3) any ordinary income and capital gains for previous years that were not
distributed during those years.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by the Fund in October, November or December with a
record date in such a month and paid by the Fund during January of the following
calendar year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received. To prevent application of the
excise tax, the Fund intends to make its distributions in accordance with the
calendar year distribution requirement.
28
<PAGE>
Fund shareholders will also receive, if appropriate, various written notices
after the close of the Fund's prior taxable year as to the federal income status
of his dividends and distributions which were received from the Fund during the
Fund's prior taxable year. Shareholders should consult their tax advisers as to
any state and local taxes that may apply to these dividends and distributions.
The dollar amount of dividends excluded from Federal income taxation and the
dollar amount subject to such income taxation, if any, will vary for each
shareholder depending upon the size and duration of each shareholder's
investment in the Fund.
TAXATION OF THE PORTFOLIO
The Portfolio is not subject to federal income taxation. Instead, the Fund and
other investors investing in the Portfolio must take into account, in computing
their federal income tax liability, their share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether they have received any cash distributions from the Portfolio.
FOREIGN SECURITIES
Income from investments in foreign securities may be subject to foreign taxes.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries will vary.
If the Fund is liable for foreign taxes, and if more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of stocks or
securities of foreign corporations, the Fund may make an election pursuant to
which certain foreign taxes paid by it would be treated as having been paid
directly by its shareholders. Pursuant to such election, the amount of foreign
taxes paid will be included in the income of the Fund's shareholders, and the
Fund shareholders (except tax-exempt shareholders) may, subject to certain
limitations, claim either a credit or deduction for the taxes. Fund shareholders
will be notified after the close of the Fund's taxable year whether the foreign
taxes paid will "pass through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion which represents income derived from sources within
each such country.
The amount of foreign taxes for which a shareholder may claim a credit in any
year generally will be subject to a separate limitation for "passive income,"
which includes, among other items of income, dividends, interest and certain
foreign currency gains. Because capital gains realized by the Fund on the sale
of foreign securities will be treated as U.S. source income, the available
credit of foreign taxes paid with respect to such gains may be restricted by
this limitation.
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends-received deduction. The Taxpayer
Relief Act of 1997 created additional categories of capital gains taxable at
different rates. The categories of gain and related rates will be passed through
to shareholders in capital gain dividends. Shareholders receiving distributions
in the form of additional shares, rather than cash, generally will have a cost
basis in each such share equal to the net asset value of a share of the Fund on
the reinvestment date. Shareholders will be notified annually as to the U.S.
federal tax status of distributions.
SALE OF SHARES
Any gain or loss realized by a shareholder upon the sale or other disposition of
shares of the Fund, or upon receipt of a distribution in complete liquidation of
a Fund, generally will be a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. Any loss realized on a sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the shares. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or
29
<PAGE>
less will be treated as a long-term capital loss to the extent of any
distributions of net capital gains received by the shareholder with respect to
such shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS
The tax consequences to a foreign shareholder of an investment in the Fund may
be different from those described in this SAI. Foreign shareholders are advised
to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor the Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code.
Fund shareholders may be subject to state and local taxes on the Fund's
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
FINANCIAL STATEMENTS
The financial statements for the Fund and the Portfolio for the fiscal period
ended June 30, 1999, are incorporated herein by reference to the Semi-Annual
Report to shareholders of the Fund dated June 30, 1999 (File Nos. 33-07404 and
811-4760). A copy of the Semi-Annual Report may be obtained without charge by
contacting the Funds.
APPENDIX
S&P'S COMMERCIAL PAPER RATINGS:
A is the highest commercial paper rating category utilized by S&P, which uses
the numbers 1+, 1, 2 and 3 to denote relative strength within it's a
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt ratings is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward tread.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
MOODY'S COMMERCIAL PAPER RATINGS:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leasing
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
30
<PAGE>
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rates Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
FITCH INVESTORS SERVICE AND DUFF & PHELPS COMMERCIAL PAPER RATINGS:
Commercial paper rated "Fitch-1" is considered to be the highest grade paper and
is regarded as having the strongest degree of assurance for timely payment.
"Fitch-2" is considered very good grade paper and reflects an assurance of
timely payment only slightly less in degree than the strongest issue.
Commercial paper issued rated "Duff 1" by Duff & Phelps, Inc. have the following
characteristics: very high certainty of timely payment, excellent liquidity
factors supported by strong fundamental protection factors, and risk factors
which are very small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small risk factors
and good access to capital markets.
31
<PAGE>
Investment Adviser and Administrator of each Portfolio
BANKERS TRUST COMPANY
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
Independent Accountants
ERNST & YOUNG LLP
Counsel
WILLKIE FARR & GALLAGHER
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statement of Additional Information or the Trust's official sales literature in
connection with the offering of the Trust's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectuses nor this Statement of
Additional Information constitutes an offer in any state in which, or to any
person to whom, such offer may not lawfully be made.
Cusip#: 055922652
Product Code QEFSAI (12/99)
PART C - OTHER INFORMATION
ITEM 23. Exhibits.
(a) Declaration of Trust dated July 21, 1986;(1)
(i) Supplement to Declaration of Trust dated October 20, 1986;(1)
(ii)Second Supplement to Declaration of Trust dated May 16, 1988;(1)
(b) By-Laws;(1)
(c) Incorporated by reference to Exhibit (b) above;
(d) Investment Advisory Contract dated December 31, 1998;(9)
(i) Distribution Agreement dated August 11, 1998;(5)
(ii) Appendix A dated December 9, 1998 to Distribution Agreement;(7)
(f) Bonus or Profit Sharing Contracts - Not applicable;
(g) Custodian Agreement dated July 1, 1996;(2)
(i) Amendment No. 2 to Exhibit A of the Custodian Agreement dated October
8, 1997;(3)
(ii) Amendment No. 3 to Exhibit A of the Custodian Agreement dated June 10,
1998;(7)
(iii) Amendment No. 4 to Exhibit A of the Custodian Agreement dated December
9, 1998;(7)
(iv) Cash Services Addendum to Custodian Agreement dated December 18,
1997;(4)
(h) Administration and Services Agreement dated Oct. 28, 1992;(8)
(i) Exhibit D to the Administration and Services Agreement as of October
28, 1992, as revised December 9, 1998;(7)
(ii) Agreement to Provide Shareholder Services for BT PreservationPlus
Income Fund as of June 10, 1998;(5)
(iii) Shareholder Services Plan for BT PreservationPlus Income Fund as of
June 10, 1998;(5)
(iv) Expense Limitation Agreement dated September 30, 1998 on behalf of
Intermediate Tax Free Fund, International Equity Fund, Capital
Appreciation Fund, Pacific Basin Equity Fund, Latin American Equity
Fund, Small Cap Fund, International Small Company Equity Fund and
Global Emerging Markets Equity Fund;(6)
(v) Expense Limitation Agreement dated December 31, 1998 on behalf of Cash
Management Fund, Tax Free Money Fund, NY Tax Free Money Fund, Treasury
Money Fund and Quantitative Equity Fund;(9).
<PAGE>
(vi) Expense Limitation Agreement dated March 31, 1999, on behalf of BT
Investment Lifecycle Long Range Fund, BT Investment Lifecycle Mid
Range Fund, and BT Investment Lifecycle Short Range Fund;(10).
(i) Legal Opinion - Not applicable;
(j) Consent of Independent Accountants- Not applicable;
(k) Omitted Financial Statements - Not applicable;
(l) Initial Capital Agreements - Not applicable;
(m) Rule 12b-1 Plans - Not applicable;
(n) Financial Data Schedules - Not applicable;
(o) Rule 18f-3 Plan - Not applicable;
(p) Power of Attorney - filed herewith.
- -----------------------------------
1. Incorporated by reference to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A ("Registration
Statement") as filed with the Securities and Exchange Commission
("Commission") on July 31, 1995.
2. Incorporated by reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement as filed with the Commission on
July 1, 1997.
3. Incorporated by reference to Post-Effective Amendment No. 46 to
Registrant's Registration Statement as filed with the Commission on
January 28, 1998.
4. Incorporated by reference to Post-Effective Amendment No. 50 to
Registrant's Registration Statement as filed with the Commission on
June 30, 1998.
5. Incorporated by reference to Post-Effective Amendment No. 55 to
Registrant's Registration Statement as filed with the Commission on
November 25, 1998.
6. Incorporated by reference to Post-Effective Amendment No. 56 to
Registrant's Registration Statement as filed with the Commission on
January 28, 1999.
7. Incorporated by reference to Post-Effective Amendment No. 57 to
Registrant's Registration Statement as filed with the Commission on
February 8, 1999.
8. Incorporated by reference to Post-Effective Amendment No. 29 to
Registrant's Registration Statement as filed with the Commission on
November 8, 1993.
9. Incorporated by reference to Post-Effective Amendment No. 60 to
Registrant's Registration Statement as filed with the Commission on
March 15, 1999.
10. Incorporated by reference to Post-Effective Amendment No. 63 to
Registrant's Registration Statement as filed with the Commission on
July 29, 1999.
<PAGE>
ITEM 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
ITEM 25. Indemnification.
Incorporated by reference to Post-Effective Amendment No. 38 to Registrant's
Registration Statement as filed with the Commission on April 29, 1996.
ITEM 26. Business and Other Connections of Investment Adviser.
Bankers Trust serves as investment adviser to the Portfolio. Bankers Trust, a
New York banking corporation, is a wholly owned subsidiary of Deutsche Bank AG.
Bankers Trust conducts a variety of commercial banking and trust activities and
is a major wholesale supplier of financial services to the international
institutional market.
To the knowledge of the Trust, none of the directors or officers of Bankers
Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Bankers Trust Corporation. Set forth below are the names and principal
businesses of the directors and officers of Bankers Trust who to our knowledge
as of July 28, 1999, are engaged in any other business, profession, vocation or
employment of a substantial nature.
Josef Ackermann
Chairman of the Board, Chief Executive Officer and President, Bankers Trust;
Member, Board of Managing Directors, Deutsche Bank AG. Address: Deutsche Bank
AG, Taunusanlage 12, D-60262 Frankfurt am Main, Federal Republic of Germany.
Hans Angermueller
Director, Bankers Trust; Director of various corporations; Shearman and
Sterling, of counsel. Address: Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022
George B. Beitzel
Director, Bankers Trust and Bankers Trust Corporation since 1977; Director of
various corporations. Address: 29 King Street, Chappaqua, New York 10514-3432.
<PAGE>
William R. Howell
Director, Bankers Trust; Chairman Emeritus, J.C. Penney Company, Inc.; Director
of various corporations. Address: J.C. Penney Company, Inc., P.O. Box 10001,
Dallas, Texas 74301-1109.
Hermann-Josef Lamberti
Director, Bankers Trust; Member, Board of Managing Directors, Deutsche Bank AG.
Address: Deutsche Bank AG, Taunusanlage 12, D-60262 Frankfurt am Main, Federal
Republic of Germany.
John A. Ross
Director, Bankers Trust; Regional Chief Executive Officer, Deutsche Bank
Americas Holding Corp. Address: Deutsche Bank, 31 West 52nd Street, New York,
New York 10019.
Ronaldo H. Schmitz
Director, Bankers Trust; Member, Board of Managing Directors, Deutsche Bank AG.
Address: Deutsche Bank AG, Taunusanlage 12, D-60262 Frankfurt am Main, Federal
Republic of Germany.
Item 27. Principal Underwriters.
(a) ICC Distributors, Inc., the Distributor for shares of the Registrant, also
acts as principal underwriter for the following open-end investment companies:
BT Advisor Funds, BT Institutional Funds, BT Pyramid Mutual Funds, Cash
Management Portfolio, Intermediate Tax Free Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity 500
Index Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio, BT
Investment Portfolios, Deutsche Banc Alex. Brown Cash Reserve Fund, Inc., Flag
Investors Communications Fund, Inc., Flag Investors International Fund, Inc.,
Flag Investors Emerging Growth Fund, Inc., Total Return U.S. Treasury Fund,
Inc., Managed Municipal Fund, Inc., Flag Investors Short-Intermediate Income
Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc. Flag Investors Equity Partners Fund, Inc., and Morgan
Grenfell Funds.
(b) Unless otherwise stated, the principal business address for the
following persons is Two Portland Square, Portland, Maine 04101.
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Distributor Registrant
<PAGE>
John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None
(c) None
ITEM 28. Location of Accounts and Records.
BT Investment Funds: BT Alex. Brown
(Registrant) One South Street
Baltimore, MD 21202
Bankers Trust Company: 130 Liberty Street
(Custodian, Investment Adviser New York, NY 10006
and Administrator)
Investors Fiduciary 127 West 10th Street,
Trust Company: Kansas City, MO 64105.
ICC Distributors, Inc.: Two Portland Square
(Distributor) Portland, ME 04101
ITEM 29. Management Services.
Not Applicable
ITEM 30. Undertakings.
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, BT INVESTMENT FUNDS has duly
caused this Post-Effective Amendment No. 64 to its Registration Statement to be
signed on its behalf by the undersigned, duly authorized, in the City of
Baltimore and the State of Maryland on this 22nd day of October, 1999.
BT INVESTMENT FUNDS
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
October 22, 1999
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
persons in the capacity and on the date indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
By: /s/ Daniel O. Hirsch Secretary October 22, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons Listed Below)
/s/ John Y. Keffer* President and
John Y. Keffer Chief Executive Officer
/s/ Charles A. RIZZO* Treasurer (Principal
Charles A. Rizzo Financial and Accounting Officer)
/s/ CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/ S. LELAND DILL* Trustee
S. Leland Dill
/s/ MARTIN J. GRUBER* Trustee
Martin J. Gruber
/s/ RICHARD T. HALE* Trustee
Richard T. Hale
/s/ RICHARD J. HERRING* Trustee
Richard J. Herring
</TABLE>
<PAGE>
/s/ BRUCE T. LANGTON* Trustee
Bruce T. Langton
/s/ PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
/s/ HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten
* By Power of Attorney - By Power of Attorney - Filed herewith.
<PAGE>
SIGNATURES
BT INVESTMENT PORTFOLIOS has duly caused this Post-Effective Amendment No.
64 to the Registration Statement on Form N-1A of BT Investment Funds to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Baltimore and the State of Maryland on the 22nd day of October, 1999.
BT INVESTMENT PORTFOLIOS
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
October 22, 1999
This Post-Effective Amendment No. 64 to the Registration Statement of BT
Investment Funds has been signed below by the following persons in the
capacities indicated with respect to BT INVESTMENT PORTFOLIOS.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
By: /s/ Daniel O. Hirsch Secretary October 22, 1999
Daniel O. Hirsch (Attorney in Fact
For the Persons Listed Below)
/s/ John Y. Keffer* President and
John Y. Keffer Chief Executive Officer
/s/ Charles A. RIZZO* Treasurer (Principal
Charles A. Rizzo Financial and Accounting Officer)
/s/ CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/ S. LELAND DILL* Trustee
S. Leland Dill
/s/ MARTIN J. GRUBER* Trustee
Martin J. Gruber
/s/ RICHARD T. HALE* Trustee
Richard T. Hale
/s/ RICHARD J. HERRING* Trustee
Richard J. Herring
/s/ BRUCE T. LANGTON* Trustee
</TABLE>
<PAGE>
Bruce T. Langton
/s/ PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
/s/ HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten
* By Power of Attorney - By Power of Attorney - Filed herewith.
POWER OF ATTORNEY
This Power of Attorney will be contingent upon the election of the
Trustee nominees at the Special Shareholder Meetings to be held in September and
October 1999.
The undersigned Trustees and officers, as indicated respectively below,
of BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, and BT
Advisor Funds (each, a "Trust") and Cash Management Portfolio, Treasury Money
Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, International
Equity Portfolio, Equity 500 Index Portfolio, Asset Management Portfolio,
Capital Appreciation Portfolio, Intermediate Tax Free Portfolio, and BT
Investment Portfolios (each, a "Portfolio Trust") each hereby constitutes and
appoints the Secretary, each Assistant Secretary and each authorized signatory
of each Trust and each Portfolio Trust, each of them with full powers of
substitution, as his true and lawful attorney-in-fact and agent to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, and all other documents, filed
by a Trust or a Portfolio Trust with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and (as applicable)
the Securities Act of 1933, as amended, and any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable the
Trust or Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has, and
may exercise, all of the powers hereby conferred. The undersigned each hereby
revokes any Powers of Attorney
<PAGE>
previously granted with respect to any Trust or Portfolio Trust concerning the
filings and actions described herein.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as
of the 7th day of September, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
<S> <C>
/s/John Y. Keffer President and Chief Executive Officer of each Trust and
John Y. Keffer Portfolio Trust
/s/Charles A. Rizzo Treasurer (Principal Financial and Accounting Officer) of
Charles A. Rizzo each Trust and Portfolio Trust
/s/Charles P. Biggar Trustee of each Trust and Portfolio Trust
Charles P. Biggar
/s/S. Leland Dill Trustee of each Trust and Portfolio Trust
S. Leland Dill
/s/Richard T. Hale Trustee of each Trust and Portfolio Trust
Richard T. Hale
/s/Richard J. Herring Trustee of each Trust and Portfolio Trust
Richard J. Herring
/s/Bruce E. Langton Trustee of each Trust and Portfolio Trust
Bruce E. Langton
/s/Martin J. Gruber Trustee of each Trust and Portfolio Trust
Martin J. Gruber
/s/Philip Saunders, Jr. Trustee of each Trust and Portfolio Trust
Philip Saunders, Jr.
/s/Harry Van Benschoten Trustee of each Trust and Portfolio Trust
Harry Van Benschoten
</TABLE>
