<PAGE>
As filed with the Commission on April 28, 2000
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. 68 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 68 [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)
[X] On April 30, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On [date], 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.
Cash Management Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio and BT Investment Portfolios have also
executed this Registration Statement.
<PAGE>
Deutsche Asset Management
Mutual Fund
Prospectus
April 30, 2000
Investment
Cash Management
Treasury Money
NYTax Free Money
Tax Free Money
Each formerly a BT Mutual Fund
[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.]
A Member of the
Deutsche Bank Group [/]
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Cash Management............................................................. 3
Treasury Money.............................................................. 10
NY Tax Free Money........................................................... 16
Tax Free Money.............................................................. 23
Information Concerning All Funds............................................ 30
Management of the Funds..................................................... 30
Calculating a Fund's Share Price............................................ 31
Dividends and Distributions................................................. 31
Tax Considerations.......................................................... 31
Performance Information..................................................... 32
Buying and Selling Fund Shares.............................................. 32
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE>
Overview
- --------------------------------------------------------------------------------
of Cash Management Investment
Goal: The Fund seeks a high level of current income consistent with liquidity
and the preservation of capital.
Core Strategy: The Fund invests in high quality money market instruments.
INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same goal as
the Fund. The Fund, through the master portfolio, seeks to achieve that goal by
investing in high quality money market instruments, maintaining a dollar-
weighted average maturity of 90 days or less. The Fund attempts to maintain a
stable share price by investing in securities that are valued in U.S. dollars,
have remaining maturities of 397 days or less and are of the highest quality.
The Fund invests more than 25% of its total assets in banks and other financial
institutions.
- --------------------------------------------------------------------------------
Cash Management Investment
Overview of Cash Management
<TABLE>
<S> <C>
Goal........................................................................ 3
Core Strategy............................................................... 3
Investment Policies and Strategies.......................................... 3
Principal Risks of Investing in the Fund.................................... 4
Who Should Consider Investing in the Fund................................... 4
Total Returns, After Fees and Expenses...................................... 5
Annual Fund Operating Expenses.............................................. 6
</TABLE>
A Detailed Look at Cash Management
<TABLE>
<S> <C>
Objective................................................................... 7
Strategy.................................................................... 7
Principal Investments....................................................... 7
Risks....................................................................... 7
Financial Highlights........................................................ 9
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
Overview of Cash Management Investment
PRINCIPAL RISKS OF INVESTING IN THE FUND
Although the Fund seeks to preserve the value of your investment at $1.00 a
share, there are risks associated with investing in the Fund. For example:
. A rise in interest rates could cause the bond market and individual
securities in the Fund's portfolio to decline in value.
. An issuer's creditworthiness could decline, which in turn may cause the value
of a security in the Fund's portfolio to decline.
. Changes in interest rates or economic downturns could have a negative effect
on issuers in the financial services industry.
WHO SHOULD CONSIDER INVESTING IN THE FUND
You should consider investing in the Fund if you are a conservative investor
who is looking for an investment that offers income approximating money market
rates and preserves the value of your investment.
You should not consider investing in the Fund if you seek long-term capital
growth. Although it provides a convenient means of diversifying short-term
investments, the Fund by itself does not constitute a balanced investment
program.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
- --------------------------------------------------------------------------------
4
<PAGE>
Overview of Cash Management Investment
TOTAL RETURNS, AFTER FEES & EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
of the past ten calendar years. The table shows the Fund's average annual
return over the last calendar year, the last five calendar years, and the last
ten calendar years.
As of December 31, 1999, the Fund's 7-day yield was 5.21%. To learn the current
7-day yield, investors may call the Deutsche Asset Management Service Center at
1-800-730-1313.
- --------------------------------------------------------------------------------
The 7-day yield, which is often referred to as the "current yield," is the
income generated by the Fund over a seven-day period. This amount is then
annualized, which means that we assume the Fund generates the same income every
week for a year. The "total return" of the Fund is the change in the value of
an investment in the Fund over a given period. Average annual returns are
calculated by averaging the year-by-year returns of the Fund over a given
period.
[HEAD, CHART and FOOTNOTE APPEARS HERE]
YEAR-BY-YEAR RETURNS
(the past ten calendar years)
1990 7.85%
1991 5.68%
1992 3.05%
1993 2.54%
1994 3.67%
1995 5.35%
1996 4.82%
1997 4.98%
1998 4.93%
1999 4.58%
Since inception, the Fund's highest return in any calendar quarter was 2.88%
(second quarter 1989) and its lowest quarterly return was 0.62% (first quarter
1993). Past performance offers no indication of how the Fund will perform in
the future.
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Average Annual Returns
1 Year 5 Years 10 Years
<S> <C> <C> <C>
Cash Management
Investment 4.58% 4.93% 4.74%
----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
Overview of Cash Management Investment
ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)
The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of the Fund.
Expense Example. The example below illustrates the expenses you would have
incurred on a $10,000 investment in the Fund. It assumes that the Fund earned
an annual return of 5% over the periods shown, 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 expense history
with other funds./1/ The example does not represent an estimate of future
returns or expenses. Actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the Cash Management Portfolio, the master portfolio in which the
Fund invests its assets. (A further discussion of the relationship between the
Fund and the master portfolio appears in the "Organizational Structure" section
of this prospectus.)
/2/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive their fees and
reimburse expenses so that total expenses will not exceed 0.75%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C> <C>
Management Fees 0.15%
--------------------------------------------------
Distribution and
Service (12b-1)
Fees None
--------------------------------------------------
Other Fund
Operating
Expenses 0.63%
--------------------------------------------------
Total Fund
Operating
Expenses 0.78%
--------------------------------------------------
Less: Fee Waiver
or Expense
Reimbursement (0.03%)/2/
--------------------------------------------------
Net Expenses 0.75%
--------------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$77 $246 $430 $963
--------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
A detailed look
- -------------------------------------------------------------------------------
at Cash Management Investment
OBJECTIVE
Cash Management Investment seeks a high level of current income consistent
with liquidity and the preservation of capital by investing in high quality
short-term money market instruments.
While we give priority to earning income and maintaining the value of the
Fund's principal at $1.00 per share, all money market instruments, including
U.S. government obligations, can change in value when interest rates change or
an issuer's creditworthiness changes.
STRATEGY
The Fund seeks current income by investing in high quality money market
securities and maintains a dollar-weighted average maturity of 90 days or
less. The Fund follows two policies designed to maintain a stable share price:
. Generally, Fund securities are valued in U.S. dollars and have remaining
maturities of 397 days (about 13 months) or less at the time of purchase.
The Fund may also invest in securities that have features that reduce their
maturities to 397 days or less at the time of purchase.
. The Fund buys U.S. government debt obligations, money market instruments and
other debt obligations that at the time of purchase:
. have received the highest short-term rating from two nationally recognized
statistical rating organizations;
. have received the highest short-term rating from one rating organization
(if only one organization rates the security);
. are unrated, but are determined to be of similar quality by us; or
. have no short-term rating, but are rated in one of the top three highest
long-term rating categories, or are determined to be of similar quality by
us.
PRINCIPAL INVESTMENTS
The Fund may invest in high quality, short-term, dollar-denominated money
market instruments paying a fixed, variable or floating interest rate. These
include:
. Debt obligations issued by U.S. and foreign banks, financial institutions,
corporations or other entities, including certificates of deposit, euro-time
deposits, commercial paper (including asset-backed commercial paper), notes,
funding agreements and U.S. government securities. Securities that do not
satisfy the maturity restrictions for a money market fund may be specifically
structured so that they are eligible investments for money market funds. For
example, some securities have features which have the effect of shortening the
security's maturity.
. U.S. government securities that are issued or guaranteed by the U.S.
Treasury, or by agencies or instrumentalities of the U.S. Government.
. Repurchase agreements, which are agreements to buy securities at one price,
with a simultaneous agreement to sell back the securities at a future date
at an agreed-upon price.
. Asset-backed securities, which are generally participations in a pool of
assets whose payment is derived from the payments generated by the
underlying assets. Payments on the asset- backed security generally consist
of interest and/or principal.
Because many of the Fund's principal investments are issued or credit-enhanced
by banks or other financial institutions, the Fund may invest more than 25% of
its total assets in the financial services industry.
RISKS
Below we set forth some of the prominent risks associated with money market
mutual funds, and we detail our approaches to contain them. 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. If a security no longer
meets the Fund's requirements, we will attempt to sell that security within a
reasonable time, unless selling the security would not be in the Fund's best
interest.
Interest Rate Risk. Money market instruments, like all debt securities, face
the risk that the securities will decline in value because of changes in
interest rates. Generally, investments subject to interest rate risk will
decrease in value when interest rates rise and increase when interest rates
decline. To minimize such price fluctuations, the Fund adheres to the
following practices:
- -------------------------------------------------------------------------------
7
<PAGE>
Overview of Cash Management Investment
. We limit the dollar-weighted average maturity of the securities held by the
Fund to 90 days or less. Generally, rates of short-term investments fluctuate
less than longer-term bonds.
. We primarily buy securities with remaining maturities of 13 months or less.
This reduces the risk that the issuer's creditworthiness will change, or that
the issuer will default on the principal and interest payments of the
obligation.
Credit Risk. A money market instrument's credit quality depends on the issuer's
ability to pay interest on the security and repay the debt: the lower the
credit rating, the greater the risk that the security's issuer will default, or
fail to meet its payment obligations. The credit risk of a security may also
depend on the credit quality of any bank or financial institution that provides
credit enhancement for it. The Fund only buys high quality securities with
minimal credit risk.
Market Risk. Although individual securities may outperform their market, the
entire market may decline as a result of rising interest rates, regulatory
developments or deteriorating economic conditions.
Security Selection Risk. While the Fund invests in short-term securities, which
by nature are relatively stable investments, the risk remains that the
securities we have selected will not perform as expected. This could cause the
Fund's returns to lag behind those of similar money market funds.
Repurchase Agreement Risk. A repurchase agreement exposes the Fund to the risk
that the party that sells the securities defaults on its obligation to
repurchase them. In this circumstance, the Fund can lose money because:
. it cannot sell the securities at the agreed-upon time and price; or
. the securities lose value before they can be sold.
The Fund seeks to reduce this risk by monitoring the creditworthiness of the
sellers with whom it enters into repurchase agreements. The Fund also monitors
the value of the securities to ensure that they are at least equal to the total
amount of the repurchase obligations, including interest and accrued interest.
Concentration Risk. Because the Fund may invest more than 25% of its total
assets in the financial services industry, it may be vulnerable to setbacks in
that industry. Banks and other financial service companies are highly dependent
on short-term interest rates and can be adversely affected by downturns in the
U.S. and foreign economies or changes in banking regulations.
Prepayment Risk. When a bond issuer, such as an issuer of asset-backed
securities, retains the right to pay off a high yielding bond before it comes
due, the Fund may have no choice but to reinvest the proceeds at lower interest
rates. Thus, prepayment may reduce the Fund's income. It may also create a
capital gains tax liability, because bond issuers usually pay a premium for the
right to pay off bonds early.
- --------------------------------------------------------------------------------
8
<PAGE>
Overview of Cash Management Investment
The table below provides a picture of the Fund's financial performance for the
past five years. Certain information selected reflects financial results for a
single Fund share. The total returns in the table represent the rates of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the Service Center at
1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value,
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 0.04 0.05 0.05 0.05 0.05
------------------------------------------------------------------------------
Net Realized and
Unrealized Gain on
Investment and
Futures Transactions 0.00/1/ 0.00/1/ (0.00)/1/ 0.00/1/ 0.00/1/
------------------------------------------------------------------------------
Total from Investment
Operations 0.04 0.05 0.05 0.05 0.05
------------------------------------------------------------------------------
Contributions of Capital -- -- -- 0.00/1/ --
------------------------------------------------------------------------------
Distributions to
Shareholders
Net Investment Income (0.04) (0.05) (0.05) (0.05) (0.05)
------------------------------------------------------------------------------
Net Asset Value, End of
Year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Investment Return 4.58% 4.93% 4.98% 4.82%/2/ 5.35%
------------------------------------------------------------------------------
Supplemental Data and
Ratios:
Net Assets, End of Period
(000s omitted) $154,304 $232,586 $138,423 $118,969 $135,998
------------------------------------------------------------------------------
Ratios to Average Net
Assets:
Net Investment Income 4.42% 4.80% 4.88% 4.72% 5.22%
------------------------------------------------------------------------------
Expenses After Waivers,
Including Expenses of
the Cash Management
Portfolio 0.75% 0.75% 0.75% 0.75% 0.74%
------------------------------------------------------------------------------
Expenses Before Waivers,
Including Expenses of
the Cash Management
Portfolio 0.78% 0.81% 0.78% 0.78% 0.76%
------------------------------------------------------------------------------
Decrease Reflected in
Above Expense Ratio Due
to Fee Waivers or Expense
Reimbursements 0.03% 0.06% 0.03% 0.03% 0.02%
------------------------------------------------------------------------------
</TABLE>
/1/Less than $0.01 per share.
/2/Increased by approximately 0.08% due to contributions of capital for the
year ended December 31, 1996.
- --------------------------------------------------------------------------------
9
<PAGE>
Overview
- --------------------------------------------------------------------------------
of Treasury Money Investment
Goal: The Fund seeks a high level of current income consistent with liquidity
and the preservation of capital.
Core Strategy: The Fund invests in debt obligations of the U.S. Treasury or
repurchase agreements collateralized by U.S. Treasury debt obligations.
INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same goal as
the Fund. The Fund, through the master portfolio, seeks to achieve that goal by
investing in U.S. Treasury obligations, either directly or through repurchase
agreements. The Fund maintains a dollar weighted average maturity of 90 days or
less. The Fund attempts to maintain a stable share price by investing in
securities that are valued in U.S. dollars and have remaining maturities of 397
days or less.
- --------------------------------------------------------------------------------
Treasury Money Investment
Overview of Treasury Money
<TABLE>
<S> <C>
Goal........................................................................ 10
Core Strategy............................................................... 10
Investment Policies and Strategies.......................................... 10
Principal Risks of Investing in the Fund.................................... 11
Who Should Consider Investing in the Fund................................... 11
Total Returns, After Fees and Expenses...................................... 12
Annual Fund Operating Expenses.............................................. 13
</TABLE>
A Detailed Look at Treasury Money
<TABLE>
<S> <C>
Objective................................................................... 14
Strategy.................................................................... 14
Principal Investments....................................................... 14
Risks....................................................................... 14
Financial Highlights........................................................ 15
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
Overview of Treasury Money Investment
PRINCIPAL RISKS OF INVESTING IN THE FUND
Although the Fund seeks to preserve the value of your investment at $1.00 a
share, there are risks associated with investing in the Fund. For example, a
sharp rise in interest rates could cause the bond market and individual
securities in the Fund's portfolio to decline in value.
WHO SHOULD CONSIDER INVESTING IN THIS FUND
You should consider investing in the Fund if you are a conservative investor
who is looking for an investment that offers income approximating money market
rates, preserves the value of your investment and yet can easily be converted
into cash.
You should not consider investing in the Fund if you seek long-term capital
growth. Although it provides a convenient means of diversifying short-term
investments, the Fund by itself does not constitute a balanced investment
program.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
- --------------------------------------------------------------------------------
11
<PAGE>
Overview of Treasury Money Investment
TOTAL RETURNS, AFTER FEES & EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
of the past ten calendar years. The table shows the Fund's average annual
return over the last year, the last five calendar years and the last ten
calendar years.
As of December 31, 1999, the Fund's 7-day yield was 4.12%. To learn the current
7-day yield, investors may call the Deutsche Asset Management Service Center at
1-800-730-1313.
- --------------------------------------------------------------------------------
The 7-day yield, which is often referred to as the "current yield," is the
income generated by the Fund over a seven day period. This amount is then
annualized, which means that we assume the Fund generates the same income every
week for a year. The "total return" of the Fund is the change in the value of
an investment in the Fund
[HEAD, CHART and FOOTNOTE APPEARS HERE]
YEAR-BY-YEAR RETURNS
(the past ten calendar years)
1990 7.61%
1991 5.30%
1992 3.10%
1993 2.43%
1994 3.40%
1995 5.19%
1996 4.71%
1997 4.86%
1998 4.76%
1999 4.32%
Since inception, the Fund's highest return in any calendar quarter was 2.13%
(second quarter 1989) and its lowest quarterly return was 0.59% (first quarter
1993). Past performance offers no indication of how the Fund will perform in
the future.
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Average Annual Returns
1 Year 5 Years 10 Years
<S> <C> <C> <C>
Treasury Money
Investment 4.32% 4.77% 4.56%
----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
Overview of Treasury Money Investment
ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)
The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of the Fund.
Expense Example. The example below illustrates the expenses incurred on a
$10,000 investment in the Fund. It assumes that the Fund earned an annual
return of 5% over the periods shown, 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 expense history
with other funds./1/ The example does not represent an estimate of future
returns or expenses. Actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the Treasury Money Portfolio, the master portfolio in which the
Fund invests its assets. (A further discussion of the relationship between the
Fund and the master portfolio appears in the "Organizational Structure" section
of this prospectus.)
/2/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive their fees and
reimburse expenses so that total expenses will not exceed 0.75%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C>
Management Fees 0.15%
---------------------------------------------------
Distribution and
Service (12b-1) Fees None
---------------------------------------------------
Other Fund Operating
Expenses 0.62%
---------------------------------------------------
Total Fund Operating
Expenses 0.77%
---------------------------------------------------
Less: Fee Waiver or
Expense Reimbursement (0.02%)/2/
---------------------------------------------------
Net Expenses 0.75%
---------------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$77 $244 $426 $952
-------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
A detailed look
- --------------------------------------------------------------------------------
at Treasury Money Investment
OBJECTIVE
The Fund seeks a high level of current income consistent with liquidity and the
preservation of capital by investing in debt obligations of the U.S. Treasury
or repurchase agreements collateralized by U.S. Treasury debt obligations.
While we give priority to earning income and maintaining the value of the
Fund's principal at $1.00 per share, all money market instruments, including
U.S. government obligations, can change in value when interest rates change.
STRATEGY
The Fund seeks current income, maintaining a dollar-weighted average maturity
of 90 days or less, by investing only in U.S. Treasury obligations and
repurchase agreements backed by obligations of the U.S. Treasury. Fund
securities are valued in U.S. dollars and have remaining maturities of 397 days
(about 13 months) or less at the time of purchase. The Fund may also invest in
securities that have features that reduce their maturities to 397 days or less
at the time of purchase. Although the U.S. government guarantees the timely
payment of interest and principal, it does not guarantee the market value of
these obligations, which may change in response to changes in interest rates.
PRINCIPAL INVESTMENTS
The Fund invests in U.S. Treasury obligations, either directly or through
repurchase agreements. In a repurchase agreement, the Fund buys securities at
one price with a simultaneous agreement to sell back the securities at a future
date at an agreed-upon price.
RISKS
Below we set forth some of the prominent risks associated with "government"
money market mutual funds, and we detail our approaches to contain them.
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. If a
security no longer meets the Fund's requirements, we will attempt to sell that
security within a reasonable time, unless selling the security would not be in
the Fund's best interest.
Interest Rate Risk. Money market instruments, like all debt securities, face
the risk that the securities will decline in value because of changes in
interest rates. Generally, investments subject to interest rate risk will
decrease in value when interest rates rise and increase when interest rates
decline. While the Fund seeks to maintain a $1.00 share price, it cannot
guarantee that this will always happen. To minimize such price fluctuations,
the Fund adheres to the following practices:
. We limit the dollar-weighted average maturity of the securities held by the
Fund to 90 days or less. Generally, rates of short-term investments fluctuate
less than longer-term bonds.
. We primarily buy securities with remaining maturities of 13 months or less.
Market Risk. Although individual securities may outperform their market, the
entire market may decline as a result of rising interest rates, regulatory
developments or deteriorating economic conditions.
Security Selection Risk. While the Fund invests in short-term securities, which
by nature are relatively stable investments, the risk remains that the
securities we have selected will not perform as expected. This, in turn, could
cause the Fund's returns to lag behind those of similar money market funds.
Repurchase Agreement Risk. A repurchase agreement exposes the Fund to the risk
that the party that sells the securities defaults on its obligation to
repurchase them. In this circumstance, the Fund can lose money because:
. it cannot sell the securities at the agreed-upon time and price; or
. the securities lose value before they can be sold.
The Fund seeks to reduce this risk by monitoring the creditworthiness of the
sellers with whom it enters into repurchase agreements. The Fund also monitors
the value of the securities to ensure that they are at least equal to the total
amount of the repurchase obligations, including interest and accrued interest.
- --------------------------------------------------------------------------------
14
<PAGE>
A Detailed Look at Treasury Money Investment
The table below provides a picture of the Fund's financial performance for the
past five years. Certain information selected reflects financial results for a
single Fund share. The total returns in the table represent the rates of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the Service Center at
1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value, Beginning
of Period $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 0.04 0.05 0.05 0.05 0.05
------------------------------------------------------------------------------
Net Realized and
Unrealized Gain on
Investment and Futures
Transactions (0.00)/1/ 0.00/1/ (0.00) 0.00/1/ 0.00/1/
------------------------------------------------------------------------------
Total from Investment
Operations 0.04 0.05 0.05 0.05 0.05
------------------------------------------------------------------------------
Distributions to
Shareholders
Net Investment Income (0.04) (0.05) (0.05) (0.05) (0.05)
------------------------------------------------------------------------------
Net Asset Value, End of
Year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Investment Return 4.32% 4.76% 4.86% 4.71% 5.19%
------------------------------------------------------------------------------
Supplemental Data and
Ratios:
Net Assets, End of Period
(000s omitted) $560,729 $308,911 $268,274 $554,716 $615,084
------------------------------------------------------------------------------
Ratios to Average Net
Assets:
Net Investment Income 4.25% 4.66% 4.74% 4.61% 5.06%
------------------------------------------------------------------------------
Expenses After Waivers,
Including Expenses of the
Treasury Money Portfolio 0.75% 0.75% 0.75% 0.75% 0.75%
------------------------------------------------------------------------------
Expenses Before Waivers,
Including Expenses of the
Treasury Money Portfolio 0.77% 0.77% 0.77% 0.76% 0.77%
------------------------------------------------------------------------------
Decrease Reflected in
Above Expense Ratio Due to
Fee Waivers or Expense
Reimbursements 0.02% 0.02% 0.02% 0.01% 0.02%
------------------------------------------------------------------------------
</TABLE>
/1/Less than $0.01 per share.
- --------------------------------------------------------------------------------
15
<PAGE>
Overview
- --------------------------------------------------------------------------------
of NY Tax Free Money Investment
Goal: The Fund seeks a high level of current income exempt from Federal and New
York income tax consistent with liquidity and the preservation of capital.
Core Strategy: The Fund invests primarily in municipal bonds and notes with
remaining maturities of 397 days (about 13 months) or less, whose interest
payments are exempt from Federal income tax.
INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same goal as
the Fund. The Fund, through the master portfolio, seeks to achieve that goal by
investing primarily in municipal bonds and notes from New York issues (or
issues in other locales) whose interest payments are exempt from New York State
and City income taxes. The Fund maintains a dollar-weighted average maturity of
90 days or less. The Fund attempts to maintain a stable share price by
investing in securities that are valued in U.S. dollars and have remaining
maturities of 397 days or less.
- --------------------------------------------------------------------------------
NY Tax Free Money Investment
Overview of NY Tax Free Money
<TABLE>
<S> <C>
Goal........................................................................ 16
Core Strategy............................................................... 16
Investment Policies and Strategies.......................................... 16
Principal Risks of Investing in the Fund.................................... 17
Who Should Consider Investing in the Fund................................... 17
Total Returns, After Fees and Expenses...................................... 18
Annual Fund Operating Expenses.............................................. 19
</TABLE>
A Detailed Look at NY Tax Free Money
<TABLE>
<S> <C>
Objective................................................................... 20
Strategy.................................................................... 20
Principal Investments....................................................... 20
Risks....................................................................... 21
Financial Highlights........................................................ 22
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE>
Overview of NY Tax Free Money Investment
PRINCIPAL RISKS OF INVESTING IN THIS FUND
Although the Fund seeks to preserve the value of your investment at $1.00 a
share, there are risks associated with investing in the Fund. For example:
. A sharp rise in interest rates could cause the bond market and individual
securities in the Fund's portfolio to decline in value.
. New York's local economy could suffer a reversal that would undermine or
cast doubt on the ability of New York municipal issuers to meet their
financial obligations.
. An issuer's creditworthiness could decline, which in turn may cause the
value of a security in the Fund's portfolio to decline.
WHO SHOULD CONSIDER INVESTING IN THE FUND
You should consider investing in the Fund if you are seeking a highly liquid
investment that offers current income exempt from Federal income taxes while
preserving the value of your principal. The Fund offers an added advantage to
New York residents by emphasizing investments whose interest income is exempt
from New York State and City tax.
You should not consider investing in the Fund if you seek long-term capital
growth.
Although it provides a convenient means of diversifying short-term
investments, the Fund by itself does not constitute a balanced investment
program.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
the Fund.
- -------------------------------------------------------------------------------
17
<PAGE>
Overview of NY Tax Free Money Investment
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
of the past ten calendar years. The table shows the Fund's average annual
return over the last calendar year, the last five calendar years, and the last
ten calendar years.
As of December 31, 1999, the Fund's tax equivalent yield was 6.72%. To learn
the current yield, investors may call the Deutsche Asset Management Service
Center at 1-800-730-1313.
- --------------------------------------------------------------------------------
The tax equivalent yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to a fund's tax-free yield. Yield
is the income generated by a fund over a seven-day period. This amount is then
annualized, which means that we assume the fund generates the same income every
week for a year. The "total return" of a fund is the change in the value of an
investment in the fund over a given period. Average annual returns are
calculated by averaging the year-by-year returns of the fund over a given
period.
[HEAD, CHART and FOOTNOTE APPEARS HERE]
YEAR-BY-YEAR RETURNS
(the past ten calendar years)
1990 5.17%
1991 4.07%
1992 2.38%
1993 1.68%
1994 2.11%
1995 3.12%
1996 2.68%
1997 2.86%
1998 2.66%
1999 2.41%
Since inception, the Fund's highest return in any calendar quarter was 1.38%
(second quarter 1989) and its lowest quarterly return was 0.39% (first quarter
1993). Past performance offers no indication of how the Fund will perform in
the future.
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Average Annual Returns
1 Year 5 Years 10 Years
<S> <C> <C> <C>
NY Tax Free Money
Investment 2.41% 2.74% 2.91%
----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
Overview of NY Tax Free Money Investment
ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)
The Annual Fees and Expenses table to the right describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
Expense Example. The example below illustrates the expenses incurred on a
$10,000 investment in the Fund. It assumes that the Fund earned an annual
return of 5% over the periods shown, 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 expense history
with other funds./1/ The example does not represent an estimate of future
returns or expenses. Actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the NY Tax Free Money Portfolio, the master portfolio in which
the Fund invests its assets. (A further discussion of the relationship between
the Fund and the master portfolio appears in the "Organizational Structure"
section of this prospectus.)
/2/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive their fees and
reimburse expenses so that total expenses will not exceed 0.75%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C>
Management Fees 0.15%
-----------------------------------------------
Distribution and
Service (12b-1) Fees None
-----------------------------------------------
Other Fund Operating
Expenses 0.69%
-----------------------------------------------
Total Fund Operating
Expenses 0.84%
-----------------------------------------------
Less: Fee Waiver or
Expense Reimbursement (0.09)%
-----------------------------------------------
Net Expenses 0.75%
-----------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 2 Years 5 Years 10 Years
<S> <C> <C> <C>
$77 $259 $457 $1029
---------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
19
<PAGE>
A detailed look
- --------------------------------------------------------------------------------
at NY Tax Free Money Investment
OBJECTIVE
NY Tax Free Money Investment seeks a high level of current income exempt from
Federal income tax consistent with liquidity and the preservation of capital by
investing in high quality, short-term, tax-exempt money market instruments. The
Fund concentrates its investments in municipal bonds and notes from the State
of New York or governmental issuers in other locales, such as Puerto Rico,
whose interest payments are exempt from New York State and City income taxes.
While we give priority to earning income and maintaining the value of the
Fund's principal at $1.00 per share, all money market instruments can change in
value when interest rates or an issuer's creditworthiness changes.
STRATEGY
The Fund seeks current income by concentrating its investments in the bonds and
notes of New York issuers and maintains a dollar-weighted average maturity of
90 days or less. The Fund follows two policies designed to maintain a stable
share price and to generate income exempt from Federal and New York State and
City income taxes:
. Generally, Fund securities are valued in U.S. dollars and have remaining
maturities of 397 days (about 13 months) or less at the time of purchase. The
Fund may also invest in securities that have features that reduce their
maturities to 397 days or less at the time of purchase.
. The Fund primarily buys short-term New York municipal obligations that at the
time of purchase:
. have received one of the top two short-term ratings from two nationally
recognized statistical rating organizations;
. have received one of the top two short-term ratings from one rating
organization (if only one organization rates the security);
. are unrated, but are determined to be of comparable quality by us; or
. have no short-term rating, but are rated in one of the top three highest
long-term rating categories, and are determined to be of similar quality by
us.
PRINCIPAL INVESTMENTS
The Fund primarily invests in the following types of investments:
. General obligation notes and bonds, which an issuer backs with its full faith
and credit. That means the government entity will repay the bond out of its
general tax revenues.
. Revenue notes and bonds, which are payable from specific revenue sources.
These are often tied to the public works project the bonds are financing, but
are not generally backed by the issuer's taxing power.
. Tax-exempt commercial paper, tax-exempt debt of borrowers that matures in 270
days or less.
. Short-term municipal notes, such as tax anticipation notes, that are issued
in anticipation of the receipt of tax revenues.
. Municipal obligations, backed by letters of credit (a document issued by a
bank guaranteeing the issuer's payments for a stated amount), general bank
guarantees or municipal bond insurance.
. Floating rate bonds, whose interest rates vary with changes in specified
market rates or indexes. The Fund may invest in high quality floating rate
bonds with maturities of one year or more if it has the right to sell them
back at their face value prior to maturity. The Fund may also invest in
securities that have features that reduce their maturities on their purchase
date.
. Private activity bonds, which are revenue bonds that finance nongovernmental
activities, such as private industry construction. Note that the interest on
these bonds may be subject to local, state and Federal taxes, including the
alternative minimum tax.
Under normal conditions, the Fund invests at least 80% of its net assets in
municipal bonds and notes, and at least 65% of its assets in notes and bonds of
the State of New York and its related agencies and authorities and issuers in
certain other locales that are exempt from New York State and City income tax.
The Fund may invest more than 35% of its total assets in notes and bonds that
are exempt from Federal income taxes but not from New York State and City
income tax when money available for investment exceeds the supply of New York
debt securities that meet the Fund's criteria.
- --------------------------------------------------------------------------------
20
<PAGE>
A Detailed Look at NY Tax Free Money Investment
Temporary Defensive Position. In response to adverse political, economic or
market events, the Fund may adopt a temporary position in which it places more
than 20% of the Fund's assets in high quality money market investments that are
subject to Federal income tax. To the extent that the Fund might do so, it may
not meet its goal of a high level of current tax-free income.
RISKS
Below we set forth some of the prominent risks associated with tax free money
market mutual funds, and we detail our approaches to contain them. 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. If a security no longer
meets the Fund's requirements, we will attempt to sell that security within a
reasonable time, unless selling the security would not be in the Fund's best
interest.
Primary Risks
Interest Rate Risk. Money market instruments, like all debt securities, face
the risk that the securities will decline in value because of changes in
interest rates. Generally, investments subject to interest rate risk will
decrease in value when interest rates rise and increase when interest rates
decline. While the Fund seeks to maintain a $1.00 share price, it cannot
guarantee that this will always happen. To minimize such price fluctuations,
the Fund limits the dollar-weighted average maturity of the securities held by
the Fund to 90 days or less. Generally, the price of short-term investments
fluctuate less than longer-term bonds.
Credit Risk. A money market instrument's credit quality depends on the issuer's
ability to pay interest on the security and repay the debt: the lower the
credit rating, the greater the risk that the security's issuer will default, or
fail to meet its payment obligations. The credit risk of a security may also
depend on the credit quality of any bank or financial institution that provides
credit enhancement for it. To minimize credit risk, the Fund only buys high
quality securities with minimal credit risk. Also, the Fund primarily buys
securities with remaining maturities of 13 months or less. This reduces the
risk that the issuer's creditworthiness will change, or that the issuer will
default on the principal and interest payments of the obligation.
Market Risk. Although individual securities may outperform their market, the
entire market may decline as a result of rising interest rates, regulatory
developments or deteriorating economic conditions.
Security Selection Risk. While the Fund invests in short-term securities, which
by nature are relatively stable investments, the risk remains that the
securities we have selected will not perform as expected. This could cause the
Fund's returns to lag behind those of similar money market funds. We attempt to
limit this risk by diversifying the Fund's investments so that a single setback
need not undermine the pursuit of its objective and by investing in money
market instruments that receive the highest short-term debt ratings as
described above.
Concentration Risk. Because of the Fund's concentration in New York municipal
securities, the Fund has a relatively large exposure to financial stresses
arising from a regional economic downturn. The investment adviser attempts to
limit this risk by spreading out investments across issuers to the extent
possible.
- --------------------------------------------------------------------------------
21
<PAGE>
A Detailed Look at NY Tax Free Money Investment
The table below provides a picture of the Fund's financial performance for the
past five years. Certain information selected reflects financial results for a
single Fund share. The total returns in the table represent the rates of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value, Beginning
of Period $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Income from Investment
Operations
Net Investment Income 0.02 0.03 0.03 0.03 0.03
------------------------------------------------------------------------------
Net Realized and Unrealized
Gain on Investment and
Futures Transactions 0.00/1/ (0.00)/1/ (0.00)/1/ (0.00)/1/ (0.00)/1/
------------------------------------------------------------------------------
Total from Investment
Operations 0.02 0.03 0.03 0.03 0.03
------------------------------------------------------------------------------
Distributions to
Shareholders
Net Investment Income (0.02) (0.03) (0.03) (0.03) (0.03)
------------------------------------------------------------------------------
Net Asset Value, End of
Year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Investment Return 2.41% 2.66% 2.86% 2.68% 3.12%
------------------------------------------------------------------------------
Supplemental Data and
Ratios:
Net Assets, End of Period
(000s omitted) $73,867 $77,839 $85,364 $75,858 $70,765
------------------------------------------------------------------------------
Ratios to Average Net
Assets:
Net Investment Income 2.37% 2.63% 2.83% 2.64% 3.07%
------------------------------------------------------------------------------
Expenses After Waivers,
Including Expenses of the
NY Tax Free Money Portfolio 0.75% 0.75% 0.75% 0.75% 0.75%
------------------------------------------------------------------------------
Expenses Before Waivers,
Including Expenses of the
NY Tax Free Money Portfolio 0.84% 0.85% 0.81% 0.84% 0.82%
------------------------------------------------------------------------------
Decrease Reflected in Above
Expense Ratio Due to Fee
Waivers or Expense
Reimbursements 0.09% 0.10% 0.06% 0.09% 0.07%
------------------------------------------------------------------------------
</TABLE>
/1/Less than $0.01 per share.
- --------------------------------------------------------------------------------
22
<PAGE>
Overview
- --------------------------------------------------------------------------------
of Tax Free Money Investment
Goal: The Fund seeks a high level of current income exempt from Federal income
tax consistent with liquidity and the preservation of capital.
Core Strategy: The Fund invests primarily in municipal bonds and notes with
remaining maturities of 397 days (about 13 months) or less, whose interest
payments are exempt from Federal income tax.
INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same goal as
the Fund. The Fund, through the master portfolio, seeks to achieve that goal by
investing primarily in municipal obligations whose interest payments are exempt
from Federal income taxes. The Fund maintains a dollar-weighted average
maturity of 90 days or less. The Fund attempts to maintain a stable share price
by investing in securities that are valued in U.S. dollars and have remaining
maturities of 397 days or less.
- --------------------------------------------------------------------------------
Tax Free Money Investment
Overview of Tax Free Money
<TABLE>
<S> <C>
Goal........................................................................ 23
Core Strategy............................................................... 23
Investment Policies and Strategies.......................................... 23
Principal Risks of Investing in the Fund.................................... 24
Who Should Consider Investing in the Fund................................... 24
Total Returns, After Fees and Expenses...................................... 25
Annual Fund Operating Expenses.............................................. 26
</TABLE>
A Detailed Look at Tax Free Money
<TABLE>
<S> <C>
Objective................................................................... 27
Strategy.................................................................... 27
Principal Investments....................................................... 27
Risks....................................................................... 28
Financial Highlights........................................................ 29
</TABLE>
- --------------------------------------------------------------------------------
23
<PAGE>
Overview of Tax Free Money Investment
PRINCIPAL RISKS OF INVESTING IN THE FUND
Although the Fund seeks to preserve the value of your investment at $1.00 a
share, there are risks associated with investing in the Fund. For example:
. A sharp rise in interest rates could cause the bond market and individual
securities in the Fund's portfolio to decline in value.
. An issuer's creditworthiness could decline, which in turn may cause the value
of a security in the Fund's portfolio to decline.
WHO SHOULD CONSIDER INVESTING IN THE FUND
You should consider investing in the Fund if you are seeking a highly liquid
investment that offers current income exempt from Federal income taxes while
preserving the value of your principal.
You should not consider investing in the Fund if you seek long-term capital
growth.
Although it provides a convenient means of diversifying short-term investments,
the Fund by itself does not constitute a balanced investment program.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
- --------------------------------------------------------------------------------
24
<PAGE>
Overview of Tax Free Money Investment
TOTAL RETURNS, AFTER FEES AND EXPENSES
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for each
of the past ten calendar years. The table shows the Fund's average annual
return over the last year, the last five calendar years and the last ten
calendar years.
As of December 31, 1999, the Fund's tax equivalent yield was 5.89%. To learn
the current yield, investors may call the Deutsche Asset Management Service
Center at 1-800-730-1313.
- --------------------------------------------------------------------------------
The tax equivalent yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to a fund's tax free yield. Yield
is the income generated by a fund over a seven-day period. This amount is then
annualized, which means that we assume the fund generates the same income every
week for a year. The "total return" of a fund is the change in the value of an
investment in the fund over a given period. Average annual returns are
calculated by averaging the year-by-year returns of the fund over a given
period.
[HEAD, CHART and FOOTNOTE APPEARS HERE]
YEAR-BY-YEAR RETURNS
(the past ten calendar years)
1990 5.59%
1991 4.29%
1992 2.69%
1993 1.97%
1994 2.27%
1995 3.34%
1996 2.84%
1997 2.94%
1998 2.75%
1999 2.54%
Since inception, the Fund's highest return in any calendar quarter was 1.38%
(second quarter 1989) and its lowest quarterly return was 0.59% (first quarter
1993). Past performance offers no indication of how the Fund will perform in
the future.
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Average Annual Returns
1 Year 5 Years 10 Years
<S> <C> <C> <C>
NY Tax Free Money
Investment 2.54% 2.88% 3.12%
----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
25
<PAGE>
Overview of Tax Free Money Investment
ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)
The Annual Fees and Expenses table to the right describes the fees and expenses
that you may pay if you buy and hold shares of Tax Free Money Investment.
Expense Example. The example below illustrates the expenses you would have
incurred on a $10,000 investment in the Fund. The numbers assume that the Fund
earned an annual return of 5% over the periods shown, that the Fund's operating
expenses remained the same, and that you sold your shares at the end of the
period.
You may use this hypothetical example to compare the Fund's expense history
with other funds/1/. The example does not represent an estimate of future
returns or expenses. Your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information on the annual operating expenses reflects the expenses of both
the Fund and the Tax Free Money Portfolio, the master portfolio in which the
Fund invests its assets. (A further discussion of the relationship between the
Fund and the master portfolio appears in the "Organizational Structure" section
of this prospectus.)
/2/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive their fees and
reimburse expenses so that total expenses will not exceed 0.75%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets
<S> <C>
Management Fees 0.15%
-----------------------------------------------
Distribution and
Service (12b-1) Fees None
-----------------------------------------------
Other Fund Operating
Expenses 0.65%
-----------------------------------------------
Total Fund Operating
Expenses 0.80%
-----------------------------------------------
Less: Fee Waiver or
Expense Reimbursement (0.05)%
-----------------------------------------------
Net Expenses 0.75%
-----------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 2 Years 5 Years 10 Years
<S> <C> <C> <C>
$77 $250 $439 $985
--------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
26
<PAGE>
A detailed look
- --------------------------------------------------------------------------------
at Tax Free Money Investment
OBJECTIVE
Tax Free Money Investment seeks a high level of current income exempt from
Federal income tax consistent with liquidity and the preservation of capital by
investing in high quality, short-term, tax-exempt money market instruments.
While we give priority to earning income and maintaining the value of the
Fund's principal at $1.00 per share, all money market instruments can change in
value when interest rates or an issuer's creditworthiness changes.
STRATEGY
The Fund seeks current income by investing in high quality short-term municipal
obligations and maintains a dollar-weighted average maturity of 90 days or
less. The Fund follows two policies designed to maintain a stable share price
and to generate income from Federal tax:
. Generally, fund securities are valued in U.S. dollars and have remaining
maturities of 397 days (about 13 months) or less at the time of purchase. The
Fund may also invest in securities that have features that reduce their
maturities to 397 days or less at the time of purchase.
. The Fund buys short-term municipal obligations that at the time of purchase:
. have received the top short-term rating from two nationally recognized
statistical rating organizations;
. have received the highest short-term rating from one rating organization
(if only one organization rates the security); or
. are unrated, but are determined to be of comparable quality by the
investment adviser;
. have no short-term rating, but are rated in one of the top three highest
long-term rating categories, and are determined to be of similar quality by
the investment adviser.
PRINCIPAL INVESTMENTS
The Fund primarily invests in the following types of investments:
. General obligation notes and bonds, which an issuer backs with its full faith
and credit. That means the government entity will repay the bond out of its
general tax revenues.
. Revenue notes and bonds, payable from specific revenue sources. These are
often tied to the public works project the bonds are financing, but are not
generally backed by the issuer's taxing power.
. Tax-exempt commercial paper, tax-exempt debt that matures in 270 days or
less.
. Short-term municipal notes, such as tax anticipation notes, that are issued
in anticipation of the receipt of tax revenues.
. Municipal obligations, backed by letters of credit (a document issued by a
bank guaranteeing the issuer's payments for a stated amount), general bank
guarantees or municipal bond insurance.
. Floating rate bonds, whose interest rates vary with changes in specified
market rates or indexes. The Fund may invest in high quality floating rate
bonds with maturities of one year or more if it has the right to sell them
back at their face value prior to maturity. The Fund may also invest in
securities that have features that reduce their maturities on their purchase
date.
. Private activity bonds, which are revenue bonds that are used to finance
nongovernmental activities, such as private industry construction. Note that
the interest on these bonds may be subject to Federal taxes, including the
alternative minimum tax.
Under normal conditions, the Fund invests at least 80% of its net assets in
municipal bonds and notes that pay interest exempt from Federal income tax.
Ordinarily, the Fund expects to invest substantially all of its assets in
municipal bonds and notes that pay interest exempt from Federal income tax.
- --------------------------------------------------------------------------------
27
<PAGE>
A Detailed Look at Tax Free Money Investment
Temporary Defensive Position. In response to adverse political, economic or
market events, the Fund may adopt a temporary defensive position in which it
places more than 20% of the Fund's assets in high quality money market
investments that are subject to Federal income tax. To the extent that the Fund
might do so, it may not meet its goal of a high level of current tax free
income.
RISKS
Below we set forth some of the prominent risks associated with tax free money
market mutual funds, and we detail our approaches to contain them. 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. If a security no longer
meets the Fund's requirements, we will attempt to sell that security within a
reasonable time, unless selling the security would not be in the Fund's best
interest.
Primary Risks
Interest Rate Risk. Money market instruments, like all debt securities, face
the risk that the securities will decline in value because of changes in
interest rates. Generally, investments subject to interest rate risk will
decrease in value when interest rates rise and increase when interest rates
decline. While the Fund seeks to maintain a $1.00 share price, it cannot
guarantee that this will always happen. To minimize such price fluctuations,
the Fund limits the dollar-weighted average maturity of the securities it holds
to 90 days or less. Generally, the price of short-term investments fluctuate
less than longer-term bonds.
Credit Risk. A money market instrument's credit quality depends on the issuer's
ability to pay interest on the security and repay the debt: the lower the
credit rating, the greater the risk that the security's issuer will default, or
fail to meet its payment obligations. The credit risk of a security may also
depend on the credit quality of any bank or financial institution that provides
credit enhancement for it. To minimize credit risk, the Fund only buys high
quality securities with minimal credit risk. Also, the Fund primarily buys
securities with remaining maturities of 13 months or less. This reduces the
risk that the issuer's creditworthiness will change, or that the issuer will
default on the principal and interest payments of the obligation.
Market Risk. Although individual securities may outperform their market, the
entire market may decline as a result of rising interest rates, regulatory
developments or deteriorating economic conditions.
Security Selection Risk. While the Fund invests in short-term securities, which
by nature are relatively stable types of investments, the risk remains that the
securities we have selected will not perform as expected. This could cause the
Fund's returns to lag behind those of similar money market funds.
- --------------------------------------------------------------------------------
28
<PAGE>
A Detailed Look at Tax Free Money Investment
The table below provides a picture of the Fund's financial performance for the
past five years. Certain information selected reflects financial results for a
single Fund share. The total returns in the table represent the rates of return
that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, is included in the Fund's annual report. The annual
report is available free of charge by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value,
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment
Operations
Net Investment Income 0.02 0.03 0.03 0.03 0.03
------------------------------------------------------------------------------
Net Realized and
Unrealized Gain on
Investment and Futures
Transactions (0.00)/1/ 0.00/1/ (0.00)/1/ (0.00)/1/ (0.00)/1/
------------------------------------------------------------------------------
Total from Investment
Operations 0.02 0.03 0.03 0.03 0.03
Distributions to
Shareholders
Net Investment Income (0.02) (0.03) (0.03) (0.03) (0.03)
------------------------------------------------------------------------------
Net Asset Value, End of
Year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total Investment Return 2.54% 2.75% 2.94% 2.84% 3.34%
------------------------------------------------------------------------------
Supplemental Data and
Ratios:
Net Assets, End of
Period (000s omitted) $128,480 $201,094 $150,483 $117,972 $119,393
------------------------------------------------------------------------------
Ratios to Average Net
Assets:
Net Investment Income 2.50% 2.71% 2.90% 2.80% 3.28%
------------------------------------------------------------------------------
Expenses After Waivers,
Including Expenses of
the Tax Free Money
Portfolio 0.75% 0.75% 0.75% 0.75% 0.75%
------------------------------------------------------------------------------
Expenses Before Waivers,
Including Expenses of
the Tax Free Money
Portfolio 0.80% 0.83% 0.80% 0.82% 0.82%
------------------------------------------------------------------------------
Decrease Reflected in
Above Expense Ratio Due
to Fee Waivers or
Expense Reimbursements 0.05% 0.08% 0.05% 0.07% 0.07%
------------------------------------------------------------------------------
</TABLE>
/1/Less than $0.01 per share.
- --------------------------------------------------------------------------------
29
<PAGE>
Information
- --------------------------------------------------------------------------------
concerning all Funds
MANAGEMENT OF THE FUNDS
Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank A.G., Deutsche Fund Management, Bankers Trust
Company, DB Alex. Brown LLC, Deutsche Asset Management, Inc. and Deutsche Asset
Management Investment Services Limited.
Board of Trustees. Each Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
of 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 each Fund's investment adviser. The investment adviser 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.
The Funds paid the following fees to the adviser for investment advisory
services in the last fiscal year:
FUND
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets
<S> <C>
Cash Management
Investment 0.15%
--------------------------------------------
Treasury Money
Investment 0.15%
--------------------------------------------
NY Tax Free Money
Investment 0.15%
--------------------------------------------
Tax Free Money
Investment 0.15%
--------------------------------------------
</TABLE>
As of December 31, 1999, Bankers Trust had total assets of approximately $270
billion under management. 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 in 1999, shareholders of each Fund
except Cash Management Investment approved a new investment advisory agreement
with Deutsche Asset Management, Inc. (formerly Morgan Grenfell Inc.). The new
investment advisory agreement 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," generally referred to as
independent trustees. Shareholders of each Fund except Cash Management
Investment also approved a new sub-investment advisory agreement, the
compensation paid and the services provided would be the same as those under
the existing advisory agreement with Bankers Trust.
Deutsche Asset Management, Inc. is located at 885 third avenue 32nd Floor, New
York, New York 10022. The firm provides a full range of investment advisory
services to institutional clients. It serves as investment adviser to 11 other
investment companies and as sub-adviser to five other investment companies.
Other Services. Bankers Trust provides administrative services--such as
portfolio accounting, legal services and others--for the Funds. In addition,
Bankers Trust, or your service agent, 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:
. keeping accurate, up-to-date records for your individual Fund account;
. implementing any changes you wish to make in your account information;
. processing your requests for cash dividends and distributions from the Fund;
. answering your questions on the Fund's investment performance or
administration;
. sending proxy reports and updated prospectus information to you; and
. collecting your executed proxies.
Service agents include brokers, financial advisors or any other bank, dealer or
other institution that has a sub-shareholder servicing agreement with Bankers
Trust. Service agents 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.
- --------------------------------------------------------------------------------
30
<PAGE>
Information Concerning all Funds
Organizational Structure. The Funds are "feeder funds" that invest all of their
assets in a "master portfolio." The Funds and their corresponding master
portfolio are listed below:
FUND
<TABLE>
<CAPTION>
Master Portfolio
<S> <C>
Cash Management
Investment Cash Management Portfolio
---------------------------------------------
Treasury Money
Investment Treasury Money Portfolio
---------------------------------------------
NY Tax Free
Money
Investment NY Tax Free Money Portfolio
---------------------------------------------
Tax Free Money
Investment Tax Free Money Portfolio
---------------------------------------------
</TABLE>
Each Fund and its master portfolio have the same goal. Each master portfolio is
advised by Bankers Trust.
A 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
shareholders' best interests. If the Trustees withdraw a 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 A FUND'S SHARE PRICE
We calculate the daily price of each Fund's shares (also known as the "Net
Asset Value" or "NAV") each day a Fund is open for business, as of 12:00 noon,
Eastern time, and as of the close of regular business on the New York Stock
Exchange. On the day before certain holidays are observed, the bond markets or
other primary trading markets for the Funds may close early. They may also
close early on the day after Thanksgiving and the day before Christmas Eve. If
the Bond Market Association recommends an early close of the bond markets, the
Funds also may close early. You may call the Service Center at 1-800-730-1313
for additional information about whether the Funds will close before a
particular holiday. On days a Fund closes early:
. All orders received prior to the Fund's close will be processed as of the
time the Fund's NAV is next calculated.
. Redemption orders received after the Fund's close will be processed as of the
time the Fund's NAV is next calculated.
. Purchase orders received after the Fund's close will be processed the next
business day.
- --------------------------------------------------------------------------------
Each Fund 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), Columbus Day (the second Monday in October),
Veterans' Day (November 11), Thanksgiving Day (the fourth Thursday in November)
and Christmas Day.
Each Fund uses the amortized cost method to account for any premiums or
discounts above or below the face value of any securities that it buys. This
method writes down the premium--or marks up the discount--at a constant rate
until maturity. It does not reflect daily fluctuations in market value. Each
Fund's Net Asset Value will normally be $1.00 a share.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares dividends from its net income daily and pays the dividends
on a monthly basis.
Each Fund reserves the right to include in the daily dividend any short-term
capital gains on securities it sells. Also, each Fund will normally declare and
pay annually any long-term capital gains as well as any short-term capital
gains that it did not distribute during the year.
Dividends paid by Tax Free Money Investment and NY Tax Free Money Investment on
municipal notes and bonds are exempt from Federal income tax. Dividends paid by
NY Tax Free Money Investment on New York municipal notes and bonds are excluded
from Federal income taxes and exempt from New York City and State personal
income taxes. If the Fund makes a taxable investment, you will have to pay
Federal income taxes on any interest earned.
We automatically reinvest all dividends and capital gains, if any, unless you
tell us otherwise.
TAX CONSIDERATIONS
Cash Management Investment and Treasury Money Investment
The Funds do 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 gain distributions and
dividends paid out by your Fund. You owe the taxes whether you receive cash or
choose to have distributions and dividends reinvested. Distributions and
dividends usually create the following tax liability:
<TABLE>
<CAPTION>
TRANSACTION TAX STATUS
<S> <C>
Ordinary
Income Dividends Income
-------------------------------------------
Short-term capital gains Ordinary
distributions Income
-------------------------------------------
Long-term capital gains
distributions Capital gains
-------------------------------------------
</TABLE>
Every year, your Fund will send you information on the distributions for the
previous year.
Tax Free Money Investment and NY Tax Free Money Investment
Tax Free Money Investment attempts to invest 100% of its assets in tax-exempt
municipal securities that generate tax-
- --------------------------------------------------------------------------------
31
<PAGE>
Information Concerning all Funds
exempt income. NY Tax Free Money Investment attempts to invest 100% of its
assets in municipal obligations that are excluded from Federal income taxes and
exempt from New York State and City personal income taxes. However, each Fund
may invest up to 20% (or greater while maintaining a temporary defensive
position) of the value of its total assets in securities that generate income
subject to Federal or alternative minimum tax (and New York City tax, in the
case of NY Tax Free Money Investment). Income exempt from Federal income tax
may be subject to state and local income tax. Any capital gains distributed by
the Funds may be taxable.
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.
The tax considerations for tax deferred accounts or non-taxable entities are
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.
PERFORMANCE INFORMATION
Each Fund's performance can be used in advertisements that appear in various
publications. It may be compared to the performance of various indicies and
investments for which reliable performance data is available. Each Fund's
performance may also be compared to averages, performance rankings, or other
information prepared by recognized mutual fund statistical services.
BUYING AND SELLING FUND SHARES
Contacting the Mutual Fund Service Center of Deutsche Asset Management
By Phone 1-800-730-1313
By Mail Deutsche Asset Management
Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
By Overnight Mail Deutsche Asset Management
Service Center
210 West 10th Street, 8th floor
Kansas City, MO 64105-1716
Our representatives are available to assist you personally Monday through
Friday, 9:00 a.m. to 7:00 p.m., Eastern time each day the New York Stock
Exchange is open for business. You can reach the Deutsche Asset Management
Service Center's automated assistance line 24 hours a day, 7 days a week.
Minimum Account Investments
<TABLE>
<S> <C>
Initial purchase: Minimum amount:
A standard account $2,500
A retirement account $ 500
An automatic investment plan account $1,000
Subsequent purchase:
A standard account $ 250
A retirement account $ 100
An automatic investment plan account $ 100
Account balance:
Non-retirement account $1,000
Retirement account None
</TABLE>
Shares of each Fund may be purchased without regard to the investment minimums
by employees of Deutsche Bank A.G., any of its affiliates or subsidiaries,
their spouses and minor children, and Directors or Trustees of any investment
company advised or administered by Deutsche Bank A.G. or any of its affiliates
or subsidiaries, their spouses and minor children.
Each Fund and its service providers reserve the right to, from time to time, at
their discretion, waive or reduce the investment minimums.
How to Open Your Fund Account
By Mail: Complete and sign the account application that accompanies this
prospectus. (You may obtain additional applications by calling the
Deutsche Asset Management Service Center.) Mail the completed
application along with a check payable to the Fund you have
selected to the Deutsche Asset Management Service Center. The
addresses are shown under "Contacting the Mutual Fund Service
Center of Deutsche Asset Management"
By Wire: Call the Deutsche Asset Management Service Center to set up a wire
account.
Please note that your account cannot become activated until we receive a
completed application via mail or fax.
If this is your first investment through a tax-sheltered retirement plan, such
as an IRA, you will need a special application form. This form is available
from your service agent, or by calling the Retirement Service Center at
1-800-730-1313.
- --------------------------------------------------------------------------------
32
<PAGE>
Information Concerning all Funds
Two Ways to Buy and Sell Shares in Your Account
MAIL:
Buying: Send your check, payable to the Deutsche Asset Management fund you have
selected, to the Deutsche Asset Management Service Center. The addresses are
shown in this section under "Contacting the Mutual Fund Service Center of
Deutsche Asset Management." Be sure to include the fund number and your account
number (see your account statement) on your check. Please note that we cannot
accept starter checks or third-party checks. If you are investing in more than
one fund, make your check payable to "Deutsche Asset Management funds" and
include your account number, the names and numbers of the funds you have
selected, and the dollar amount or percentage you would like invested in each
fund.
Selling: Send a signed letter to the Deutsche Asset Management Service Center
with your name, your fund number and account number, the fund's name, and
either the number of shares you wish to sell or the dollar amount you wish to
receive. You must leave at least $1,000 worth of shares in your account to keep
it open. Unless exchanging into another Deutsche Asset Management fund, you
must submit a written authorization to sell shares in a retirement account.
WIRE:
Buying: You may buy shares by wire only if your account is authorized to do so.
Please note that you or your service agent must call the Deutsche Asset
Management Service Center at 1-800-730-1313 by 12:00 p.m. to notify us in
advance of a wire transfer purchase. Inform the Service Center representative
of the amount of your purchase and receive a 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.
Routing No.: 021001033
Attn: Deutsche Asset Management/ Mutual Funds
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Cash Management Investment--1671
Treasury Money Investment--1672
NY Tax Free Money Investment--1670
Tax Free Money Investment--1669
Refer to your account statement for the account name and number.
Selling: You may sell shares by wire only if your account is authorized to do
so. For your protection, you may not change the destination bank account over
the phone. To sell by wire, contact your service agent or the Deutsche Asset
Management Service Center at 1-800-730-1313 prior to 12:00 p.m. Eastern Time.
Inform the representative of the amount of your redemption and receive a trade
confirmation number. The minimum redemption by wire is $1,000. All orders
placed after 12:00 p.m. Eastern Time will be wired to your account the next
business day.
Important Information About Buying and Selling Shares
. You may buy and sell shares of a fund through authorized service agents as
well as directly from us. The same terms and conditions apply. Specifically,
once you place your order with a service agent, it is considered received by
the Deutsche Asset Management Service Center. It is then your service agent's
responsibility to transmit the order to the Deutsche Asset Management Service
Center by 12:00 p.m. Eastern time. You should contact your service agent if
you have a dispute as to when your order was placed with the fund. Your
service agent may charge a fee for buying and selling shares for you.
. You may place orders to buy and sell over the phone by calling your service
agent or the Deutsche Asset Management Service Center at 1-800-730-1313. 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, 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.
. After we or your service agent receive your order, we buy or sell your shares
at the next price calculated on a day the Fund is open for business.
. We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer. We do not accept starter
or third-party checks.
. The payment of redemption proceeds (including exchanges) for shares of a fund
recently purchased by check may be delayed for up to 15 calendar days while
we wait for your check to clear.
. We process all sales orders free of charge.
. 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 but
always within seven days.
. We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in
market value.
- --------------------------------------------------------------------------------
33
<PAGE>
Information Concerning all Funds
. If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your service agent or the Deutsche Asset Management
Service Center for more information.
. We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
. If we receive your purchase order before 12:00 noon Eastern Time you will
receive the dividends declared that day. If we receive it after 12:00 noon
Eastern Time, you will not.
. If we receive your order to sell shares after 12:00 noon Eastern Time you
will receive the dividends declared that day. If we receive it before 12:00
noon Eastern Time, you will not.
. We do not issue share certificates.
. Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your service agent or the
Deutsche Asset Management Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
Deutsche Asset Management Service Center by telephone. If this occurs, you
should make your request by mail.
. We reserve the right to reject purchases of Fund shares (including exchanges)
for any reason. We will reject the purchases if we conclude that the
purchaser may be investing only for the short-term or to profit from day to
day fluctuations in the Fund's share price.
. We reserve the right to reject the purchases of Fund shares (including
exchanges) or to suspend or postpone redemptions at times when both the New
York Stock Exchange and the Fund's custodian are closed.
. Account Statements and Fund Reports: We or your service agent will furnish
you with a written confirmation of every transaction that affects your
account balance. You will also receive monthly statements reflecting the
balances in your account. We will send you a report every six months on your
fund's overall performance, its current holdings and its investing
strategies.
. Exchange Privilege. You can exchange all or part of your shares for shares of
another Deutsche Asset Management mutual fund up to four times a year (from
the date of your first exchange). When you exchange shares, you are selling
shares in one fund to purchase shares in another. Before buying shares
through an exchange, you should be sure to obtain a copy of that fund's
prospectus and read it carefully. You will receive a written confirmation of
each transaction from the Deutsche Asset Management Service Center or your
service agent.
Please note the following conditions:
. The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
. You may make the exchange by phone (if your account has the exchange by phone
feature) or by letter or wire.
. If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
Special Shareholder Services
To help make investing with us as easy as possible, and to help you build your
investment, we offer the following special services. You can obtain further
information about these programs by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
. Regular Investments: You can make regular investments of $100 or more
automatically from your checking account bi-weekly, monthly, quarterly, or
semi-annually.
. Regular Withdrawals: You can arrange regular monthly, quarterly, semi-annual
and annual sales of shares in your account. The minimum transaction is $100,
and the account must have a balance of at least $10,000 to qualify.
. Checkwriting: We issue you a checkbook linked to your account. You can sell
shares by writing a check for the desired amount free of charge, but you
cannot close your account by check. You continue to earn dividends on the
shares you sell by check until the check clears. The minimum check amount is
$500.
- --------------------------------------------------------------------------------
34
<PAGE>
This page intentionally left blank
<PAGE>
Additional information about each Fund's investments 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 each Fund in the current
Statement of Additional Information, dated April 30, 2000, 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 a Fund, write to
us at:
Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
or call our toll-free number: 1-800-730-1313
You can find reports and other information about each Fund on the EDGAR
Database on the SEC website (http://www.sec.gov), or you can get copies of
this information, after payment of a duplicating fee, by electronic request
at [email protected] or by writing to the Public Reference Section of the
SEC, Washington, D.C. 20549-0102. Information about each 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 202-942-8090.
Cash Management Investment
Treasury Money Investment
NY Tax Free Money Investment
Tax Free Money Investment
BT Investment Funds
Distributed by:
ICC Distributors, Inc. CUSIP #055922108
055922405
055922207
055922306
COMBMONPRO
(04/00)
811-4760
<PAGE>
Deutsche Asset Management
Mutual Fund
Prospectus
April 30, 2000
Investment Class
Quantitative Equity
Formerly a BT Mutual Fund
[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.]
A Member of the
Deutsche Bank Group [/]
<PAGE>
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 goal as
the Fund. The Fund, through the master portfolio, seeks to achieve that goal 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.
- --------------------------------------------------------------------------------
The 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 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).
Quantitative Equity--Investment Class
Overview of Quantitative Equity
<TABLE>
<S> <C>
Goal........................................................................ 3
Core Strategy............................................................... 3
Investment Policies and Strategies.......................................... 3
Principal Risks of Investing in the Fund.................................... 4
Who Should Consider Investing in the Fund................................... 4
Total Returns, After Fees and Expenses...................................... 4
Annual Fund Operating Expenses.............................................. 5
</TABLE>
A Detailed Look at Quantitative Equity
<TABLE>
<S> <C>
Objective................................................................... 6
Strategy.................................................................... 6
Principal Investments....................................................... 6
Investment Process.......................................................... 6
Prior Performance of a Similar Portfolio.................................... 7
Risks....................................................................... 8
Management of the Fund...................................................... 9
</TABLE>
<TABLE>
<S> <C>
Calculating the Fund's Share Price.......................................... 10
Performance Information..................................................... 10
Dividends and Distributions................................................. 11
Tax Considerations.......................................................... 11
Buying and Selling Fund Shares.............................................. 11
Financial Highlights........................................................ 14
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
Overview of Quantitative Equity
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:
. Stocks could decline generally or could underperform other investments.
. 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.
. 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.
. 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:
. The volume of transactions in the mergers and acquisitions marketplace
becomes insufficient to meet the Fund's goal.
. 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.
WHO SHOULD CONSIDER INVESTING IN THE FUND
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 bank deposit 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.
- --------------------------------------------------------------------------------
4
<PAGE>
Overview of Quantitative Equity
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 would have
incurred on a $10,000 investment in the Fund's Investment Class. It 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 expense history
with other funds. The example does not represent an estimate of future returns
or expenses. Your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive their fees and
reimburse expenses so that total expenses will not exceed 0.90%.
/2/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets
<S> <C>
Management Fees 0.50%
---------------------------------------------------
Distribution and
Service (12b-1) Fees None
---------------------------------------------------
Other Fund Operating
Expenses 11.34%
---------------------------------------------------
Total Fund Operating
Expenses 11.84%
---------------------------------------------------
Less: Fee Waiver or
Expense Reimbursement (10.94%)/1/
---------------------------------------------------
Net Expenses 0.90%
---------------------------------------------------
</TABLE>
EXPENSE EXAMPLE/2/
<TABLE>
<CAPTION>
1 Year 2 Years 3 Years 4 Years
<S> <C> <C> <C>
$92 $2,391 $4,387 $8,297
---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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 goal. There is no guarantee
the Fund will realize its goal.
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 goal 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 the investment adviser.
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.
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
- --------------------------------------------------------------------------------
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.
stocks included in the S&P 500 Index. Through these investments, we maintain
full or near full exposure to the broad equity market.
Generally, a derivative is a financial arrangement that derives its value from
a traditional security (like a stock or bond), asset or index.
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:
. An announced acquisition that is selected based on specific, unambiguous
events.
. An acquisition price that is structured to include at least 50% cash.
. An acquisition target with a minimum market capitalization of $500 million.
Merger arbitrage is a specialized investment approach designed to profit from
the successful completion of proposed mergers, acquisitions and other types of
corporate reorganizations. It seeks to capture the difference between the price
of an acquisition target's shares after a bid is announced and the ultimate
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.
- --------------------------------------------------------------------------------
6
<PAGE>
A Detailed Look at Quantitative Equity
PRIOR PERFORMANCE OF A SIMILAR PORTFOLIO
The information provided here presents the performance of the Pyramid
Quantitative Merger Arbitrage Fund ("QMA"), an unregistered commingled fund
managed by the investment adviser since December 31, 1989. Our decision to
establish QMA was supported by the results of a back test of the investment
strategy over the 1984-89 period. In managing the Fund, we employ substantially
the same investment objectives, policies and strategies that we employed in
managing QMA. 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 QMA. 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 QMA. Moreover, the way of
calculating the performance of QMA, 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 QMA. Certain of
these factors may adversely affect the Fund's performance.
QMA is available only to institutional investors, including other commingled
funds we manage. Management fees and expenses incurred in the operation of QMA
are paid directly by its investors rather than by QMA. Accordingly, the
performance results for QMA 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 QMA are compared to the S&P 500 Index. Unlike QMA returns, those of
the S&P 500 Index do not reflect fees and expenses. Both the returns of QMA and
the S&P 500 Index reflect the reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
QMA S&P 500
Returns Index
Year with Fees Returns Difference
<S> <C> <C> <C>
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%
1999 31.24% 21.04% 10.20%
-------------------------------------
</TABLE>
AVERAGE ANNUAL RETURNS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
QMA S&P 500
Returns Index
with Fees Returns Difference
<S> <C> <C> <C>
1 Year 31.24% 21.04% 10.20%
3 Years 34.29% 27.56% 6.73%
5 Years 33.28% 28.56% 4.72%
Since inception
(12/31/89) 21.34% 18.21% 3.13%
----------------------------------------------
</TABLE>
The performance data represents the prior performance of QMA, not the prior
performance of the Fund, and should not be considered an indication of future
performance of the Fund.
In the 109 rolling 12-month periods from December 31, 1989 to December 31,
1999, QMA, net of a 0.90% expense ratio, had a positive total return in 108 of
the 109 periods and outperformed the S&P 500 Index in 77 of the 109 periods
(71% of the time).
The next table shows performance statistics of QMA, net of a 0.90% expense
ratio, relative to the S&P 500 Index. The statistics are based on the 109
rolling 12-month periods from December 31, 1989 to December 31, 1999, and
illustrate the frequency with which QMA outperformed the Index.
<TABLE>
<CAPTION>
Amount by which
return of QMA,
after fees,
exceeded return
of S&P 500 Number of Percent of
Index/1/ Periods Total Periods
<S> <C> <C>
100 basis points 62 57%
50 basis points 71 65%
25 basis points 74 68%
------------------------------------------
</TABLE>
/1/One basis point equals 1/100th of 1 percent (0.01%).
- --------------------------------------------------------------------------------
7
<PAGE>
A Detailed Look at Quantitative Equity
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:
. Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
. The composition of the Index and the stocks or other securities held by the
Fund may occasionally diverge.
. The timing and magnitude of cash inflows from investors buying shares could
create large balances of uninvested cash. Conversely, the timing and
magnitude of cash outflows to investors selling shares could require large
ready reserves of uninvested cash. Either situation would likely cause the
Fund's performance to deviate from the "fully invested" Index.
Futures and Options. The Fund invests in stock index futures or options, which
are types of derivatives. The Fund invests in derivatives to keep cash on hand
to invest in stocks of acquisition targets 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:
. the risk that the derivative is not well correlated with the security for
which it is acting as a substitute;
. derivatives used for risk management may not have the intended effects and
may result in losses or missed opportunities; and
. 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.
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.
- --------------------------------------------------------------------------------
8
<PAGE>
A Detailed Look at Quantitative Equity
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 judgment 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.
MANAGEMENT OF THE FUND
Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank A.G., Deutsche Fund Management, Bankers Trust
Company, DB Alex. Brown LLC, Deutsche Asset Management, Inc. and Deutsche Asset
Management Investment Services Limited.
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. The investment adviser makes the Fund's
investment decisions. It buys and sells securities for the Fund and conducts
the research that leads to the purchase and sale decisions. The Adviser will
receive a fee of 0.50% of the Fund's average daily net assets for its services
in the current fiscal year.
As of December 31, 1999, Bankers Trust had total assets under management of
approximately $270 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 in 1999, shareholders of the Fund
approved a new investment advisory
- --------------------------------------------------------------------------------
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Fund sells and replaces the value of its securities within a given period.
Historically, the Fund has had 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.
agreement with Deutsche Asset Management, Inc. (formerly Morgan Grenfell Inc.).
The new investment advisory agreement with Deutsche Asset Management, Inc. 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," generally referred to as independent trustees.
Shareholders of the Fund also approved a new sub-investment advisory agreement
among the Trust, Deutsche Asset Management, Inc. and Bankers Trust under which
Bankers Trust may perform certain of Deutsche Asset Management, Inc.
responsibilities, at Deutsche Asset Management, Inc.'s expense, upon approval
of the independent trustees, within two years of the date of the special
meeting. Under the new investment advisory agreement and new sub-advisory
agreement, the compensation paid and the services provided would be the same as
those under the existing advisory agreement with Bankers Trust.
Deutsche Asset Management, Inc. is located at 885 Third Avenue, 32nd Floor, New
York, New York 10022. The firm provides a full range of investment advisory
services to institutional clients. It serves as investment adviser to 11 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.
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.
- --------------------------------------------------------------------------------
9
<PAGE>
A Detailed Look at Quantitative Equity
Portfolio Managers
The following portfolio managers are responsible for the day-to-day management
of the master portfolio:
Eric T. Lobben
. Managing Director of the investment adviser and portfolio manager for the
master portfolio.
. Joined the investment adviser in 1981 and the master portfolio in 2000.
. Over 19 years of financial industry experience.
. Bachelor's degree in engineering from Princeton University and MBA from New
York University.
. Former President of the Society of Quantitative Analysts.
Manish Keshive
. Director of the investment adviser and portfolio manager for the master
portfolio.
. Joined the investment adviser in 1996 and the master portfolio in 1999.
. Analyst and Trader for the master portfolio since inception.
. 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 service agent--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:
. keeping accurate, up-to-date records for your individual Fund account;
. implementing any changes you wish to make in your account information;
. processing your requests for cash dividends and distributions from the Fund;
. answering your questions on the Fund's investment performance or
administration;
. sending proxy reports and updated prospectus information to you; and
. collecting your executed proxies.
Service agents include brokers, financial advisors or any other bank, dealer or
other institution that has a sub-shareholder servicing agreement with Bankers
Trust. Service agents 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 goal. 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 the method that most accurately
reflects their current worth in the judgment of the Board of Trustees.
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
10
<PAGE>
A Detailed Look at Quantitative Equity
DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains distributions, if any, are paid annually. We
automatically reinvest all dividends and any capital gains, unless you elect to
receive your distributions in cash.
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:
<TABLE>
<CAPTION>
TRANSACTION TAX STATUS
<S> <C>
Income dividends Ordinary income
--------------------------------------------
Short-term capital gains
distributions Ordinary income
--------------------------------------------
Long-term capital gains
distributions Capital gains
--------------------------------------------
</TABLE>
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>
TRANSACTION TAX STATUS
<S> <C>
Your sale of Capital gains or losses
shares owned
more than one
year
----------------------------------------------------
Your sale of Gains treated as ordinary income;
shares owned for losses subject to special rules
one year or less
----------------------------------------------------
</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
Contacting the Mutual Fund Service Center of Deutsche Asset Management
By Phone 1-800-730-1313
By Mail Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
By Overnight Mail Deutsche Asset Management Service Center
210 West 10th Street, 8th floor
Kansas City, MO 64105-1716
Our representatives are available to assist you personally Monday through
Friday, 9:00 a.m. to 7:00 p.m., Eastern time each day the New York Stock
Exchange is open for business. You can reach the Deutsche Asset Management
Service Center's automated assistance line 24 hours a day, 7 days a week.
Minimum Account Investments
<TABLE>
<S> <C>
Initial purchase: Minimum amount:
A standard account $2,500
A retirement account $500
An automatic investment plan account $1,000
Subsequent Purchase:
A standard account $250
A retirement account $100
An automatic investment plan account $100
Account balance:
Non-retirement account $1,000
Retirement account None
</TABLE>
The Fund and its service providers reserve the right to, from time to time, at
their discretion, waive or reduce the investment minimums.
How to Open Your Fund Account
By Mail: Complete and sign the account application that accompanies this
prospectus. (You may obtain additional applications by calling the
Deutsche Asset Management Service Center.) Mail the completed
application along with a check payable to Quantitative Equity--
Investment Class (1719) to the Deutsche Asset Management Service
Center. The addresses are shown under "Contacting the Mutual Fund
Service Center of Deutsche Asset Management"
By Wire: Call the Deutsche Asset Management Service Center to set up a wire
account.
Please note that your account cannot become activated until we receive a
completed application via mail or fax.
If this is your first investment through a tax-sheltered retirement plan, such
as an IRA, you will need a special application form.
- --------------------------------------------------------------------------------
11
<PAGE>
A Detailed Look at Quantitative Equity
This form is available to from your service agent, or by calling the Retirement
Service Center at 1-800-730-1313.
Two Ways to Buy and Sell Shares in Your Account
MAIL:
Buying: Send your check, payable to the Fund, to the Deutsche Asset Management
Service Center. The addresses are shown in this section under "Contacting the
Mutual Fund Service Center of Deutsche Asset Management." Be sure to include
the fund number and your account number (see your account statement) on your
check. Please note that we cannot accept starter checks or third-party checks.
If you are investing in more than one fund, make your check payable to
"Deutsche Asset Management funds," and include your account number, the names
and numbers of the funds you have selected, and the dollar amount or percentage
you would like invested in each fund.
Selling: Send a signed letter to the Deutsche Asset Management Service Center
with your name, your fund number and account number, the fund's name, and
either the number of shares you wish to sell or the dollar amount you wish to
receive. You must leave at least $1,000 invested in your account to keep it
open. Unless exchanging into another Deutsche Asset Management mutual fund, you
must submit a written authorization to sell shares in a retirement account.
WIRE:
Buying: You may buy shares by wire only if your account is authorized to do so.
Please note that you or your service agent must call the Deutsche Asset
Management Service Center at 1-800-730-1313 to notify us in advance of a wire
transfer purchase. Inform the Service Center representative of the amount of
your purchase and receive a 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.
Routing No.: 021001033
Attn: Deutsche Asset Management/Mutual Funds
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Quantitative Equity--Investment Class (1719)
Refer to your account statement for the account name, number and fund number.
Selling: You may sell shares by wire only if your account is authorized to do
so. For your protection, you may not change the destination bank account over
the phone. To sell by wire, contact your service agent or the Deutsche Asset
Management Service Center at 1-800-730-1313. Inform the Service Center
representative of the amount of your redemption and receive a trade
confirmation number. 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.
Important Information about Buying and Selling shares.
. You may buy and sell shares of a fund through authorized service agents as
well as directly from us. The same terms and conditions apply. Specifically,
once you place your order with a service agent, it is considered received by
the Deutsche Asset Management Service Center. It is then your service agent's
responsibility to transmit the order to the Deutsche Asset Management Service
Center. You should contact your service agent if you have a dispute as to
when your order was placed with the fund. Your service agent may charge a fee
for buying and selling shares for you.
. You may place orders to buy and sell over the phone by calling your service
agent or the Deutsche Asset Management Service Center at 1-800-730-1313. 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.
. After we or your service agent receive 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.
. We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer. We do not accept starter
or third-party checks.
. The payment of redemption proceeds (including exchanges) for shares of a fund
recently purchased by check may be delayed for up to 15 calendar days while
we wait for your check to clear.
. We process all sales orders free of charge.
- --------------------------------------------------------------------------------
12
<PAGE>
A Detailed Look at Quantitative Equity
. 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 but no
later than seven days.
. We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in
market value.
. If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your service agent or the Deutsche Asset Management
Service Center for more information.
. We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
. We do not issue share certificates.
. Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your service agent or the
Deutsche Asset Management Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
Deutsche Asset Management Service Center by telephone. If this occurs, you
should make your request by mail.
. We reserve the right to reject purchases of Fund shares (including exchanges)
for any reason. We will reject the purchases if we conclude that the
purchaser may be investing only for the short-term or to profit from day to
day fluctuations in the Fund's share price.
. We reserve the right to reject the purchases of Fund shares (including
exchanges) or to suspend or postpone redemptions at times when both the New
York Stock Exchange and the Fund's custodian are closed.
. Account Statements and Fund Reports: We or your service agent will furnish
you with a written confirmation of every transaction that affects your
account balance. You will also receive monthly statements reflecting the
balances in your account. We will send you a report every six months on your
fund's overall performance, its current holdings and its investing
strategies.
. Exchange Privilege. You can exchange all or part of your shares for shares of
another Deutsche Asset Management mutual fund up to four times a year (from
the date of your first exchange). When you exchange shares, you are selling
shares in one fund to purchase shares in another. Before buying shares
through an exchange, you should be sure to obtain a copy of that fund's
prospectus and read it carefully. You may complete exchanges over the phone
only if your account is authorized to do so. You will receive a written
confirmation of each transaction from the Deutsche Asset Management Service
Center or your service agent.
Please note the following conditions:
. The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
. You may make the exchange by phone (if your account has the exchange by phone
feature) or by letter or wire.
. If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
Special Shareholder Services
To help make investing with us as easy as possible, and to help you build your
investment, we offer the following special services. You can obtain further
information about these programs by calling the Deutsche Asset Management
Service Center at 1-800-730-1313.
. Regular Investments: You can make regular investments of $100 or more
automatically from you checking account bi-weekly, monthly, quarterly, or
semi-annually.
. Regular Withdrawals: You can arrange regular monthly, quarterly, semi-annual
and annual sales of shares in your account. The minimum transaction is $100,
and the account must have a balance of at least $10,000 to qualify.
- --------------------------------------------------------------------------------
13
<PAGE>
A Detailed Look at Quantitative Equity
The table below provides a picture of the Fund's Investment Class financial
performance since inception. Certain information selected reflects financial
results for a single Fund share. The total returns in the table represent the
rate of return that an investor would have earned on an investment in the Fund,
assuming reinvestment of all distributions. This information has been audited
by Ernst & Young LLP whose report, along with the Fund's financial statements,
is included in the Fund's annual report. The annual report is available free of
charge by calling the Deutsche Asset Management Service Center at
1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Period
March 31, 1999/1/
to December 31,
1999
<S> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.00
------------------------------------------------------------------------------
Income from Investment Operations
Net Investment Income 0.11
------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investment and Futures
Transactions 2.29
------------------------------------------------------------------------------
Total from Investment Operations 2.40
------------------------------------------------------------------------------
Distribution to Shareholders
Net Investment Income (0.11)
------------------------------------------------------------------------------
Net Realized Gains from Investment and Futures
Transactions (0.17)
------------------------------------------------------------------------------
Total Distributions (0.28)
------------------------------------------------------------------------------
Net Asset Value, End of Period $12.12
------------------------------------------------------------------------------
Total Investment Return 23.99%
------------------------------------------------------------------------------
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $3,303
------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net Investment Income 2.39%/2/
------------------------------------------------------------------------------
Expenses After Waivers 0.90%/2/
------------------------------------------------------------------------------
Expenses Before Waivers 11.84%/2/
------------------------------------------------------------------------------
Decrease Reflected in Above Expense Ratio Due to Fees
Waivers or Expenses Reimbursements 10.94%/2/
------------------------------------------------------------------------------
Portfolio Turnover Rate 409%
------------------------------------------------------------------------------
</TABLE>
/1/Commencement of operations.
/2/Annualized.
- --------------------------------------------------------------------------------
14
<PAGE>
This page intentionally left blank
<PAGE>
Additional information about the Fund's investments 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 April 30, 2000, 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 a Fund, write to
us at:
Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
or call our toll-free number: 1-800-730-1313
You can find reports and other information about the Fund on the EDGAR
Database on the SEC website (http://www.sec.gov), or you can get copies of
this information, after payment of a duplicating fee, by electronic request
at [email protected] or by writing to the Public Reference Section of the
SEC, Washington, D.C. 20549-0102. 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 202-942-8090.
Quantitative Equity--Investment Class
BT Investment Funds
Distributed by:
ICC Distributors, Inc.
CUSIP #055922652
1719PRO (04/00)
811-4760
<PAGE>
Deutsche Asset Management
Mutual Fund
Prospectus
April 30, 2000
Institutional Class
Quantitative Equity
Formerly a BT Mutual Fund
[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.]
A Member of the
Deutsche Bank Group [/]
<PAGE>
Overview
- --------------------------------------------------------------------------------
of Quantitative Equity--Institutional 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 goal as
the Fund. The Fund, through the master portfolio, seeks to achieve that goal 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.
- --------------------------------------------------------------------------------
The 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 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).
Quantitative Equity--Institutional Class
Overview of Quantitative Equity
<TABLE>
<S> <C>
Goal........................................................................ 3
Core Strategy............................................................... 3
Investment Policies and Strategies.......................................... 3
Principal Risks of Investing in the Fund.................................... 4
Who Should Consider Investing in the Fund................................... 4
Total Returns, After Fees and Expenses...................................... 4
Annual Fund Operating Expenses.............................................. 5
</TABLE>
A Detailed Look at Quantitative Equity
<TABLE>
<S> <C>
Objective................................................................... 6
Strategy.................................................................... 6
Principal Investments....................................................... 6
Investment Process.......................................................... 6
Prior Performance of a Similar Portfolio.................................... 6
Risks....................................................................... 8
Management of the Fund...................................................... 9
</TABLE>
<TABLE>
<S> <C>
Calculating the Fund's Share Price.......................................... 10
Performance Information..................................................... 10
Dividends and Distributions................................................. 11
Tax Considerations.......................................................... 11
Buying and Selling Fund Shares.............................................. 11
Financial Highlights........................................................ 13
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
Overview of Quantitative Equity
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:
. Stocks could decline generally or could underperform other investments.
. 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.
. 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.
. 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:
. The volume of transactions in the mergers and acquisitions marketplace
becomes insufficient to meet the Fund's goal.
. 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.
WHO SHOULD CONSIDER INVESTING IN THE FUND
Quantitative Equity--Institutional Class requires a minimum investment of
$250,000. 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 bank deposit 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.
- --------------------------------------------------------------------------------
4
<PAGE>
Overview of Quantitative Equity
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 would have
incurred on a $10,000 investment in the Fund's Institutional Class. It 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. The example does not represent an estimate of future returns
or expenses. Your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
/1/Information is based on estimated amounts for the current fiscal year.
/2/The investment adviser and administrator have agreed, for a 16-month period
from the Fund's fiscal year end of December 31, 1999, to waive their fees and
reimburse expenses so that total expenses will not exceed 0.75%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
ANNUAL FEES AND EXPENSES/1/
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets
<S> <C>
Management Fees 0.50%
-----------------------------------------------
Distribution and
Service (12b-1) Fees none
-----------------------------------------------
Other Fund Operating
Expenses 11.19%
-----------------------------------------------
Total Fund Operating
Expense 11.69%
-----------------------------------------------
Less: Fee Waivers or
Expense Reimbursement (10.94%)/2/
-----------------------------------------------
Net Expenses 0.75%
-----------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$77 $2,354 $4,336 $8,242
-----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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 goal. There is no guarantee
the Fund will realize its goal.
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 goal 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 the investment adviser.
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.
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
- --------------------------------------------------------------------------------
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.
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.
Generally, a derivative is a financial arrangement that derives its value from
a traditional security (like a stock or bond), asset or index.
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:
. An announced acquisition that is selected based on specific, unambiguous
events.
. An acquisition price that is structured to include at least 50% cash.
. An acquisition target with a minimum market capitalization of $500 million.
Merger arbitrage is a specialized investment approach designed to profit from
the successful completion of proposed mergers, acquisitions and other types of
corporate reorganizations. It seeks to capture the difference between the price
of an acquisition target's shares after a bid is announced and the ultimate
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 Pyramid
Quantitative Merger Arbitrage Fund ("QMA"), an unregistered commingled fund
managed by the investment adviser since December 31, 1989. Our decision to
establish QMA was supported by the results of a back test of the
- --------------------------------------------------------------------------------
6
<PAGE>
A Detailed Look at Quantitative Equity
investment strategy over the 1984-89 period. In managing the Fund, we employ
substantially the same investment objectives, policies and strategies that we
employ in managing QMA. 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 do not apply to QMA. 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 QMA. Moreover,
the way of calculating the performance of QMA, 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 QMA.
Certain of these factors may adversely affect the Fund's performance.
QMA is available only to institutional investors, including other commingled
funds we manage. Management fees and expenses incurred in the operation of QMA
are paid directly by its investors rather than by QMA. Accordingly, the
performance results for QMA have been adjusted to reflect an overall expense
ratio of 0.75%. Returns of QMA are compared to the S&P 500 Index. Unlike QMA
returns, those of the S&P 500 Index do not reflect fees and expenses. Both the
returns of QMA and the S&P 500 Index reflect the reinvestment of dividends and
distributions.
<TABLE>
<CAPTION>
QMA S&P 500
Returns Index
Year with Fees Returns Difference
<S> <C> <C> <C>
1990 5.98% (3.10%) 9.08%
1991 29.49% 30.40% (0.91%)
1992 7.58% 7.61% (0.03%)
1993 11.03% 10.04% 0.99%
1994 1.09% 1.32% (0.23%)
1995 39.58% 37.54% 2.04%
1996 24.79% 22.94% 1.85%
1997 36.18% 33.35% 2.83%
1998 35.89% 28.58% 7.31%
1999 31.43% 21.04% 10.39%
------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
Year Ended December 31, 1999
QMA S&P 500
Returns Index
with Fees Returns Difference
<S> <C> <C> <C>
1 Year 31.43% 21.04% 10.39%
3 Years 34.48% 27.56% 6.92%
5 Years 33.48% 28.56% 4.92%
Since inception
(12/31/89) 21.52% 18.21% 3.31%
----------------------------------------------
</TABLE>
The performance data represent the prior performance of QMA, not the prior
performance of the Fund, and should not be considered an indication of future
performance of the Fund.
In the 109 rolling 12-month periods from December 31, 1989 to December 31,
1999, QMA, net of a 0.75% expense ratio, had a positive total return in 108 of
the 109 periods and outperformed the S&P 500 Index in 80 of the 109 periods
(73% of the time).
The next table shows performance statistics of QMA, net of a 0.75% expense
ratio, relative to the S&P 500 Index. The statistics are based on the 109
rolling 12-month periods from December 31, 1989 to December 31, 1999, and
illustrate the frequency with which QMA outperformed the Index.
<TABLE>
<CAPTION>
Amount by which
return of QMA,
after fees,
exceeded return
of S&P 500 Number Percent of
Index/1/ of Periods Total Periods
<S> <C> <C>
100 basis points 66 61%
50 basis points 72 66%
25 basis points 76 70%
-------------------------------------------
</TABLE>
/1/One basis point equals 1/100th of 1 percent (0.01%).
- --------------------------------------------------------------------------------
7
<PAGE>
A Detailed Look at Quantitative Equity
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:
. Unlike the Index, the Fund incurs administrative expenses and transaction
costs in trading stocks.
. The composition of the Index and the stocks or other securities held by the
Fund may occasionally diverge.
. The timing and magnitude of cash inflows from investors buying shares could
create large balances of uninvested cash. Conversely, the timing and
magnitude of cash outflows to investors selling shares could require large
ready reserves of uninvested cash. Either situation would likely cause the
Fund's performance to deviate from the "fully invested" Index.
Futures and Options. The Fund invests in stock index futures or options, which
are types of derivatives. The Fund invests in derivatives to keep cash on hand
to invest in stocks of acquisition targets 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:
. the risk that the derivative is not well correlated with the security for
which it is acting as a substitute;
. derivatives used for risk management may not have the intended effects and
may result in losses or missed opportunities; and
. 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.
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.
- --------------------------------------------------------------------------------
8
<PAGE>
A Detailed Look at Quantitative Equity
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 judgment 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.
MANAGEMENT OF THE FUND
Deutsche Asset Management is the marketing name for the asset management
activities of Deutsche Bank A.G., Deutsche Fund Management, Bankers Trust
Company, DB Alex. Brown LLC, Deutsche Asset Management, Inc. and Deutsche Asset
Management Investment Services Limited.
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. The investment adviser makes the Fund's
investment decisions. It buys and sells securities for the Fund and conducts
the research that leads to the purchase and sale decisions. The investment
adviser will receive a fee of 0.50% of the Fund's average daily net assets for
its services in the current fiscal year.
As of December 31, 1999, Bankers Trust had total assets under management of
approximately $270 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.
- --------------------------------------------------------------------------------
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Fund sells and replaces the value of its securities within a given period.
Historically, the Fund has had 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.
At a special meeting of shareholders held in 1999, shareholders of the Fund
approved a new investment advisory agreement with Deutsche Asset Management,
Inc. (formerly Morgan Grenfell Inc.). The new investment advisory agreement
with Deutsche Asset Management, Inc. 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," generally referred to as
independent trustees. Shareholders of the Fund also approved a new sub-
investment advisory agreement among the Trust, Deutsche Asset Management, Inc.
and Bankers Trust under which Bankers Trust may perform certain of Deutsche
Asset Management Inc.'s responsibilities, at Deutsche Asset Management, Inc.'s
expense, upon approval of the independent trustees, within two years of the
date of the special meeting. Under the new investment advisory agreement and
new sub-advisory agreement, the compensation paid and the services provided
would be the same as those under the existing advisory agreement with Bankers
Trust.
Deutsche Asset Management, Inc. is located at 885 Third Avenue, 32nd Floor, New
York, New York 10022. The firm provides a full range of investment advisory
services to institutional clients. It serves as investment adviser to 11 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.
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.
- --------------------------------------------------------------------------------
9
<PAGE>
A Detailed Look at Quantitative Equity
Portfolio Managers
The following portfolio managers are responsible for the day-to-day management
of the master portfolio:
Eric Lobbin
. Managing Director of the investment adviser and portfolio manager for the
master portfolio.
. Joined the investment adviser in 1981 and the master portfolio in 2000.
. Over 19 years of financial industry experience.
. Bachelor's degree in engineering from Princeton University and MBA from New
York University.
. Former President of the Society of Quantitative Analysts.
Manish Keshive
. Director of the investment adviser and portfolio manager for the master
portfolio.
. Joined the investment adviser in 1996 and the master portfolio in 1999.
. Analyst and Trader for the master portfolio since inception.
. 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 service agent--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:
. keeping accurate, up-to-date records for your individual Fund account;
. implementing any changes you wish to make in your account information;
. processing your requests for cash dividends and distributions from the Fund;
. answering your questions on the Fund's investment performance or
administration;
. sending proxy reports and updated prospectus information to you; and
. collecting your executed proxies.
Service agents include brokers, financial advisors or any other bank, dealer or
other institution that has a sub-shareholder servicing agreement with Bankers
Trust. Service agents 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 goal. 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 the method that most accurately
reflects their current worth in the judgment of the Board of Trustees.
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
10
<PAGE>
A Detailed Look at Quantitative Equity
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:
<TABLE>
<CAPTION>
TRANSACTION TAX STATUS
<S> <C>
Income dividends Ordinary income
------------------------------------------
Short-term capital gains Ordinary income
distributions
------------------------------------------
Long-term capital gains Capital gains
distributions
------------------------------------------
</TABLE>
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>
TRANSACTION TAX STATUS
<S> <C>
Your sale of Capital gains or losses
shares owned
more than one
year
----------------------------------------------------
Your sale of Gains treated as ordinary income;
shares owned for losses subject to special rules
one year or less
----------------------------------------------------
</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
Contacting the Mutual Fund Service Center of Deutsche Asset Management
By Phone 1-800-730-1313
By Mail Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
By Overnight Mail Deutsche Asset Management Service Center
210 West 10th Street, 8th floor
Kansas City, MO 64105-1716
Our representatives are available to assist you personally Monday through
Friday, 9:00 a.m. to 7:00 p.m., Eastern time each day the New York Stock
Exchange is open for business. You can reach the Deutsche Asset Management
Service Center's automated assistance line 24 hours a day, 7 days a week.
Minimum Account Investments
<TABLE>
<S> <C>
To open an account $250,000
To add to an account $25,000
Minimum account balance $50,000
</TABLE>
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 purchased without regard to the investment minimums by employees of
Deutsche Bank A.G., any of its affiliates or subsidiaries, their spouses and
minor children, and Directors or Trustees of any investment company advised or
administered by Deutsche Bank A.G. or any of its affiliates or subsidiaries,
their spouses and minor children.
How to Open Your Fund Account
By Mail: Complete and sign the account application that accompanies this
prospectus. (You may obtain additional applications by calling the
Deutsche Asset Management Service Center.) Mail the completed
application along with a check payable to Quantitative Equity--
Institutional Class (1723) to the Deutsche Asset Management
Service Center. The addresses are shown under "Contacting the
Mutual Fund Service Center of Deutsche Asset Management"
By Wire: Call the Deutsche Asset Management Service Center to set up a wire
account.
Please note that your account cannot become activated until we receive a
completed application via mail or fax.
Two Ways to Buy and Sell Shares in Your Account
MAIL:
Buying: Send your check, payable to the Fund, to the Deutsche Asset Management
Service Center. The addresses are shown in this section under "Contacting the
Mutual Fund Service Center of Deutsche Asset Management." Be sure to include
the fund number and your account number (see your account statement) on your
check. Please note that we cannot accept starter checks or third-party checks.
If you are investing in more than one
- --------------------------------------------------------------------------------
11
<PAGE>
A Detailed Look at Quantitative Equity
fund, make your check payable to "Deutsche Asset Management funds," and include
your account number, the names and numbers of the funds you have selected, and
the dollar amount or percentage you would like invested in each fund.
Selling: Send a signed letter to the Deutsche Asset Management Service Center
with your name, your fund number and account number, the fund's name, and
either the number of shares you wish to sell or the dollar amount you wish to
receive. You must leave at least $1,000 invested in your account to keep it
open. Unless exchanging into another Deutsche Asset Management fund, you must
submit a written authorization to sell shares in a retirement account.
WIRE:
Buying: You may buy shares by wire only if your account is authorized to do so.
Please note that you or your service agent must call the Deutsche Asset
Management Service Center at 1-800-730-1313 to notify us in advance of a wire
transfer purchase. Inform the Service Center representative of the amount of
your purchase and receive a 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.
Routing No.: 021001033
Attn: Deutsche Asset Management/
Mutual Funds
DDA No.: 00-226-296
FBO: (Account name)
(Account number)
Credit: Quantitative Equity--Institutional Class (1723)
Refer to your account statement for the account name, number and fund number.
Selling: You may sell shares by wire only if your account is authorized to do
so. For your protection, you may not change the destination bank account over
the phone. To sell by wire, contact your service agent or the Deutsche Asset
Management Service Center at 1-800-730-1313. Inform the Service Center
representative of the amount of your redemption and receive a trade
confirmation number. 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.
Important Information about Buying and Selling shares.
. You may buy and sell shares of a fund through authorized service agents as
well as directly from us. The same terms and conditions apply. Specifically,
once you place your order with a service agent, it is considered received by
the Deutsche Asset Management Service Center. It is then your service agent's
responsibility to transmit the order to the Deutsche Asset Management Service
Center. You should contact your service agent if you have a dispute as to
when your order was placed with the fund. Your service agent may charge a fee
for buying and selling shares for you.
. You may place orders to buy and sell over the phone by calling your service
agent or the Deutsche Asset Management Service Center at 1-800-730-1313. 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 agent have
incurred. To sell shares you must state whether you would like to receive the
proceeds by wire or check.
. After we or your service agent receives 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.
. We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer. We do not accept starter or third-party checks.
. The payment of redemption proceeds (including exchanges) for shares of a fund
recently purchased by check may be delayed for up to 15 calendar days while
we wait for your check to clear.
. We process all sales orders free of charge.
. 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 but no
later than seven days.
. We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in
market value.
. If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your service agent or the Deutsche Asset Management
Service Center for more information.
. We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").
- --------------------------------------------------------------------------------
12
<PAGE>
A Detailed Look at Quantitative Equity
. We do not issue share certificates.
. Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your service agent or the
Deutsche Asset Management Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
Deutsche Asset Management Service Center by telephone. If this occurs, you
should make your request by mail.
. We reserve the right to reject purchases of Fund shares (including exchanges)
for any reason. We will reject the purchases if we conclude that the
purchaser may be investing only for the short-term or to profit from day to
day fluctuations in the Fund's share price.
. We reserve the right to reject the purchases of Fund shares (including
exchanges) or to suspend or postpone redemptions at times when both the New
York Stock Exchange and the Fund's custodian are closed.
. Account Statements and Fund Reports: We or your service agent will furnish
you with a written confirmation of every transaction that affects your
account balance. You will also receive monthly statements reflecting the
balances in your account. We will send you a report every six months on you
fund's overall performance, its current holdings and its investing
strategies.
. You can exchange all or part of your shares for shares of another Deutsche
Asset Management mutual fund up to four times a year (from the date of your
first exchange). When you exchange shares, you are selling shares in one fund
to purchase shares in another. Before buying shares through an exchange, you
should be sure to obtain a copy of that fund's prospectus and read it
carefully. You may complete exchanges over the phone only if your account is
authorized to do so. You will receive a written confirmation of each
transaction from the Deutsche Asset Management Service Center or your service
agent.
Please note the following conditions:
. The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
. You may make the exchange by phone (if your account has the exchange by phone
feature) or by letter or wire.
. If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
FINANCIAL HIGHLIGHTS
The Institutional Class commenced selling shares on December 31, 1999 and,
therefore, no financial highlights are presented.
- --------------------------------------------------------------------------------
13
<PAGE>
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<PAGE>
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<PAGE>
Additional information about the Fund's investments 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 April 30, 2000, 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 a Fund, write to
us at:
Deutsche Asset Management Service Center
P.O. Box 219210
Kansas City, MO 64121-9210
or call our toll-free number: 1-800-730-1313
You can find reports and other information about the Fund on the EDGAR
Database on the SEC website (http://www.sec.gov), or you can get copies of
this information, after payment of a duplicating fee, by electronic request
at [email protected] or by writing to the Public Reference Section of the
SEC, Washington, D.C. 20549-0102. 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 202-942-8090.
Quantitative Equity--Institutional Class
BT Investment Funds
Distributed by:
ICC Distributors, Inc.
CUSIP #055922645
1723PRO (04/00)
811-4760
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 30, 2000
BT Investment Funds
Cash Management Investment
Tax Free Money Investment
NY Tax Free Money Investment
each formerly a BT Mutual Fund
BT Institutional Funds
Cash Management Institutional
Treasury Money Institutional
each formerly a BT Mutual Fund
BT Investment Funds and BT Institutional Funds (each, a "Trust" and,
collectively, the "Trusts") are open-end management investment companies that
offer investors a selection of investment portfolios, each having distinct
investment objectives and policies. The Cash Management Investment, Tax Free
Money Investment, NY Tax Free Money Investment, Cash Management Institutional
and Treasury Money Institutional (each a "Fund" and, collectively, the "Funds")
are described herein.
Unlike other mutual funds, the Trusts seek to achieve the investment objectives
of each Fund by investing all the investable assets of the Fund in a diversified
(or nondiversified, in the case of the NY Tax Free Money Fund) open-end
management investment company having the same investment objective as such Fund.
These investment companies are, respectively, Cash Management Portfolio, Tax
Free Money Portfolio, NY Tax Free Money Portfolio and Treasury Money Portfolio
(collectively, the "Portfolios").
Shares of the Funds are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trust's distributor (the "Distributor"), to clients and customers (including
affiliates and correspondents) of Bankers Trust Company ("Bankers Trust"), the
Portfolios' investment adviser ("Adviser"), and to clients and customers of
other organizations.
The Trusts' Prospectuses for the Funds, dated April 30, 2000, 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 Trusts and
should be read in conjunction with the Prospectuses. You may request a copy of
the Prospectuses or a paper copy of this SAI, if you have received it
electronically, free of charge by calling the Trusts at the telephone number
listed below or by contacting any Bankers Trust service agent ("Service Agent").
Capitalized terms not otherwise defined in this Statement of Additional
Information have the meanings accorded to them in the Trusts' Prospectuses. The
financial statements for each Fund and the corresponding Portfolio for the
fiscal year ended December 31, 1999, are incorporated herein by reference to the
Annual Report to shareholders for each Fund and each Portfolio dated December
31, 1999. A copy of each Fund's and the corresponding Portfolio's Annual Report
may be obtained without charge by calling each Fund at the telephone number
listed below.
BANKERS TRUST COMPANY
Investment Adviser and Administrator of the Portfolios
ICC DISTRIBUTORS, INC.
Distributor
1-800-730-1313
<PAGE>
TABLE OF CONTENTS
PAGE
----
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS...........................1
Investment Objectives.....................................................1
Investment Policies.......................................................1
Additional Risk Factors...................................................8
Investment Restrictions..................................................21
Portfolio Turnover.......................................................26
Portfolio Transactions...................................................26
NET ASSET VALUE...........................................................27
PURCHASE AND REDEMPTION INFORMATION.......................................29
Purchase of Shares.......................................................29
Redemption of Shares.....................................................30
MANAGEMENT OF THE TRUST AND PORTFOLIOS....................................28
Trustees of the Trusts and Portfolios....................................29
Officers of the Trusts and the Portfolios................................30
Trustee Compensation Table...............................................32
Code of Ethics ..........................................................33
Investment Adviser......................................................394
Administrator...........................................................437
Distributor..............................................................45
Service Agent............................................................45
Custodian and Transfer Agent.............................................45
Expenses.................................................................46
Use of Name..............................................................46
Banking Regulatory Matters...............................................46
Counsel and Independent Accountants......................................46
ORGANIZATION OF THE TRUST.................................................46
DIVIDENDS AND TAXES.......................................................49
Dividends................................................................49
Taxation of the Funds and Their Investments..............................50
Taxation of Shareholders.................................................50
PERFORMANCE INFORMATION...................................................52
FINANCIAL STATEMENTS......................................................54
APPENDIX..................................................................55
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives
The following is a description of each Fund's investment objective. There can,
of course, be no assurance that any Fund will achieve its investment objective.
Cash Management Investment seeks a high level of current income consistent
with liquidity and the preservation of capital through investment in a Portfolio
of high quality money market instruments.
Tax Free Money Investment seeks a high level of current income exempt from
Federal income taxes consistent with liquidity and the preservation of capital
through investment in a Portfolio primarily of obligations issued by states and
their authorities, agencies, instrumentalities and political subdivisions.
NY Tax Free Money Investment seeks a high level of current income exempt from
Federal and New York income taxes consistent with liquidity and the preservation
of capital through investment in a Portfolio primarily of obligations of the
State of New York and its authorities, agencies, instrumentalities and political
subdivisions.
Cash Management Institutional seeks a high level of current income consistent
with liquidity and the preservation of capital through investment in a Portfolio
of high quality money market instruments.
Treasury Money Institutional seeks a high level of current income consistent
with liquidity and the preservation of capital through investment in a Portfolio
of direct obligations of the U.S. Treasury and repurchase agreements in respect
of those obligations.
Investment Policies
Each Fund seeks to achieve its investment objective(s) by investing all of its
assets in the corresponding Portfolio, which has the same investment objective
as the Fund. Each Trust may withdraw a Fund's investment from the corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so.
Since the investment characteristics of each Fund will correspond directly to
those of the respective Portfolio in which the Fund invests all of its assets,
the following is a discussion of the various investments of and techniques
employed by the Portfolios.
Quality and Maturity of the Fund's Securities. Each Portfolio will maintain a
dollar-weighted average maturity of 90 days or less. All securities in which
each Portfolio invests will have, or be deemed to have, remaining maturities of
397 days or less on the date of their purchase and will be denominated in U.S.
dollars. Bankers Trust, acting under the supervision of and procedures adopted
by the Board of Trustees of each Portfolio, will also determine that all
securities purchased by the Portfolios present minimal credit risks. Bankers
Trust will cause each Portfolio to dispose of any security as soon as
practicable if the security is no longer of the requisite quality, unless such
action would not be in the best interest of the Portfolio. High-
1
<PAGE>
quality, short-term instruments may result in a lower yield than instruments
with a lower quality or longer term.
Obligations of Banks and Other Financial Institutions. For purposes of the
Portfolios' investment policies with respect to bank obligations, the assets of
a bank will be deemed to include the assets of its domestic and foreign
branches. Obligations of foreign branches of U.S. banks and foreign banks may
be general obligations of the parent bank in addition to the issuing bank or may
be limited by the terms of a specific obligation and by government regulation.
If Bankers Trust, acting under the supervision of the Board of Trustees, deems
the instruments to present minimal credit risk, each Portfolio other than
Treasury Money Portfolio may invest in obligations of foreign banks or foreign
branches of U.S. banks, which include banks located in the United Kingdom, Grand
Cayman Island, Nassau, Japan and Canada. Investments in these obligations may
entail risks that are different from those of investments in obligations of U.S.
domestic banks because of differences in political, regulatory and economic
systems and conditions. These risks include future political and economic
developments, currency blockage, the possible imposition of withholding taxes on
interest payments, differing reserve requirements, reporting and recordkeeping
requirements and accounting standards, possible seizure or nationalization of
foreign deposits, difficulty or inability of pursuing legal remedies and
obtaining judgments in foreign courts, possible establishment of exchange
controls or the adoption of other foreign governmental restrictions that might
affect adversely the payment of principal and interest on bank obligations.
Foreign branches of U.S. banks and foreign banks may also be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks.
Commercial Paper. Commercial paper obligations in which the Portfolios may
invest are short-term, unsecured negotiable promissory notes of U.S. or foreign
corporations that at the time of purchase meet the rating criteria described in
the Prospectus. Investments in foreign commercial paper generally involve risks
similar to those described above relating to obligations of foreign banks or
foreign branches of U.S. banks.
Variable Rate Master Demand Notes. Variable rate master demand notes are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Because variable rate
master demand notes are direct lending arrangements between a Portfolio and the
issuer, they are not ordinarily traded. Although no active secondary market may
exist for these notes, a Portfolio will purchase only those notes under which it
may demand and receive payment of principal and accrued interest daily or may
resell the note to a third party. While the notes are not typically rated by
credit rating agencies, issuers of variable rate master demand notes must
satisfy Bankers Trust, acting under the supervision of the Board of Trustees of
a Portfolio, that the same criteria as set forth above for issuers of commercial
paper are met. In the event an issuer of a variable rate master demand note
defaulted on its payment obligation, a Portfolio might be unable to dispose of
the note because of the absence of a secondary market and could, for this or
other reasons, suffer a loss to the extent of the default. The face maturities
of variable rate notes subject to a demand feature may exceed 397 days in
certain circumstances. (See "Quality and Maturity of the Fund's Securities"
herein.)
2
<PAGE>
U.S. Government Obligations. The Portfolios may invest in direct obligations
issued by the U.S. Treasury or, in the case of the Portfolios other than
Treasury Money Portfolio, 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 ("GNMA"), 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 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.
Examples of the types of U.S. Government Obligations that the Portfolios may
hold include, but are not limited to, in addition to those described above and
direct U.S. Treasury obligations, the obligations of the Federal Housing
Administration ("FHA"), Farmers Home Administration, Small Business
Administration, General Services Administration, Central Bank for Cooperatives,
Federal Farm Credit Banks, Federal Farm Credit Banks Funding Corp., Federal Home
Loan Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks and Maritime Administration.
Other Debt Obligations. The Portfolios may invest in deposits, bonds, notes and
debentures and other debt obligations that at the time of purchase have, or are
comparable in priority and security to other securities of such issuer which
have, outstanding short-term obligations meeting the above short-term rating
requirements, or if there are no such short-term ratings, are determined by
Bankers Trust, acting under the supervision of the Board of Trustees of the
Portfolio, to be of comparable quality and are rated in the top three highest
long-term rating categories by the NRSROs rating such security.
Credit Enhancement. Certain of a Portfolio's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance from a third
party. Any bankruptcy, receivership, default, or change in the credit quality
of the third party providing the credit enhancement could adversely affect the
quality and marketability of the underlying security and could cause losses to
the Portfolio and affect the Portfolio's share price. Subject to the
diversification limits contained in Rule 2a-7, each Portfolio may have more than
25% of its total assets invested in securities issued by or credit-enhanced by
banks or other financial institutions.
Lending of Portfolio Securities. The Portfolios, other than Tax Free Money
Portfolio and NY Tax Free Money Portfolio, have the authority to lend, up to 30%
of the value of their portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, a 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. Each Portfolio will adhere to the following conditions
whenever its securities are loaned: (i) the Portfolio must receive at least
3
<PAGE>
100% 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. Cash collateral may be
invested in a money market fund managed by Bankers Trust (or its affiliates) and
Bankers Trust may serve as a Portfolio's lending agent and may share in revenue
received from securities lending transactions as compensation for this service.
Repurchase Agreements. The Portfolios may engage in repurchase agreement
transactions with banks and governmental securities dealers approved by the
Portfolio's Board of Trustees. Under the terms of a typical repurchase
agreement, a Portfolio would acquire U.S. Government Obligations regardless of
maturity any remaining maturity for a relatively short period (usually not more
than one week), subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the obligation at an agreed price and time, thereby
determining the yield during the Portfolio's holding period. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Portfolio's holding period. The value of the underlying securities
will be at least equal at all times to the total amount of the repurchase
obligations, including interest. Each Portfolio bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
and the Portfolio is delayed in or prevented from exercising its rights to
dispose of the collateralized securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Portfolio seeks to assert these rights. Bankers Trust reviews the
creditworthiness of those banks and dealers with which the Portfolios enter into
repurchase agreements and monitors on an ongoing basis the value of the
securities subject to repurchase agreements to ensure that it is maintained at
the required level.
Reverse Repurchase Agreements. The Portfolios may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption requests,
and not for leverage, by among other things, agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time a Portfolio enters into a reverse repurchase agreement
it segregates cash, U.S. Government Obligations or high-grade debt obligations
having a value equal to the repurchase price, including accrued interest.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the repurchase price of those
securities. Reverse repurchase agreements are considered to be borrowings by a
Portfolio.
When-Issued and Delayed-Delivery Securities. To secure prices deemed
advantageous at a particular time, the Cash Management Portfolio and Treasury
Money Portfolio may purchase securities on a when-issued or delayed-delivery
basis, in which case delivery of the securities occurs beyond the normal
settlement period; payment for or delivery of the securities would be made prior
to the reciprocal delivery or payment by the other party to the transaction. A
Portfolio
4
<PAGE>
will enter into when-issued or delayed-delivery transactions for the purpose of
acquiring securities and not for the purpose of leverage. When-issued securities
purchased by a Portfolio may include securities purchased on a "when, as, and if
issued" basis under which the issuance of the securities depends on the
occurrence of a subsequent event.
Securities purchased on a when-issued or delayed-delivery basis may expose a
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. A Portfolio does not accrue income with respect
to a when-issued or delayed-delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself. Upon
purchasing a security on a when-issued or delayed-delivery basis, a Portfolio
will segregate cash or liquid securities in an amount at least equal to the
when-issued or delayed-delivery commitment.
Asset-Backed Securities. The Cash Management Portfolio may also invest in
securities generally referred to as asset-backed securities, which directly or
indirectly represent a participation interest in, or are secured by and payable
from, a stream of payments generated by particular assets such as motor vehicle
or credit card receivables. Asset-backed securities may provide periodic
payments that consist of interest and/or principal payments. Consequently, the
life of an asset-backed security varies with the prepayment and loss experience
of the underlying assets."
Variable Rate Securities. Each Fund may purchase long-term maturity securities
which are subject to frequently available put option or tender option features
under which the holder may put the security back to the issuer or its agent at a
predetermined price (generally par) after giving specified notice. The interest
rate on a variable rate security changes at intervals according to an index or a
formula or other standard measurement as stated in the bond contract. One common
method is to calculate the interest rate as a percentage of the rate paid on
selected issues of Treasury securities on specified dates. The put option or
tender option right is typically available to the investor on a weekly or
monthly basis although on some demand securities the investor has a daily right
to exercise the put option. Variable rate securities with the put option
exercisable on dates on which the variable rate changes are often called
"variable rate demand notes".
Municipal Obligations. The two principal classifications of Municipal
Obligations are "notes" and "bonds." Municipal Obligations are further
classified as "general obligation" and "revenue" issues and the securities held
by the Tax Free Money Portfolio and NY Tax Free Money Portfolio may include
"moral obligations" which are normally issued by special purpose authorities.
Municipal Notes. Municipal notes generally fund short-term capital needs and
have maturities of one year or less. Tax Free Money Portfolio and NY Tax Free
Money Portfolio may invest in municipal notes, which include:
Tax Anticipation Notes. Tax anticipation notes are issued to finance working
capital needs of municipalities. Generally, they are issued in anticipation of
various seasonal tax revenue, such as income, sales, use and business taxes, and
are payable from these specific future taxes.
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Revenue Anticipation Notes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue sharing programs.
Bond Anticipation Notes. Bond anticipation notes are issued to provide interim
financing until long-term financing can be arranged. In most cases, the long-
term bonds provide funds for the repayment of these notes.
Miscellaneous, Temporary and Anticipatory Instruments. These instruments may
include notes issued to obtain interim financing pending entering into alternate
financial arrangements, such as receipt of anticipated Federal, state or other
grants or aid, passage of increased legislative authority to issue longer-term
instruments or obtaining other refinancing.
Construction Loan Notes. Construction loan notes are sold to provide
construction financing. Permanent financing, the proceeds of which are applied
to the payment of construction loan notes, is sometimes provided by a commitment
of the GNMA to purchase the loan, accompanied by a commitment by the FHA to
insure mortgage advances thereunder. In other instances, permanent financing is
provided by commitments of banks to purchase the loan. A Portfolio will only
purchase construction loan notes that are subject to permanent GNMA or bank
purchase commitments.
Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is issued by agencies
of state and local governments to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term financing.
Municipal Bonds. Municipal bonds generally fund longer-term capital needs than
municipal notes and have maturities exceeding one year when issued. Tax Free
Money Portfolio and NY Tax Free Money Portfolio may invest in municipal bonds,
but only to the extent that their remaining maturities are determined not to
exceed 397 days under rules promulgated under the Investment Company Act of 1940
(the "1940 Act"). Municipal bonds include:
General Obligation Bonds. Issuers of general obligation bonds include states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind general obligation bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
Revenue Bonds. The principal security for a revenue bond is generally the net
revenues derived from a particular facility, group of facilities or, in some
cases, the proceeds of a special excise tax or other specific revenue source.
Revenue bonds are issued to finance a wide variety of capital projects,
including electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund that may be used
to make principal and interest payments on the issuer's obligations.
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Housing finance authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or collateralized mortgages,
certificates of deposit and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
Private Activity Bonds. Private activity bonds, which are considered Municipal
Obligations if the interest paid thereon is excluded from gross income for
Federal income tax purposes and is not a specific tax preference item for
Federal individual and corporate alternative minimum tax purposes, are issued by
or on behalf of public authorities to raise money to finance various privately
operated facilities such as manufacturing facilities, certain hospital and
university facilities and housing projects. These bonds are also used to
finance public facilities such as airports, mass transit systems and ports. The
payment of the principal and interest on these bonds is dependent solely on the
ability of the facility's user to meet its financial obligations and generally
the pledge, if any, of real and personal property so financed as security for
payment.
Additional Risk Factors
In addition to the risks discussed above, the Portfolios' investments may be
subject to the following risk factors:
Special Considerations Relating to New York Municipal Obligations. Some of the
significant financial considerations relating to the New York Tax Exempt Fund's
investments in New York Municipal Securities are summarized below. This summary
information is not intended to be a complete description and is principally
derived from the Annual Information Statement of the State of New York as
supplemented and contained in official statements relating to issues of New York
Municipal Securities that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
State Economy. New York is one of the most populous states in the nation and
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has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining
proportion of its workforce engaged in manufacturing, and an increasing
proportion engaged in service industries.
State per capita personal income has historically been significantly higher than
the national average, although the ratio has varied substantially. Because New
York City (the "City") is a regional employment center for a multi-state region,
State personal
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income measured on a residence basis understates the relative importance of the
State to the national economy and the size of the base to which State taxation
applies.
The economic forecast of the State has also been modified for 2000 and 2001 from
the mid-year forecast to reflect a stronger-than-expected economy. Continued
growth is projected for 2000 and 2001 for employment, wages, and personal
income, although the growth in employment will moderate from the 1999 pace.
Personal income is estimated to have grown by 4.7 percent in 1999, fueled in
part by a large increase in financial sector bonus payments at the year's end.
Personal income is projected to grow 5.5 percent in 2000 and 4.8 percent in
2001. Total bonus payments are projected to increase by 11 percent in 2000 and
10.5 percent in 2001. Overall employment growth is expected to continue at a
more modest pace than in 1999, reflecting the slower growth in the national
economy, continued spending restraint by government employers, and restructuring
in the manufacturing, health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience worse-than-
predicted results, with corresponding material and adverse effects on the
State's projections of receipts and disbursements.
State Budget. The State Constitution requires the governor (the "Governor") to
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submit to the State legislature (the "Legislature") a balanced executive budget
which contains a complete plan of expenditures for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion (1995-
96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1 billion
(1998-99). On March 31, 1999, the State adopted the debt service portion of the
State budget for the 1999-2000 fiscal year; four months later, on August 4,
1999, it enacted the remainder of the budget. The Governor approved the budget
as passed by the Legislature. Prior to passing the budget in its entirety for
the current fiscal year, the State enacted appropriations that permitted the
State to continue its operations.
The State revised the cash-basis 1999-2000 State Financial Plan on January 11,
2000, with the release of the 2000-01 Executive Budget. The State updated the
Financial Plan on January 31, 2000 to reflect the Governor's amendments to his
Executive Budget. After these changes, the Division of the Budget ("DOB") now
expects the State to close the 1999-2000 fiscal year with an available cash
surplus of $758 million in the General Fund, an increase of $733 million over
the surplus estimate in the mid-year update. The larger projected surplus
derives from $499 million in net higher projected receipts and $259
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million in net lower estimated disbursements. DOB revised both its projected
receipts and disbursements based on a review of actual operating results through
December 1999, as well as an analysis of underlying economic and programmatic
trends it believes may affect the Financial Plan for the balance of the year.
The State plans to use the entire $758 million surplus to make additional
deposits to reserve funds. At the close of the current fiscal year, the State
expects to deposit $75 million from the surplus into the State's Tax
Stabilization Reserve Fund ("TSRF") - the fifth consecutive annual deposit. In
the 2000-01 Executive Budget, as amended, the Governor is proposing to use the
remaining $683 million from the 1999-2000 surplus to fully finance the estimated
2001-02 and 2002-03 costs of his proposed tax reduction package ($433 million)
and to increase the Debt Reduction Reserve Fund ("DRRF") ($250 million).
DOB projects total General Fund disbursements of $37.06 billion in 1999-2000, a
decline of $282 million from the October estimate. Of this amount, $33 million
is related to the timing of spending and accounting adjustments and therefore
does not contribute to the surplus projected by DOB. The $33 million consists
of lower timing-related spending of $65 million from the Community Projects Fund
("CPF") and $50 million from the Collective Bargaining Reserve, offset by the
Medicaid reclassification of $82 million described above. Accordingly, lower
disbursements since October contribute $249 million to the 1999-2000 surplus,
which, when combined with the $10 million in lower disbursements recognized in
the mid-year update, produce a total reduction in estimated disbursements of
$259 million for the current year.
State Operations spending is now projected to total $6.63 billion in 1999-2000.
In the revised Financial Plan, $50 million of an original $100 million for new
collective bargaining costs is set aside in a reserve to cover the cost of labor
agreements in 1999-2000, and the balance is transferred to General State Charges
in the current year to pay for the recently approved labor contract with State
University employees and other labor costs. The remaining revisions to the
State Operations estimate are comprised of savings from agency efficiencies and
timing-related changes that do not affect the surplus.
The State projects a closing balance of $1.17 billion in the General Fund, after
the tax refund reserve transaction. The balance is comprised of $548 million in
the Tax Stabilization Reserve Fund ("TSRF") after a $75 million deposit in 1999-
2000; $265 million in the CPF, which pays for Legislative initiatives; $250
million in the DRRF; and $107 million in the Contingency Reserve Fund ("CRF")
(which guards against litigation risks).
In addition to the General Fund closing balance of $1.17 billion, the State will
have a projected $3.09 billion in the tax refund reserve account at the end of
1999-2000. The refund reserve account is used to adjust personal income tax
collections across fiscal years to pay for tax refunds, as well as to accomplish
other Financial Plan objectives.
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The projected balance of $3.09 billion is comprised of $1.82 billion in tax
reduction reserves from the 1998-99 surplus; $683 million from the 1999-2000
surplus; $521 million from LGAC that may be used to pay tax refunds during 2000-
01 but must be on deposit at the close of the fiscal year; $50 million in
collective bargaining reserves from 1999-2000; and $25 million in reserves for
tax credits.
The General Fund is the principal operating fund of the State and is used to
account for all financial transactions except those required to be accounted for
in another fund. It is the State's largest fund and received almost all State
taxes and other resources not dedicated to particular purposes. General Fund
moneys are also transferred to other funds, primarily to support certain capital
projects and debt service payments in other fund types.
The Governor presented his 2000-01 Executive Budget to the Legislature on
January 10, 2000. The Executive Budget contains financial projections for the
State's 1999-2000 through 2002-03 fiscal years, a detailed explanation of
receipts estimates and the economic forecast on which it is based, and proposed
Capital Program and Financing Plan for the 2000-01 through 2004-05 fiscal years.
On January 31, 2000, the Governor submitted amendments to his Executive Budget,
the most significant of which recommends eliminating all gross receipts taxes on
energy providers.
There can be no assurance that the Legislature will enact into law the
Governor's Executive Budget, as amended, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth therein.
The 2000-01 Financial Plan is projected to have receipts in excess of
disbursements on a cash basis in the General Fund, after accounting for the
transfer of available receipts from 1999-2000 to 2000-01. Under the Governor's
Executive Budget, as amended, total General Fund receipts, including transfers
from other funds, are projected at $38.62 billion, an increase of $1.28 billion
(3.4 percent) over the current fiscal year. General Fund disbursements,
including transfers to other funds, are recommended to grow by 2.3 percent to
$37.93 billion, an increase of $869 million over 1999-2000. State Funds
spending (the portion of the budget supported exclusively by State taxes, fees,
and revenues) is projected to total $52.46 billion, an increase of $2.57 billion
or 5.1 percent. Spending from All Government Funds is expected to grow by 5.5
percent, increasing by $4.0 billion to $76.82 billion.
The State projects a closing balance of $1.61 billion in the General Fund at the
end of 2000-01. This balance is comprised of a $433 million reserve set aside
from the 1999-2000 surplus to finance the estimated costs of the Governor's
proposed tax reduction package in 2001-02 and 2002-03, $475 million in
cumulative reserves for collective bargaining ($425 million from 2000-01 plus
$50 million from 1999-2000), $548 million in the TSRF, and $150 million in the
CRF after a proposed $43 million deposit in 2000-01. The change in the closing
fund balance compared to 1999-2000 results from the planned use in 2000-01 of
$265 million for existing legislative initiatives financed from the CPF
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and the reclassification of DRRF into the CPF, offset by increased reserves for
collective bargaining, tax reduction, and litigation discussed above.
In addition to the General Fund closing balance of $1.61 billion, the State will
have a projected $567 million in the tax refund reserve at the end of 2000-01.
Also, $1.2 billion is proposed to be on deposit in the Star Special Revenue Fund
to be used in 2001-02 for State-funded local tax reductions and $250 million is
proposed to be on deposit in the DRRF. The balance in the DRRF is projected to
be used in 2001-02 to retire existing high-cost State-supported debt and
increase pay-as-you-go financing of capital projects.
Many complex political, social and economic forces influence the State's economy
and finances, which may in turn affect the State's Financial Plan. These forces
may affect the State unpredictably from fiscal year to fiscal year and are
influenced by governments, institutions, and organizations that are not subject
to the State's control. The State Financial Plan is also necessarily based upon
forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. The DOB believes that its projections of
receipts and disbursements relating to the current State Financial Plan, and the
assumptions on which they are based, are reasonable. The projections assume no
changes in federal tax law, which could substantially alter the current receipts
forecast. In addition, these projections do not include funding for new
collective bargaining agreements after the current contracts expire. Actual
results, however, could differ materially and adversely from their projections,
and those projections may be changed materially and adversely from time to time.
Debt Limits and Outstanding Debt. There are a number of methods by which the
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State of New York may incur debt. Under the State Constitution, the State may
not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase and
contractual-obligation financings, which involve obligations of public
authorities or
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municipalities that are State-supported but are not general obligations of the
State. Under these financing arrangements, certain public authorities and
municipalities have issued obligations to finance the construction and
rehabilitation of facilities or the acquisition and rehabilitation of equipment,
and expect to meet their debt service requirements through the receipt of rental
or other contractual payments made by the State. Although these financing
arrangements involve a contractual agreement by the State to make payments to a
public authority, municipality or other entity, the State's obligation to make
such payments is generally expressly made subject to appropriation by the
Legislature and the actual availability of money to the State for making the
payments. The State has also entered into a contractual-obligation financing
arrangement with the LGAC to restructure the way the State makes certain local
aid payments.
Sustained growth in the State's economy could contribute to closing projected
budget gaps over the next several years, both in terms of higher-than-projected
tax receipts and in lower-than-expected entitlement spending. The State assumes
that the 2000-01 Financial Plan will achieve $500 million in savings from
initiatives by State agencies to deliver services more efficiently, workforce
management efforts, maximization of federal and non-General Fund spending
offsets, and other actions necessary to help bring projected disbursements and
receipts into balance. The projections do not assume any gap-closing benefit
from the potential settlement of State claims against the tobacco industry.
On January 13, 1992, S&P reduced its ratings on the State's general obligation
bonds from A to A- and, in addition, reduced its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On
August 28, 1997, S&P revised its ratings on the State's general obligation bonds
from A- to A and revised its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. On March 5, 1999, S&P
affirmed its A rating on the State's outstanding bonds. Subsequent to that
time, the State's general obligations have not been downgraded by S&P.
On January 6, 1992, Moody's reduced its ratings on outstanding limited-liability
State lease purchase and contractual obligations from A to Baa1. On February
28, 1994, Moody's reconfirmed its A rating on the State's general obligation
long-term indebtedness. On March 20, 1998, Moody's assigned the highest
commercial paper rating of P-1 to the short-term notes of the State. On March
5, 1999, Moody's affirmed its A2 rating with a stable outlook to the State's
general obligations.
New York State has never defaulted on any of its general obligation indebtedness
or its obligations under lease-purchase or contractual-obligation financing
arrangements and has never been called upon to make any direct payments pursuant
to its guarantees.
Litigation. Certain litigation pending against New York State or its officers
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or employees could have a substantial or long-term adverse effect on New York
State
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finances. Among the more significant of these cases are those that involve (1)
the validity of agreements and treaties by which various Indian tribes
transferred title to New York State of certain land in central and upstate New
York; (2) certain aspects of New York State's Medicaid policies, including its
rates, regulations and procedures; (3) action seeking enforcement of certain
sales and excise taxes and tobacco products and motor fuel sold to non-Indian
consumers on Indian reservations; and (4) a challenge to the Governor's
application of his constitutional line item veto authority.
Several actions challenging the constitutionality of legislation enacted during
the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's 1994-
95 fiscal year. Litigation challenging the constitutionality of the treatment
of certain moneys held in a reserve fund was settled in June 1996 and certain
amounts in a Supplemental Reserve Fund previously credited by the State against
prior State and local pension contributions were paid in 1998.
The legal proceedings noted above involve State finances, State programs and
miscellaneous cure rights, tort, real property and contract claims in which the
State is a defendant and the monetary damages sought are substantial, generally
in excess of $100 million. These proceedings could affect adversely the
financial condition of the State in the current fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of these proceedings could exceed
the amount of the reserve established in the State's financial plan for the
payment of judgments and, therefore, could affect the ability of the State to
maintain a balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
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On November 23, 1998, the attorneys general for forty-six states (including New
York) entered into a master settlement agreement ("MSA") with the nation's
largest tobacco manufacturers. Under the terms of the MSA, the states agreed to
release the manufacturers from all smoking-related claims in exchange for
specified payments and the imposition of restrictions on tobacco advertising and
marketing. New York is projected to receive $25 billion over 25 years under the
MSA, with payments apportioned among the State (51 percent), counties (22
percent), and New York City (27 percent). The projected payments are an
estimate and subject to adjustments for, among other things, the annual change
in the volume of cigarette shipments and the rate of inflation.
From 1999-2000 through 2002-03, the State expects to receive $1.54 billion under
the nationwide settlement with cigarette manufacturers. Counties, including New
York City, will receive settlement payments of $1.47 billion over the same
period.
Authorities. The fiscal stability of New York State is related, in part, to the
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fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is State-
supported or State-related.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
In February 1997, the Job Development Authority ("JDA") issued approximately $85
million of State-guaranteed bonds to refinance certain of its outstanding bonds
and notes in order to restructure and improve JDA's capital structure. Due to
concerns regarding the economic viability of its programs, JDA's loan and loan
guarantee
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activities had been suspended since 1995. As a result of the structural
imbalances in JDA's capital structure, and defaults in its loan portfolio and
loan guarantee program incurred between 1991 and 1996, JDA would have
experienced a debt service cash flow shortfall had it not completed its recent
refinancing. JDA anticipates that it will transact additional refinancings in
1999, 2000 and 2003 to complete its long-term plan of finance and further
alleviate cash flow imbalances which are likely to occur in future years. JDA
recently resumed its lending activities under a revised set of lending programs
and underwriting guidelines.
New York City and Other Localities. The fiscal health of the State may also be
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impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, S&P suspended its A rating of City bonds.
This suspension remained in effect until March 1981, at which time the City
received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications. On March 9, 1999, S&P
assigned its A- rating to Series 1999H of New York City general obligation bonds
and affirmed the A- rating on various previously issued New York City bonds.
Subsequent to that time, the City's general obligation bonds have not been
downgraded by S&P.
Moody's ratings of City bonds were revised in November 1981 from B (in effect
since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May
1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded approximately $28 billion of the City's general obligations from Baa1
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable.
On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion outstanding
general obligation bonds from A- to A. Subsequent to that time, the City's
general obligation bonds have not been downgraded by Fitch IBCA.
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New York City is heavily dependent on New York State and federal assistance to
cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds
and notes payable from certain stock transfer tax revenues, from the City's
portion of the State sales tax derived in the City and, subject to certain prior
claims, from State per capita aid otherwise payable by the State to the City.
Failure by the State to continue the imposition of such taxes, the reduction of
the rate of such taxes to rates less than those in effect on July 2, 1975,
failure by the State to pay such aid revenues and the reduction of such aid
revenues below a specified level are included among the events of default in the
resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do
not constitute an enforceable obligation or debt of either the State or the
City.
Since 1975, the City's financial condition has been subject to oversight and
review by the New York State Financial Control Board (the "Control Board") and
since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
Although the City has consistently maintained balanced budgets and is projected
to achieve balanced operating results for the current fiscal year, there can be
no assurance that the gap-closing actions proposed in its Financial Plan can be
successfully implemented or that the City will maintain a balanced budget in
future years without additional State aid, revenue increases or expenditure
reductions. Additional tax increases and reductions in essential City services
could adversely affect the City's economic base.
The projections set forth in the City's Financial Plan were based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements.
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Such assumptions and contingencies include the condition of the regional and
local economies, the impact on real estate tax revenues of the real estate
market, wage increases for City employees consistent with those assumed in the
Financial Plan, employment growth, the ability to implement proposed reductions
in City personnel and other cost reduction initiatives, the ability of the
Health and Hospitals Corporation and the BOE to take actions to offset reduced
revenues, the ability to complete revenue generating transactions, provision of
State and Federal aid and mandate relief and the impact on City revenues and
expenditures of Federal and State welfare reform and any future legislation
affecting Medicare or other entitlements.
To successfully implement its Financial Plan, the City and certain entities
issuing debt for the benefit of the City must market their securities
successfully. The City issues securities to finance the rehabilitation of its
infrastructure and other capital needs and to refinance existing debt, as well
as for seasonal financing needs. In fiscal year 1998 and again in fiscal year
2000, the State constitutional debt limit would have prevented the City from
entering into new capital contracts. To prevent these disruptions in the
capital program, two entities were created to issue debt to increase the City's
capital financing capacity: (i) the State Legislature created the Transitional
Finance Authority ("TFA") in 1997, and (ii) the City created the Tobacco
Settlement Asset Securitization Corporation in 1999. Despite these actions, the
City, in order to continue its capital program, will need additional financing
capacity in fiscal year 2002, which could be provided through increasing the
borrowing authority of the TFA or amending the State constitutional debt limit.
The City Comptroller and other agencies and public officials have issued reports
and made public statements which, among other things, state that projected
revenues and expenditures may be different from those forecast in the City's
financial plans. It is reasonable to expect that such reports and statements
will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. The delay in the adoption of the State's budget in certain
past fiscal years has required the City to issue short-term notes in amounts
exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced financial problems
and have requested and received additional New York State assistance during the
last several State fiscal years. The potential impact on the State of any
future requests by localities for additional assistance is not included in the
State's projections of its receipts and disbursements for the fiscal year.
Beginning in 1990, the City of Troy experienced a series of budgetary deficits
that resulted in the establishment of a Supervisory Board for the City of Troy
in 1994. The Supervisory Board's powers were increased in 1995, when Troy MAC
was created to
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help Troy avoid default on certain obligations. The legislation creating Troy
MAC prohibits the city of Troy from seeking federal bankruptcy protection while
Troy MAC bonds are outstanding. Troy MAC has issued bonds to effect a
restructuring of the City of Troy's obligations.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
From time to time, federal expenditure reductions could reduce, or in some cases
eliminate, federal funding of some local programs and accordingly might impose
substantial increased expenditure requirements on affected localities. If the
State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban population,
increasing expenditures and other economic trends could adversely affect
localities and require increasing the State assistance in the future.
Year 2000 Compliance. To date, the State has experienced no significant Year
- --------------------
2000 computer disruptions. Monitoring will continue over the next few months to
identify and correct any problems that may arise. However, there can be no
assurance that outside parties who provide goods and services to the State will
not experience computer problems related to Year 2000 programming in the future,
or that such disruptions, if they occur, will not have an adverse impact on
State operations or finances.
Special Information Concerning Master-Feeder Fund Structure. Unlike other open-
end management investment companies (mutual funds) which directly acquire and
manage their own portfolio securities, each Fund seeks to achieve its investment
objective by investing all of its assets in the corresponding Portfolio, a
separate registered investment company with the same investment objective as the
corresponding Fund. Therefore, an investor's interest in the corresponding
Portfolio's securities is indirect. In addition to selling a beneficial
interest to the corresponding Fund, each Portfolio may sell beneficial interests
to other mutual funds, investment vehicles or institutional investors. Such
investors will invest in a Portfolio on the same terms and conditions and will
pay a proportionate share of a Portfolio's expenses. However, the other
investors investing in a Portfolio are not required to sell their shares at the
same public offering price as the Fund due to variations in sales commissions
and other operating expenses. Therefore, investors in a Fund should be aware
that these differences may result in differences in returns experienced by
investors in the different funds that invest in each Portfolio.
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Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in each Portfolio is available
from Bankers Trust at 1-800-730-1313.
Smaller funds investing in a Portfolio may be materially affected by the actions
of larger funds investing in the Portfolio. For example, if a large fund
withdraws from a Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in a
Portfolio could have effective voting control of the operations of the
Portfolio. Except as permitted by the SEC, whenever the Trust is requested to
vote on matters pertaining to a Portfolio, the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes in the same proportion
as the votes of the Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
Trust's votes representing the Fund's shareholders not voting will be voted by
the Trustees or officers of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote.
Certain changes in a Portfolio's investment objectives, policies or restrictions
may require the Fund to withdraw its interest in the Portfolio. Any such
withdrawal could result in a distribution "in kind" of portfolio securities (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.
The Fund may withdraw its investment from a Portfolio at any time, if the Board
of Trustees of the Trust determines that it is in the best interests of the
shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the corresponding Portfolio.
Each Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of each Portfolio is also not a
fundamental policy. Shareholders of the Funds will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund or the
corresponding Portfolio.
Rating Services. The ratings of Moody's and S&P 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, the Adviser also makes its own
evaluation
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of these securities, subject to review by the Board of Trustees. After purchase
by a Portfolio, an obligation may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither event would
require a Portfolio to eliminate the obligation from its portfolio, but the
Adviser will consider such an event in its determination of whether a Portfolio
should continue to hold the obligation. A description of the ratings categories
of Moody's and S&P is set forth in the Appendix to this SAI.
Investment Restrictions
Fundamental Policies. The following investment restrictions have been adopted
by the Trust with respect to each of the Funds and by the Portfolios as
fundamental policies. Under the 1940 Act, a "fundamental" policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund or Portfolio, respectively, to which it relates, which is defined in
the 1940 Act as the lesser of (a) 67% or more of the shares present at a
shareholder meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy, or (b) more than 50% of the outstanding
shares. Whenever a Fund is requested to vote on a change in the investment
restrictions of a Portfolio, the Trust will hold a meeting of Fund shareholders
and will cast its votes as instructed by the shareholders. Fund shareholders
who do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting will
be voted by the Trustees of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote.
All Funds and Portfolios
Under investment policies adopted by the Trust, on behalf of each Fund, and by
the Portfolios, each Fund and each Portfolio may not:
1. Borrow money, except for temporary or emergency (not leveraging)
purposes in an amount not exceeding 5% of the value of the Fund's or
the Portfolio's total assets (including the amount borrowed), as the
case may be, calculated in each case at market.
2. Pledge, hypothecate, mortgage or otherwise encumber more than 5% of
the total assets of the Fund or the Portfolio, as the case may be, and
only to secure borrowings for temporary or emergency purposes.
3. Invest more than 5% of the total assets of the Fund or the Portfolio,
as the case may be, in any one issuer (other than U.S. Government
Obligations) or purchase more than 10% of any class of securities of
any one issuer; provided, however, that (i) up to 25% of the assets of
the NY Tax Free Money Investment (and NY Tax Free Money Portfolio)
may be invested in the assets of one issuer, and (ii) this restriction
shall not preclude the purchase by the Tax Free Money Investment
(or Tax Free Money Portfolio) of issues guaranteed by the U.S.
government, its agencies or instrumentalities or backed by letters of
credit or guarantees of one or more commercial banks or other
financial institutions, even though any one such commercial bank or
financial institution provides a letter of credit or guarantee with
respect to securities which in the aggregate represent
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more than 5%, but not more than 10%, of the total assets of the Fund
or the Portfolio, as the case may be; provided, however, that nothing
-------- -------
in this investment restriction shall prevent the Trust from investing
all or part of a Fund's assets in an open-end management investment
company with the same investment objectives as such Fund.
4. Invest more than 25% of the total assets of the Fund or the Portfolio,
as the case may be, in the securities of issuers in any single
industry; provided that (i) this limitation shall not apply to the
purchase of U.S. Government Obligations, (ii) under normal market
conditions more than 25% of the total assets of the Cash Management
Investment (or Cash Management Portfolio) will be invested in
obligations of U.S. and foreign banks and other financial
institutions, and (iii) with respect to the Tax Free Money Investment
and the NY Tax Free Money Investment (or Tax Free Money Portfolio
or NY Tax Free Money Portfolio), this limitation shall not apply to
the purchase of Municipal Obligations or letters of credit or
guarantees of banks that support Municipal Obligations; provided,
however, that nothing in this investment restriction shall prevent the
Trust from investing all or part of a Fund's assets in an open-end
management investment company with the same investment objectives as
such Fund.
5. Make short sales of securities, maintain a short position or purchase
any securities on margin, except for such short-term credits as are
necessary for the clearance of transactions.
6. Underwrite the securities issued by others (except to the extent the
Fund or Portfolio may be deemed to be an underwriter under the Federal
securities laws in connection with the disposition of its portfolio
securities) or knowingly purchase restricted securities, except that
the Tax Free Money Investment and the NY Tax Free Money Investment
(and Tax Free Money Portfolio and NY Tax Free Money Portfolio)
each may bid, separately or as part of a group, for the purchase of
Municipal Obligations directly from an issuer for its own portfolio in
order to take advantage of any lower purchase price available. To the
extent these securities are illiquid, they will be subject to the
Fund's or the Portfolio's 10% limitation on investments in illiquid
securities; provided, however, that nothing in this investment
-----------------
restriction shall prevent the Trust from investing all or part of a
Fund's assets in an open-end management investment company with the
same investment objectives as such Fund.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil, gas or mineral interests,
but this shall not prevent the Fund or the Portfolio from investing in
obligations secured by real estate or interests therein.
8. Make loans to others, except through the purchase of qualified debt
obligations, the entry into repurchase agreements and, with respect to
the Cash Management
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Investment, the Treasury Money Investment (or Cash Management
Portfolio and Treasury Money Portfolio), the lending of portfolio
securities.
9. Invest more than an aggregate of 10% of the net assets of the Fund or
the Portfolio, respectively, (taken, in each case, at current value)
in (i) securities that cannot be readily resold to the public because
of legal or contractual restrictions or because there are no market
quotations readily available or (ii) other "illiquid" securities
(including time deposits and repurchase agreements maturing in more
than seven calendar days); provided, however, that nothing in this
-----------------
investment restriction shall prevent the Trust from investing all or
part of a Fund's assets in an open-end management investment company
with the same investment objectives as such Fund.
10. Purchase more than 10% of the voting securities of any issuer or
invest in companies for the purpose of exercising control or
management; provided, however, that nothing in this investment
-----------------
restriction shall prevent the Trust from investing all or part of a
Fund's assets in an open-end management investment company with the
same investment objectives as such Fund.
11. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an offer of
exchange; provided, however, that nothing in this investment
-----------------
restriction shall prevent the Trust from investing all or part of a
Fund's assets in an open-end management investment company with the
same investment objectives as such Fund.
12. Issue any senior securities, except insofar as it may be deemed to
have issued a senior security by reason of (i) entering into a
repurchase agreement or (ii) borrowing in accordance with terms
described in the Prospectus and this SAI.
13. Purchase or retain the securities of any issuer if any of the officers
or trustees of the Fund or the Portfolio or its investment adviser
owns individually more than 1/2 of 1% of the securities of such
issuer, and together such officers and directors own more than 5% of
the securities of such issuer.
14. Invest in warrants, except that the Fund or the Portfolio may invest
in warrants if, as a result, the investments (valued in each case at
the lower of cost or market) would not exceed 5% of the value of the
net assets of the Fund or the Portfolio, as the case may be, of which
not more than 2% of the net assets of the Fund or the Portfolio, as
the case may be, may be invested in warrants not listed on a
recognized domestic stock exchange. Warrants acquired by the Fund or
the Portfolio as part of a unit or attached to securities at the time
of acquisition are not subject to this limitation.
15. As to the Tax Free Money Investment and the NY Tax Free Money
Investment (or Tax Free Money Portfolio and NY Tax Free Money
Portfolio), neither the Fund (nor the Portfolio as the case may be)
will invest less
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than 80% of its net assets in Municipal Obligations under normal
market conditions; provided, however, that nothing in this restriction
-------- -------
shall prevent the Trust from investing all or part of a Fund's assets
in an open-end management investment company with the same investment
objectives as such Fund.
Additional Restrictions. In order to comply with certain statutes and policies
each Portfolio (or Trust, on behalf of the Fund) will not as a matter of
operating policy (except that no operating policy shall prevent a Fund from
investing all of its assets in an open-end investment company with substantially
the same investment objectives):
(i) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's (Fund's) total assets
(taken at market), except that the Portfolio (Fund) may borrow for
temporary or emergency purposes up to 1/3 of its net assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's (Fund's) total assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this
restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided that
if such right is conditional the sale is made upon the same
conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided,
however, that securities of any investment company will not be
purchased for the Portfolio (Fund) if such purchase at the time
thereof would cause (a) more than 10% of the Portfolio's (Fund's)
total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuers; (b) more than 5% of the
Portfolio's (Fund's) total assets (taken at the greater of cost or
market value) to be invested in any one investment company; or (c)
more than 3% of the outstanding voting securities of any such issuer
to be held for the Portfolio
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(Fund); and, provided further, that the Portfolio shall not invest in
any other open-end investment company unless the Portfolio (Fund) (1)
waives the investment advisory fee with respect to assets invested in
other open-end investment companies and (2) incurs no sales charge in
connection with the investment (as an operating policy, each Portfolio
will not invest in another open-end registered investment company);
(vii) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the
same issue and equal in amount to, the securities sold short, and
unless not more than 10% of the Portfolio's (Fund's) net assets (taken
at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time
(the Portfolio (Fund) has no current intention to engage in short
selling);
There will be no violation of any investment restrictions or policies (except
with respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment, in net or
total assets, or in the change of securities rating of the investment, or any
other later change.
Each Fund will comply with the state securities laws and regulations of all
states in which it is registered. Each Portfolio will comply with the permitted
investments and investment limitations in the securities laws and regulations of
all states in which the corresponding Fund, or any other registered investment
company investing in the Portfolio, is registered.
For purposes of diversification under the 1940 Act, identification of the
"issuer" of a Municipal Obligation depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from those of the government
creating the subdivision, and the obligation is backed only by the assets and
revenues of the subdivision, the subdivision will be regarded as the sole
issuer. Similarly, if a private activity bond is backed only by the assets and
revenues of the nongovernmental user, the nongovernmental user will be deemed to
be the sole issuer. If in either case the creating government or another entity
guarantees an obligation or issues a letter of credit to secure the obligation,
the guarantee or letter of credit will be considered a separate security issued
by the government or entity and would be separately valued.
Portfolio Turnover
Each of the Portfolios may attempt to increase yields by trading to take
advantage of short-term market variations, which results in higher portfolio
turnover. This policy does not result in higher brokerage commissions to the
Portfolios, however, as the purchases and sales of portfolio securities are
usually effected as principal transactions. The Portfolios' turnover rates are
not expected to have a material effect on their income and have been and are
expected to be zero for regulatory reporting purposes.
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Portfolio Transactions
Decisions to buy and sell securities and other financial instruments for a
Portfolio are made by Bankers Trust, which also is responsible for placing these
transactions, subject to the overall review of the Board of Trustees. Although
investment requirements for each Portfolio are reviewed independently from those
of the other accounts managed by Bankers Trust and those of the other
Portfolios, investments of the type the Portfolios may make may also be made by
these other accounts or Portfolios. When a Portfolio and one or more other
Portfolios or accounts managed by Bankers Trust are prepared to invest in, or
desire to dispose of, the same security or other financial instrument, available
investments or opportunities for sales will be allocated in a manner believed by
Bankers Trust to be equitable to each. In some cases, this procedure may affect
adversely the price paid or received by a Portfolio or the size of the position
obtained or disposed of by a Portfolio.
Purchases and sales of securities on behalf of the Portfolios usually are
principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. The cost
of securities purchased from underwriters includes an underwriting commission or
concession and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S. Government Obligations
are generally purchased from underwriters or dealers, although certain newly
issued U.S. Government Obligations may be purchased directly from the U.S.
Treasury or from the issuing agency or instrumentality.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere and principal transactions are not entered into with persons
affiliated with the Portfolios except pursuant to exemptive rules or orders
adopted by the Securities and Exchange Commission. Under rules adopted by the
SEC, broker-dealers may not execute transactions on the floor of any national
securities exchange for the accounts of affiliated persons, but may effect
transactions by transmitting orders for execution.
In selecting brokers or dealers to execute portfolio transactions on behalf of a
Portfolio, Bankers Trust seeks the best overall terms available. In assessing
the best overall terms available for any transaction, Bankers Trust will
consider the factors it deems relevant, including the breadth of the market in
the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, Bankers Trust is authorized, in selecting parties to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage, but not research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Portfolio involved, the other Portfolios and/or other accounts over which
Bankers Trust or its affiliates exercise investment discretion. Bankers Trust's
fees under its agreements with the Portfolios are not reduced by reason of its
receiving brokerage services.
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<PAGE>
NET ASSET VALUE
The net asset value ("NAV") per share of each Fund is calculated on each day on
which the Fund is open (each such day being a "Valuation Day"). The NAV per
share of each Fund (except the Cash Management Institutional and Treasury Money
Institutional) is calculated twice on each Valuation Day as of 12:00 noon,
Eastern time, and as of the close of regular trading on the NYSE, 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. If the markets for the Funds' primary
investments close early, the Funds will cease taking purchase orders at that
time. The NAV of the Cash Management Institutional and Treasury Money
Institutional is calculated on each Valuation Day as of the close of regular
trading on the NYSE, 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 (each time at
which the NAV of a Fund is calculated is referred to herein as the "Valuation
Time"). If the markets for the Funds' primary investments close early, the Funds
will cease taking purchase orders at that time. The NAV per share of each Fund
is computed by dividing the value of the Fund's assets (i.e., the value of its
investment in the corresponding Portfolio and other assets), less all
liabilities, by the total number of its shares outstanding. Each Fund's NAV per
share will normally be $1.00.
The valuation of each Portfolio's securities is based on their amortized cost,
which does not take into account unrealized capital gains or losses. Amortized
cost valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Portfolio would receive if
it sold the instrument.
The Portfolios' use of the amortized cost method of valuing their securities is
permitted by a rule adopted by the SEC. Each Portfolio will also maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of two years or less and invest only in
securities determined by or under the supervision of the Board of Trustees to be
of high quality with minimal credit risks.
Pursuant to the rule, the Board of Trustees of each Portfolio also has
established procedures designed to allow investors in the Portfolio, such as the
Trust, to stabilize, to the extent reasonably possible, the investors' price per
share as computed for the purpose of sales and redemptions at $1.00. These
procedures include review of each Portfolio's holdings by the Portfolio's Board
of Trustees, at such intervals as it deems appropriate, to determine whether the
value of the Portfolio's assets calculated by using available market quotations
or market equivalents deviates from such valuation based on amortized cost.
The rule also provides that the extent of any deviation between the value of
each Portfolio's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be examined by the
Portfolio's Board of Trustees. In the event the Portfolio's Board of Trustees
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, pursuant to the rule, the
respective Portfolio's Board of Trustees must cause the Portfolio to take such
corrective action as
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<PAGE>
such Board of Trustees regards as necessary and appropriate, including: selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends or paying
distributions from capital or capital gains; redeeming shares in kind; or
valuing the Portfolio's assets by using available market quotations.
Each investor in a Portfolio, including the corresponding Fund, may add to or
reduce its investment in the Portfolio on each day the Portfolio determines its
net asset value. At the close of each such business day, the value of each
investor's beneficial interest in the Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected as of the close of business on that day, will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of business on such day plus or minus, as the case may be, the
amount of net additions to or withdrawals from the investor's investment in the
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount of
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as of
the close of the following business day.
PURCHASE AND REDEMPTION INFORMATION
Purchase of Shares
Each Trust accepts purchase orders for shares of each Fund at the NAV per share
next determined after the order is received on each Valuation Day. Shares may be
available through Investment Professionals, such as broker/dealers and
investment advisers (including Service Agents).
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. If the purchase order is received by the Service Agent and
transmitted to the Transfer Agent after 12:00 noon (Eastern time) and prior to
the close of the NYSE, the shareholder will receive the dividend declared on the
following day even if Bankers Trust, as the BT Investment Funds' custodian (the
"Custodian"), receives federal funds on that day. If the purchase order is
received prior to 12:00 noon, the shareholder will receive that Valuation Day's
dividend. BT Investment Funds and Transfer Agent reserve the right to reject
any purchase order. If the market for the primary investments in a Fund closes
early, the Fund will cease taking purchase orders at that time.
Another mutual fund investing in the corresponding Portfolio may accept purchase
orders up until a time later than 12:00 noon, Eastern time. Such orders, when
transmitted to and executed by the Portfolio, may have an impact on the Fund's
performance.
27
<PAGE>
Each Trust accepts purchase orders for shares of each Fund at the NAV per share
next determined on each Valuation Day. The minimum initial and subsequent
investment amounts are set forth below. The minimum initial investment in each
Fund may be allocated in amounts not less than $100,000 per fund in certain
funds in the Deutsche Asset Management Family of Funds. Service Agents may
impose initial and subsequent investment minimums that differ from these
amounts. Shares of the Fund may be purchased in only those states where they may
be lawfully sold.
Purchase orders for shares of each Fund will receive, on any Valuation Day, the
NAV next determined following receipt by the Service Agent and transmission to
Bankers Trust, as BT Institutional Funds' Transfer Agent (the "Transfer Agent")
of such order. If the purchase order for shares of the Treasury Money
Institutional is received by the Service Agent and transmitted to the Transfer
Agent prior to 2:00 p.m. (Eastern time), and if payment in the form of federal
funds is received on that day by Bankers Trust, as BT Institutional Funds'
custodian (the "Custodian"), the shareholder will receive the dividend declared
on that day. If the purchase order is received by the Service Agent and
transmitted to the Transfer Agent after 2:00 p.m. (Eastern time), the
shareholder will receive the dividend declared on the following day even if the
Custodian receives federal funds on that day. If the purchase order for shares
of the Cash Management Institutional is received by the Service Agent and
transmitted to the Transfer Agent prior to 4:00 p.m. (Eastern time), and if
payment in the form of federal funds is received on that day by the Custodian,
the shareholder will receive the dividend declared on that day. BT
Institutional Funds and the 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 the Custodian purchase payments by the following business day (trade
date + 1) after an order for shares is placed. A shareholder must settle with
the Service Agent for his or her entitlement to an effective purchase or
redemption order as of a particular time. Because Bankers Trust is the
Custodian and Transfer Agent of the Trust, funds may be transferred directly
from or to a customer's account held with Bankers Trust to settle transactions
with the Fund without incurring the additional costs or delays associated with
the wiring of federal funds.
Certificates for shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.
If you have money invested in a fund in the BT Family of Funds, you can:
. Mail an account application with a check,
. Wire money into your account,
. Open an account by exchanging from another fund in the BT Family of Funds, or
. Contact your Service Agent or Investment Professional.
28
<PAGE>
Redemption of Shares
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.
The Trust may suspend the right of redemption or postpone the date of payment
for shares of the Fund during any period when: (a) trading on the NYSE is
restricted by applicable rules and regulations of the SEC; (b) the NYSE is
closed for other than customary weekend and holiday closings; (c) the SEC has by
order permitted such suspension; or (d) an emergency exists as determined by the
SEC.
To sell shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the Deutsche Asset Management
Family of Funds, which can be requested by phone or in writing. For information
on retirement distributions, contact your Service Agent or call the Deutsche
Asset Management Service Center at 1-800-730-1313.
If you are selling some but not all of your non-retirement account shares, leave
at least $1,000 worth of shares in the account to keep it open.
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:
. Your account registration has changed within the last 30 days,
. The check is being mailed to a different address than the one on your account
(record address),
. The check is being made payable to someone other than the account owner,
. The redemption proceeds are being transferred to a BT account with a
different registration, or
. You wish to have redemption proceeds wired to a non-predesignated bank
account.
A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
29
<PAGE>
For Trust accounts, the trustee must sign the letter indicating capacity as
trustee. If the trustee's name is not on the account registration, provide a
copy of the trust document certified within the last 60 days.
For a Business or Organization account, at least one person authorized by
corporate resolution to act on the account must sign the letter.
Each Fund and Portfolio reserve the right to redeem all of its shares, if the
Board of Trustees votes to liquidate the Fund and/or portfolio.
MANAGEMENT OF THE TRUSTs AND PORTFOLIOS
The Trusts and the Portfolios are governed by their respective Boards of
Trustees which are responsible for protecting the interests of investors. By
virtue of the responsibilities assumed by Bankers Trust, the administrator of
the Trusts and the Portfolios, neither the Trusts nor the Portfolios require
employees other than their executive officers. None of the executive officers
of the Trusts or the Portfolios devotes full time to the affairs of the Trusts
or the Portfolios.
A majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of each Trust or Portfolio, as the case may be, have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of such Trust and
Portfolio.
Each Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Funds or
Portfolios they represent. In addition, the Trustees review contractual
arrangements with companies that provide services to the Funds/Portfolios and
review the Funds' performance.
The Trustees and officers of the Trusts and Portfolios their birthdates, their
principal occupations during the past five years, and addresses are set forth
below. Their titles may have varied during that period.
Trustees of the Trusts and Portfolios
30
<PAGE>
CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly 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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly Partner, KPMG Peat Marwick; Director, Vintners
International Company Inc.; Director, Coutts (U.S.A.) International; Trustee,
Phoenix Zweig Series Trust; Trustee, Phoenix Euclid Market Neutral Fund;
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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Nomura Professor of Finance, Leonard N. Stern School of Business, New
York University (since 1964); Trustee, TIAA2; Director, S.G. Cowen Mutual
Funds2; Director, Japan Equity Fund, Inc.2; Director, Taiwan Equity Fund, Inc.2
His address is 229 South Irving Street, Ridgewood, New Jersey 07450.
RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Trust and Portfolio
Trust; Trustee of each of the other investment companies in the Fund Complex;
Managing Director, Deutsche Asset Management; Director, Flag Investors Funds;
Managing Director, Deutsche Banc Alex. Brown Incorporated; Director and
President, Investment Company Capital Corp. His address is 205 Woodbrook Lane,
Baltimore, Maryland 21202.
RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Jacob Safra Professor of International Banking and Professor, Finance
Department, 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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly Assistant Treasurer of IBM Corporation (until 1986);
Trustee and Member, Investment
- ----------------------
1 The "Fund Complex" consists of BT Investment Funds, BT Institutional Funds,
BT Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio,
Intermediate Tax Free Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity 500
Index Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio and
BT Investment Portfolios.
2 An investment company registered under the 1940 Act
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<PAGE>
Operations Committee, Allmerica Financial Mutual
Funds (1992-present) Member, Investment Committee, Unilever U.S. Pension and
Thrift Plans (1989 to present) 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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Principal, Philip Saunders Associates (Economic and Financial
Consultant); 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 Philip Saunders Associates, 445 Glen Road, Weston,
Massachusetts 02493.
HARRY VAN BENSCHOTEN (birth date: February 18, 1928) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; Corporate Vice President, Newmont Mining Corporation (prior to
1987); Director, Canada Life Insurance Corporation of New York (since 1987).
His address is 6581 Ridgewood Drive, Naples, Florida 34108.
* "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
management unit of Deutsche Bank A.G. and its affiliates.
The Board has an Audit Committee that meets with the Trust's and the Portfolio
Trust's independent accountants to review the financial statements of the Trust
and Portfolio Trust, the adequacy of internal controls and the accounting
procedures and policies of the Trust and Portfolio Trust. Each member of the
Board except Mr. Hale is a member of the Audit Committee.
Officers of the Trust and the Portfolio Trust
DANIEL O. HIRSCH (birth date: March 27, 1954) -- Secretary of the Trust and
Portfolio 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 and Portfolio Trust; President, Forum Financial Group
L.L.C. and its affiliates;
- -----------------------
3 A publicly held company with securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
32
<PAGE>
President, ICC Distributors, Inc. His address is ICC Distributors, Inc., Two
Portland Square, Portland, Maine 04101.
CHARLES A. RIZZO (birth date: August 5, 1957) Treasurer of the Trust and
Portfolio Trust; Director 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.
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 is an officer or
Trustee of the Trusts or the Portfolios. No director, officer or employee of
ICC Distributors, Inc. or any of its affiliates will receive any compensation
from the Trusts or any Portfolios for serving as an officer or Trustee of the
Trusts or the Portfolios.
Trustee Compensation Table
- --------------------
4 Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares of
ICC Distributors, Inc.
33
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Aggregate Aggregate
Compensation Compensation Aggregate Total
Trustee from BT from Compensation Compensation
Investment Institutional From Fund
Funds* Funds+ Portfolios** Complex***
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles P. Biggar $ 3,050 $11,475 $4,941 $43,750
- ----------------------------------------------------------------------------------------------------------
S. Leland Dill $16,417 $ 1,699 $4,297 $43,750
- ----------------------------------------------------------------------------------------------------------
Martin Gruber $ 2,972 $ 1,699 $ 849 $45,000
- ----------------------------------------------------------------------------------------------------------
Richard J. Herring $ 2,642 $27,062 $ 755 $43,750
- ----------------------------------------------------------------------------------------------------------
Kelvin Lancaster $12,617 N/A N/A $18,750
- ----------------------------------------------------------------------------------------------------------
Bruce E. Langton $ 2,972 $26,289 $ 849 $43,750
- ----------------------------------------------------------------------------------------------------------
Philip Saunders, Jr. $16,924 $ 1,698 $1,120 $45,000
- ----------------------------------------------------------------------------------------------------------
Harry Van Benschoten $ 3,050 $11,475 $4,432 $45,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* The information provided is for the BT Investment Funds, which is comprised
of 16 funds, for the year ended December 31, 1999.
+ The information provided is for the BT Institutional Funds which is
comprised of 9 funds, for the year ended December 31, 1999.
** The information provided is for Cash Management Portfolio, Tax Free Money
Portfolio, NY Tax Free Money Portfolio, and Treasury Money Portfolio for
the Portfolios' most recent fiscal year ended December 31, 1999.
*** Aggregated information is furnished for the Deutsche Asset Management
Family of Funds which consists of the following: BT Investment Funds, BT
Institutional Funds, BT Pyramid Mutual Funds, BT Advisor Funds, BT
Investment Portfolios, Cash Management Portfolio, Treasury Money Portfolio,
Tax Free Money Portfolio, NY Tax Free Money Portfolio, International Equity
Portfolio, Intermediate Tax Free Portfolio, Asset Management Portfolio,
Equity 500 Index Portfolio and Capital Appreciation Portfolio for the year
ended December 31, 1999.
Bankers Trust reimbursed the Funds and Portfolios for a portion of their
Trustees fees for the period above. See "Investment Adviser" and
"Administrator" below.
As of March 31, 2000, the Trustees and officers of the Trust and the Portfolios
owned in the aggregate less than 1% of the shares of any Fund or of the Trust
(all series taken together).
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of Cash Management Investment: Private Bank Sweep Custody
Linda Anderson, 1 BT Plaza, 17th Floor, New York, NY 10015 (54.872%). Private
Bank Sweep
34
<PAGE>
Investment Advisory Linda Anderson, 1 BT Plaza 17th Floor, New York,
NY 10015 (30.660%). Circuit City Credit Card, 99540 Maryland Drive, Richmond VA
23233 (8.382%).
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of Tax Free Money Investment: Private Bank Sweep,
Custody, New York, NY (65.878%); Private Bank Sweep, Investment Advisory, New
York, NY (23.641%).
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of NY Tax Free Money Investment: Private Bank Sweep,
Investment Advisory, New York, NY (39.977%); Private Bank Sweep, Custody, New
York, NY (30.917%);
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of the Cash Management Institutional: Providian MT Ser
1995-1 Principal Funding Acct. Trust, 201 Mission Street, San Francisco, CA
94105-1831 (10.322%); Private Bank Sweep Custody-Institutional Cash Mgmt., 1 BT
Plaza 17th Floor, New York, NY 10006 (6.999%); First Deposit Master Trust, 88
Kearny Street, San Francisco, CA 94105-5530 (6.471%). Private Bank Sweep,
Investment Advisory, Institutional Cash Management, 1 BT Plaza, New York, NY
10006 (5.981%).
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding shares of Treasury Money Institutional: Apex/AFS Escrow, Attn:
Bill Shaub, 4825 Higbee Ave. NW, Canton, OH 44718-2597 (20.108%); Conn Light &
Power, Property Proceeds, Bankers Trust Company, 4 Albany Street, New York, NY
10006-1502. (12.874%); Mill Creek Holdings LTD, C/O Crow Holdings, Attn:
Financial Reporting, 2100 McKinney Avenue Suite 700, Dallas, TX 75201-1803
(5.868%).
Code of Ethics
The Board of Trustees of each Fund has adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act. The Funds' Code of Ethics permits Fund personnel to
invest in securities for their own accounts, but requires compliance with the
Code's pre-clearance requirements (with certain exceptions). In addition, the
Funds' Code of Ethics provides for trading "blackout periods" that prohibit
trading by personnel within periods of trading by the Fund in the same security.
The Funds' Code of Ethics also prohibits short term trading profits and personal
investment in initial public offerings. The Code requires prior approval with
respect to purchases of securities in private placements.
Each Fund's adviser, Bankers Trust, has also adopted a Code of Ethics. The Code
of Ethics allows personnel to invest in securities for their own accounts, but
requires compliance with the Code's pre-clearance requirements and other
restrictions including "blackout periods" and minimum holding periods, subject
to limited exceptions. The Code prohibits purchases of securities in initial
public offerings (the prohibition is limited to U.S. public offerings) and
requires prior approval for purchases of securities in private placements.
35
<PAGE>
Each Fund's principal underwriter, ICC Distributors, Inc.("ICC"), has adopted a
Code of Ethics applicable to ICC's distribution services to registered
investment companies such as the Fund. The distributor's Code of Ethics
prohibits access persons and investment personnel from executing personal trades
on a day during which the individual knows or should have known that a Fund has
a pending "buy" or "sell" order in the same security, subject to certain
exceptions. In addition, investment personnel are prohibited from executing
personal trades during a "blackout period" surrounding trades by funds for which
such investment personnel make investment recommendations, subject to certain
exceptions. The distributor's Code of Ethics also requires investment personnel
to obtain pre-clearance for purchases of securities in an initial public
offering or private placement.
Investment Adviser
The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of each of its Funds by investing all
the assets of the Fund in the Portfolio. The Portfolio has retained the
services of Bankers Trust as Adviser.
Bankers Trust is a wholly owned subsidiary of Deutsche Bank A.G.("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, installments
financing and leasing companies, insurance companies, research and consultancy
companies and other domestic and foreign companies.
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 purchase of sale by the Portfolio is a
customer of Bankers Trust, its parent or its subsidiaries or affiliates, Also,
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.
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
36
<PAGE>
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.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $10,613,250, $8,019,093 and $6,544,181, respectively, as compensation for
investment advisory services provided to Cash Management Portfolio. During the
same periods, Bankers Trust reimbursed $1,445,608, $1,151,727 and $940,530,
respectively, to Cash Management Portfolio to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $219,330, $250,537 and $205,614, respectively, as compensation for
investment advisory services provided to Tax Free Money Portfolio. During the
same periods, Bankers Trust reimbursed $28,298, $60,545 and $37,359,
respectively, to Tax Free Money Portfolio to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $47,758, $128,675 and $141,157, respectively, as compensation for
investment advisory services provided to NY Tax Free Money Portfolio. During the
same periods, Bankers Trust reimbursed $34,455, $38,835 and $29,305,
respectively, to NY Tax Free Money Portfolio to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $3,225,042, $3,666,082 and $3,067,422, respectively, in compensation for
investment advisory services provided to Treasury Money Portfolio. During the
same periods, Bankers Trust reimbursed $90,240, $52,678 and $60,612,
respectively, to Treasury Money Portfolio to cover expenses.
The Fund's prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees.
Administrator
Under its Administration and Services Agreements with the Trusts, the Adviser
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trusts in all aspects of the administration and operation of the
Trusts. The Administration and Services Agreements provides for each Trust to
pay the Adviser a fee, computed daily and paid monthly, equal on an annual basis
to 0.55% of the average daily net assets of Cash Management Investment, Tax Free
Money Investment and NY Tax Free Money Investment, and 0.05% of the average
daily net assets of Cash Management Institutional and Treasury Money
Institutional.
Under Administration and Services Agreements with each Portfolio, the Adviser
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 Agreements provides
for each Portfolio to pay the Adviser a fee, computed daily and paid monthly,
equal on an annual basis to 0.05% of the Portfolio's average daily net assets.
Under the Administration and Services Agreements, the Adviser may delegate one
or more of its responsibilities to others, including affiliates of ICC
Distributors, at the Adviser's expense.
Under the Administration and Services Agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the respective
Board of Trustees of the Trust and
37
<PAGE>
each Portfolio reasonably deems necessary for the proper administration of the
Trust and each Portfolio. Bankers Trust will generally assist in all aspects of
the Funds' and Portfolios' operations; supply and maintain office facilities
(which may be in Bankers Trust's own offices), statistical and research data,
data processing services, clerical, accounting, bookkeeping and recordkeeping
services (including without limitation the maintenance of such books and records
as are required under the 1940 Act and the rules thereunder, except as
maintained by other agents of the Trust or the Portfolios), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to shareholders or investors; prepare and file tax returns;
supply financial information and supporting data for reports to and filings with
the SEC and various state Blue Sky authorities; supply supporting documentation
for meetings of the Board of Trustees; provide monitoring reports and assistance
regarding compliance with the Trust's and each Portfolio's Declaration of Trust,
by-laws, investment objectives and policies and with Federal and state
securities laws; arrange for appropriate insurance coverage; calculate the net
asset value, net income and realized capital gains or losses of the Trust; and
negotiate arrangements with, and supervise and coordinate the activities of,
agents and others retained to supply services.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned compensation of $1,492,037, $884,771 and $717,130, respectively, for
administrative and other services provided to the Cash Management Investment and
reimbursed $17,602, $61,113 and $12,060, respectively, to the Cash Management
Investment to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $802,566, $915,978 and $752,445, respectively, for administrative and
other services provided to the Tax Free Money Investment and reimbursed
$42,550, $60,384 and $37,359, respectively, to the Tax Free Money Investment to
cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned compensation of $472,960, $470,872 and $516,579, respectively, for
administrative and other services provided to the NY Tax Free Money Investment
and reimbursed $44,277, $45,394 and $29,632, respectively, to the NY Tax Free
Money Investment to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $1,492,037, $1,143,625 and $931,345, respectively, in compensation for
administrative and other services provided to Cash Management Institutional.
During the same periods, Bankers Trust reimbursed $223,080, $201,937 and
$108,093, respectively, to the Cash Management Institutional to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $861,715, $1,034,694 and $819,884, respectively, in compensation for
administrative and other services provided to Treasury Money Institutional.
During the same periods, Bankers Trust reimbursed $147,342, $98,990 and
$356,801, respectively, to Treasury Money Institutional to cover expenses.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned compensation of $3,539,131, $2,673,031 and $2,181,394, respectively, for
administrative and other services provided to the Cash Management Portfolio.
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For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $78,598, $83,512 and $68,538, respectively, for administrative and other
services provided to Tax Free Money Portfolio.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned $127,794, $42,892 and $47,052, respectively, for administrative and other
services provided to the NY Tax Free Money Portfolio.
For the fiscal years ended December 31, 1999, 1998 and 1997, Bankers Trust
earned compensation of $1,075,014, $1,222,027 and $1,022,474, respectively, for
administrative and other services provided to the Treasury Money Portfolio.
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
The Adviser acts as a Service Agent pursuant to its Administration and Services
Agreements with the Trusts and receives no additional compensation from the
Funds for such shareholder services. The service fees of any other Service
Agents, including broker-dealers, will be paid by the Adviser 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 Trusts, 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 Trusts
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 Agreements with the Adviser, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. In addition, investors may be charged a
transaction fee if they effect transactions in Fund shares through a broker or
agent. Each Service Agent has agreed to transmit to shareholders, who are its
customers, appropriate disclosures of any fees that it may charge them directly.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Street, (One Bankers Trust Plaza), New York, New York
10006, serves as custodian and transfer agent for the Trust and as custodian for
each Portfolio pursuant to the Administration and Services Agreements discussed
above. As custodian, Bankers Trust holds the Funds' and each Portfolio's
assets. For such services, Bankers Trust receives monthly fees from each Fund
and Portfolio, which are included in the administrative services fees
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<PAGE>
discussed above. As transfer agent for the Trust, Bankers Trust maintains the
shareholder account records for each Fund, handles certain communications
between shareholders and the Trust and causes to be distributed any dividends
and distributions payable by the Trust. Bankers Trust is also reimbursed by the
Funds for its out-of-pocket expenses. Bankers Trust will comply with the self-
custodian provisions of Rule 17f-2 under the 1940 Act.
Expenses
Each Fund bears its own expenses. Operating expenses for each Fund generally
consist of all costs not specifically borne by the Adviser or ICC Distributors,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
Each Portfolio bears its own expenses. Operating expenses for each Portfolio
generally consist of all costs not specifically borne by the Adviser or ICC
Distributors, including investment advisory and administration and service fees,
fees for necessary professional services, amortization of organizational
expenses, the costs associated with regulatory compliance and maintaining legal
existence and investor relations.
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. The Trust
has acknowledged that the term "BT" is used by and is a property right of
certain subsidiaries of Bankers Trust and that those subsidiaries and/or Bankers
Trust may at any time permit others to use that term.
The Trust may be required, on 60 days' notice from Bankers Trust at any time, to
abandon use of the acronym "BT" as part of its name. If this were to occur, the
Trustees would select an appropriate new name for the Trust, but there would be
no other material effect on the Trust, its shareholders or activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolios contemplated by the Advisory
Agreements and other activities for the Trust and the Portfolios described in
the Prospectus and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either Federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent Bankers Trust from continuing to perform
those services for the Trust or the Portfolios. If the circumstances described
above should change, the Trust's Board of Trustees would review the Trust's
relationship 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 from time to time provides certain legal
services to Bankers Trust. PricewaterhouseCoopers LLP, 250 W. Pratt Street,
Baltimore, Maryland 21201 has been selected as Independent Accountants for the
Trust.
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ORGANIZATION OF THE TRUSTS
The Trust was organized on July 21, 1986 and the Institutional Trust was
organized on March 26, 1990 under the laws of the Commonwealth of Massachusetts.
Each Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. Each Fund is a separate series of the
respective Trust. Each Trust offers shares of beneficial interest of separate
series, par value $0.001 per share. The interests in each Portfolio are divided
into separate series, no series of which has any preference over any other
series. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. The shares of the other series of the
Trusts are offered through separate prospectuses and statements of additional
information. The Trusts may create and issue additional series of shares. Each
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 a 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. No series of shares has any
preference over any other series.
Each 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 Trusts. However, each
Declaration of Trust disclaims shareholder liability for acts or obligations of
such Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by a Trust or a
Trustee. Each Declaration of Trust provides for indemnification from such
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of shareholders
incurring financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and the Trust itself
was unable to meet its obligations, a possibility that each Trust believes is
remote. Upon payment of any liability incurred by a 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 each Trust in a
manner so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Trusts.
Each of the Cash Management Portfolio, Tax Free Money Portfolio, NY Tax Free
Money Portfolio and Treasury Money Portfolio was organized as a trust under the
laws of the State of New York. Each Portfolio's Declaration of Trust provides
that each Fund and other entities investing in a Portfolio (e.g., other
investment companies, insurance company separate accounts and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of each Trust believe that neither a Fund nor its
shareholders will be adversely affected by reason of the Funds' investing in the
corresponding Portfolio.
The Trusts are not required to hold annual meetings of shareholders but will
hold special meetings of shareholders when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have under certain circumstances the right to
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communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more Trustees without a meeting.
When matters are submitted for shareholder vote, shareholders of a Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of the Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote. Shareholders of a
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 such 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.
Shares of the Trusts 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. Upon liquidation of a Fund, shareholders of that
Fund would be entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders.
Each series in a Trust will not be involved in any vote involving a Portfolio in
which it does not invest its assets. Shareholders of all of the series of a
Trust will, however, vote together to elect Trustees of the Trust and for
certain other matters. Under certain circumstances, the shareholders of one or
more series could control the outcome of these votes.
The series of each Portfolio will vote separately or together in the same manner
as the series of the Trust. Under certain circumstances, the investors in one
or more series could control the outcome of these votes.
Whenever a Trust is requested to vote on a matter pertaining to a Portfolio, the
Trust will vote its shares without a meeting of shareholders of the
corresponding Fund if the proposal is one, if which made with respect to the
Fund, would not require the vote of shareholders of the Fund as long as such
action is permissible under applicable statutory and regulatory requirements.
For all other matters requiring a vote, a Trust will hold a meeting of
shareholders of the Fund and, at the meeting of investors in the Portfolio, the
Trust will cast all of its votes in the same proportion as the votes all its
shares at the Portfolio meeting, other investors with a greater pro rata
ownership of the Portfolio could have effective voting control of the operations
of the Portfolio.
As of March 31, 2000, the following shareholders of record owned 25% or more
of the voting securities of the Cash Management Investment and, therefore, may,
for certain purposes, be deemed to control and be able to affect the outcome of
certain matters presented for a vote of its shareholders: Private Bank Sweep,
Custody Attn. Linda Anderson 1 BT Plaza 17th Floor, New York, NY 10015
(54.872%); Private Bank Sweep Investment Advisory Linda Anderson, 1 BT Plaza,
17th Floor, New York, NY 10015 (30.660%).
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As of March 31, 2000, the following shareholders of record owned 25% or more of
the voting securities of the Tax Free Money Investment and, therefore, may, for
certain purposes, be deemed to control and be able to affect the outcome of
certain matters presented for a vote of its shareholders: Private Bank Sweep,
Custody, New York, NY (65.878%).
As of March 31, 2000, the following shareholders of record owned 25% or more of
the voting securities of the NY Tax Free Money Investment, and, therefore, may,
for certain purposes, be deemed to control and be able to affect the outcome of
certain matters presented for a vote of its shareholders: Private Bank Sweep,
Investment Advisory, New York, NY (39.977%); Private Bank Sweep, Custody, New
York, NY (30.917%);
As of March 31, 2000, no shareholders of record owned 25% or more of the voting
securities of the Cash Management Institutional, and, therefore, are not deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of its shareholders.
As of March 31, 2000, no shareholders of record owned 25% or more of the voting
securities of the Treasury Money Institutional, and, therefore, are not deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of its shareholders.
BT Investment Funds was organized under the name BT Tax-Free Investment Trust
and assumed its current name on May 16, 1988.
DIVIDENDS AND TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisers
with specific reference to their own tax situations.
Dividends
Each Fund declares dividends from its net income daily and pays the dividends
monthly. Each Fund reserves the right to include realized short-term gains, if
any, in such daily dividends. Distributions of each Fund's pro rata share of
the corresponding Portfolio's net realized long-term capital gains, if any, and
any undistributed net realized short-term capital gains are normally declared
and paid annually at the end of the fiscal year in which they were earned to the
extent they are not offset by any capital loss carryforwards. Unless a
shareholder instructs a Trust to pay dividends or capital gains distributions in
cash, dividends and distributions will automatically be reinvested at NAV in
additional shares of the Fund that paid the dividend or distribution.
Taxation of the Funds and Their Investments
Each Fund intends to continue to qualify as a separate regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code").
Provided that each Fund is a regulated investment company, each Fund will not be
liable for Federal income taxes to the extent all of its taxable net investment
income and net realized long-and short-term capital gains, if any, are
distributed to its shareholders. Although the Trusts expect the Funds to be
relieved of all or substantially all Federal income taxes, depending upon the
extent of their activities in states and localities in which their offices are
maintained, in which their agents or independent
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contractors are located or in which they are otherwise deemed to be conducting
business, that portion of a Fund's income which is treated as earned in any such
state or locality could be subject to state and local tax. Any such taxes paid
by a Fund would reduce the amount of income and gains available for distribution
to its shareholders.
If for any taxable year a Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
The Portfolios are not subject to the Federal income taxation. Instead, the Fund
and other investors investing in a Portfolio must take into account, in
computing their Federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.
Each Portfolio determines its net income and realized capital gains, if any, on
each Valuation Day and allocates all such income and gain pro rata among the
corresponding Fund and the other investors in that Portfolio at the time of such
determination.
Taxation of Shareholders
As described above: (i) the Cash Management Investment and the Treasury Money
Fund are designed to provide investors with current income; (ii) the Tax Free
Money Investment is designed to provide investors with current income excluded
from gross income for Federal income tax purposes and (iii) the NY Tax Free
Money Investment is designed to provide investors with current income excluded
from gross income for Federal income tax purposes and exempt from New York State
and New York City personal income taxes. The Funds are not intended to
constitute balanced investment programs and are not designed for investors
seeking capital gains, maximum income or maximum tax-exempt income irrespective
of fluctuations in principal. Investment in the Tax Free Money Fund or the NY
Tax Free Money Fund would not be suitable for tax-exempt institutions, qualified
retirement plans, H.R. 10 plans and individual retirement accounts since such
investors would not gain any additional tax benefit from the receipt of tax-
exempt income.
Distributions of net realized long-term capital gains ("capital gain
dividends"), if any, will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares, and will be
designated as capital gain dividends in a written notice mailed by the Fund to
shareholders after the close of the Fund's prior taxable year. Dividends paid
by the Fund from its taxable net investment income and distributions by the Fund
of its net realized short-term capital gains are taxable to shareholders as
ordinary income, whether received in cash or reinvested in additional shares of
the Fund. Each Fund's dividends and distributions will not qualify for the
dividends-received deduction for corporations.
Shareholders should consult their tax advisers to assess the consequences of
investing in a Fund under state and local laws and to determine whether
dividends paid by a Fund that represent
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interest derived from U.S. Government Obligations are exempt from any applicable
state or local income taxes.
Exempt-interest dividends may be excluded by shareholders of a Fund from their
gross income for federal income tax purposes. Because the Tax Free Money
Investment and the NY Tax Free Money Investment will distribute exempt-interest
dividends, all or a portion of any interest on indebtedness incurred by a
shareholder to purchase or carry shares of these Funds will not be deductible
for Federal income and New York State and New York City personal income tax
purposes. In addition, the Code may require a shareholder of these Funds, if he
receives exempt-interest dividends, to treat as taxable income a portion of
certain otherwise nontaxable social security and railroad retirement benefit
payments. Furthermore, that portion of any exempt-interest dividend paid by one
of these Funds which represents income from private activity bonds held by the
Fund may not retain its tax-exempt status in the hands of a shareholder who is a
"substantial user" of a facility financed by such bonds, or a "related person"
thereof. Moreover, as noted in the Prospectus for these Funds, some or all of a
Fund's dividends and distributions may be specific preference items, or a
component of an adjustment item, for purposes of the Federal individual and
corporate alternative minimum taxes. In addition, the receipt of Fund dividends
and distributions may affect a foreign corporate shareholder's Federal "branch
profits" tax liability and a Subchapter S corporate shareholder's Federal
"excess net passive income" tax liability. Shareholders should consult their
own tax advisers as to whether they are (i) "substantial users" with respect to
a facility or "related" to such users within the meaning of the Code and (ii)
subject to a Federal alternative minimum tax, the Federal "branch profits" tax
or the Federal "excess net passive income" tax.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income or fails to certify that he or
she has provided a correct taxpayer identification number and that he or she is
not subject to "backup withholding," then the shareholder may be subject to a
31% backup withholding tax with respect to any taxable dividends and
distributions. An individual's taxpayer identification number is his or her
social security number. The 31% backup withholding tax is not an additional tax
and may be credited against a taxpayer's regular Federal income tax liability.
Shareholders should consult their tax advisers as to any state and local taxes
that may apply to these dividends and distributions.
Statements as to the tax status of each shareholder's dividends and
distributions, if any, are mailed annually. Each shareholder will also receive,
if appropriate, various written notices after the end of a Fund's prior taxable
year as to the federal income tax status of his or her dividends and
distributions which were received from that Fund during that year. Each Tax Free
Money Investment and NY Tax Free Money Investment shareholder will receive after
the close of the calendar year an annual statement as to the Federal income
(and, in the case of the NY Tax Free Money Investment, New York State and City)
personal income tax status of his dividends and distributions from the Fund for
the prior calendar year. These statements will also designate the amount of
exempt-interest dividends that is a specific preference item for purposes of the
Federal individual and corporate alternative minimum taxes. The dollar amount of
dividends excluded from Federal income taxation or exempt from New York State
and City
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personal 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 a Fund. To the extent that the Funds earn
taxable net investment income, each of the Funds intends to designate as taxable
dividends the same percentage of each day's dividend as its taxable net
investment income bears to its total net investment income earned on that day.
Therefore, the percentage of each day's dividend designated as taxable, if any,
may vary from day to day.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise "current yield," "effective yield"
and/or "tax equivalent yield" for a Fund. All yield figures are based on
historical earnings and are not intended to indicate future performance. The
"current yield" of a Fund refers to the income generated by an investment in the
Fund over a seven-day period (which period will be stated in the advertisement).
This income is then "annualized;" that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
a Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "current yield" because of the compounding effect of this
assumed reinvestment. The "tax equivalent yield" demonstrates the yield on a
taxable investment necessary to produce an after-tax yield equal to a Fund's tax
free yield. It is calculated by increasing the yield shown for the Fund to the
extent necessary to reflect the payment of specified tax rates. The Trust may
include this information in sales material and advertisements for a Fund.
Yield is a function of the quality, composition and maturity of the securities
held by the corresponding Portfolio and operating expenses of a Fund and the
corresponding Portfolio. In particular, a Fund's yield will rise and fall with
short-term interest rates, which can change frequently and sharply. In periods
of rising interest rates, the yield of a Fund will tend to be somewhat lower
than the prevailing market rates, and in periods of declining interest rates,
the yield will tend to be somewhat higher. In addition, when interest rates are
rising, the inflow of net new money to a Fund from the continuous sale of its
shares will likely be invested by the corresponding Portfolio in instruments
producing higher yields than the balance of that Portfolio's securities, thereby
increasing the current yield of the Fund. In periods of falling interest rates,
the opposite can be expected to occur. Accordingly, yields will fluctuate and
do not necessarily indicate future results. While yield information may be
useful in reviewing the performance of a Fund, it may not provide a basis for
comparison with bank deposits, other fixed rate investments, or other investment
companies that may use a different method of calculating yield. Any fees
charged by Service Agents for processing purchase and/or redemption transactions
will effectively reduce the yield for those shareholders.
From time to time, advertisements or reports to shareholders may compare the
yield of a Fund to that of other mutual funds with similar investment objectives
or to that of a particular index. The yield of the Cash Management Investment
might be compared with, for example, the IBC First Tier All Taxable Money Fund
Average, that of the Treasury Money Fund might be
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compared with IBC U.S. Treasury and Repo All Taxable Money Fund Average, and
that of Tax Free Money Investment and the NY Tax Free Money Investment might be
compared with IBC State Specific All Tax Free Money Investmetn Average and IBC
Stockbroker and General Purpose All Tax Free Money Investment Average, which are
averages compiled by IBC Money Fund Report, a widely recognized, independent
publication that monitors the performance of money market mutual funds.
Similarly, the yield of a Fund might be compared with rankings prepared by
Micropal Limited and/or Lipper Analytical Services, Inc., which are widely
recognized, independent services that monitor the investment performance of
mutual funds. The yield of a Fund might also be compared without the average
yield reported by the Bank Rate Monitor for money market deposit accounts
offered by the 50 leading banks and thrift institutions in the top five standard
metropolitan areas. Shareholders may make inquiries regarding the Funds,
including current yield quotations and performance information, by contacting
any Service Agent.
Shareholders will receive financial reports semi-annually that include listings
of investment securities held by a Fund's corresponding Portfolio at those
dates. Annual reports are audited by independent accountants.
From time to time a Fund may quote its performance in terms of "current yield,"
"effective yield" or "tax equivalent yield" in reports or other communications
to shareholders or in advertising material.
The effective yield is an annualized yield based on a compounding of the
unannualized base period return. These yields are each computed in accordance
with a standard method prescribed by the rules of the SEC, by first determining
the "net change in account value" for a hypothetical account having a share
balance of one share at the beginning of a seven-day period (the "beginning
account value"). The net change in account value equals the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares. The unannualized
"base period return" equals the net change in account value divided by the
beginning account value. Realized gains or losses or changes in unrealized
appreciation or depreciation are not taken into account in determining the
net change in account value. The tax equivalent yields of the Tax Free Money
Investment and the NY Tax Free Money Investment are computed by dividing the
portion of a Fund's yield which is tax exempt by one minus a stated income
tax rate and adding the product to that portion, if any, of the Fund's yield
that is not tax exempt.
The yields are then calculated as follows:
Base Period Return = Net Change in Account Value
---------------------------
Beginning Account Value
Current Yield = Base Period Return x 365/7
Effective Yield = [(1 + Base Period Return)365/7] - 1
Tax Equivalent Yield = Current Yield
-------------
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(1 - Tax Rate)
The following table sets forth various measures of the performance for each
of the Funds for the seven days ended December 31, 1999.
<TABLE>
<CAPTION>
Cash Tax Free Money NY Tax Free Money Cash Management Treasury Money
ManagementInvestment investment * investment ** Institutional Institutional
<S> <C> <C> <C> <C> <C>
Current Yield 5.21% 3.50% 3.49% 5.73% 4.64%
Effective Yield 5.16% 3.56% 3.56% 5.90% 4.75%
Tax Equivalent N/A 5.07% 5.72% N/A N/A
Yield
</TABLE>
___________________________
* Assumes a maximum Federal rate of 31%.
** Assumes a maximum combined Federal, New York State and New York City tax
rate of 39%
FINANCIAL STATEMENTS
The financial statements for the Funds and the Portfolios for the fiscal year
ended December 31, 1999, are incorporated herein by reference to the Funds'
Annual Report dated December 31, 1999. A copy of the Funds' Annual Report may
be obtained without charge by contacting the Service Center at 1-800-730-1313.
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APPENDIX
DESCRIPTION OF RATINGS
Description of S&P corporate bond ratings:
AAA - Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major categories, except in
the AAA rating category.
Description of Moody's corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edge." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Description of Fitch IBCA, Inc. ("Fitch") corporate bond ratings:
AAA--Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong companies, and are
most numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on specific property as
in the case of high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary reduction of the
debt by call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.
AA--Securities in this group are of safety virtually beyond question, and as a
class are readily salable while many are highly active. Their merits are not
greatly unlike those of the AAA class,
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but a security so rated may be of junior though strong lien in many cases
directly following an AAA security or the margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the enterprise and
more local type of market.
Description of Duff & Phelps' corporate bond ratings:
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury Funds.
AA+, AA, AA--High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
Description of S&P's municipal bond ratings:
AAA--Prime--These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds--In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Quality of
management appears superior.
50
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Revenue Bonds--Debt service coverage has been, and is expected to remain,
substantial; stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds and debt service reserve requirements) are
rigorous. There is evidence of superior management.
AA--High Grade--The investment characteristics of bonds in this group are only
slightly less marked than those of the prime quality issues. Bonds rated AA
have the second strongest capacity for payment of debt service.
S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major rating categories,
except in the AAA rating category.
Description of Moody's municipal bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Moody's may apply the numerical modifier 1 in each generic rating classification
from Aa through B. The modifier 1 indicates that the security within its
generic rating classification possesses the strongest investment attributes.
Description of S&P municipal note ratings:
Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1 or SP-2) to distinguish more clearly the credit quality
of notes as compared to bonds. Notes rated SP-1 have a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given the designation of SP-1+. Notes
rated SP-2 have a satisfactory capacity to pay principal and interest.
Description of Moody's municipal note ratings:
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and long-
term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG-1/VMIG-2 are of high
quality, with ample margins of protection, although not as large as the
preceding group.
Description of S&P commercial paper ratings:
51
<PAGE>
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted A-1+.
Description of Moody's commercial paper ratings:
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Description of Fitch commercial paper ratings:
F1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issue.
Description of Duff & Phelps' commercial paper ratings:
Duff 1+--Highest certainty of timely payment. Short term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk free U.S. Treasury short term
obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Description of Thompson Bank Watch Short-Term Ratings:
T-1--The highest category; indicates a very high likelihood that principal and
interest will be paid on a timely basis.
T-2--The second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
T-3--The lowest investment-grade category; indicates that while the obligation
is more susceptible to adverse developments (both internal and external) than
those with higher ratings, the capacity to service principal and interest in a
timely fashion is considered adequate.
T-4--The lowest rating category; this rating is regarded as non-investment grade
and therefore speculative.
Description of Thompson BankWatch Long-Term Ratings:
AAA--The highest category; indicates that the ability to repay principal and
interest on a timely basis is extremely high.
AA--The second-highest category; indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
A--The third-highest category; indicates the ability to repay principal and
interest is strong. Issues rated "a" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
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<PAGE>
BBB--The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. Issues rated "BBB" are, however, more vulnerable
to adverse developments (both internal and external) than obligations with
higher ratings.
Non-Investment Grade
(Issues regarded as having speculative characteristics in the likelihood of
timely repayment of principal and interest.)
BB--While not investment grade, the "BB" rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations.
B--Issues rated "B" show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse development could well
negatively affect the payment of interest and principal on a timely basis.
CCC--Issues rated "CCC" clearly have a high likelihood of default, with little
capacity to address further adverse changes in financial circumstances.
CC--"CC" is applied to issues that are subordinate to other obligations rated
"CCC" and are afforded less protection in the event of bankruptcy or
reorganization.
D--Default
These long-term debt ratings can also be applied to local currency debt. In
such cases the ratings defined above will be preceded by the designation "local
currency".
Ratings in the Long-Term Debt categories may include a plus (+) or Minus (-)
designation, which indicates where within the respective category the issue is
placed.
53
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 2000
Investment Adviser of the Portfolio
Administrator of the Fund and Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, MD 21201
Counsel
WILLKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, NY 10019
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectus, 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 Prospectus 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 #055922108
Cusip #055922306
Cusip #055922207
Cusip #055924104
Cusip #055924203
COMBMONSAI (0/00)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 30, 2000
BT Investment Funds
Treasury Money Investment
BT Investment Funds (the "Trust") is an open-end management investment company
that offers investors a selection of investment portfolios, each having distinct
investment objectives and policies. This Statement of Additional Information
relates to Treasury Money Investment (the "Fund"). The Fund is a separate
series of the Trust.
The Fund's investment objective is to seek a high level of current income
consistent with liquidity and the preservation of capital. The Trust seeks to
achieve the investment objective of the Fund by investing all the investable
assets of the Fund in the Treasury Money Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Fund. The Portfolio is a series of BT Investment Portfolios.
Shares of the Fund are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trust's distributor (the "Distributor"), to clients and customers (including
affiliates and correspondents) of Bankers Trust Company ("Bankers Trust"), the
Portfolio's investment adviser ("Adviser"), and to clients and customers of
other organizations.
The Fund's Prospectus, dated April 30, 2000, provides the basic information
investors should know before investing. This Statement of Additional
Information ("SAI"), which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of the Trust and
should be read in conjunction with the Fund's Prospectus. You may request a copy
of the Prospectus or a paper copy of this SAI, if you have received it
electronically, free of charge by calling the Trust at the telephone number
listed below or by contacting any Bankers Trust service agent ("Service Agent").
This SAI is not an offer of any Fund for which an investor has not received a
Prospectus. Capitalized terms not otherwise defined in this SAI have the
meanings accorded to them in the Fund's Prospectus. The financial statements
for the Fund and the Portfolio for the fiscal year ended December 31, 1999, are
incorporated herein by reference to the Annual Report to shareholders for the
Fund and Portfolio dated December 31, 1999. A copy of the Fund's and the
Portfolio's Annual Report may be obtained without charge by calling the Fund at
the telephone number listed below.
BANKERS TRUST COMPANY
Investment Adviser of the Portfolio
Administrator of the Fund and Portfolio
ICC DISTRIBUTORS, INC.
Distributor
1-800-730-1313
<PAGE>
TABLE OF CONTENTS
PAGE
----
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.......................1
Investment Objective...........................................1
Investment Policies............................................1
Additional Risk Factors........................................2
Investment Restrictions........................................4
Portfolio Turnover.............................................8
Portfolio Transactions.........................................8
NET ASSET VALUE.......................................................9
PURCHASE AND REDEMPTION INFORMATION..................................10
Purchase of Shares............................................10
Redemption of Shares..........................................11
MANAGEMENT OF THE TRUST AND PORTFOLIO................................12
Trustees of the Portfolio.....................................11
Officers of the Trust and the Portfolio.......................13
Investment Adviser...........................................165
Administrator.................................................19
Distributor...................................................21
Service Agent.................................................21
Custodian and Transfer Agent..................................18
Expenses......................................................18
Use of Name...................................................18
Banking Regulatory Matters....................................23
Counsel and Independent Accountants...........................19
ORGANIZATION OF THE TRUST............................................19
DIVIDENDS, DISTRIBUTIONS AND TAXES...................................20
PERFORMANCE INFORMATION..............................................22
FINANCIAL STATEMENTS.................................................23
APPENDIX.............................................................24
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objective
The Fund seeks a high level of current income consistent with liquidity and the
preservation of capital through investment in a portfolio of direct obligations
of the U.S. Treasury and repurchase agreements collateralized by such
obligations. There can, of course, be no assurance that the Fund will achieve
its investment objective.
Investment Policies
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.
U.S. Government Obligations. The Portfolio may invest in direct obligations
issued by the U.S. Treasury including Treasury bills, notes and bonds ("U.S.
Government Obligations"). Such U.S. Government Obligations are supported by the
"full faith and credit" of the U.S. government. While U.S. Government
Obligations are guaranteed by the U.S. government as to the timely payment of
principal and interest, the market value of such obligations is not guaranteed
and may rise and fall in response to changes in interest rates. The shares of
the Fund and the interests in the Portfolio are not guaranteed or insured by the
U.S. government.
Lending of Portfolio Securities. The Portfolio has the authority to lend up to
30% of the value of its portfolio securities to brokers, dealers and other
financial organizations. 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. The Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio must receive
at least 100% 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. Cash collateral may be
invested in a money market fund managed by Bankers Trust (or its affiliates) and
Bankers Trust may serve as the Portfolio's lending agent and may share in
revenue received from securities lending transactions as compensation for this
service.
Repurchase Agreements. The Portfolio may engage in repurchase agreement
transactions with banks and governmental securities dealers approved by the
Portfolio's Board of Trustees. Under the terms of a typical repurchase
agreement, the Portfolio would acquire U.S. Government Obligations regardless of
maturity any remaining maturity for a relatively short period (usually not more
than one week), subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the obligation at an agreed price and time, thereby
determining the yield during the Portfolio's holding period. This arrangement
results in a fixed rate of return that is not subject to market fluctuations
during the Portfolio's holding period. The value of the underlying securities
will be at least equal at all times to the total amount of the repurchase
obligations, including interest. The Portfolio bears a risk of loss in the
event that the other
1
<PAGE>
party to a repurchase agreement defaults on its obligations and the Portfolio is
delayed in or prevented from exercising its rights to dispose of the
collateralized securities, including the risk of a possible decline in the value
of the underlying securities during the period in which the Portfolio seeks to
assert these rights. Bankers Trust reviews the creditworthiness of
those banks and dealers with which the Portfolio enters into repurchase
agreements and monitors on an ongoing basis the value of the securities subject
to repurchase agreements to ensure that it is maintained at the required level.
Reverse Repurchase Agreements. The Portfolio may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption requests,
and not for leverage, by among other things, agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time the Portfolio enters into a reverse repurchase
agreement it segregates cash, U.S. Government Obligations or high-grade debt
obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Portfolio may decline below the repurchase price
of those securities. Reverse repurchase agreements are considered to be
borrowings by the Portfolio.
When-Issued and Delayed-Delivery Securities. To secure prices deemed
advantageous at a particular time, the Portfolio may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Portfolio will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Portfolio
may include securities purchased on a "when, as, and if issued" basis under
which the issuance of the securities depends on the occurrence of a subsequent
event.
Securities purchased on a when-issued or delayed-delivery basis may expose the
Portfolio to risk because the securities may experience fluctuations in value
prior to their actual delivery. The Portfolio does not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated
delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.
Upon purchasing a security on a when-issued or delayed-delivery basis, the
Portfolio will segregate cash or liquid securities in an amount at least equal
to the when-issued or delayed-delivery commitment.
Quality and Maturity of the Portfolio's Securities. The Portfolio will maintain
a dollar-weighted average maturity of 90 days or less. All securities in which
the Portfolio invests will have, or be deemed to have, remaining maturities of
397 days or less on the date of their purchase and will be denominated in U.S.
dollars. Bankers Trust, acting under the supervision of and procedures adopted
by the Board of Trustees of the Portfolio, will also determine that all
securities purchased by the Portfolio present minimal credit risks. Bankers
Trust will cause the Portfolio to dispose of any security as soon as practicable
if the security is no longer of the requisite quality, unless such action would
not be in the best interest of the Portfolio. High-quality, short-term
instruments may result in a lower yield than instruments with a lower quality or
longer term.
2
<PAGE>
Additional Risk Factors
In addition to the risks discussed above, the Portfolio's investments may be
subject to the following risk factors:
Special Information Concerning Master-Feeder Fund Structure. Unlike other open-
end management investment companies (mutual funds) which directly acquire and
manage their own portfolio securities, the Fund seeks to achieve its investment
objective by investing all of its assets in the Portfolio, a separate registered
investment company with the same investment objective as the Fund. Therefore,
an investor's interest in the Portfolio's securities is indirect. In addition
to selling a beneficial interest to the Fund, the Portfolio may sell beneficial
interests to other mutual funds, investment vehicles or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Bankers Trust at 1-800-730-1313.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns (however, this
possibility exists as well for traditionally structured funds which have large
institutional investors). Additionally, the Portfolio may become less diverse,
resulting in increased portfolio risk. Also, funds with a greater pro rata
ownership in the Portfolio could have effective voting control of the operations
of the Portfolio. Except as permitted by the SEC, whenever the Trust is
requested to vote on matters pertaining to the Portfolio, the Trust will hold a
meeting of shareholders of the Fund and will cast all of its votes in the same
proportion as the votes of the Fund's shareholders. Fund shareholders who do
not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing the Fund's shareholders not voting
will be voted by the Trustees or officers of the Trust in the same proportion as
the Fund shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund could incur brokerage, tax or other charges
in converting the securities to cash. In addition, the distribution in kind may
result in a less diversified portfolio of investments or adversely affect the
liquidity of the Fund. Notwithstanding the above, there are other means for
meeting redemption requests, such as borrowing.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the Portfolio.
The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment
3
<PAGE>
objective, the Fund's shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current needs. The investment
objective of the Portfolio is also not a fundamental policy. Shareholders of the
Fund will receive 30 days prior written notice with respect to any change in the
investment objective of the Fund or the Portfolio.
Rating Services. The ratings of Moody's and Standard & Poor's Ratings
Services ("S&P") 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, the Adviser also makes its own evaluation of these securities,
subject to review by 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 the Adviser will
consider such an event in its determination of whether the Portfolio should
continue to hold the obligation. A description of the ratings categories of
Moody's and S&P is set forth in the Appendix to this SAI.
Investment Restrictions
Fundamental Policies. The following investment restrictions have been adopted
by the Trust with respect to the Fund and by the Portfolio as fundamental
policies. Under the Investment Company Act of 1940 (the "1940 Act"), a
"fundamental" policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund or Portfolio, respectively, which is
defined in the 1940 Act as the lesser of (a) 67% or more of the shares present
at a shareholder meeting if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or (b) more than 50% of the
outstanding shares. Whenever the Fund is requested to vote on a change in the
investment restrictions of the Portfolio, the Trust will hold a meeting of Fund
shareholders and will cast its votes as instructed by the shareholders. Fund
shareholders who do not vote will not affect the Trust's votes at the Portfolio
meeting. The percentage of the Trust's votes representing Fund shareholders not
voting will be voted by the Trustees of the Trust in the same proportion as the
Fund shareholders who do, in fact, vote.
Under investment policies adopted by the Trust, on behalf of the Fund, and by
the Portfolio, the Fund and the Portfolio may not:
1. Borrow money, except for temporary or emergency (not leveraging)
purposes in an amount not exceeding 5% of the value of the Fund's or
the Portfolio's total assets (including the amount borrowed), as the
case may be, calculated in each case at market.
2. Pledge, hypothecate, mortgage or otherwise encumber more than 5% of
the total assets of the Fund or the Portfolio, as the case may be, and
only to secure borrowings for temporary or emergency purposes.
3. Invest more than 5% of the total assets of the Fund or the Portfolio,
as the case may be, in any one issuer (other than U.S. Government
Obligations) or purchase more than 10% of any class of securities of
any one issuer; provided, however, that up to 25% of the assets of the
Fund (and the Portfolio) may be invested without regard to this
restriction.
4. Invest more than 25% of the total assets of the Fund or the Portfolio,
as the case may be, in the securities of issuers in any single
industry; provided that this limitation shall not apply to the
purchase of direct obligations issued by the U.S. Treasury; provided,
--------
however, that nothing in
-------
4
<PAGE>
this investment restriction shall prevent the Trust from investing all
or part of the Fund's assets in an open-end management investment
company with the same investment objectives as the Fund.
5. Make short sales of securities, maintain a short position or purchase
any securities on margin, except for such short-term credits as are
necessary for the clearance of transactions.
6. Underwrite the securities issued by others (except to the extent the
Fund or Portfolio may be deemed to be an underwriter under the Federal
securities laws in connection with the disposition of its portfolio
securities) or knowingly purchase restricted securities; provided,
--------
however, that nothing in this investment restriction shall prevent the
-------
Trust from investing all or part of the Fund's assets in an open-end
management investment company with the same investment objectives as
the Fund.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil, gas or mineral interests,
but this shall not prevent the Fund or the Portfolio from investing in
obligations secured by real estate or interests therein.
8. Make loans to others, except through the purchase of qualified debt
obligations, the entry into repurchase agreements and the lending of
portfolio securities.
Invest more than an aggregate of 10% of the net assets of the Fund or
the Portfolio, respectively, (taken, in each case, at current value)
in (i) securities that cannot be readily resold to the public because
of legal or contractual restrictions or because there are no market
quotations readily available or (ii) other "illiquid" securities
(including time deposits and repurchase agreements maturing in more
than seven calendar days); provided, however, that nothing in this
investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company
with the same investment objectives as the Fund.
10. Purchase more than 10% of the voting securities of any issuer or
invest in companies for the purpose of exercising control or
management; provided, however, that nothing in this investment
-------- -------
restriction shall prevent the Trust from investing all or part of the
Fund's assets in an open-end management investment company with the
same investment objectives as the Fund.
11. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an offer of
exchange; provided, however, that nothing in this investment
-------- -------
restriction shall prevent the Trust from investing all or part of the
Fund's assets in an open-end management investment company with the
same investment objectives as the Fund.
12. Issue any senior securities, except insofar as it may be deemed to
have issued a senior security by reason of (i) entering into a
repurchase agreement or (ii) borrowing in accordance with terms
described in the Prospectus and this SAI.
13. Purchase or retain the securities of any issuer if any of the officers
or trustees of the Fund or the Portfolio or its investment adviser
owns individually more than 1/2 of 1% of the securities of such
issuer, and together such officers and directors own more than 5% of
the securities of such issuer.
14. Invest in warrants, except that the Fund or the Portfolio may invest
in warrants if, as a result, the investments (valued in each case at
the lower of cost or market) would not exceed 5% of the
5
<PAGE>
value of the net assets of the Fund or the Portfolio, as the case may
be, of which not more than 2% of the net assets of the Fund or the
Portfolio, as the case may be, may be invested in warrants not listed
on a recognized domestic stock exchange. Warrants acquired by the Fund
or the Portfolio as part of a unit or attached to securities at the
time of acquisition are not subject to this limitation.
15. With respect to the Fund's (Portfolio's) total assets, invest more
than 5% of its total assets in the securities of any one issuer
(excluding cash and cash-equivalents, U.S. government securities and
the securities of other investment companies) or own more than 10% of
the voting securities of any issuer.
Additional Restrictions. The following are nonfundamental policies of the Fund
and the Portfolio. In order to comply with certain statutes and policies the
Portfolio (or 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) borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's (Fund's) total assets
(taken at market), except that the Portfolio (Fund) may borrow for
temporary or emergency purposes up to 1/3 of its net assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's (Fund's) total assets (taken at market value),
provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this
restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided that
if such right is conditional the sale is made upon the same
conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided,
however, that securities of any investment company will not be
purchased for the Portfolio (Fund) if such purchase at the time
thereof would cause (a) more than 10% of the Portfolio's (Fund's)
total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuers; (b) more than 5% of the
Portfolio's (Fund's) total assets (taken at the greater of cost or
market value) to be invested in any one investment company; or (c)
more than 3% of the outstanding voting securities of any such issuer
to be held for the Portfolio (Fund); and, provided further, that the
Portfolio shall not invest in any other open-end investment company
unless the Portfolio (Fund) (1) waives the investment advisory fee
with respect to assets invested in other open-end investment companies
and (2)
6
<PAGE>
incurs no sales charge in connection with the investment (as an
operating policy, the Portfolio will not invest in another open-end
registered investment company);
(vii) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the
same issue and equal in amount to, the securities sold short, and
unless not more than 10% of the Portfolio's (Fund's) net assets (taken
at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time
(the Portfolio (Fund) has no current intention to engage in short
selling);
There will be no violation of any investment restrictions or policies (except
with respect to fundamental investment restriction (1) above) 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.
The Fund will comply with the state securities laws and regulations of all
states in which it is registered. The Portfolio will comply with the permitted
investments and investment limitations in the securities laws and regulations of
all states in which the Fund, or any other registered investment company
investing in the Portfolio, is registered.
Portfolio Turnover
The Portfolio may attempt to increase yields by trading to take advantage of
short-term market variations, which results in higher portfolio turnover. This
policy does not result in higher brokerage commissions to the Portfolio,
however, as the purchases and sales of portfolio securities are usually effected
as principal transactions. The Portfolio's turnover rate is not expected to
have a material effect on its income and has been and is expected to be zero for
regulatory reporting purposes.
Portfolio Transactions
Decisions to buy and sell securities and other financial instruments for the
Portfolio are made by Bankers Trust, which also is responsible for placing these
transactions, subject to the overall review of the Board of Trustees. Although
investment requirements for the Portfolio are reviewed independently from those
of the other accounts managed by Bankers Trust, investments of the type the
Portfolio may make may also be made by these other accounts. When the Portfolio
and one or more other accounts managed by Bankers Trust are prepared to invest
in, or desire to dispose of, the same security or other financial instrument,
available investments or opportunities for sales will be allocated in a manner
believed by Bankers Trust to be equitable to each. In some cases, this
procedure may affect adversely the price paid or received by the Portfolio or
the size of the position obtained or disposed of by the Portfolio.
Purchases and sales of securities on behalf of the Portfolio usually are
principal transactions. These securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. The cost
of securities purchased from underwriters includes an underwriting commission or
concession and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. U.S. Government Obligations
are generally purchased from underwriters or dealers, although certain newly
issued U.S. Government Obligations may be purchased directly from the U.S.
Treasury or from the issuing agency or instrumentality.
7
<PAGE>
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere and principal transactions are not entered into with persons
affiliated with the Portfolio except pursuant to exemptive rules or orders
adopted by the Securities and Exchange Commission. Under rules adopted by the
SEC, broker-dealers may not execute transactions on the floor of any national
securities exchange for the accounts of affiliated persons, but may effect
transactions by transmitting orders for execution.
In selecting brokers or dealers to execute portfolio transactions on behalf of
the Portfolio, Bankers Trust seeks the best overall terms available. In
assessing the best overall terms available for any transaction, Bankers Trust
will consider the factors it deems relevant, including the breadth of the market
in the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, Bankers Trust is authorized, in selecting parties to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage, but not research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Portfolio and/or other accounts over which Bankers Trust or its affiliates
exercise investment discretion. Bankers Trust's fees under its agreements with
the Portfolio are not reduced by reason of its receiving brokerage services.
NET ASSET VALUE
The net asset value ("NAV") per share is calculated on each day on which the
Fund is open (each such day being a "Valuation Day").
The NAV per share of the Fund is calculated twice on each Valuation Day as of
12:00 noon, Eastern time, and as of the close of regular trading on the NYSE,
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 "Valuation Time"). The Fund may
close early under certain circumstances, as described in the Fund's current
Prospectus. The Fund's NAV per share will normally be $1.00.
The valuation of the Portfolio's securities is based on their amortized cost,
which does not take into account unrealized capital gains or losses. Amortized
cost valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument.
The Portfolio's use of the amortized cost method of valuing its securities is
permitted by a rule adopted by the SEC. The Portfolio will also maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of two years or less and invest only in
securities determined by or under the supervision of the Board of Trustees to be
of high quality with minimal credit risks.
Pursuant to the rule, the Board of Trustees of the Portfolio also has
established procedures designed to allow investors in the Portfolio, such as the
Trust, to stabilize, to the extent reasonably possible, the investors' price per
share as computed for the purpose of sales and redemptions at $1.00. These
procedures include review of the Portfolio's holdings by the Portfolio's Board
of Trustees, at such
8
<PAGE>
intervals as it deems appropriate, to determine whether the value of the
Portfolio's assets calculated by using available market quotations or market
equivalents deviates from such valuation based on amortized cost.
The rule also provides that the extent of any deviation between the value of the
Portfolio's assets based on available market quotations or market equivalents
and such valuation based on amortized cost must be examined by the Portfolio's
Board of Trustees. In the event the Portfolio's Board of Trustees determines
that a deviation exists that may result in material dilution or other unfair
results to investors or existing shareholders, pursuant to the rule, the
Portfolio's Board of Trustees must cause the Portfolio to take such corrective
action as such Board of Trustees regards as necessary and appropriate,
including: selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends
or paying distributions from capital or capital gains; redeeming shares in kind;
or valuing the Portfolio's assets by using available market quotations.
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 of the close of the
following business day.
PURCHASE AND REDEMPTION INFORMATION
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 may
be available through Investment Professionals, such as broker/dealers and
investment advisers (including Service Agents).
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. If the purchase order is received by the Service Agent and
transmitted to the Transfer Agent after 12:00 noon (Eastern time) and prior to
the close of the NYSE, the shareholder will receive the dividend declared on the
following day even if Bankers Trust, as the Trust's custodian (the "Custodian"),
receives federal funds on that day. If the purchase order is received prior to
12:00 noon, the shareholder will receive that Valuation Day's dividend. The
Trust and Transfer Agent reserve the right to reject any purchase order. If the
market for the primary investments in the Fund closes early, the Fund will cease
taking purchase orders at that time.
9
<PAGE>
Another mutual fund investing in the Portfolio may accept purchase orders up
until a time later than 12:00 noon, Eastern time. Such orders, when transmitted
to and executed by the Portfolio, may have an impact on the Fund's performance.
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 the Custodian purchase payments by the following business day (trade
date + 1) after an order for shares is placed. A shareholder must settle with
the Service Agent for his or her entitlement to an effective purchase or
redemption order as of a particular time. Because Bankers Trust is the
Custodian and Transfer Agent of the Trust, funds may be transferred directly
from or to a customer's account held with Bankers Trust to settle transactions
with the Fund without incurring the additional costs or delays associated with
the wiring of federal funds.
If orders are placed through a Service Agent, it is the responsibility of
the Service Agent to transmit the order to buy shares to the Transfer Agent
before the applicable Valuation time.
Certificates for shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need a special application. Contact your
Investment Professional for more information and a retirement account
application.
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 of the Fund received by the Service Agent and
transmitted to the Transfer Agent prior to the 12:00 noon (Eastern time) on a
Valuation Day will not receive the dividend declared on the day of redemption;
the redemption proceeds normally will be will be delivered to the shareholder's
account with the Service Agent on that day. Redemption requests received by the
Service Agent and transmitted to the Transfer Agent after 12:00 noon (Eastern
time) on a Valuation Day and prior to the close of the NYSE will receive the
dividend declared on the day of the redemption; the redemption proceeds normally
will be delivered to the shareholder's account with the Service Agent 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.
10
<PAGE>
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:
. Your account registration has changed within the last 30 days,
. The check is being mailed to a different address than the one on your
account (record address),
. The check is being made payable to someone other than the account owner,
. The redemption proceeds are being transferred to a BT account with a
different registration, or
. You wish to have redemption proceeds wired to a non-predesignated bank
account.
A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
Redemptions
The Trust may suspend the right of redemption or postpone the date of payment
for shares during any period when: (a) trading in the Fund's primary markets is
restricted by applicable rules and regulations of the SEC; (b) the Fund's
primary market is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC.
Each Fund and Portfolio reserve the right to redeem all of its shares, if the
Board of Trustees votes to liquidate the Fund and/or Portfolio.
MANAGEMENT OF THE TRUST AND PORTFOLIO
The Trust and the Portfolio are governed by a Board of Trustees which is
responsible for protecting the interests of investors. By virtue of the
responsibilities assumed by Bankers Trust, the administrator of the Trust and
the Portfolio, neither the Trust nor the Portfolio require employees other than
its executive officers. None of the executive officers of the Trust or the
Portfolio devotes full time to the affairs of the Trust or the Portfolio.
A majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust or the Portfolio, as the case may be, have adopted
written procedures reasonably appropriate to deal with potential conflicts of
interest arising from the fact that some of the same individuals are Trustees of
the Trust and the Portfolio, up to and including creating separate boards of
trustees.
Each Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund or Portfolio
they represent. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund/Portfolio and review the Fund's
performance.
The Trustees and officers of the Trust and the Portfolio, their birthdates, and
their principal occupations during the past five years are set forth below.
Their titles may have varied during that period.
11
<PAGE>
Trustees of the Trust and Portfolio
CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex/1/; Retired; formerly 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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly Partner, KPMG Peat Marwick; Director, Vintners
International Company Inc.; Director, Coutts (U.S.A.) International; Trustee,
Phoenix Zweig Series Trust; Trustee, Phoenix Euclid Market Neutral Fund;
Director, Coutts Trust Holdings Ltd., Director, Coutts Group; General Partner,
Pemco/2/. His address is 5070 North Ocean Drive, Singer Island, Florida 33404.
MARTIN J. GRUBER (birth date: July 15, 1937) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Nomura Professor of Finance, Leonard N. Stern School of Business, New
York University (since 1964); Trustee, TIAA2; Director, S.G. Cowen Mutual
Funds2; Director, Japan Equity Fund, Inc.2; Director, Taiwan Equity Fund, Inc.2
His address is 229 South Irving Street, Ridgewood, New Jersey 07450.
RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Trust and Portfolio
Trust; Trustee of each of the other investment companies in the 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 205 Woodbrook Lane,
Baltimore, Maryland 21202.
RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Jacob Safra Professor of International Banking and Professor,
Finance Department, The Wharton School, University of Pennsylvania (since 1972).
His address is 325 South Roberts Road, Bryn Mawr, Pennsylvania 19010.
- ----------------------
/1/ The "Fund Complex" consists of BT Investment Funds, BT Institutional Funds,
BT Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio,
Intermediate Tax Free Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity 500
Index Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio and
BT Investment Portfolios.
/2/ An investment company registered under the 1940 Act.
12
<PAGE>
BRUCE E. LANGTON (birth date: May 10, 1931) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly Assistant Treasurer of IBM Corporation (until 1986);
Trustee and Member, Investment Operations Committee, Allmerica Financial Mutual
Funds (1992-present); Member, Investment Committee, Unilever U.S. Pension and
Thrift Plans (1989 to present)/3/; 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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Principal, Philip Saunders Associates (Economic and Financial
Consulting); 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 Philip Saunders Associates, 445 Glen Road, Weston,
Massachusetts 02493.
HARRY VAN BENSCHOTEN (birth date: February 18, 1928) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; Corporate Vice President, Newmont Mining Corporation (prior to
1987); Director, Canada Life Insurance Corporation of New York (since 1987).
His address is 6581 Ridgewood Drive, Naples, Florida 34108.
* "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
management unit of Deutsche Bank A.G. and its affiliates.
The Board has an Audit Committee that meets with the Trust's and the Portfolio
Trust's independent accountants to review the financial statements of the Trust
and Portfolio Trust, the adequacy of internal controls and the accounting
procedures and policies of the Trust and Portfolio Trust. Each member of the
Board except Mr. Hale also is a member of the Audit Committee.
Officers of the Trust and the Portfolio Trust
DANIEL O. HIRSCH (birth date: March 27, 1954) -- Secretary of the Trust and
Portfolio 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.
- -------------------
/3/ A publicly held company with securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
13
<PAGE>
JOHN A. KEFFER (birth date: July 14, 1942) -- President and Chief Executive
Officer of the Trust and Portfolio Trust; President, Forum Financial Group
L.L.C. and its affiliates; President, ICC Distributors, Inc./4/ His address is
ICC Distributors, Inc., Two Portland Square, Portland, Maine 04101.
CHARLES A. RIZZO (birth date: August 5, 1957) Treasurer of the Trust and
Portfolio 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.
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 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
Trustee Aggregate Compensation Compensation Total Compensation from
from Trust* From Portfolio** Fund Complex***
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles P. Biggar $ 3,049 $1,235 $43,750
- -------------------------------------------------------------------------------------------------
S. Leland Dill $16,416 $1,074 $43,750
- -------------------------------------------------------------------------------------------------
Martin Gruber $ 2,971 $ 212 $45,000
- -------------------------------------------------------------------------------------------------
Richard J. Herring $ 2,641 $ 188 $43,750
- -------------------------------------------------------------------------------------------------
Kelvin Lancaster $12,616 N/A $18,750
- -------------------------------------------------------------------------------------------------
Bruce E. Langton $ 2,971 $ 212 $43,750
- -------------------------------------------------------------------------------------------------
Philip Saunders, Jr. $16,923 $1,108 $45,000
- -------------------------------------------------------------------------------------------------
Harry Van Benschoten $ 2,971 $ 212 $45,000
- -------------------------------------------------------------------------------------------------
</TABLE>
* The provided is for the BT Investment Funds, which is comprised of 16 funds,
for the year ended December 31, 1999.
** The provided is for Treasury Money Portfolio for the Portfolio's most recent
fiscal year ended
- -------------------
/4/ Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares of
ICC Distributors, Inc.
14
<PAGE>
December 31, 1999.
*** Aggregated information is furnished for the Fund Complex which consists of
the following: BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual
Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management Portfolio,
Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio,
International Equity Portfolio, Intermediate Tax Free Portfolio, Asset
Management Portfolio, Equity 500 Index Portfolio and Capital Appreciation
Portfolio for the year ended December 31, 1999.
As of March 31, 2000, the Trustees and Officers of the Trust and the
Portfolio owned in the aggregate less than 1% of the shares of any Fund or the
Trust (all series taken together).
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding voting shares of the Fund: Private Bank Sweep, Investment
Advisory, Attn: Linda Anderson, 1 BT Plaza 17th Floor, New York, NY 10015
(22.507%). Vendee 1992-1/Master Reserve, C/O Bankers Trust Company, 3 Park Plaza
16th Floor, Irving, CA 92614-8505 (11.386%). Private Bank Sweep, Custody, Attn:
Linda Anderson, 1 BT Plaza 17th Floor, New York, NY 10015 (8.205%).
Code of Ethics
The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act. The Fund's Code of Ethics permits Fund personnel to
invest in securities for their own accounts, but requires compliance with the
Code's pre-clearance requirements (with certain exceptions). In addition, the
Fund's Code of Ethics provides for trading "blackout periods" that prohibit
trading by personnel within periods of trading by the Fund in the same security.
The Fund's Code of Ethics also prohibits short term trading profits and personal
investment in initial public offerings. The Code requires prior approval with
respect to purchases of securities in private placements.
The Fund's adviser, Bankers Trust, has also adopted a Code of Ethics. The Code
of Ethics allows personnel to invest in securities for their own accounts, but
requires compliance with the Code's pre-clearance requirements and other
restrictions including "blackout periods" and minimum holding periods, subject
to limited exceptions. The Code prohibits purchases of securities in initial
public offerings (the prohibition is limited to U.S. public offerings) and
requires prior approval for purchases of securities in private placements.
The Fund's principal underwriter, ICC Distributors, Inc. ("ICC"), has adopted a
Code of Ethics applicable to ICC's distribution services to registered
investment companies such as the Fund. The distributor's Code of Ethics
prohibits access persons and investment personnel from executing personal trades
on a day during which the individual knows or should have known that a Fund has
a pending "buy" or "sell" order in the same security, subject to certain
exceptions. In addition, investment personnel are prohibited from executing
personal trades during a "blackout period" surrounding trades by funds for which
such investment personnel make investment recommendations, subject to certain
exceptions. The distributor's Code of Ethics also requires investment personnel
to obtain pre-clearance for purchases of securities in an initial public
offering or private placement.
15
<PAGE>
Investment Adviser
The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
assets of the Fund in the Portfolio. The Portfolio has retained the services of
Bankers Trust as Adviser.
Bankers Trust is a wholly owned subsidiary of Deutsche Bank A.G. ("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 of a group consisting of banks, capital markets companies,
fund management companies, mortgage banks, a property finance company,
installments financing and leasing companies, insurance companies, research and
consultancy companies and other domestic and foreign companies.
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 purchase of sale by the Portfolio is a
customer of Bankers Trust, its parent or its subsidiaries or affiliates, Also,
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.
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 the Advisory Agreement, Bankers Trust receives a fee from the Portfolio,
computed daily and paid monthly, at the annual rate of 0.15% of the average
daily net assets of the Portfolio. For the fiscal years ended December 31,
1999, 1998 and 1997, Bankers Trust earned $3,225,042, $3,666,082, and
$3,067,422, respectively, as compensation for investment advisory services
provided to the Portfolio. During the same periods, Bankers Trust reimbursed
$90,240, $52,678 and $60,612, respectively, to the Portfolio to cover expenses.
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The Fund's prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees.
Administrator
Under its Administration and Services Agreement with the Trust, the Adviser
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
the Adviser a fee, computed daily and paid monthly, equal on an annual basis to
0.55% of the average daily net assets of the Fund.
Under Administration and Services Agreement with the Portfolio, the Adviser
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 provide
for the Portfolio to pay the Adviser a fee, computed daily and paid monthly,
equal on an annual basis to 0.05% of the Portfolio's average daily net assets.
Under the Administration and Services Agreement, the Adviser may delegate one or
more of its responsibilities to others, including affiliates of ICC
Distributors, at the Adviser's expense.
Under the Administration and Services Agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deems necessary for the
proper administration of the Trust and 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 of the Trust or the
Portfolio), internal auditing, executive and administrative services, and
stationery and office supplies; prepare reports to shareholders or investors;
prepare and file tax returns; supply financial information and supporting data
for reports to and filings with the SEC and various state Blue Sky authorities;
supply supporting documentation for meetings of the Board of Trustees; provide
monitoring reports and assistance regarding compliance with the Trust's and the
Portfolio's Declaration of Trust, by-laws, investment objectives and policies
and with Federal and state securities laws; arrange for appropriate insurance
coverage; calculate the net asset value, net income and realized capital gains
or losses of the Trust; and negotiate arrangements with, and supervise and
coordinate the activities of, agents and others retained to supply services.
For the fiscal years ended December 31, 1999, 1998, and 1997, Bankers Trust
earned compensation of $2,320,731, $2,129,609 and $2,204,379, respectively, for
administrative and other services provided to the Fund and reimbursed $80,550,
$75,550 and $51,565, respectively, to the Fund to cover expenses.
For the fiscal years ended December 31, 1999, 1998, and 1997, Bankers Trust
earned compensation of $1,075,014, $1,222,027 and $1,022,474, respectively, for
administrative and other services provided to the Portfolio.
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
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is Two Portland Square, Portland, Maine 04101. In addition to ICC Distributors'
duties as Distributor, ICC Distributors and its affiliates may, in their
discretion, perform additional functions in connection with transactions in the
shares of the Fund.
Service Agent
The Adviser 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 the Adviser from its fees.
The services provided by a Service Agent may include establishing and
maintaining shareholder accounts, processing purchase and redemption
transactions, performing shareholder sub-accounting, answering client inquiries
regarding the Trust, investing client cash account balances automatically in
Fund shares and processing redemption transactions at the request of clients,
assisting clients in changing dividend options, account designations and
addresses, providing periodic statements showing the client's account balance
and integrating these statements with those of other transactions and balances
in the client's other accounts serviced by the Service Agent, 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, arranging for bank
wires 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 the Adviser, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. In addition, investors may be charged a
transaction fee if they effect transactions in Fund shares through a broker or
agent. Each Service Agent has agreed to transmit to shareholders, who are its
customers, appropriate disclosures of any fees that it may charge them directly.
Custodian and Transfer Agent
Bankers Trust, 130 Liberty Street, (One Bankers Trust Plaza), New York, New York
10006, serves as custodian and transfer agent for the Trust and as custodian for
the Portfolio pursuant to the Administration and Services Agreements discussed
above. As custodian, Bankers Trust holds the Fund's and the Portfolio's assets.
For such services, Bankers Trust receives monthly fees from the Fund and
Portfolio, which are included in the administrative services fees discussed
above. As transfer agent for 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 is also reimbursed by the
Fund for its out-of-pocket expenses. Bankers Trust will comply with the self-
custodian provisions of Rule 17f-2 under the 1940 Act.
Expenses
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by the Adviser or ICC Distributors,
including administration and services fees, fees for necessary professional
services, amortization of organizational expenses and costs associated with
regulatory compliance and maintaining legal existence and shareholder relations.
The Portfolio bears its own expenses. Operating expenses for the Portfolio
generally consist of all costs not specifically borne
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by the Adviser or ICC Distributors, including investment advisory and
administration and service fees, fees for necessary professional services,
amortization of organizational expenses, the costs associated with regulatory
compliance and maintaining legal existence and investor relations.
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. The Trust
has acknowledged that the term "BT" is used by and is a property right of
certain subsidiaries of Bankers Trust and that those subsidiaries and/or Bankers
Trust may at any time permit others to use that term.
The Trust may be required, on 60 days' notice from Bankers Trust at any time, to
abandon use of the acronym "BT" as part of its name. If this were to occur, the
Trustees would select an appropriate new name for the Trust, but there would be
no other material effect on the Trust, its shareholders or activities.
Banking Regulatory Matters
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolio contemplated by the Advisory
Agreement and other activities for the Trust and the Portfolio described in the
Prospectus and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either Federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent Bankers Trust from continuing to perform
those services for the Trust or the Portfolio. If the circumstances described
above should change, the Trust's Board of Trustees would review the Trust's
relationship 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 from time to time provides certain legal
services to Bankers Trust. PricewaterhouseCoopers LLP, 250 W. Pratt Street,
Baltimore, Maryland 21201 has been selected as Independent Accountants for the
Trust.
ORGANIZATION OF THE TRUST
The Trust was organized on July 21, 1986 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of separate series, par value $0.001 per share.
The shares of the other series of the Trust are offered through separate
prospectuses and statements of additional information. No series of shares has
any preference over any other series.
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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
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of shareholders incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and the Trust itself was unable to
meet its obligations, a possibility that the Trust believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in a manner
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
The Portfolio, in which all the assets of the Fund will be invested, is
organized as a trust under the laws of the State of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of the Portfolio. However, the risk of the Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio. In addition, whenever the Trust is requested to vote on matters
pertaining to the fundamental policies of the Portfolio, the Trust will hold a
meeting of the Fund's shareholders and will cast its vote as instructed by the
Fund's shareholders.
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.
The Trust is not required to hold annual meetings of shareholders but will
hold special meetings of shareholders when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have under certain circumstances the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees without a meeting. Upon liquidation of
the Fund, shareholders would be entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders.
Whenever the Trust is requested to vote on a matter pertaining to the Portfolio,
the Trust will vote its shares without a meeting of shareholders of the Fund if
the proposal is one, if which 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 investors in the Portfolio, the Trust will cast all of its
votes in the same proportion as the votes all its shares at the Portfolio
meeting, other investors with a greater pro rata ownership of the Portfolio
could have effective voting control of the operations of the Portfolio.
The Trust was organized under the name BT Tax-Free Investment Trust and assumed
its current name of BT Investment Funds on May 16, 1988.
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As of March 31, 2000, no shareholders of record owned 25% or more of the
voting securities of the Fund, and, therefore, are not deemed to control the
Fund and be able to affect the outcome of certain matters presented for a vote
of its shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisers with
specific reference to their own tax situations.
The Fund is designed to provide investors with current income. The Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital gains or maximum income irrespective of fluctuations
in principal.
The Fund intends to continue to qualify as a separate regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code").
Provided that the Fund is a regulated investment company, the Fund will not be
liable for Federal income taxes to the extent all of its taxable net investment
income and net realized long-and short-term capital gains, if any, are
distributed to its shareholders. Although the Trust expects the Fund to be
relieved of all or substantially all Federal income taxes, depending upon the
extent of its activities in states and localities in which its offices are
maintained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, that portion of the
Fund's income which is treated as earned in any such state or locality could be
subject to state and local tax. Any such taxes paid by the Fund would reduce
the amount of income and gains available for distribution to its shareholders.
If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
The Portfolio is not subject to the 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.
The Portfolio determines its net income and realized capital gains, if any, on
each Valuation Day and allocates all such income and gain pro rata among the
Fund and the other investors in the Portfolio at the time of such determination.
The Fund declares dividends from its net income daily and pays the dividends
monthly. The Fund reserves the right to include realized short-term gains, if
any, in such daily dividends. Distributions of the Fund's pro rata share of the
Portfolio's net realized long-term capital gains, if any, and any undistributed
net realized short-term capital gains are normally declared and paid
annually at the end of the fiscal year in which they were earned to the extent
they are not offset by any capital loss carryforwards. Unless a shareholder
instructs the Trust to pay dividends or capital gains distributions in cash,
dividends and distributions will automatically be reinvested at NAV in
additional shares of the Fund.
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Distributions of net realized long-term capital gains ("capital gain
dividends"), if any, will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares, and will be
designated as capital gain dividends in a written notice mailed by the Fund to
shareholders after the close of the Fund's prior taxable year. Dividends paid
by the Fund from its taxable net investment income and distributions by the Fund
of its net realized short-term capital gains are taxable to shareholders as
ordinary income, whether received in cash or reinvested in additional shares of
that Fund. The Fund's dividends and distributions will not qualify for the
dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions, if any, are mailed annually. Each shareholder will also receive,
if appropriate, various written notices after the end of the Fund's prior
taxable year as to the federal income tax status of his or her dividends and
distributions which were received from the Fund during that year. Shareholders
should consult their tax advisers to assess the consequences of investing in the
Fund under state and local laws and to determine whether dividends paid by the
Fund that represent interest derived from U.S. Government Obligations are exempt
from any applicable state or local income taxes.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income or fails to certify that he or
she has provided a correct taxpayer identification number and that he or she is
not subject to "backup withholding," then the shareholder may be subject to a
31% backup withholding tax with respect to any taxable dividends and
distributions. An individual's taxpayer identification number is his or her
social security number. The 31% backup withholding tax is not an additional tax
and may be credited against a taxpayer's regular Federal income tax liability.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise "current yield," and/or "effective
yield" for the Fund. All yield figures are based on historical earnings and are
not intended to indicate future performance. The "current yield" of the Fund
refers to the income generated by an investment in the Fund over a seven-day
period (which period will be stated in the advertisement). This income is then
"annualized;" that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "current yield" because of the compounding effect of this assumed
reinvestment. The Trust may include this information in sales material and
advertisements for the Fund.
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Yield is a function of the quality, composition and maturity of the securities
held by the Portfolio and operating expenses of the Fund and the Portfolio. In
particular, the Fund's yield will rise and fall with short-term interest rates,
which can change frequently and sharply. In periods of rising interest rates,
the yield of the Fund will tend to be somewhat lower than the prevailing market
rates, and in periods of declining interest rates, the yield will tend to be
somewhat higher. In addition, when interest rates are rising, the inflow of net
new money to the Fund from the continuous sale of its shares will likely be
invested by the Portfolio in instruments producing higher yields than the
balance of the Portfolio's securities, thereby increasing the current yield of
the Fund. In periods of falling interest rates, the opposite can be expected to
occur. Accordingly, yields will fluctuate and do not necessarily indicate
future results. While yield information may be useful in reviewing the
performance of the Fund, it may not provide a basis for comparison with bank
deposits, other fixed rate investments, or other investment companies that may
use a different method of calculating yield. Any fees charged by Service Agents
for processing purchase and/or redemption transactions will effectively reduce
the yield for those shareholders.
From time to time, advertisements or reports to shareholders may compare the
yield of the Fund to that of other mutual funds with similar investment
objectives or to that of a particular index. The yield of the Fund might be
compared with, for example, the IBC U.S. Treasury and Repo All Taxable Money
Fund Average, which is an average compiled by IBC Money Fund Report, a widely
recognized, independent publication that monitors the performance of money
market mutual funds. Similarly, the yield of the Fund might be compared with
rankings prepared by Micropal Limited and/or Lipper Analytical Services, Inc.,
which are widely recognized, independent services that monitor the investment
performance of mutual funds. The yield of the Fund might also be compared
without the average yield reported by the Bank Rate Monitor for money market
deposit accounts offered by the 50 leading banks and thrift institutions in the
top five standard metropolitan areas. Shareholders may make inquiries regarding
the Fund, including current yield quotations and performance information, by
contacting any Service Agent.
Shareholders will receive financial reports semi-annually that include listings
of investment securities held by the Portfolio at those dates. Annual reports
are audited by independent accountants.
The effective yield is an annualized yield based on a compounding of the
unannualized base period return. These yields are each computed in accordance
with a standard method prescribed by the rules of the SEC, by first determining
the "net change in account value" for a hypothetical account having a share
balance of one share at the beginning of a seven-day period (the "beginning
account value"). The net change in account value equals the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares. The unannualized
"base period return" equals the net change in account value divided by the
beginning account value. Realized gains or losses or changes in unrealized
appreciation or depreciation are not taken into account in determining the net
change in account value.
The yields are then calculated as follows:
Base Period Return = Net Change in Account Value
---------------------------
Beginning Account Value
Current Yield = Base Period Return x 365/7
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Effective Yield = [(1 + Base Period Return)365/7] - 1
For the seven days ended December 31, 1999, the Fund's Current Yield was
4.12% and the Fund's Effective Yield was 4.20%.
FINANCIAL STATEMENTS
The financial statements for the Fund and the Portfolio for the fiscal year
ended December 31, 1999, are incorporated herein by reference to the Fund's
Annual Report dated December 31, 1999. A copy of the Fund's Annual Report may
be obtained without charge by contacting the Service Center at 1-800-730-1313.
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APPENDIX
DESCRIPTION OF RATINGS
Description of S&P corporate bond ratings:
AAA - Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major categories, except in
the AAA rating category.
Description of Moody's corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edge." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Description of Fitch IBCA, Inc. ("Fitch") corporate bond ratings:
AAA--Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, and
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong companies, and are
most numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on specific property as
in the case of high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary reduction of the
debt by call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.
AA--Securities in this group are of safety virtually beyond question, and as a
class are readily salable while many are highly active. Their merits are not
greatly unlike those of the AAA class, but a security
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so rated may be of junior though strong lien (F) in many cases directly
following an AAA security (F) or the margin of safety is less strikingly broad.
The issue may be the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the enterprise and
more local type of market.
Description of Duff & Phelps' corporate bond ratings:
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury Funds.
AA+, AA, AA--High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
Description of S&P's municipal bond ratings:
AAA--Prime--These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds--In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds--Debt service coverage has been, and is expected to remain,
substantial; stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds and debt service reserve requirements) are
rigorous. There is evidence of superior management.
AA--High Grade--The investment characteristics of bonds in this group are only
slightly less marked than those of the prime quality issues. Bonds rated AA
have the second strongest capacity for payment of debt service.
S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major rating categories,
except in the AAA rating category.
Description of Moody's municipal bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
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Moody's may apply the numerical modifier 1 in each generic rating classification
from Aa through B. The modifier 1 indicates that the security within its
generic rating classification possesses the strongest investment attributes.
Description of S&P municipal note ratings:
Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1 or SP-2) to distinguish more clearly the credit quality
of notes as compared to bonds. Notes rated SP-1 have a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given the designation of SP-1+. Notes
rated SP-2 have a satisfactory capacity to pay principal and interest.
Description of Moody's municipal note ratings:
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and long-
term risk. Loans bearing the designation MIG-1/VMIG-1 are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG-1/VMIG-2 are of high
quality, with ample margins of protection, although not as large as the
preceding group.
Description of S&P commercial paper ratings:
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted A-1+.
Description of Moody's commercial paper ratings:
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Description of Fitch commercial paper ratings:
F1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the strongest
issue.
Description of Duff & Phelps' commercial paper ratings:
Duff 1+--Highest certainty of timely payment. Short term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk free U.S. Treasury short term
obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Description of Thompson Bank Watch Short-Term Ratings:
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T-1--The highest category; indicates a very high likelihood that principal and
interest will be paid on a timely basis.
T-2--The second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
T-3--The lowest investment-grade category; indicates that while the obligation
is more susceptible to adverse developments (both internal and external) than
those with higher ratings, the capacity to service principal and interest in a
timely fashion is considered adequate.
T-4--The lowest rating category; this rating is regarded as non-investment grade
and therefore speculative.
Description of Thompson BankWatch Long-Term Ratings:
AAA--The highest category; indicates that the ability to repay principal and
interest on a timely basis is extremely high.
AA--The second-highest category; indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
A--The third-highest category; indicates the ability to repay principal and
interest is strong. Issues rated "a" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB--The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. Issues rated "BBB" are, however, more vulnerable
to adverse developments (both internal and external) than obligations with
higher ratings.
Non-Investment Grade
(Issues regarded as having speculative characteristics in the likelihood of
timely repayment of principal and interest.)
BB--While not investment grade, the "BB" rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations.
B--Issues rated "B" show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse development could well
negatively affect the payment of interest and principal on a timely basis.
CCC--Issues rated "CCC" clearly have a high likelihood of default, with little
capacity to address further adverse changes in financial circumstances.
CC--"CC" is applied to issues that are subordinate to other obligations rated
"CCC" and are afforded less protection in the event of bankruptcy or
reorganization.
D--Default
These long-term debt ratings can also be applied to local currency debt. In
such cases the ratings defined above will be preceded by the designation "local
currency".
Ratings in the Long-Term Debt categories may include a plus (+) or Minus (-)
designation, which indicates where within the respective category the issue is
placed.
28
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 2000
Investment Adviser of the Portfolio
Administrator of the Fund and Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, MD 21201
Counsel
WILLKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, NY 10019
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectus, 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 Prospectus 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 #055922405
1680SAI (0/00)
<PAGE>
DRAFT 04/25/00
STATEMENT OF ADDITIONAL INFORMATION
April 30, 2000
BT Investment Funds
Quantitative Equity -- Investment Class
Quantitative Equity -- Institutional Class
BT Investment Funds (the "Trust") is an open-end management investment company
comprised of several funds. Quantitative Equity (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 April 30, 2000 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 Deutsche
Asset Management mutual funds at 1-800-730-1313 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 audited financial statements
for the Fund for the fiscal period ended December 31, 1999, are incorporated
herein by reference to the Annual Report to shareholders for the Fund dated
December 31, 1999. A copy of the Fund's Annual Report may be obtained without
charge by calling the Fund at the telephone number listed below.
BANKERS TRUST COMPANY
Administrator to the Fund
Investment Adviser and Administrator to the Portfolio
ICC DISTRIBUTORS, INC.
Distributor
1-800-730-1313
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.................................................................. 4
Investment Objective............................................................................................ 4
Investment Policies............................................................................................. 4
Index Futures Contracts and Options on Index Futures............................................................ 9
Investment Restrictions......................................................................................... 11
Portfolio Transactions and Brokerage Commissions................................................................ 11
Comparison of Fund Performance.................................................................................. 11
Economic and Market Information................................................................................. 11
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND....................................................... 11
Valuation of Securities......................................................................................... 11
Purchase of Shares.............................................................................................. 11
Redemption of Shares............................................................................................ 11
Redemptions and Purchases in Kind............................................................................... 11
Trading in Foreign Securities................................................................................... 11
MANAGEMENT OF THE TRUST AND THE PORTFOLIO........................................................................ 11
Trustees of the Trust and Portfolio............................................................................. 29
Officers of the Trust........................................................................................... 30
Trustee Compensation Table...................................................................................... 31
Code of Ethics ................................................................................................. 32
Investment Adviser.............................................................................................. 11
Administrator................................................................................................... 11
Expense Reimbursement........................................................................................... 34
Custodian and Transfer Agent.................................................................................... 11
Distributor..................................................................................................... 11
Service Agent................................................................................................... 11
Use of Name..................................................................................................... 11
Banking Regulatory Matters...................................................................................... 11
Counsel and Independent Auditors................................................................................ 11
ORGANIZATION OF THE TRUST........................................................................................ 11
TAXATION......................................................................................................... 11
Taxation of the Fund............................................................................................ 11
Taxation of the Portfolio....................................................................................... 11
Foreign Securities.............................................................................................. 11
Distributions................................................................................................... 11
Sale of Shares.................................................................................................. 11
Foreign Withholding Taxes....................................................................................... 11
Backup Withholding.............................................................................................. 11
Foreign Shareholders............................................................................................ 11
Other Taxation.................................................................................................. 11
FINANCIAL STATEMENTS............................................................................................. 11
APPENDIX......................................................................................................... 11
</TABLE>
<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
1
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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.
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
2
<PAGE>
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.
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.
3
<PAGE>
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
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
4
<PAGE>
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 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.
5
<PAGE>
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"). 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.
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
6
<PAGE>
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.
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,
7
<PAGE>
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
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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 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."
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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 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
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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 Services ("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
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U.S. Government Obligations, such as those issued by the Government National
Mortgage Association, are supported by the "full faith and credit" of the U.S.
government; others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow money from the U.S.
Treasury; others, such as those of the Federal National Mortgage Association are
solely the obligations of the issuing entity but are supported by the
discretionary authority of the U.S. government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported by the credit of the instrumentality. No assurance
can be given that the U.S. government would provide financial support to U.S.
government-sponsored instrumentalities if it is not obligated to do so by law.
Lending of 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,
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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.
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.
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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 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
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(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 net 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
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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 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
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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 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
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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.
18
<PAGE>
It may develop that a particular security is bought or sold for only one client
even though it might be held by, or bought or sold for, other clients. Likewise,
a particular security may be bought for one or more clients when one or more
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the 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.
Until January 1, 2000, the Fund operated as a stand-alone Fund that directly
acquired and managed its own portfolio securities. For the period March 31,
1999 to December 31, 1999, the Fund incurred brokerage commissions in the amount
of $2,449. For the same period, the Fund did not pay brokerage commissions to
any affiliate of the Fund.
For the period March 31, 1999 to December 31, 1999, the Fund incurred
commissions in the amount of $609 in connection with trades executed through BT
Futures, an affiliate of the Fund.
PERFORMANCE INFORMATION
Standard Performance Information. From time to time, quotations of a Fund's
performance may be included in advertisements, sales literature, shareholder
reports or other communications to shareholders or prospective shareholders.
These performance figures are calculated in the following manner:
Total Return: A Fund's average annual total return is calculated for
-------------
certain periods by determining the average annual compounded rates of
return over those periods that would cause an investment of $1,000 (made at
the maximum public offering price with all distributions reinvested) to
reach the value of that investment at the end of the periods. A Fund may
also calculate total return figures which represent aggregate performance
over a period or year-by-year performance.
Performance results: Any total return quotation provided for a Fund should
--------------------
not be considered as representative of the performance of the Fund in the
future since the net asset value and public offering price of shares of the
Fund will vary based not only on the type, quality and maturities of the
securities held in the 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
19
<PAGE>
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 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
20
<PAGE>
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 , 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 "Valuation Time"). 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.
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.
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.
21
<PAGE>
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 through 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.
The Fund and its service providers reserve the right to, from time to time in
their discretion, waive or reduce the investment minimums.
Redemption of Shares
22
<PAGE>
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 their 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.
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.
23
<PAGE>
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. This may
be a taxable transaction to the shareholder. (Consult your tax adviser for
further tax guidance.) Securities may be accepted in payment for
24
<PAGE>
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.
Each Fund and Portfolio reserves the right to redeem all of its shares, if the
Funds' and/or Portfolios' Board of Trustees vote to liquidate and terminate the
Fund or Portfolio.
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
25
<PAGE>
CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly 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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly Partner, KPMG Peat Marwick; Director, Vintners
International Company Inc.; Director, Coutts (U.S.A.) International; Trustee,
Phoenix Zweig Series Trust; Trustee, Phoenix Euclid Market Neutral Fund;
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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Nomura Professor of Finance, Leonard N. Stern School of Business, New
York University (since 1964); Trustee, TIAA2; Director, S.G. Cowen Mutual
Funds2; Director, Japan Equity Fund, Inc.2; Director, Taiwan Equity Fund, Inc.2
His address is 229 South Irving Street, Ridgewood, New Jersey 07450.
RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Trust and Portfolio
Trust; Trustee of each of the other investment companies in the Fund Complex;
Managing Director, Deutsche Asset Management; Director, Flag Investors Funds;
Managing Director, Deutsche Banc Alex. Brown Incorporated; Director and
President, Investment Company Capital Corp. His address is 205 Woodbrook Lane,
Baltimore, Maryland 21202.
RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Jacob Safra Professor of International Banking and Professor, Finance
Department, 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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; formerly Assistant Treasurer of IBM Corporation (until 1986);
Trustee and Member, Investment Operations Committee, Allmerica Financial Mutual
Funds (1992-present); Member, Investment
- --------------------------
(1) The "Fund Complex" consists of BT Investment Funds, BT Institutional Funds,
BT Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio,
Intermediate Tax Free Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity 500
Index Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio and
BT Investment Portfolios.
*"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
management unit of Deutsche Bank and its affiliates. An investment company
registered under the 1940 Act.
26
<PAGE>
Committee, Unilever U.S. Pension and Thrift Plans (1989 to present)(4) 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 and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Principal, Philip Saunders Associates (Economic and Financial
Consulting); 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 Philip Saunders Associates, 445 Glen Road, Weston,
Massachusetts 02493.
HARRY VAN BENSCHOTEN (birth date: February 18, 1928) -- Trustee of the Trust and
Portfolio Trust; Trustee of each of the other investment companies in the Fund
Complex; Retired; Corporate Vice President, Newmont Mining Corporation (prior to
1987); Director, Canada Life Insurance Corporation of New York (since 1987).
His address is 6581 Ridgewood Drive, Naples, Florida 34108.
* "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
management unit of Deutsche Bank A.G. and its affiliates.
The Board has an Audit Committee that meets with the Trust's and the Portfolio
Trust's independent auditors to review the financial statements of the Trust and
Portfolio Trust, the adequacy of internal controls and the accounting procedures
and policies of the Trust and Portfolio Trust. Each member of the Board except
Mr. Hale also is a member of the Audit Committee.
Officers of the Trust and the Portfolio Trust
DANIEL O. HIRSCH (birth date: March 27, 1954) -- Secretary of the Trust and
Portfolio 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 and Portfolio Trust; President, Forum Financial Group
L.L.C. and its affiliates; President, ICC Distributors, Inc.(5) His address is
ICC Distributors, Inc., Two Portland Square, Portland, Maine 04101.
- --------------------------
(4) A publicly held company with securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
(5) Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares of
ICC Distributors, Inc.
27
<PAGE>
CHARLES A. RIZZO (birth date: August 5, 1957) Treasurer of the Trust and
Portfolio 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.
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 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 Aggregate Total Compensation
Trustee Compensation Compensation from
from Trust* From Portfolio** Fund Complex***
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Charles P. Biggar $ 3,050 N/A $43,750
- ---------------------------------------------------------------------------------------------
S. Leland Dill $16,417 N/A $43,750
- ---------------------------------------------------------------------------------------------
Martin Gruber $ 2,972 N/A $45,000
- ---------------------------------------------------------------------------------------------
Richard J. Herring $ 2,642 N/A $43,750
- ---------------------------------------------------------------------------------------------
Kelvin Lancaster $12,617 N/A $18,750
- ---------------------------------------------------------------------------------------------
Bruce E. Langton $ 2,972 N/A $43,750
- ---------------------------------------------------------------------------------------------
Philip Saunders, Jr. $16,924 N/A $45,000
- ---------------------------------------------------------------------------------------------
HarryVan Benschoten $ 3,050 N/A $45,000
- ---------------------------------------------------------------------------------------------
</TABLE>
* The information provided is for the BT Investment Funds, which is comprised of
16 funds, for the year ended December 31, 1999.
** Until January 1, 2000, the Fund operated as a stand-alone Fund that directly
acquired and managed its own portfolio securities; therefore, the Portfolio did
not pay Trustees fees for the year ended December 31, 1999.
** Aggregated information is furnished for the Fund Complex which consists of
the following: BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual
Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management Portfolio,
Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio,
International Equity Portfolio, Intermediate Tax Free Portfolio, Asset
Management Portfolio, Equity 500 Index Portfolio and Capital Appreciation
Portfolio for the year ended December 31, 1999.
As of March 31, 2000, the Trustees and Officers of the Fund and the Trust owned
in the aggregate less than 1% of the shares of the Fund or the Trust (all series
taken together).
28
<PAGE>
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding voting shares of Quantitative Equity - Investment Class:
Jeremiah H. Chafkin, 274 Saint James Dr., Piedmont, California 94611-3626
(24.600%). Ross Youngman, 155 W. 68th Street Apt.930, New York, NY 10023-5815
(24.481%). DB Alex. Brown LLC, FBO 201-84306-17, P. O. Box 1346, Baltimore, MD
21203-1346 (13.073%). Peter C. Russell, 100 Evergreen Avenue, Rye, NY 10580-
2005 (9.972%).
As of March 31, 2000, the following shareholders of record owned 5% or more of
the outstanding voting shares of Quantitative Equity - Institutional Class: FAC
Investment Limited Partnership, P.O. Box AB 20863, ABCO Marsh Harbour Bahamas
(98.931%).
Code of Ethics
The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act. The Fund's Code of Ethics permits Fund personnel to
invest in securities for their own accounts, but requires compliance with the
Code's pre-clearance requirements (with certain exceptions). In addition, the
Fund's Code of Ethics provides for trading "blackout periods" that prohibit
trading by personnel within periods of trading by the Fund in the same security.
The Fund's Code of Ethics also prohibits short-term trading profits and personal
investment in initial public offerings. The Code requires prior approval with
respect to purchases of securities in private placements.
The Fund's adviser, Bankers Trust Company, has also adopted a Code of Ethics.
The Code of Ethics allows personnel to invest in securities for their own
accounts, but requires compliance with the Code's pre-clearance requirements and
other restrictions including "blackout periods" and minimum holding periods,
subject to limited exceptions. The Code prohibits purchases of securities in
initial public offerings (the prohibition is limited to U.S. public offerings)
and requires prior approval for purchases of securities in private placements.
The Fund's principal underwriter, ICC Distributors, Inc. ("ICC"), has adopted a
Code of Ethics applicable to ICC's distribution services to registered
investment companies such as the Fund. The distributor's Code of Ethics
prohibits access persons and investment personnel from executing personal trades
on a day during which the individual knows or should have known that a fund has
a pending "buy" or "sell" order in the same security, subject to certain
exceptions. In addition, investment personnel are prohibited from executing
personal trades during a "blackout period" surrounding trades by funds for which
such investment personnel make investment recommendations, subject to certain
exceptions. The ICC Code of Ethics also requires investment personnel to obtain
pre-clearance for purchases of securities in an initial public offering or
private placement.
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.
Bankers Trust is a wholly owned subsidiary of Deutsche Bank A.G. ("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
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banks, capital markets companies, fund management companies, mortgage banks, a
property finance company, installments financing and leasing companies,
insurance companies, research and consultancy companies and other domestic and
foreign companies.
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 purchase of sale by the Portfolio is a
customer of Bankers Trust, its parent or its subsidiaries or affiliates. Also,
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.
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.
Until January 1, 2000, the Fund operated as a stand-alone Fund that directly
acquired and managed its own portfolio securities. For the period March 31,
1999 to December 31, 1999, Bankers Trust earned $6,366 as compensation for
investment advisory services provided to the Fund.
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The Fund's prospectus contains disclosure as to the amount of Bankers Trust's
investment advisory and administration and services fees, including waivers
thereof. Bankers Trust may not recoup any of its waived investment advisory or
administration and services fees.
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.
Until January 1, 2000, the Fund operated as a stand-alone Fund that directly
acquired and managed its own portfolio securities. For the period March 31,
1999 to December 31, 1999, Bankers Trust earned $7,201 as compensation for
administration and services provided to the Fund.
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 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.
Expense Reimbursement
For the period March 31, 1999 to December 31, 1999, Bankers Trust reimbursed
$142,798 to the Fund and Portfolio to cover expenses.
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
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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
The Advisor 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.
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.
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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 Auditors
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust and the Portfolio. Ernst & Young LLP, Two
Commerce Square, Suite 4000, 2001 Market St., Philadelphia, Pennsylvania 19103,
acts as Independent Auditors 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
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are fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held.
As of March 31, 2000, no shareholders of record owned 25% or more of the voting
securities of Quantitative Equity--Investment Class, and, therefore, are not
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of its shareholders.
As of March 31, 2000, the following shareholder of record owned 25% or more of
the voting securities of Quantitative Equity - Institutional Class, and,
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of its
shareholders: FAC Investment Limited Partnership, POB AB 20863, Abaco Marsh
Harbour, Bahamas (98.831%)
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.
The Trust is an entity commonly known as a "Massachusetts business trust."
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations, a possibility
that the Trust believes is remote. Upon payment of any liability incurred by the
Trust, the shareholder paying the liability will be entitled to reimbursement
from the general assets of the Trust. The Trustees intend to conduct the
operations of the Trust in a manner so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Trust.
Whenever the Trust is requested to vote on matters pertaining to the Fund, the
Trust will vote its shares without a meeting of shareholders of the Fund if the
proposal is one, which if made with respect to the Fund, would not require the
vote of shareholders of the Fund as long as such action is permissible under
applicable statutory and regulatory requirements. For all other matters
requiring a vote, 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.
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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.
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
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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.
If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
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
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categories of gain and related rates will be passed through to shareholders in
capital gain dividends. Shareholders receiving distributions in the form of
additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date. Shareholders will be notified annually as to the U.S. federal
tax status of distributions.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other disposition of
shares of the Fund, or upon receipt of a distribution in complete liquidation of
a Fund, generally will be a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. Any loss realized on a sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the shares. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
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.
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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 audited financial statements for the Fund for the fiscal period ended
December 31, 1999, are incorporated herein by reference to the Annual Report to
shareholders of the Fund dated December 31, 1999 (File Nos. 33-07404 and 811-
4760). A copy of the Annual Report may be obtained without charge by contacting
the Service Center at 1-800-730-1313.
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APPENDIX
S&P'S Commercial Paper Ratings:
A is the highest commercial paper rating category utilized by S&P, which uses
the numbers 1+, 1, 2 and 3 to denote relative strength within it's a
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt ratings is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward tread.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
Moody's Commercial Paper Ratings:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leasing
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rates Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Fitch Investors Service and Duff & Phelps Commercial Paper Ratings:
Commercial paper rated "Fitch-1" is considered to be the highest grade paper and
is regarded as having the strongest degree of assurance for timely payment.
"Fitch-2" is considered very good grade paper and reflects an assurance of
timely payment only slightly less in degree than the strongest issue.
Commercial paper issued rated "Duff 1" by Duff & Phelps, Inc. have the following
characteristics: very high certainty of timely payment, excellent liquidity
factors supported by strong fundamental protection factors, and risk factors
which are very small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small risk factors
and good access to capital markets.
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APRIL 30, 2000
Investment Adviser of the Portfolio
Administrator of the Fund and Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Distributor
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Independent Auditors
ERNST & YOUNG LLP
Two Commerce Square, Suite 4000
2001 Market Street
Philadelphia, PA 19103
Counsel
WILLKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, NY 10019
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 (Quantitative Equity - Investment Class)
Cusip#: 055922645 (Quantitative Equity - Institutional Class)
COMBQEFSAI (0/00)
<PAGE>
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) Not applicable
(e) Distribution Agreement dated August 11, 1998; 5
(ii) Appendix A dated December 9, 1998 to Distribution Agreement; 7
(iii) Appendix A dated December 23, 1999 to Distribution Agreement; 12
(f) Bonus or Profit Sharing Contracts - Not applicable;
(g) Custodian Agreement dated July 1, 1996; 2
(i) Cash Services Addendum to Custodian Agreement dated December 18, 1997;
4
(ii) Amendment No. 5 to Exhibit A of the Custodian Agreement dated December
23, 1999; 12
(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 23,1999; 12
(ii) Agreement to Provide Shareholder Services for BT Preservation Plus
Income Fund as of June 10, 1998; 5
(iii) Shareholder Services Plan for BT Preservation Plus Income Fund as of
June 10, 1998; 5
(iv) Expense Limitation Agreement dated September 30, 1999 on behalf of
Intermediate Tax Free Fund, Capital Appreciation Fund, Small Cap Fund;
13
(v) Expense Limitation Agreement dated October 31, 1999 on behalf of
International Equity Fund, Latin American Equity Fund and Pacific
Basin Equity Fund; 13
(vi) Expense Limitation Agreement dated June 4, 1999, on behalf of BT
Investment Lifecycle Long Range Fund, BT
<PAGE>
Investment Lifecycle Mid Range Fund, and BT Investment Lifecycle Short
Range Fund; 13
(vii) Expense Limitation Agreement dated December 31, 1999 on behalf of
Cash Management Fund, Tax Free Money Fund, NY Tax Free Money Fund,
Treasury Money Fund and Quantitative Equity Fund; filed herewith
(ix) Expense Limitation Agreement dated September 30, 1999 on behalf of
Preservation Plus Income Fund; 13
(i) Legal Opinion - Not applicable;
(j) Consent of Independent Accountants; filed herewith.
(k) Omitted Financial Statements - Not applicable;
(l) Initial Capital Agreements - Not applicable;
(m) Rule 12b-1 Plans - Not applicable; (n) Not applicable.
(o) Rule 18f-3 Plan; 13.
(p) Codes of Ethics for Funds, Adviser and Distributor; 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.
<PAGE>
10. Incorporated by reference to Post-Effective Amendment No. 63 to
Registrant's Registration Statement as filed with the Commission on July
29, 1999.
11. Incorporated by reference to Post-Effective Amendment No. 64 to
Registrant's Registration Statement as filed with the Commission on October
22, 1999.
12. Incorporated by reference to Post-Effective Amendment to No. 66 to
Registrant's Registration Statement as filed with the Commission on
December 23, 1999.
13. Incorporated by reference to Post-Effective Amendment to No. 67 to
Registrant's Registration Statement as filed with the Commission on January
28, 2000.
ITEM 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
ITEM 25. Indemnification.
Incorporated by reference to Post-Effective Amendment No. 38 to Registrant's
Registration Statement as filed with the Commission on April 29, 1996.
ITEM 26. Business and Other Connections of Investment Adviser.
Bankers Trust Company ("Bankers Trust") serves as investment adviser to the
Portfolios. Bankers Trust, a New York banking corporation, is a wholly owned
subsidiary of Deutsche Bank A.G. 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 Deutsche Bank A.G. and its affiliates or subsidiaries. Set forth below are
the names and principal businesses of the directors and officers of Bankers
Trust who, to our knowledge as of April 25, 2000, are engaged in any other
business, profession, vocation or employment of a substantial nature.
Josef Ackermann
Member, Board of Managing Directors, Deutsche Bank AG; Chairman of the Board and
Chief Executive Officer, Bankers Trust Corporation;
<PAGE>
Chairman of the Board and Chief Executive Officer, Bankers Trust Company;
Chairman of the Supervisory Board, Deutsche Bank Luxembourg, S.A.; Supervisory
Board Memberships in: EUREX Frankfurt AG; EUREX Zurich AG; Linde AG, Stora Enso
Oyj and Mannesmann AG; Director, Deutsche Bank Americas Holding Corp. Address:
Deutsche Bank AG, Taunusanlage 12, 60325 Frankfurt am Main, Germany.
Hans Angermueller
"Of Counsel", Shearman & Sterling; Director, Bankers Trust Corporation;
Director, Bankers Trust Company. Address: Shearman & Sterling, 599 Lexington
Avenue, Suite 1414, New York, New York 10022-6069.
George B. Beitzel
Private Investor; Director, Bankers Trust Corporation; Director, Bankers Trust
Company; Directorships in: Bitstream, Inc.; Computer Task Group, Inc.; and Staff
Leasing Inc. Address: 29 King Street, Chappaqua, New York 10514-3432.
Yves de Balman
Co-Chairman and Co-Chief Executive Officer, DB Alex. Brown LLC; Vice Chairman,
Bankers Trust Corporation; Director, Bankers Trust International, plc; Director,
Aerospatiale Matra; Co-Chairman and Co-Chief Executive Officer, Deutsche Bank
Securities Inc. Address: 130 Liberty Street, New York, New York 10006.
William R. Howell
Chairman Emeritus, J.C. Penney Company, Inc.; Director, Bankers Trust
Corporation; Director, Bankers Trust Company; Director, Exxon Mobil Corporation;
Warner-Lambert Company; Halliburton Company; Williams, Inc.; Central and South
West Corporation. Adddress: 6501 Legacy Drive, Plano, Texas 75054-3698.
Hermann-Josef Lamberti
Executive Vice President, Deutsche Bank AG; Director and Vice Chairman, Bankers
Trust Corporation; Director, Bankers Trust Company; Board memberships: Euroclear
plc (London); Euroclear sc. (Brussels); and The Clearinghouse Interbank Payments
Co. L.L.C. Supervisory Board Memberships in: GZS (Frankfurt) and the European
Transaction Bank (e.t.b.). Director, Deutsche Bank Americas Holding Corp.
Address: Deutsche Bank AG, Taunusanlage 12, 60325 Frankfurt am Main, Germany.
Troland S. Link
General Counsel of Deutsche Bank North America; General Counsel, Bankers Trust
Corporation; Managing Director and General Counsel,
<PAGE>
Bankers Trust Company. Address: 1301 Sixth Avenue - Fl.8, New York, NY 10019.
Rodney A. McLauchlan
Executive Vice President, Bankers Trust Company; Executive Vice President,
Bankers Trust Corporation. Address: 31 West 52nd Street, Fl.28, New York, NY
10019.
John A. Ross
Chief Executive Officer of the Americas, Deutsche Bank AG; President and
Director, Bankers Trust Corporation; President and Director, Bankers Trust
Company; President, Director and Chief Executive Officer, Taunus Corporation and
DB U.S. Financial Markets Holding Corporation; President and Chief Executive
Officer, Deutsche Bank Americas Holding Corp.; Director, Deutsche Bank
Securities Inc.and DB Alex. Brown LLC. Address: Deutsche Bank, 31 West 52nd
Street, FL. 28, New York, New York 10019.
Ronaldo H. Schmitz
Member of the Group Board, Deutsche Bank AG, Director, Bankers Trust
Corporation; Director, Bankers Trust Company; Non-executive Director,
Bertelsmann AG, Glaxo Wellcome plc, Rohm & Haas Co. and INSEAD - Paris, France;
Director, Deutsche Bank Americas Holding Corp. Address: Deutsche Bank AG,
Taunusanlage 12, 60325 Frankfurt am Main, Germany.
Mayo A. Shattuck III
Co-Chairman and Co-Chief Executive Officer, DB Alex. Brown LLC; Vice Chairman,
Bankers Trust Corporation; Director, Bankers Trust International, plc, Alex.
Brown & Sons Holdings Limited, Alex. Brown & Sons Limited, Alex. Brown Asset
Management, Inc., Alex. Brown Capital Advisory, Incorporated and Investment
Company Capital Corporation; Co-Chairman and Co-Chief Executive Officer,
Deutsche Bank Securities Inc.; Director and President - AB Administrative
Partner, Inc., ABFS I Incorporated, ABS Leasing Services Company, ABS MB Ltd.,
Alex. Brown Financial Corporation, Alex. Brown Financial Services Incorporated,
Alex. Brown Investments Incorporated, Alex. Brown Management Services Inc. and
Alex. Brown Mortgage Capital Corporation; and Director and Vice President, Alex.
Brown & Sons Holdings Limited; Director, Constellation Holdings; President,
South Street Aviation; Co-Chairman and Co-Chief Executive Officer, Deutsche Bank
Securities Inc. Address: One South Street, Fl.30 Baltimore, MD 21202.
Item 27. Principal Underwriters.
<PAGE>
(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 Emerging Growth Fund, Inc.,
the Flag Investors Total Return U.S. Treasury Fund Shares of Total Return U.S.
Treasury Fund, Inc., the Flag Investors Managed Municipal Fund Shares of 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 (formerly known as Deutsche Funds, Inc.), Flag Investors Portfolios
Trust (formerly known as Deutsche Portfolios), Morgan Grenfell Investment Trust,
DP Trust, The Glenmede Funds, Inc. and The Glenmede Portfolios.
(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
John Y. Keffer President None
Ronald H. Hirsch Treasurer None
Nanette K. Chern Chief Compliance Officer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Frederick Skillin Assistant Treasurer None
Marc D. Keffer Assistant Secretary None
(c) None
ITEM 28. Location of Accounts and Records.
BT Investment Funds: Deutsche Asset Management
(Registrant) One South Street
Baltimore, MD 21202
Bankers Trust Company: 130 Liberty Street
(Custodian, Investment Adviser New York, NY 10006
<PAGE>
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
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant, BT INVESTMENT
FUNDS, certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment No. 68 to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, as amended, and has duly caused this
Post-Effective Amendment No. 68 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 28th day of April, 2000.
BT INVESTMENT FUNDS
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
April 28, 2000
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 April 28, 2000
Daniel O. Hirsch (Attorney in Fact
For the Persons Listed Below)
/s/ John Y. Keffer* President and
John Y. Keffer Chief Executive Officer
</TABLE>
<PAGE>
/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
Bruce T. Langton
/s/ PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
/s/ HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten
* By Power of Attorney. Incorporated by reference to Post-Effective Amendment
No. 64 of BT Investment Funds as filed with the Commission on October 22, 1999.
<PAGE>
SIGNATURES
BT INVESTMENT PORTFOLIOS has duly caused this Post-Effective Amendment No.
68 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 28th day of April, 2000.
BT INVESTMENT PORTFOLIOS
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
April 28, 2000
This Post-Effective Amendment No. 68 to the Registration Statement of BT
Investment Funds has been signed below by the following persons in the
capacities indicated with respect to Quantitative Equity Portfolio, a series of
BT INVESTMENT PORTFOLIOS.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
By: /s/ Daniel O. Hirsch Secretary April 28, 2000
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. Incorporated by reference to Post-Effective Amendment
No. 64 of BT Investment Funds as filed with the Commission on October 22, 1999.
<PAGE>
SIGNATURES
CASH MANAGEMENT PORTFOLIO has duly caused this Post-Effective Amendment
No. 68 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 28th day of April, 2000.
CASH MANAGEMENT PORTFOLIO
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
April 28, 2000
This Post-Effective Amendment No. 68 to the Registration Statement of BT
Investment Funds has been signed below by the following persons in the
capacities indicated with respect to CASH MANAGEMENT PORTFOLIO.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
By: /s/ Daniel O. Hirsch Secretary April 28, 2000
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. Incorporated by reference to Post-Effective Amendment
No. 64 of BT Investment Funds as filed with the Commission on October 22, 1999.
<PAGE>
SIGNATURES
TAX FREE MONEY PORTFOLIO has duly caused this Post-Effective Amendment No.
68 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 28th day of April, 2000.
TAX FREE MONEY PORTFOLIO
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
April 28, 2000
This Post-Effective Amendment No. 68 to the Registration Statement of BT
Investment Funds has been signed below by the following persons in the
capacities indicated with respect to TAX FREE MONEY PORTFOLIO.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
By: /s/ Daniel O. Hirsch Secretary April 28, 2000
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. Incorporated by reference to Post-Effective Amendment
No. 64 of BT Investment Funds as filed with the Commission on October 22, 1999.
<PAGE>
SIGNATURES
NY TAX FREE MONEY PORTFOLIO has duly caused this Post-Effective Amendment
No. 68 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 28th day of April, 2000.
NY TAX FREE MONEY PORTFOLIO
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
April 28, 2000
This Post-Effective Amendment No. 68 to the Registration Statement of BT
Investment Funds has been signed below by the following persons in the
capacities indicated with respect to NY TAX FREE MONEY PORTFOLIO.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
By: /s/ Daniel O. Hirsch Secretary April 28, 2000
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. Incorporated by reference to Post-Effective Amendment
No. 64 of BT Investment Funds as filed with the Commission on October 22, 1999.
<PAGE>
SIGNATURES
TREASURY MONEY PORTFOLIO has duly caused this Post-Effective Amendment No.
68 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 28th day of April, 2000.
TREASURY MONEY PORTFOLIO
By: /s/ Daniel O. Hirsch
Daniel O. Hirsch, Secretary
April 28, 2000
This Post-Effective Amendment No. 68 to the Registration Statement of BT
Investment Funds has been signed below by the following persons in the
capacities indicated with respect to TREASURY MONEY PORTFOLIO.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
By: /s/ Daniel O. Hirsch Secretary April 28, 2000
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. Incorporated by reference to Post-Effective Amendment
No. 64 of BT Investment Funds as filed with the Commission on October 22, 1999.
<PAGE>
RESOLUTION RELATING TO
RATIFICATION OF REGISTRATION STATEMENTS
(To be approved by the Boards of each Investment Company with a Fiscal Year End
of December 31 (each, a "Trust" or a "Portfolio Trust", as applicable)
RESOLVED,That the proper officers of the Trust be, and they hereby
are, authorized and directed to execute, in the name and on
behalf of the Trust, a Post-Effective Amendment under the
Securities Act of 1933 (the "1933 Act") and an Amendment under
the Investment Company Act of 1940, as amended, (the "1940
Act") to the Trust's Registration Statement on Form N-1A, and
all necessary exhibits and other instruments relating thereto
(collectively, the "Registration Statement"), to procure all
other necessary signatures thereon, and to file the
appropriate exhibits thereto, with the Securities and Exchange
Commission (the "Commission"), under the 1933 Act and the 1940
Act and to appear, together with legal counsel, on behalf of
the Trust before the Commission in connection with any matter
relating to the Registration Statement; and further
RESOLVED,That any officer of the Trust be, and he or she hereby is,
authorized and directed in the name and on behalf of the Trust
to take any and all action which the officer so acting may
deem necessary or advisable in order to obtain a permit to
register or qualify shares of common stock of the Trust for
issuance and sale or to request an exemption from registration
of shares of common stock of the Trust under the securities
laws of such of the states of the United States of America or
other jurisdictions, including Canada, as such officer may
deem advisable, and in connection with such
<PAGE>
registration, permits, licenses, qualifications and exemptions
to execute, acknowledge, verify, deliver, file and publish all
such applications, reports, issuer's covenants, resolutions,
irrevocable consents to service of process, powers of attorney
and other papers and instruments as may be required under such
laws or may be deemed by such officer to be useful or
advisable to be filed thereunder, and that the form of any and
all resolutions required by any such state authority in
connection with such registration, licensing, permitting,
qualification or exemption is hereby adopted if (1) in the
opinion of the officer of the Trust so acting the adoption of
such resolutions is necessary or advisable, and (2) the
Secretary of the Trust evidences such adoption by filing
herewith copies of such resolutions which shall thereupon be
deemed to be adopted by the Board of Directors and
incorporated in the minutes as a part of this resolution and
with the same force and effect as if attached hereto and that
the proper officers of the Trust are hereby authorized to take
any and all action that they may deem necessary or advisable
in order to maintain such registration in effect for as long
as they may deem to be in the best interests of the Trust; and
further
RESOLVED,That any and all actions heretofore or hereafter taken by
such officer or officers within the terms of the foregoing
resolutions be, and they hereby are, ratified and confirmed as
the authorized act and deed of the Trust; and further
RESOLVED,That the proper officers of the Portfolio Trust be, and they
hereby are, authorized and directed to execute, in the name
and on behalf of the Portfolio Trust, an Amendment under the
1940 Act to the Portfolio Trust's Registration Statement, to
procure all other necessary signatures thereon, and to file
the appropriate exhibits thereto, with the Commission and to
appear, together with legal counsel, on behalf of the
Portfolio Trust before the Commission in connection with any
matter relating to the Registration Statement; and further
RESOLVED,That any officer of the Portfolio Trust be, and he or she
hereby is, authorized and directed in the name and on behalf
of the Portfolio Trust to take any and all action which the
officer so acting may deem necessary or advisable in order to
obtain a permit to register or qualify shares of common stock
of the Portfolio Trust for issuance and sale or to request an
exemption from registration of shares of common stock of the
Portfolio Trust under the securities laws of such of the
states of the United States of America or other jurisdictions,
including Canada, as such officer may deem
<PAGE>
advisable, and in connection with such registration, permits,
licenses, qualifications and exemptions to execute,
acknowledge, verify, deliver, file and publish all such
applications, reports, issuer's covenants, resolutions,
irrevocable consents to service of process, powers of attorney
and other papers and instruments as may be required under such
laws or may be deemed by such officer to be useful or
advisable to be filed thereunder, and that the form of any and
all resolutions required by any such state authority in
connection with such registration, licensing, permitting,
qualification or exemption is hereby adopted if (1) in the
opinion of the officer of the Portfolio Trust so acting the
adoption of such resolutions is necessary or advisable, and
(2) the Secretary of the Portfolio Trust evidences such
adoption by filing herewith copies of such resolutions which
shall thereupon be deemed to be adopted by the Board of
Directors and incorporated in the minutes as a part of this
resolution and with the same force and effect as if attached
hereto and that the proper officers of the Portfolio Trust are
hereby authorized to take any and all action that they may
deem necessary or advisable in order to maintain such
registration in effect for as long as they may deem to be in
the best interests of the Portfolio Trust; and further
RESOLVED,That any and all actions heretofore or hereafter taken by
such officer or officers within the terms of the foregoing
resolutions be, and they hereby are, ratified and confirmed as
the authorized act and deed of the Portfolio Trust.
<PAGE>
Exhibit 23(J)1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus (Investment Class) and to the incorporation by
reference in this Post-Effective Amendment No. 68 to the Registration Statement
(Form N-1A) (No. 33-07404) of BT Investment Funds of our report dated January
26, 2000, included in the 1999 Annual Report to shareholders of BT Quantitative
Equity Fund.
Philadelphia, Pennsylvania
April 24, 2000
<PAGE>
Exhibit 23(J)2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 68 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated February 11, 2000, relating to the financial
statements and financial highlights appearing in the December 31, 1999 Annual
Reports to Shareholders of NY Tax Free Money Fund, Treasury Money Fund, Tax Free
Money Fund, Cash Management Fund (constituting parts of the BT Investment Funds)
and NY Tax Free Money Portfolio, Treasury Money Portfolio, Tax Free Money
Portfolio, and Cash Management Portfolio, which are incorporated by reference
into the Registration Statement. We also consent to the references to us under
the headings "Financial Highlights" and "Independent Accountants" in such
Registration Statement.
PricewaterhouseCoopers LLP
Baltimore, Maryland
April 27, 2000
<PAGE>
Exhibit 99(H)
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 31st day of
December, 1999, by and between BT INVESTMENT FUNDS, a Massachusetts Business
trust (the "Trust"), CASH MANAGEMENT PORTFOLIO, TAX FREE MONEY PORTFOLIO, NY TAX
FREE MONEY PORTFOLIO, TREASURY MONEY PORTFOLIO AND BT INVESTMENT PORTFOLIOS,
each a New York trust (each a "Portfolio Trust"), and BANKERS TRUST COMPANY, a
New York corporation (the "Adviser"), with respect to the following:
WHEREAS, the Adviser serves as BT Investment Funds' Investment Adviser
pursuant to an Investment Advisory Agreement dated June 4, 1999, the Adviser
serves as the Cash Management Portfolio's, Tax Free Money Portfolio's, NY Tax
Free Money Portfolio's, Treasury Money Portfolio's and BT Investment Portfolios'
Investment Adviser pursuant to Investment Advisory Agreements dated June 4,
1999, and the Adviser serves as the Trust's Administrator pursuant to an
Administration and Services Agreement dated October 28, 1992 (collectively, the
"Agreements"); and
NOW, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. The Adviser agrees to waive its fees and reimburse expenses for the
period from December 31, 1999 to April 30, 2001 to the extent
necessary so that each Fund's total annual operating expenses do not
exceed the percentage of average daily net assets set forth on Exhibit
A.
2. Upon the termination of the Investment Advisory Agreement or the
Administration Agreement, this Agreement shall automatically
terminate.
3. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the Investment Company Act of 1940 (the "1940 Act") shall
be resolved by reference to such term or provision of the 1940 Act and
to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission
("SEC") issued pursuant to said Act. In addition, where the effect of
a requirement of the 1940 Act reflected in any provision of this
Agreement is revised by rule, regulation or order of the SEC, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall
be interpreted in accordance with the laws of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers as of the day and year first above
written.
ON BEHALF OF THE TRUST AND
PORTFOLIO TRUSTS LISTED BELOW:
BT INVESTMENT FUNDS
CASH MANAGEMENT PORTFOLIO
TAX FREE MONEY PORTFOLIO
NY TAX FREE MONEY PORTFOLIO
TREASURY MONEY PORTFOLIO
BT INVESTMENT PORTFOLIOS
Attest: /s/ Amy M. Olmert By: /s/ Daniel O. Hirsch
Name: Amy M. Olmert Name: Daniel O. Hirsch
Title: Secretary
BANKERS TRUST COMPANY
Attest: /s/ Amy M. Olmert By: /s/ Ross Youngman
Name: Amy M. Olmert Name: Ross Youngman
Title: Managing Director
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Total Fund Operating Expenses
Fund (as a percentage of average daily net assets)
- ---- ---------------------------------------------
<S> <C>
Cash Management Fund 0.75%
Tax Free Money Fund 0.75%
NY Tax Free Money Fund 0.75%
Treasury Money Fund 0.75%
Quantitative Equity - Investment Class 0.90%
Quantitative Equity - Institutional Class 0.75%
</TABLE>
<PAGE>
Code of Ethics and Procedures
Pursuant to Rule 17j-1 under the
Investment Company Act of 1940
This Code of Ethics (the "Code") has been adopted by each Investment Company
listed on Exhibit A, attached hereto (each, a "Trust") to specify and prohibit
certain types of personal securities transactions deemed to create a conflict of
interest and to establish reporting requirements and preventive procedures
pursuant to the provisions of Rule 17j-1(b)(1) under the Investment Company Act
of 1940 (the "1940 Act").
I. DEFINITIONS
A. An "Access Person" means (i) any Trustee, Director, officer, or Advisory
Person (as defined below) of the Investment Company or any investment
advisor thereof, or (ii) any director or officer of a principal underwriter
of the Investment Company, who, in the ordinary course of his or her
business, makes, participates in or obtains information regarding the
purchase or sale of securities for the Investment Company for which the
principal underwriter so acts or whose functions or duties as part of the
ordinary course of his or her business relate to the making of any
recommendation to the Investment company regarding the purchase or sale of
securities or (iii) notwithstanding the provisions of clause (i) above,
where the investment adviser is primarily engaged in a business or
businesses other than advising registered investment companies or other
advisory clients, any trustee, director, officer or Advisory Person of the
investment adviser who, with respect to the Investment Company, makes any
recommendation or participates in the determination of which
recommendations shall be made, or whose principal function of duties relate
to the determination of which recommendations shall be made to the
Investment Company or who in connection with his or her duties, obtains any
information concerning securities recommendations being made by such
investment adviser to the Investment Company.
B. An "Advisory Person" means any employee of the Investment Company or any
investment advisor thereof (or of any company in a control relationship to
the Investment Company or such investment adviser), who, in connection with
his or her regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of securities by the Investment
Company or whose functions relate to any recommendations with respect to
such purchases or sales and any natural person in a control relationship
with the Investment Company or adviser who obtains information regarding
the purchase or sale of securities.
C. A "Portfolio Manager" means any person or persons with the direct
responsibility and authority to make investment decisions affecting the
Investment Company.
D. "Access Persons", "Advisory Persons" and "Portfolio Managers" shall not,
unless otherwise provided in the code of ethics of the Investment Company's
investment adviser any subadviser, administrator or principal underwriter,
include any individual who is required to file quarterly reports with the
Investment Company's investment adviser, any subadviser, administrator or
principal underwriter pursuant to a code of ethics substantially in
conformity with Rule 17j-1 of the 1940 Act or Rule 204-2 of the Investment
Advisers Act of 1940 which has been approved by the Investment Company's
Board of Trustees.
E. "Beneficial Ownership" shall be interpreted subject to the provisions of
Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the Securities
Exchange Act of 1934.
F. "Control" shall have the same meaning as set forth in Section 2(a)(9) of
the 1940 Act.
1
<PAGE>
G. "Disinterested Trustee" means a Trustee who is not an "interested person"
of the Investment Company within the meaning of Section 2(a)(19) of the
1940 Act. An "interested person" includes any person who is a trustee,
director, officer or employee of any investment adviser of the Investment
Company, or owner of 5% or more of the outstanding stock of any investment
adviser of the Investment Company. Affiliates of brokers or dealers are
also "interested persons", except as provided in Rule 2(a)(19)(1) under the
1940 Act.
H. "Review Officer" is the person designated by the Investment Company's Board
of Trustees to monitor the overall compliance with this Code. In the
absence of any such designation, the Review Officer shall be the Treasurer
or any Assistant Treasurer of the Investment Company.
I. "Preclearance Officer" is the person designated by the Investment Company's
Board of Trustees to provide preclearance of any personal security
transaction as required by this Code.
J. "Purchase or sale of a security" includes, among other things, the writing
of an option to purchase or sell a security or the purchase or sale of a
future or index on a security or option thereon.
K. "Security" shall have the meaning set forth in Section 2(a)(36) of the 1940
Act (in effect, all securities) except that is shall not include securities
issued by the U.S. Government (or any other "government security" as that
term is defined in the 1940 Act), bankers' acceptances, bank certificates
of deposit, commercial paper and such other money market instruments as may
be designated by the Trustees of the Investment Company, and shares of
registered open-end investment companies.
L. A security is "being considered for purchase or sale" when a recommendation
to purchase or sell the security has been made and communicated and, with
respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal investment
activities of all Access Persons.
Each Access Person shall:
A. At all times, place the interests of the Investment Company before his or
her personal interests;
B. Conduct all personal securities transactions in a manner consistent with
this Code, so as to avoid any actual or potential conflicts of interest, or
an abuse of position of trust and responsibility; and
C. Not take an inappropriate advantage of his or her position with or on
behalf of the Investment Company.
III. UNLAWFUL ACTIONS
It is unlawful for any affiliated person of or principal underwriter for a Fund,
or any affiliated person of an investment adviser of or principal underwriter
for a Fund, in connection with the purchase or sale, directly or indirectly, by
the person of a security held or to be acquired by the Fund:
A. To employ any device, scheme or artifice to defraud the Fund;
B. To make any untrue statement of a material fact to the Fund or to omit to
state a material fact necessary in order to make statements made to the
Fund, in light of the circumstances in which they are made, not misleading;
2
<PAGE>
C. To engage in any act, practice or course of business that operates or would
operate as a fraud or deceit on the Fund; or
D. To engage in any manipulative practice with respect to the Fund.
IV. RESTRICTIONS OF PERSONAL INVESTING ACTIVITIES
A. Blackout Periods
1. No Access Person (other than a Disinterested Trustee) shall purchase or
sell, directly or indirectly, any security in which he or she has, or by
reason of such transaction acquires, any direct or indirect beneficial
ownership on a day during which he or she knows or should have known the
Investment Company has a pending "buy" and "sell" order in that same
security until that order is executed or withdrawn.
2. No Advisory Person or Portfolio Manager shall purchase or sell, directly or
indirectly, any security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership within at
least seven calendar days before and after the Investment Company trades
(or has traded) in that security.
B. Initial Public Offerings
No Advisory Person shall acquire any security in an initial public offering
for his or her personal account.
C. Private Placements
With regard to private placements, each Advisory Person shall:
1. Obtain express prior written approval from the Preclearance Officer for any
acquisition of securities in a private placement (the Preclearance Officer,
in making such determination, shall consider, among other factors, whether
the investment opportunity should be reserved for the Investment Company,
and whether such opportunity is being offered to such Advisory Person by
virtue of his or her position with the Investment Company); and
2. After authorization to acquire securities in a private placement has been
obtained, disclose such personal investment with respect to any subsequent
consideration by the Investment Company (or any other investment company
for which he or she acts in a capacity as an Advisory Person) for
investment in that issuer.
If the Investment Company decides to purchase securities of an issuer the
shares of which have been previously obtained for personal investment by an
Advisory Person, that decision shall be subject to an independent review by
Advisory Persons with no personal interest in the issuer.
D. Short-Term Trading Profits
No Advisory Person shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities of which such Advisory
Person has beneficial ownership within 60 calendar days. any profit so
realized shall, unless the Investment Company'' Board of Trustees approves
otherwise, be disgorged as directed by the Investment Company's Board of
Trustees.
E. Gifts
No Advisory Person shall receive any gift or other things of more than de
minimis value from any person or entity that does business with or on
behalf of the Investment Company.
3
<PAGE>
F. Service as a Director or Trustee
1. No Advisory Person shall serve on the board of directors or trustees of a
publicly traded company without prior authorization from the Board of
Trustees of the Investment Company, based upon a determination that such
board service would be consistent with the interests of the Investment
Company and its investors.
2. If board service by an Advisory Person is authorized by the Board of
Trustees of the Investment Company such Advisory Person shall be isolated
from the investment making decisions of the Investment Company with respect
to the companies of which he or she is a director or trustee.
G. Exempted Transactions
The prohibitions of Section IV shall not apply to:
1. Purchases or sales effected in any account over which the Access Person has
no direct or indirect influence or control;
2. Purchases or sales that are non-volitional on the part of the Access Person
or the Investment Company, including mergers, recapitalizations or similar
transactions;
3. Purchases which are part of an automatic dividend reinvestment plan;
4. Purchases effected upon the exercise of rights issued by an issuer pro rata
to all holders of a class of securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired; and
5. Purchases or sales that receive prior approval in writing by the
Preclearance Officer as (a) only remotely potentially harmful to the
Investment Company because they would be very unlikely to affect a highly
institutional market, (b) clearly not economically related to the
securities to be purchased or sold or held by the Investment company or
client, and (c) not representing any danger of the abuses proscribed by
Rule 17j-1, but only if in each case the prospective purchaser has
identified to the Review Officer all factors of which he or she is aware
which are potentially relevant to a conflict of interest analysis,
including the existence of any substantial economic relationship between
his or her transaction and securities held or to be held by the Investment
Company.
V. COMPLIANCE PROCEDURES
A. Preclearance
1. An Access Person (other than a Disinterested Trustee) may not, directly or
indirectly, acquire or dispose of beneficial ownership of a security except
as provided below unless:
a. Such purchase or sale has been approved by the Preclearance Officer;
b. The approved transaction is completed on the same day approval is
received; and
c. The Preclearance Officer has not rescinded such approval prior to
execution of the transaction.
2. Each Access person may effect total purchase and sales of up to $25,000 of
securities listed on a national securities exchange or on NASDAQ within any
six month period without preclearance from the Board of Trustees or the
Preclearance Officer provided that:
a. The six month period is a "rolling" period, i.e., the limit is
applicable between any two dates which are six months apart;
b. Transactions in options and futures, other than options or futures on
commodities, will be included for purposes of calculating whether the
$25,000 limit has been exceeded. such transactions will be measured by
the value of the securities underlying options and futures; and
4
<PAGE>
c. although preclearance is not required for personal transactions in
securities which fall into this "de minimis" exception, these trades
must still be reported on a quarterly basis pursuant to Section V.B.2.
hereunder, if such transactions are reportable.
B. Reporting
1. Coverage: Each Access Person (other than Disinterested Trustees) shall
file with the Review Officer confidential quarterly reports containing the
information required in Section V.B.2 hereunder with respect to all
transactions during the preceding quarter in any securities in which such
person has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership, provided that no Access Person shall be
required to report transactions effected for any account over which such
Access Person has no direct or indirect influence or control (except that
such an Access Person must file a written certification stating that he or
she has no direct or indirect influence or control over the account in
question).
2. Filings: Every report shall be made no later than ten days after the end
of the calendar quarter in which the transaction to which the report
relates was effected, and shall contain the following information:
a. The date of the transaction, the title and the number of shares and the
principal amount of each security involved;
b. The nature of the transaction (i.e. purchase, sale, or any other type
of acquisition or disposition);
c. The price at which the transaction was effected; and
d. The name of the broker, dealer or bank with or through whom the
transaction was effected.
3. Any report may contain a statement that it shall not be construed as an
admission by the person making the report that he or she has any direct or
indirect beneficial ownership in the security to which the report relates.
4. Confirmations: All Access Persons (other than Disinterested Trustees)
shall direct their brokers to supply the Investment Company's Review
Officer on a timely basis, duplicate copies of all personal securities
transactions.
C. Review
In reviewing transactions and holding reports, the Review Officer shall
take into account the exemptions allowed under Section IV.G. hereunder.
Before making a determination that a violation has been committed by an
Access Person, the Review Officer shall give such person an opportunity to
supply additional information regarding the transaction in question. Each
Fund, investment adviser or principal underwriter shall maintain a list of
names of appropriate management and compliance personnel responsible for
reviewing securities transactions and holdings reports.
D. Disclosure of Personal Holdings
All Advisory Persons shall disclose personal securities holdings upon
commencement of employment and thereafter on an annual basis.
E. Certification of Compliance
Each Access Person is required to certify annually that he or she has read
and understood this Code and recognizes that he or she is subject to the
Code. Further, each Access Person is required to certify annually that he
or she has complied with all the requirements of this Code and that he or
she has disclosed or reported all personal securities transactions pursuant
to the requirements of the Code.
5
<PAGE>
VI. REQUIREMENTS FOR DISINTERESTED TRUSTEES
A. No report is required if such person is a Disinterested Trustee, and such
person would be required to make such report solely by reason of being a
Trustee, except where such Trustee knew, or in the ordinary course of
fulfilling his official duties as a Trustee of the Funds, should have known
that during the fifteen day period immediately preceding or after the date
of the transaction in a security by the Trustee, such security is or was
purchased or sold, or considered for purchase or sale by the Funds.
B. Notwithstanding the preceding section, any Disinterested Trustee may, at
his or her option, report the information described in Section V.B.2. above
with respect to any one or more transactions and may include a statement
that the report shall not be construed as an admission that the person knew
or should have known of portfolio transactions by the Investment Company in
such securities.
VII. REVIEW BY THE BOARD OF TRUSTEES
The Board of Trustees, including a majority of Trustees who are not interested
persons, must approve the Code of Ethics of the Fund, the Code of Ethics of each
investment adviser and principal underwriter of the Fund, and any material
changes to these Codes. The board must base its approval of a Code and any
material changes to the Code based on a determination that the Code contains
provisions reasonably necessary to to prevent Access Persons from engaging in
any conduct prohibited by paragraph III. of these policies and procedures.
Before approving a Code of a Fund, investment adviser or principal underwriter
or any amendment to the Code, the Board of Trustees must receive a certification
from the Fund, investment adviser or principal underwriter that it has adopted
procedures reasonably necessary to prevent Access Persons from violating the
investment adviser's or principal underwriter's Code of Ethics. The Fund's
board must approve the Code of an investment adviser or principal underwriter
before initially retaining the services of the investment adviser or principal
underwriter. The Fund's board must approve a material change to a Code no later
than six months after adoption of the material change.
At least annually, the Review Officer shall provide to the Board of Trustees:
A. A review of all existing procedures concerning Access Persons' personal
trading activities and any procedural changes made during the past year;
B. Any recommended changes to the Investment Company's Code or procedures; and
C. A written report describing any issues or violations that occurred during
the past year, including, but not limited to, information about material
Code or procedural violations and sanctions imposed in response to those
violations.
D. Certification that the Fund, investment adviser or principal underwriter
has adopted procedures reasonably necessary to prevent its access persons
from violating its Code of Ethics.
VIII. SANCTIONS
A. Sanctions for Violations By Access Persons (Except Disinterested Trustees)
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Trustees and the Board may
impose such sanctions as it deems appropriate, including inter alia,
disgorgement of profits, censure, suspension or termination of the
employment of the violator. All material violations of the code and any
sanctions imposed as a result thereto shall be reported periodically to the
Board of Trustees.
6
<PAGE>
B. Sanctions for Violations by Disinterested Trustees
If the Review Officer determines that any Disinterested Trustee has
violated this code, he or she shall so advise the President of the
Investment Company and also a committee consisting of the Disinterested
Trustees (other than the person whose transaction is at issue) and shall
provide the committee with a report, including the record of pertinent
actual or contemplated portfolio transactions of the Investment Company and
any additional information supplied by the person whose transaction is at
issue. The committee, at its option, shall either impose such sanctions as
it deems appropriate or refer the matter to the full Board of Trustees of
each Trust, which shall impose such sanctions as it deems appropriate.
IX. MISCELLANEOUS
A. Access Persons
The Review Officer of the Investment Company will identify all Access
Persons who are under a duty to make reports to the Investment Company and
will inform such person so of such duty. Any failure by the Review Officer
to notify any person of his or her duties shall not relieve such person of
his or her obligations hereunder.
B. Records
The Investment Company's administrator shall maintain records in the manner
and to the extent set froth below, which records may be maintained on
microfilm under the conditions described in Rule 31a-2(f) under the 1940
Act, and shall be available for examination by representatives of the
Securities and Exchange Commission ("SEC"):
1. A copy of this Code and any other code which is, or at any time within
the past five years has been, in effect shall be preserved in an easily
accessible place;
2. A record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of the
fiscal year in which the violation occurs;
3. A copy of each report made pursuant to this Code shall be preserved
for a period of not less than five years from the end of the fiscal
year in which it is made, the first two years in an easily accessible
place; and
4. A list of all persons who are required, or within the past five years
have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by Law.
D. Interpretation of Provisions
The Board of Trustees of the Investment Company may from time to time adopt
such interpretations of this Code as it deems appropriate.
7
<PAGE>
<TABLE>
<S> <C>
BT INVESTMENT FUNDS PRESERVATIONPLUS FUND
BT INSTITUTIONAL FUNDS PRESERVATIONPLUS INCOME FUND
THE LEADERSHIP TRUST U.S. BOND INDEX PORTFOLIO
EAFE INDEX PORTFOLIO
SMALL CAP PORTFOLIO EQUITY 500 INDEX PORTFOLIO
CASH MANAGEMENT PORTFOLIO ASSET MANAGEMENT I,II & III PORTFOLIO
TREASURY MONEY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
DAILY ASSETS FUND EQUITY APPRECIATION PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND SMALL CAP INDEX PORTFOLIO
LIQUID ASSETS FUND QUANTITATIVE EQUITY FUND
TAX FREE MONEY PORTFOLIO INTERMEDIATE TAX FREE PORTFOLIO
NY TAX FREE MONEY PORTFOLIO BT INVESTMENT PORTFOLIOS
INTERNATIONAL EQUITY PORTFOLIO BT INSURANCE FUNDS TRUST
LATIN AMERICAN EQUITY PORTFOLIO (each, an "Investment Company")
PACIFIC BASIN EQUITY PORTFOLIO
GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
</TABLE>
TRANSACTION REPORT
------------------
To: ____________________________, Review Officer
From: ______________________________________
(Your name)
This Transaction Report (the "Report") is submitted pursuant to Section V of
the Code of Ethics, as of [ , 1999] (the Code), of
the above referenced Trust and supplies (below) information with respect to
transactions in any security in which I may be deemed to have, or by reason of
such transaction acquire, any direct or indirect beneficial ownership interest
(whether or not such security is a security held or to be acquired by the
Investment Company) for the calendar quarter ended ____________.
Unless the context otherwise requires, all terms used in this Report shall
have the same meaning as set forth in the Code.
For purposes of this Report, beneficial ownership shall be interpreted subject
to the provisions of the Code and Rule 16a-1(a) (exclusive of Section (a)(1) of
such Rule) of the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
Nature of
Transaction, Name of the
Whether Purchase, Principal Amount Price at Broker, Dealer,
Date of Sale or Other of Securities Which the or Bank with
Title Disposition of type of Acquired Transaction Transaction Whom the Ownership Nature of
of Securities Transaction Or Acquisition Disposed Of was Effected Was Effected Securities*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* If appropriate, you may disclaim beneficial ownership of any security listed
in this Report.
8
<PAGE>
I HEREBY CERTIFY THAT I (1) HAVE READ AND UNDERSTAND THE CODE OF THE
INVESTMENT COMPANY (2) RECOGNIZE THAT I AM SUBJECT TOT HE CODE, (3) HAVE
COMPLIED WITH THE REQUIREMENTS OF THE CODE OVER THE PAST YEAR*, (4) HAVE
DISCLOSED ALL PERSONAL SECURITIES TRANSACTIONS OVER THE PAST YEAR* REQUIRED TO
BE DISCLOSED BY THE CODE, (5) HAVE SOUGHT AND OBTAINED PRECLEARANCE WHENEVER
REQUIRED BY THE CODE AND (6) CERTIFY THAT TO THE BEST OF MY KNOWLEDGE THE
INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
NAME (Print): _________________________________________________________
SIGNATURE: ___________________________________________________________
DATE: _____________________________________________________________
(*) OR PORTION THEREOF DURING WHICH THE CODE HAS BEEN IN EFFECT.
9
<PAGE>
<TABLE>
<S> <C>
BT INVESTMENT FUNDS INTERNATIONAL EQUITY PORTFOLIO
BT INSTITUTIONAL FUNDS LATIN AMERICAN EQUITY PORTFOLIO
BT PYRAMID MUTUAL FUNDS PACIFIC BASIN EQUITY PORTFOLIO
THE LEADERSHIP TRUST GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
BT INVESTMENT PORTFOLIO QUANTITATIVE EQUITY FUND
BT INSURANCE FUNDS TRUST SMALL CAP PORTFOLIO
CASH MANAGEMENT PORTFOLIO EQUITY 500 INDEX PORTFOLIO
TREASURY MONEY PORTFOLIO EAFE INDEX PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND U.S. BOND INDEX PORTFOLIO
DAILY ASSETS FUND SMALL CAP INDEX PORTFOLIO
LIQUID ASSETS FUND ASSET MANAGEMENT I, II & III PORTFOLIOS
TAX FREE MONEY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
NY TAX FREE MONEY PORTFOLIO EQUITY APPRECIATION PORTFOLIO
PRESERVATIONPLUS FUND INTERMEDIATE TAX FREE PORTFOLIO
PRESERVATIONPLUS INCOME FUND
</TABLE>
PERSONAL TRADING REQUEST AND AUTHORIZATION
------------------------------------------
This Personal Trading Request and Authorization is submitted pursuant to the
Code of Ethics as of [ , 1999] (the "Code") of the above
referenced. Unless the context otherwise requires, all terms used herein shall
have the same meaning as set forth in the Code.
Personal Trading Request (to be completed by Access Person prior to any personal
trade):
Name of Access Person: ___________________________________________________
Date of proposed transaction: ________________________________________________
Name of the issuer and dollar amount or number of securities of the issuer to be
purchased or sold:
_____________________________________________________________________________
Nature of the transaction (i.e. purchase, sale)/1/:
________________________________________________________________________________
Are you or is a member of your immediate family an officer, trustee, or director
of the issuer of the securities or any affiliate/2/ of the issuer? [_] Yes
[_] No
If yes, please describe:
________________________________________________________________________________
________________________________________________________________________________
____________
/1/ If other than market order, please describe any proposed limits.
/2/ For purposes of this question, "affiliate" includes (I) any entity that
directly or indirectly owns, controls or holds with power to vote 5% or more of
the outstanding voting securities of the issuer and (II) any entity under common
control with the issuer.
10
<PAGE>
Describe the nature of any direct or indirect professional or business
relationship that you may have with the issuer of the securities./3/
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Do you have an material nonpublic information concerning the issuer?
[_] Yes [_] No
Do you beneficially own more than 1/2 of 1% of the outstanding equity
securities of the issuer?
[_] Yes [_] No
If yes, please report the name of the issuer and the total number of shares
"beneficially owned":
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Are you aware of any facts regarding the proposed transaction, including the
existence of any substantial economic relationship between the proposed
transaction and any securities held or to be acquired by the Investment Company,
that may be relevant to a determination as to the existence of a potential
conflict of interest?/4/ [_] Yes [_] No
If yes, please describe:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- ------------
/3/ A "professional relationship" includes, for example, the provision of legal
counsel or accounting services. a "business relationship" includes, for
example, the provision of consulting services or insurance coverage.
/4/ Facts that would be responsive to this question would include, for example
the receipt of "special favors" from a stock promoter, including participation
in a private placement or initial public offering as an inducement to purchase
other securities for the Investment Company. Another example would be investment
in securities of a limited partnership that in turn owned warrants of a company
formed for the purpose of effecting a leveraged buy-out in circumstances where
the Investment Company might invest in securities related to a leveraged buy-
out. The foregoing are only examples of pertinent facts and in no way limit the
types of facts that may be responsive to this question.
11
<PAGE>
To the best of my knowledge and belief, the answers I have provided above are
true and correct.
Dated: ______________________ ___________________________________________
Signature of Access Person
Approval or Disapproval of Personal Trading Request (to be completed by
Preclearance Officer) prior to personal trade:
___ I confirm that the above-described proposed transaction appears to be
consistent with the policies described in the Code and that the
conditions necessary/5/ for approval of the proposed transaction have
been satisfied.
___ I do not believe that the above-described proposed transaction appears to
be consistent with the policies described in the Code or that the
conditions necessary for the approval of the proposed transaction have
been satisfied.
Dated: ______________________ ___________________________________________
Signature of Preclearance Officer
- -------------
/5/ In the case of a personal securities transaction by an Access Person of the
Investment Company (other than Disinterested Trustees), the Code requires that
the Preclearance Officer determine that the proposed personal securities
transaction (I) is not potentially harmful to the Investment Company (II) would
be unlikely to affect the market in which the Investment Company's portfolio
securities are traded, and (III) is not related economically to securities to be
purchased, sold, or held by the Investment Company. In addition, the Code
requires that the Preclearance Officer determine that the decision to purchase
or sell the security at issue is not he result of information obtained in the
course of the Access Person's relationship with the Investment Company.
12
<PAGE>
EXHIBIT A
BT INVESTMENT FUNDS
BT INSTITUTIONAL FUNDS
BT PYRAMID MUTUAL FUNDS
THE LEADERSHIP TRUST
BT INVESTMENT PORTFOLIO
BT INSURANCE FUNDS TRUST
CASH MANAGEMENT PORTFOLIO
TREASURY MONEY PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND
DAILY ASSETS FUND
LIQUID ASSETS FUND
TAX FREE MONEY PORTFOLIO
NY TAX FREE MONEY PORTFOLIO
PRESERVATIONPLUS FUND
PRESERVATIONPLUS INCOME FUND
INTERNATIONAL EQUITY PORTFOLIO
LATIN AMERICAN EQUITY PORTFOLIO
PACIFIC BASIN EQUITY PORTFOLIO
GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
QUANTITATIVE EQUITY FUND
SMALL CAP PORTFOLIO
EQUITY 500 INDEX PORTFOLIO
EAFE INDEX PORTFOLIO
U.S. BOND INDEX PORTFOLIO
SMALL CAP INDEX PORTFOLIO
ASSET MANAGEMENT I, II & III PORTFOLIOS
CAPITAL APPRECIATION PORTFOLIO
EQUITY APPRECIATION PORTFOLIO
INTERMEDIATE TAX FREE PORTFOLIO
13
<PAGE>
Confidential Information, Insider Trading
and Related Matters
Issue Date: September 1998
------------------------------------------------------------------------
Contents
Letter to All Employees
-----------------------
Introduction
------------
Protecting Confidential Information
-----------------------------------
The Basic Policy
----------------
Nature of Confidential Information
----------------------------------
Safeguarding Documents and Files
--------------------------------
Securing Communications
-----------------------
Temporary Staff and Outside Services
------------------------------------
Client Confidentiality Agreements
---------------------------------
Inquiries from Outside Parties
------------------------------
Customer Inquiries Regarding Investment Advice
----------------------------------------------
Public Statements and Shareholder Communications
------------------------------------------------
Insider Trading and Conflict of Interest
----------------------------------------
The Basic Policy
----------------
Nature of Material Nonpublic Information
----------------------------------------
Insider Trading
---------------
"Frontrunning"
--------------
Dealing with Rumors
-------------------
Unintentional Receipt of Confidential Information
-------------------------------------------------
Personal Securities Trading by Employees
----------------------------------------
Sharing Information Within Bankers Trust -- The "Chinese Wall"
--------------------------------------------------------------
The Basic Policy
------------------
The "Chinese Wall"
------------------
Crossing the Chinese Wall
-------------------------
Avoid Unintended "Backflow" of Information
------------------------------------------
Additional Walls
----------------
The Restricted List and the Gray List
-------------------------------------
What Are the Restricted and Gray Lists?
---------------------------------------
Updates and Distribution of the Lists
-------------------------------------
Trading Restrictions -- The Restricted List
-------------------------------------------
Waivers and Exceptions to Trading Restrictions
----------------------------------------------
Other Matters
-------------
The Compliance Department
-------------------------
Waivers and Exceptions
----------------------
Confirming Your Compliance with Policies
----------------------------------------
If You Have Questions
---------------------
Personal Securities Transactions by Employees (Separate Booklet)
----------------------------------------------------------------
/copyright sign/ 1998 Bankers Trust Corporation
<PAGE>
Bankers Trust
September 1998
To All Employees:
This is your personal copy of Bankers Trust's Employee Compliance Guide,
Confidential Information, Insider Trading and Related Matters. These policies
and procedures are designed to protect the Firm against inadvertent leaks of
sensitive data and possible violations of various securities laws, as well as
to protect the reputation of the Firm and its employees. They are extremely
important.
The policies and procedures described in this booklet are comprehensive and
are supported by three basic guiding principles:
1. Information that you receive as a Bankers Trust employee is confidential
and intended to be used solely for the business purposes of the Firm or
its clients. You must safeguard confidential information at all times.
2. If you possess material nonpublic information about or affecting
securities or their issuer, you may not buy or sell such securities
regardless of the source of the information.
3. Whenever potential conflicts of interest arise, you should place our
fiduciary duty to clients ahead of Bankers Trust's immediate interests,
and you should place the interests of Bankers Trust ahead of your
personal financial interests.
Thank you for your attention to both the letter and spirit of these standards
of professional conduct. Should you ever have a question on how to apply
these policies to some event or circumstance, I encourage you to seek the
guidance of the Compliance Department.
Sincerely,
Frank Newman
Chairman and
Chief Executive Officer
Introduction
----------------------------------------------------------------------------
This policy statement, Confidential Information, Insider Trading and Related
Matters, applies worldwide to all employees of Bankers Trust Corporation and
its subsidiaries (referred to herein as "Bankers Trust" or the "Firm"). For
legal and business reasons, it is essential that our clients, prospective
customers and others are confident that they can rely on our integrity and
discretion to protect and properly use the confidential information they
entrust to us.
Adhering to the policies and standards of conduct described in this booklet
is a condition of your employment with Bankers Trust. Failure to comply with
them may subject you to disciplinary action, including possible dismissal and
civil or criminal penalties. Also, if you become aware of an apparent
violation of these policies and procedures by another employee, you must
report the relevant facts to the Compliance Department.
No written policy can anticipate every situation. Use common sense and good
judgment when responding to situations that may not be specifically covered
by these standards, and recognize when to seek advice regarding their
application.
<PAGE>
Protecting Confidential Information
------------------------------------------------------------------------
1. The Basic Policy
Improper disclosure or misuse of confidential information is prohibited. You
are required to treat confidential information in a responsible and proper
manner, and in accordance with the policies and procedures of Bankers Trust.
2. Nature of Confidential Information
Confidential information refers to business matters not generally known or
made available to the public. You should generally presume that all business
information acquired in connection with your responsibilities at Bankers
Trust regarding the Firm, its clients and business transactions is
confidential unless the contrary is clearly evident. This includes
proprietary information, products and transactions developed or used by
Bankers Trust as explained further in the Firm's Rules for Business Conduct.
Examples of Confidential Information
. a client's planned acquisition target or
restructuring plan;
. forthcoming investment research recommendations;
. information about a client's accounts or
borrowings;
. proprietary or fiduciary trading positions and
strategies;
. customer, supplier, creditor and investor lists;
and
. unannounced information about Bankers Trust's
earnings or transactions.
3. Safeguarding Documents and Files
When handling confidential information contained in written documents,
computer files or other modes of communication and storage, you have a
personal responsibility to protect it. Also, each department should develop
appropriate policies and procedures to properly protect confidential
information within its control.
Recommended Practices to Safeguard
Confidential Documents and Files
. mark confidential documents as CONFIDENTIAL;
. prevent unrestricted copying of confidential
documents and keep track of copies made;
. shred confidential documents that are no longer
needed;
. protect documents and files by using locked
cabinets and limiting computer access;
. use caution when carrying confidential documents
and files in public areas;
. keep desks and conference rooms clear;
. when appropriate, use code names to protect the
identities of participants in a transaction; and
. restrict access by visitors (including Bankers
Trust personnel from other departments) in areas
where they can observe or overhear confidential
information.
<PAGE>
4. Securing Communications
Avoid discussing confidential information in public areas such as elevators,
hallways, taxicabs, airplanes or restaurants where others may be listening.
Be careful when using speakerphones, cellular phones, e-mail, the Internet
and similar methods of communication because conversations and messages can
be overheard or intercepted. Also, don't share information over the telephone
until you have identified the caller. When asked informally by friends or at
social gatherings about confidential matters concerning Bankers Trust, its
clients or others, as a general rule you should decline to comment.
Those "in the know" can protect the Firm, family and friends - and
themselves - by keeping workplace information at the workplace.
5. Temporary Staff and Outside Services
If consultants or temporary staff are utilized in your department, exercise
care to ensure they do not gain unauthorized access to or mishandle
confidential information. Also recognize that certain functions or areas
within Bankers Trust may be too sensitive to entrust to temporary workers or
outside service organizations. When deemed appropriate by business line
management or when required by local regulations, outside personnel should
sign a confidentiality agreement (as approved by the Legal Department) to
confirm their awareness and understanding of the requirement to protect
confidential information and not misuse it.
6. Client Confidentiality Agreements
A confidentiality agreement with a client or a prospective customer may
impose additional obligations on the Firm with respect to protecting
confidential information. Business line management should establish
appropriate internal procedures and provide instructions to employees to
ensure compliance with its terms.
When initially drafted, some confidentiality agreements can be overly broad
in scope and could impair our ability to pursue other business opportunities
during or after the term of the agreement. Therefore, the Legal Department
should review confidentiality agreements prior to being signed by a duly
authorized department manager or their designee.
7. Inquiries from Outside Parties
Unless specifically consented to by the customer, we generally do not
disclose any confidential information about our customer's dealings with us
to any outside party. An exception to this general rule occurs when
regulators and other proper legal authorities or process require that we
disclose specific information. Before releasing information or taking any
action, you should immediately report the matter to your supervisor and seek
the advice of either the Compliance Department or the Legal Department.
Other financial institutions may ask that we respond to credit inquiries
concerning our dealings with existing or former customers. To avoid potential
liability, such responses should be limited to a very narrow statement of
objective factual matters known to us directly and should never express an
opinion as to the client's creditworthiness or integrity. Also, no response
to a credit inquiry should be made without first obtaining the approval of a
departmental credit officer or an officer in the Credit Policy Department.
8. Customer Inquiries Regarding Investment Advice
When appropriate in responding to a customer inquiry regarding investment
advice, departments engaged in investment research, investment management or
investment advisory functions should make sure that their customers
understand that we maintain a Chinese Wall and that Bankers Trust personnel
who make investment decisions or recommendations cannot gain access to, nor
benefit from, any confidential information obtained by the Private Functions
of the Firm (see page 11).
9. Public Statements and Shareholder Communications
When Bankers Trust information is released to the public, it must be accurate
and disclosed in a proper way. Since a public statement made by a Bankers
Trust employee - even a statement that does not release any confidential
information -could embarrass the Firm or subject it to liability, all
contacts with shareholders and security analysts should be cleared in advance
with Corporate Affairs in New York.
All requests for speeches, interviews or comments for use in broadcasts,
newspapers, magazines or other media should be referred to, or cleared by,
Corporate Affairs (in the U.S. and Australia), the designated Communications
Officer (in London), Marketing Services (in Asia) or the head of your Bankers
Trust office (for all other international locations). When practical, these
departments should be furnished with, and given an opportunity to comment on,
the text or outline of the statement or speech and responses to any likely
questions.
<PAGE>
Insider Trading and Conflict of Interest
------------------------------------------------------------------------
1. The Basic Policy
Trading securities or other financial instruments for the accounts of Bankers
Trust, its clients or for personal interests while you are in possession of
material nonpublic information about or affecting them (regardless of how it
was obtained) is prohibited. You are also prohibited from disclosing material
nonpublic information to third parties except in accordance with the policies
and procedures described in this booklet or where disclosure is required by
law. Avoid situations that may appear to be a conflict of interest, let alone
any actual conflict, in both business and personal securities transactions.
Under various securities laws, violations might occur if you trade securities
(or their derivatives such as options) while in possession of material
nonpublic information about them, or disclose such information to third
parties who, in turn, trade those securities or derivatives. The securities
laws of various jurisdictions provide a broad range of remedies to protect
and maintain the integrity of the securities markets. Violation of applicable
insider trading laws and regulations could subject you to substantial civil
or criminal penalties.
2. Nature of Material Nonpublic Information
Material nonpublic information (also known as price sensitive information in
some jurisdictions) refers to confidential information about or affecting a
particular issuer or its securities that is not generally known to the
investing public and a reasonable investor would likely consider important
when making an investment decision. While no single rule can define whether a
particular item is in fact material, information that, if known to the
public, would likely affect the price of a publicly traded security (or would
likely influence decisions to buy, sell or hold a security) has a high
probability of being material.
Examples of Nonpublic Information
About Issuers Likely to be Material
. knowledge of unannounced tender offers;
. plans to issue or redeem securities;
. new products or major contracts;
. liquidity problems or covenant defaults;
. significant management developments;
. estimates about revenues and earnings; and
. significant mergers, acquisitions or
divestitures.
3. Insider Trading
"Insiders" are persons who owe a fiduciary duty to a company's stockholders
and typically include a company's officers, directors and employees. Insiders
also may include a company's outside advisors, bankers, lawyers, underwriters
and printers when they receive material nonpublic information about the
company for a specific purpose.
As a Bankers Trust employee, you should generally assume that any nonpublic
information coming into your possession is material and you may not trade in
or recommend any related securities while in possession of that information.
Also, you may not disclose such information to others (a practice generally
referred to as "tipping") since such conduct may be unethical and illegal. In
fact, indirect receipt of nonpublic information may subject you to these
rules if you knew, or should have known, that the information originated from
the company or from someone who had a duty not to disclose it.
The securities laws governing insider trading are complex and evolving. You
should consult the Compliance Department if uncertain whether the information
you possess is material or nonpublic before making a purchase, sale or
recommendation to which it relates.
<PAGE>
4. "Frontrunning"
You are prohibited from buying or selling securities for the account of
Bankers Trust, as well as for your own account, on the basis of your
knowledge about our clients' trading positions, plans or strategies, or our
own forthcoming research recommendations.
5. Dealing With Rumors
Various securities laws prohibit the circulation of rumors where the
underlying intent is to manipulate the price of publicly traded securities.
As a general rule, you should refrain from conveying rumors to others. If you
have reason to believe that a particular rumor is being circulated to
influence the market, you should report the matter to the Compliance
Department.
Securities trading on the basis of unsubstantiated rumors may subject you or
the Firm to regulatory scrutiny and possible civil or other penalties. Keep
in mind that recommendations and other statements to clients must have a
reasonable basis in fact. Contact your supervisor if uncertain how to handle
a particular rumor.
6. Unintentional Receipt of Confidential Information
Sometimes, confidential information is inadvertently or improperly
communicated to a person who should not have access to that information. To
help avoid this situation, you should clearly describe your position at the
Firm when calling on clients, prospects and in general discussions with
others.
Contact the Compliance Department immediately if you inadvertently or
improperly receive nonpublic information that may be material to determine
what action, if any, is appropriate in the circumstances.
7. Personal Securities Trading by Employees
You must always avoid any actual or potential conflicts of interest between
your Bankers Trust duties and responsibilities, and your personal investment
activities. Restrictions that pertain to personal securities transactions by
employees, including opening and maintaining Employee Related Accounts (as
defined) and the requirement to pre-clear personal securities transactions,
are described in a separate booklet that supplements this policy statement
entitled Personal Securities Transactions by Employees.
Sharing Information Within Bankers Trust -- The "Chinese Wall"
------------------------------------------------------------------------
1. The Basic Policy
Absent appropriate consent, confidential and material nonpublic information,
whether relating to Bankers Trust, its clients or others, should not be
disclosed to anyone other than relevant Bankers Trust personnel, the Firm's
outside lawyers, advisors and accountants, and where appropriate concerning a
transaction, the participants in the transaction. You are permitted to share
confidential information within Bankers Trust only when the communication
----
observes our Chinese Wall policies and procedures, it complies with our duty
of confidentiality owed to clients and the recipient of the information:
---
. has a legitimate need to know the information in connection with his or
her Bankers Trust duties;
. has no responsibilities, whether to Bankers Trust, its clients or
others, that are likely to give rise to conflict of interest or a misuse
of the information; and
. understands that the information is confidential, as well as the
limitations on further distribution of the information.
This policy is extremely important. You must exercise caution before sharing
------
confidential information and, when appropriate, verify the identity of the
recipient and ascertain that he or she has a legitimate need for the
information and has no conflicting duties.
2. The "Chinese Wall"
Because Bankers Trust is a multi-faceted financial institution, some areas of
the Firm may have material nonpublic information about a particular company
while other areas of the Firm may wish to buy, sell or recommend that
company's securities. The controls provided by our "Chinese Wall" policies
and procedures allow us to engage in these diverse activities without
violating the law or breaching our fiduciary responsibilities.
<PAGE>
The Chinese Wall separates the "Private" areas of the Firm ("Potential
Insider Functions") that are likely to come into possession of material
nonpublic information in the ordinary course of business from the "Public"
areas of the Firm ("Trading and Advising Functions") that trade securities or
other instruments for our own account or for the accounts of others, or that
render investment advice. Generally, material nonpublic information obtained
by anyone who works in the Potential Insider Functions should not be
communicated to anyone outside those functions, and particularly must not be
communicated to anyone in the Firm's Trading or Advising Functions.
Private Functions Public Functions
Examples include: Examples include:
. mergers, acquisitions . trading, sales and
and corporate funding;
advisory; . brokerage;
. commercial lending and . investment
credit; management; and
. corporate finance; and . investment
. corporate trust. research.
Employees assigned to certain infrastructure and control groups, such as
Operations and Product Controllers, may obtain confidential information while
conducting their normal activities. In addition, members of senior management
and the Compliance, Legal, Audit and Credit departments are generally
considered "above the Chinese Wall" and therefore have ready access to
confidential information. If you are a member of one of these groups or a
similar function within the Firm, be careful to avoid any improper disclosure
of confidential information, particularly with respect to personnel on the
"Public" side of the Chinese Wall.
3. Crossing the Chinese Wall
In limited situations, communicating material nonpublic information to a
person involved in a Trading or Advising Function may be necessary to achieve
a legitimate business purpose. For example, an investment research analyst's
expertise in a particular industry may be necessary concerning a proposed
corporate finance transaction.
Unless the Compliance Department has expressly approved a particular
department's procedures for conducting Chinese Wall crossings, any
communication of material nonpublic information from the "Private" side of
the Chinese Wall to an employee on the "Public" side of the Chinese Wall must
be handled through the Compliance Department. Further, for departments that
do not have approved procedures, the Compliance Department must be notified
regarding the proposed communication prior to initiating any contact with the
employee.
You should contact the Compliance Department if uncertain whether a proposed
communication of material nonpublic information is permissible. Also, the
Compliance Department should be notified immediately if you believe such
information may have been improperly communicated either within Bankers Trust
or elsewhere.
4. Avoid Unintended "Backflow" of Information
In principle, the Chinese Wall need not inhibit the flow of information from
the "Public" side to the "Private" side of the Wall. Communication of this
type, however, may cause an unintended "backflow" of confidential
information. For example, a request for public information on a particular
company by a mergers and acquisitions specialist (Private Function) to an
investment research analyst (Public Function) may provide the research
analyst a hint as to a possible material development.
All unnecessary business communications (in either direction) between the
Private Functions and Public Functions should be avoided and care must be
exercised whenever an employee engaged in a Private Function deems it
necessary to obtain information from an employee in a Public Function.
Questions in this regard should be directed to the Compliance Department.
<PAGE>
5. Additional Walls
Beyond the Chinese Wall described above, we often establish other walls -
some temporary and some permanent - to insulate confidential information held
within certain business lines from other personnel who should not have access
to that information.
Examples of Additional Walls
. While our research functions that publish
investment recommendations for distribution to
the public are generally considered to be on the
"Public" side of the Chinese Wall, information
such as an analyst's plan to significantly
change an existing recommendation regarding
particular securities is confidential and should
generally not be disclosed to personnel in the
Firm's trading and sales functions (unless prior
approval has been obtained from the Compliance
Department) until such research is released to
customers.
. Investment management personnel who become aware
of a significant client investment plan that
will likely affect market prices should not
reveal the plan to personnel who handle Bankers
Trust's proprietary trading and investing.
. In the lending areas of the Firm, information
relating to a proposed loan to one company
should be insulated from personnel working on a
proposed loan to another company if the two
companies are competing to acquire the same
target company.
The Restricted List and the Gray List
------------------------------------------------------------------------
1. What Are the Restricted and Gray Lists?
For legal, regulatory and business reasons, the Compliance Department
maintains a Restricted List and a Gray List of securities. Securities may be
placed on these lists when certain conditions are met, such as when a
business area within Bankers Trust:
. possesses material nonpublic information about or affecting the
securities or their issuer;
. is involved in a securities offering or significant transaction
affecting the securities or their issuer; or
. may be issuing to the public a significant change in the Firm's
investment recommendation regarding certain securities or issuers.
The Restricted List is comprised of securities in which the normal trading or
recommending activity of the Firm and its employees is prohibited or subject
to specified restrictions as described in the List. While the Restricted List
is distributed quite extensively within Bankers Trust, its composition is
generally considered confidential and should not be shared with others
outside of the Firm. In response to any inquiry, you should reply simply that
we are not able to take a position or make a recommendation regarding the
particular security at this time.
The Gray List is a highly confidential list maintained by the Compliance
Department to check the integrity of the Chinese Wall, and to prevent or
address potential conflicts of interest concerning trading decisions and
investment recommendations. Securities may be placed on the Gray List when
the Firm is involved in an unannounced material transaction, or for other
confidential monitoring purposes.
<PAGE>
2. Updates and Distribution of the Lists
The Compliance Department determines when securities should be added to or
removed from both the Restricted List and Gray List and distributes the
Restricted List to appropriate personnel within the Firm. Business line
management of the various Private Functions is responsible for informing and
updating the Compliance Department concerning details of the Firm's
involvement in certain confidential transactions.
Certain business units that are routinely involved in the Firm's investment
banking and advisory businesses follow specific procedures for providing deal
information to the Compliance Department. If you are assigned to a department
that does not have such procedures and you become aware of material nonpublic
information about or affecting a publicly traded company or its securities,
you should immediately notify the Compliance Department.
3. Trading Restrictions -- The Restricted List
Personnel in the Firm's Public Functions, such as trading and sales,
investment management and investment research, must refer to the Restricted
List regularly and comply with its trading restrictions. Generally, the
trading restrictions may limit or prohibit:
. transactions involving securities on the Restricted List in the accounts
of Bankers Trust, its employees and its customers; and
. solicitation and investment advising activities, such as commenting
about, recommending or soliciting orders involving securities on the
Restricted List, or issuing research regarding such securities.
Trading restrictions may apply to customer accounts where Bankers Trust
exercises investment discretion, but do not generally apply to unsolicited
customer trades executed on an "agency" basis (i.e., where the Firm is not
acting as principal). Special rules apply to customer and proprietary
accounts connected with certain defined index, passive or basket trading
strategies where a transaction involving securities on the Restricted List is
dictated by contract or predetermined formula. Additional information about
these special rules can be obtained from the Compliance Department.
The Restricted List describes the various types of trading restrictions
imposed on Bankers Trust and its employees in light of certain legal,
regulatory and business requirements.
Trading Restrictions -- The Restricted List
Full Restriction
When securities are subject to "Full Restriction,"
the following activities with respect to such
securities are generally prohibited:
. trading for the Firm's proprietary account;
. trading for Employee Related Accounts;
. trading for customer accounts over which Bankers
Trust exercises investment discretion;
. basket trading for an account, such as an index
fund, where the transaction is dictated by a
contract or predetermined formula;
. market making activities;
. solicitation of customer orders;
. issuance or distribution of written research or
rendering oral recommendations; and
. execution of unsolicited customer orders, unless
such orders are executed on an "agency" basis
only.
Note: For securities not subject to "Full
---
Restriction," the Restricted List identifies which of
the above specific activities are prohibited.
<PAGE>
4. Waivers and Exceptions to Trading Restrictions
Waivers and exceptions to any trading restrictions identified on the
Restricted List require the specific prior approval of the Compliance
Department. Violation of the trading restrictions could subject the Firm and
the employee involved to civil or criminal penalties, as well as other
disciplinary actions.
Other Matters
------------------------------------------------------------------------
1. The Compliance Department
As used in this policy statement, the "Compliance Department" refers to the
Bankers Trust Compliance Department and the BTAL Compliance Department.
The Bankers Trust Compliance Department is organized generally by U.S.
business lines and regionally for Asia, Europe/Middle East/Africa and Latin
America, and is comprised of the following groups:
. Broker-Dealer Compliance (including Latin America);
. Fiduciary Compliance;
. Corporate Compliance; and
. Europe & Asia Regional Compliance.
The BTAL Compliance Department is organized generally by business lines in
Australia and New Zealand.
2. Waivers and Exceptions
Bankers Trust policies regarding confidential information, insider trading
and related matters as described in this booklet are necessarily a general
summary. In practice, some situations may arise that warrant making
exceptions to some general rules set forth herein, and you must obtain
approval from the Compliance Department before taking action regarding such
an exception.
3. Confirming Your Compliance With Policies
Annually, you are required to sign a statement as a Bankers Trust employee
acknowledging that you have received this policy statement Confidential
Information, Insider Trading and Related Matters and confirm your adherence
to Bankers Trust's standards of conduct.
4. If You Have Questions
You should refer to the Compliance Department all questions concerning the
interpretation or application of these policies, the propriety of any
particular conduct, or other compliance-related matters.
NOTE -- Refer to Personal Securities Transactions by Employees, a separate
booklet that supplements this policy statement, for additional information
regarding opening and maintaining Employee Related Accounts (as defined),
pre-clearance of trades and other rules and restrictions regarding personal
securities transactions by employees.
<PAGE>
Personal Securities Transactions by Employees
Issue Date: September 1998
------------------------------------------------------------------------
Contents
Introduction
------------
Summary
-------
Opening and Maintaining Employee Related Accounts
-------------------------------------------------
The Basic Policy
----------------
Employee Related Accounts Defined
---------------------------------
"Designated Broker" Rule
------------------------
Waivers to the Designated Broker Rule
-------------------------------------
Monitoring Employee Related Accounts
------------------------------------
Pre-Clearing Transactions in Employee Related Accounts
------------------------------------------------------
The Basic Policy
----------------
Pre-Clearance Procedures
------------------------
Additional Supervisory Pre-Clearance
------------------------------------
Private Securities Transactions
-------------------------------
Restrictions Regarding Personal Securities Transactions
-------------------------------------------------------
The Basic Policy
----------------
Material Nonpublic Information
-------------------------------
Corporate and Departmental Restricted Lists
-------------------------------------------
"Frontrunning"
--------------
Employee Transactions in Bankers Trust Securities
-------------------------------------------------
Avoiding Conflicts with Your Bankers Trust Job Responsibilities
---------------------------------------------------------------
Initial Public Offerings and New Issues
---------------------------------------
Other Matters
-------------
Waivers and Exceptions
----------------------
Confirming Your Compliance with Policies
----------------------------------------
If You Have Questions
---------------------
Note: The policies contained in this booklet should be read in
conjunction with the policy statement Confidential Information, Insider
Trading and Related Matters.
/copyright sign/ 1998 Bankers Trust Corporation
Introduction
------------------------------------------------------------------------
This policy statement, Personal Securities Transactions by Employees, applies
worldwide to all employees of Bankers Trust Corporation and its subsidiaries
(referred to herein as "Bankers Trust" or the "Firm"). Along with the
standards provided in this booklet, you should be familiar with the contents
of the Firm's related policy statement Confidential Information, Insider
Trading and Related Matters.
As used in this Guide, "securities" transactions include those involving
equity or debt securities, derivatives of securities (such as options,
warrants and indexes), futures, commodities and similar instruments.
<PAGE>
You should always conduct your personal trading activities lawfully, properly
and responsibly, and are encouraged to adopt long-term investment strategies
that are consistent with your financial resources and objectives. The Firm
generally discourages short-term trading strategies, and you are cautioned
that such strategies may inherently carry a higher risk of regulatory and
other scrutiny. In any event, excessive or inappropriate trading that
interferes with your job performance, or compromises the duty that Bankers
Trust owes to its clients and shareholders, will not be tolerated.
Summary
------------------------------------------------------------------------
This booklet is organized to help you comply with Bankers Trust's policies
and procedures, and to protect you and the Firm from potential liability. In
summary, the section entitled:
. Opening and Maintaining Employee Related Accounts describes the types of
accounts you must disclose to the Compliance Department upon joining the
Firm and your requirement to obtain explicit permission from the
Compliance Department prior to opening and maintaining Employee Related
Accounts (as defined);
. Pre-Clearing Transactions in Employee Related Accounts describes the
procedures you must follow to pre-clear your personal securities
transactions with the Compliance Department before you place any order
with your broker; and
. Restrictions Regarding Personal Securities Transactions describes
certain trading prohibitions and procedures you must observe to avoid
violating the Firm's policies and various securities laws and
regulations.
Questions about this policy and the matters discussed herein should be
directed to your Compliance Officer or to the Compliance Department at
(212) 250-5812.
Opening and Maintaining Employee Related Accounts
------------------------------------------------------------------------
1. The Basic Policy
All employees must obtain the explicit permission of the Compliance
Department prior to opening a new Employee Related Account. Upon joining
Bankers Trust, new employees are required to disclose all of their Employee
Related Accounts (as defined below) to the Compliance Department and must
carry out the instructions provided to conform such accounts, if necessary,
to the Firm's policies.
Under no circumstance are you permitted to open or maintain any Employee
Related Account that is undisclosed to the Compliance Department. Also, the
policies, procedures and rules described throughout this Guide apply to all
of your Employee Related Accounts.
2. Employee Related Accounts Defined
"Employee Related Accounts" include all accounts in which you have an
ownership or beneficial interest (or can exercise investment discretion or
control) and have the capability of holding securities, or in which
securities transactions may be executed, even if the accounts are inactive.
Employee Related Accounts include:
. your own accounts;
. your spouse's accounts and the accounts of your minor children and other
relatives (whether by marriage or otherwise) living in your home;
. accounts in which you, your spouse, your minor children or other
relatives living in your home have a beneficial interest; and
. accounts over which you or your spouse exercise investment discretion or
control.
<PAGE>
Although they are securities in the technical sense, money market funds and
open-ended mutual funds held directly with the fund or its transfer agent are
--------
not considered Employee Related Accounts for the purposes of applying the
above definition.
3. "Designated Broker" Rule
Depending on your Bankers Trust location, you may be required to open and
maintain your Employee Related Accounts with a "Designated Broker," which
refers to brokerage firms specifically identified by the Compliance
Department for employee use. Employee Related Accounts with the Designated
Brokers must be opened in accordance with local Compliance Department
procedures.
Employees who wish to open and maintain an Employee Related Account in the
U.S. must do so with one of the following Designated Brokers:
. BT Alex. Brown Incorporated
. Quick & Reilly (Wall Street Office)
. Salomon Smith Barney (the Rasweiler Group, New York)
Information about opening such an account can be obtained from the Compliance
Department at (212) 250-5812.
Employees assigned to Bankers Trust offices outside the U.S. are provided
local guidelines regarding Designated Brokers (and instructions about opening
and maintaining Employee Related Accounts) by Regional Compliance Groups for
Asia, Australia/New Zealand, Europe/Middle East/Africa and Latin America. You
should contact your Regional Compliance Officer if you have questions.
4. Waivers to the Designated Broker Rule
In very limited situations, the Compliance Department may grant you
permission to open or maintain an Employee Related Account at a brokerage
firm other than a Designated Broker. Generally, such permission is limited to
the following types of situations:
. your spouse or close relative, by reason of employment, is required by
his or her employer to maintain their brokerage accounts with a firm
other than a Designated Broker; or
. your Employee Related Account is maintained on a "discretionary" basis.
This means that full investment discretion has been granted to an
outside bank, investment manager or trustee, and neither you nor a close
relative participates in the investment decisions or is informed in
advance regarding transactions in the account.
An employee's request to the Compliance Department for an exemption to the
Designated Broker policy must be submitted in writing. If permission is
----------
granted, duplicates of account statements and transaction confirmations must
be provided to the Compliance Department. Your continued eligibility for an
exception to the Designated Broker policy is periodically reviewed and
evaluated and can be revoked at any time.
NOTE -- Do not open an account with another brokerage firm until you receive
authorization to do so from the Compliance Department.
5. Monitoring Employee Related Accounts
To ensure adherence to Bankers Trust's policies, the Compliance Department
monitors transactions in Employee Related Accounts, whether they are
maintained with a Designated Broker or otherwise. If you violate the Firm's
policies and procedures as described herein, you may be required to cancel,
reverse or freeze any transaction or position in your Employee Related
Account at your expense, regardless of where the account is held. Such action
may be required without advance notice.
Pre-Clearing Transactions In Employee Related Accounts
------------------------------------------------------------------------
1. The Basic Policy
You must contact the Compliance Department to pre-clear all transactions
involving securities or their derivatives in your Employee Related Accounts
(other than transactions involving only U.S. Treasury
<PAGE>
securities or open-ended mutual funds) prior to placing an order with your
-----
broker. You are personally responsible for ensuring that your proposed
transaction does not violate the Firm's policies or applicable securities
laws and regulations by virtue of your Bankers Trust responsibilities or
information you may possess about the securities or their issuer.
2. Pre-Clearance Procedures
Proposed transactions in your Employee Related Accounts must be personally
pre-cleared with the Compliance Department. After providing the requested
information about the transaction, you will be informed whether you have been
granted permission to place the order with your broker which is valid for the
day given and the next business day. If permission is denied to proceed with
the proposed transaction, such denial is confidential and should not be
disclosed to others.
For employees assigned to Bankers Trust offices in the U.S. and Canada,
securities transactions can be pre-cleared by contacting the Compliance
Department at (212) 250-5812.
Employees assigned to Bankers Trust offices outside of the U.S. and Canada
are provided local guidelines and contacts for pre-clearing securities
transactions by Regional Compliance Groups for Asia, Australia/New Zealand,
Europe/Middle East/Africa and Latin America. You should contact your Regional
Compliance Officer if you have questions.
3. Additional Supervisory Pre-Clearance
Depending on your area of assignment, you may be subject to additional
departmental policies that require you to first pre-clear your proposed
securities transaction with your supervisor prior to requesting pre-clearance
from the Compliance Department. If you are assigned to one of the Bankers
Trust departments in which employees are subject to this requirement, you
will be informed of this fact when you contact the Compliance Department for
pre-clearance.
4. Private Securities Transactions
Investment transactions in private securities, such as limited partnerships
or the securities of private companies, are likely to be made directly with
the sponsor and not executed in your Employee Related Account. Prior to
engaging in a private securities transaction, you must first obtain the
approval of your supervisor and then pre-clear the transaction with the
Compliance Department. Private securities transactions that give rise to
actual or apparent conflicts of interest are prohibited.
Restrictions Regarding Personal Securities Transactions
------------------------------------------------------------------------
1. The Basic Policy
You have a personal obligation to conduct your investing activities and
related securities transactions lawfully and in a manner that avoids actual
or potential conflicts between your own interests and the interests of
Bankers Trust and its customers. You must carefully consider the nature of
your Bankers Trust responsibilities - and the type of information you might
be deemed to possess in light of any particular securities transaction -
before you engage in that transaction.
------
2. Material Nonpublic Information
If you possess material nonpublic information about or affecting securities,
or their issuer, you are prohibited from buying or selling such securities,
or advising any other person to buy or sell such securities.
3. Corporate and Departmental Restricted Lists
You are not permitted to buy or sell any securities that are included on the
Corporate Restricted List and/or other applicable departmental restricted
lists.
4. "Frontrunning"
You are prohibited from engaging in "frontrunning," which means that you may
not buy or sell securities or other instruments for your Employee Related
Accounts so as to benefit from your knowledge of the Firm's or a client's
trading positions, plans or strategies, or forthcoming research
recommendations.
5. Employee Transactions in Bankers Trust Securities
Bankers Trust recognizes the special interest many employees have in
investing in the securities of Bankers Trust Corporation. Observe, however,
that your employment relationship with the Firm gives rise to special rules
concerning such transactions to avoid potential conflicts of interest.
<PAGE>
a. Transactions Subject to Special Rules
Personal trading activity in Bankers Trust Corporation securities that are
subject to special rules are generally transactions that change your
beneficial ownership interest, such as:
. purchases, sales or other transactions in Employee Related Accounts;
. employee investment elections in Bankers Trust benefit plans, such as
investment elections affecting the Bankers Trust Common Stock Fund in
the PartnerShare Plan;
. exercise of Bankers Trust stock options granted as part of an employee's
compensation;
. optional cash purchases of common stock through Bankers Trust's Dividend
Reinvestment and Common Stock Purchase Plan; and
. gifts or donations of Bankers Trust Corporation stock to charitable
organizations, relatives or others.
b. Special Rules
The following special rules apply to all transactions that change your
beneficial ownership interest in the securities of Bankers Trust Corporation:
. all employees must pre-clear transactions involving Bankers Trust
---
Corporation securities with Corporate Compliance in New York (212)
250-5812, even if assigned to an office outside the U.S. or Canada;
. Bankers Trust Corporation securities may not be pledged or used as
collateral for any loan except for a margin loan associated with an
Employee Related Account;
. any short sale of Bankers Trust Corporation securities is prohibited;
. any transaction that involves options or warrants referenced to Bankers
Trust Corporation securities, other than exercising stock options
granted under a Bankers Trust incentive compensation plan, is
prohibited; and
. over-the-counter derivative transactions that are referenced to the
value of Bankers Trust Corporation securities are prohibited.
c. "Blackout" Periods
During certain times of the year, you are prohibited from conducting
transactions in Bankers Trust Corporation securities which affect your
beneficial interest in the Firm. These "blackout" periods surround the end of
each fiscal quarter or year and begin on the first day of each calendar
quarter and end 48 hours after public release of the financial reports for
the quarter or year.
Additional restricted periods may be required for certain individuals and
events, and you will be informed of whether such a restricted period is in
effect when you request pre-clearance of your proposed transaction involving
Bankers Trust Corporation securities. Any questions concerning whether you
are subject to additional restrictions should be directed to the Compliance
Department.
6. Avoiding Conflicts with Your Bankers Trust Job Responsibilities
You are prohibited from buying, selling or holding positions in securities
and other instruments for your Employee Related Accounts that give rise to a
conflict of interest, or the appearance of conflict, between your personal
financial interests and your Bankers Trust job responsibilities.
<PAGE>
Following is a summary of the Firm's basic rules and procedures that are
designed to prevent actual or apparent conflicts of interest. If you believe
a proposed personal securities transaction may give rise to a potential
conflict of interest, or may not comply with the following rules and
procedures, you should resolve the matter with your Compliance Officer before
placing the order.
a. Securities in Companies With Which You Have Significant Dealings
You are prohibited from buying or selling, for your Employee Related
Accounts, securities of companies with which you have significant dealings on
behalf of Bankers Trust, or for which you have ongoing relationship
management responsibilities on behalf of the Firm. This rule applies to all
employees who have significant dealings with the Firm's customers,
counterparties, suppliers or vendors. Also, you are generally prohibited from
acquiring an interest in any private equity investment vehicle sponsored by
such companies.
b. Securities In Which You Have Trading or Trading-Related Responsibilities
To prevent actual or apparent conflicts of interest, employees with "trading
or trading-related responsibilities" with respect to particular types of
securities or instruments may be limited or prohibited from buying or selling
the same types of securities or instruments for their Employee Related
Accounts. Employees have trading or trading-related responsibilities with
respect to particular types of securities or instruments if their duties:
. involve the Firm's proprietary dealing or investing activities (e.g.,
where committing the Firm's capital may be involved); and
. are associated with the origination, structuring, trading, market
making, positioning, bookrunning, distribution, sales, research or
analysis of particular types of securities or instruments.
If you have trading or trading-related responsibilities for equity
securities, investment grade debt securities or U.S. Government, Government
Agency or municipal securities (including derivatives thereof), you are
permitted to buy or sell such securities for your Employee Related Accounts
subject to compliance with certain departmental guidelines that may require
supervisory approval and minimum holding periods.
If you have trading or trading-related responsibilities for non-investment
grade debt securities, commodities, futures, FX or other instruments
(including derivatives thereof), you are prohibited from buying or selling
the same type of securities or instruments for your Employee Related
Accounts.
c. Portfolio Managers, Investment Advisory Professionals and "Access Persons"
If you are a portfolio manager, investment advisory professional or "access
person" associated with the Firm's asset or funds management businesses, you
may be subject to certain rules designed to prevent conflicts of interest.
You can obtain more information about these rules from your supervisor or the
Compliance Department.
d. Transactions Subject to Minimum Holding Periods
Securities bought or sold for your Employee Related Accounts may be subject
to a minimum holding period to address potential conflicts of interest.
Examples of the type of job functions and transactions that typically require
a minimum holding period include:
. equity securities bought or sold by an employee with proprietary equity
trading or trading-related responsibilities (60-day holding period);
. certain debt securities bought or sold by an employee with proprietary
trading or trading-related responsibilities for U.S. Government,
Government Agency, municipal or investment-grade corporate debt
securities (60-day holding period);
. securities bought or sold by an equity research analyst, falling within
the research analyst's assigned industry group (up to a six-month
holding period); and
. securities bought or sold by employees assigned to most Bankers Trust
offices outside the U.S. (holding period varies by region).
<PAGE>
e. Additional International Procedures
Regional Compliance Groups for Asia, Australia/New Zealand, Europe/Middle
East/Africa and Latin America may modify the procedures described in this
section to reflect local market practices and regulatory requirements. You
should contact your Regional Compliance Officer to obtain information about
local modifications, if any, to these requirements.
7. Initial Public Offerings and New Issues
For regulatory reasons, you are prohibited from purchasing or subscribing for
securities connected with an initial public offering or a new issue where a
U.S.-registered broker-dealer is involved in the distribution, or where any
part of the distribution is offered in the U.S. This prohibition applies even
if Bankers Trust has no role or involvement in the distribution.
For initial public offerings and new issues of securities of non-U.S.
companies distributed entirely outside of the U.S., employees assigned to
international offices of Bankers Trust may be permitted to purchase or
subscribe for such securities, provided that the appropriate Regional
Compliance Group of the Compliance Department approves such proposed
transaction in advance. You should contact your Regional Compliance Officer
for local guidelines that apply.
Other Matters
------------------------------------------------------------------------
1. Waivers and Exceptions
Bankers Trust policies regarding personal securities transactions by
employees as described in this booklet is necessarily a general summary. In
practice, some situations may arise to warrant making exceptions to some
general rules set forth herein, and you must obtain approval from the
Compliance Department before taking action regarding such an exception.
2. Confirming Your Compliance with Policies
Annually, you are required to sign a statement as a Bankers Trust employee
acknowledging that you have received this supplement to the policy statement
Confidential Information, Insider Trading and Related Matters and confirm
your adherence to Bankers Trust's standards of conduct.
3. If You Have Questions
You should refer all questions concerning the interpretation or application
of these policies, the propriety of any particular conduct, or other
compliance-related matters to the Compliance Department.
NOTE -- Adhering to the policies and standards of conduct discussed in this
Guide is one of the conditions of employment with Bankers Trust. Failure to
comply with them may subject you to disciplinary action, including possible
dismissal. In addition, violation of the rules described in this Guide may
also subject you to possible civil or criminal penalties in accordance with
the securities laws or regulatory rules applicable in various jurisdictions.
<PAGE>
Rules for Business Conduct
Issue Date: September 1998
------------------------------------------------------------------------
Contents
Letter to All Employees
-----------------------
Introduction
------------
Corporate Conduct
-----------------
Bankers Trust's Reputation
--------------------------
Ethical Conduct
---------------
Lawful Conduct
--------------
Bankers Trust Policies and Standards
------------------------------------
Internal Reporting Obligation
-----------------------------
Questions
---------
Rules for Dealing with Potential Conflicts of Interest
------------------------------------------------------
The Basic Rule
--------------
Personal Benefit
----------------
Improper Payments or Gifts
--------------------------
Permissible Business Gifts
--------------------------
Bankers Trust Gifts to Persons Other than Government Officials
--------------------------------------------------------------
Bankers Trust Gifts to Government Officials
-------------------------------------------
Business Affiliations
---------------------
Borrowing Arrangements
----------------------
Outside Employment
------------------
Personal Fiduciary Arrangements with Customers
----------------------------------------------
Personal Investments
--------------------
Rules for Dealing with Governmental Officials and Political Candidates
-----------------------------------------------------------------------
Corporate Payments or Political Contributions
---------------------------------------------
Personal Political Contributions
--------------------------------
Entertainment of Government Officials
-------------------------------------
Rules for Dealing with Information
----------------------------------
Insider Trading
---------------
Confidential Information
------------------------
Proprietary Information
-----------------------
Proprietary Products and Transactions
-------------------------------------
Information Technology
----------------------
Privacy of Electronic and Other Information
-------------------------------------------
Financial and Accounting Information
------------------------------------
Regulatory and Other Reporting
------------------------------
Information and Accounting Controls
-----------------------------------
Governmental or Regulatory Inquiries
------------------------------------
Responding to Media Inquiries and Requests for Speeches
-------------------------------------------------------
Rules for Dealing with Customers, Suppliers and the Public
----------------------------------------------------------
The Basic Rule
--------------
New Business Initiatives
------------------------
New Client Approval
-------------------
"Know Your Customer"
--------------------
Communication with Customers and the Public
-------------------------------------------
Pricing and Terms
-----------------
Customer Complaints
-------------------
<PAGE>
Improper Customer Conduct
-------------------------
Special Regulatory Matters Involving Customers
----------------------------------------------
Anti-Competitive Conduct
------------------------
Tying Arrangements
-------------------
Purchases and Commitments
-------------------------
Rules for Dealing with Other Employees
--------------------------------------
The Basic Rule
--------------
Cooperation
-----------
Awareness
---------
Supervision
-----------
Due Care in Delegation
----------------------
Instruction and Training
------------------------
Review and Monitoring
---------------------
Correction and Follow-Up
------------------------
Preferential Treatment
----------------------
Unlawful Conduct
----------------
Human Resources Policies
------------------------
Off-Premises Requirement for Employees In Sensitive Positions
-------------------------------------------------------------
Rules for Dealing with Certain Legal, Judicial or Regulatory Matters;
---------------------------------------------------------------------
Reports of Violations
---------------------
General Matters
---------------
Violations of Bankers Trust Policies
------------------------------------
Fraudulent Activity
-------------------
Arrests, Indictments and Convictions
------------------------------------
Employee Involvement in Regulatory and Other Formal Proceedings
---------------------------------------------------------------
Lobbying, Public Testimony and Related Matters
----------------------------------------------
Managing Officer Reporting
--------------------------
Other Matters
-------------
Ongoing Compliance
------------------
Resignation and Termination
---------------------------
Modifications to or Waivers of the Rules
----------------------------------------
Confirming Your Compliance with the Rules
-----------------------------------------
If You Have Questions
---------------------
/copyright sign/ 1998 Bankers Trust Corporation
Bankers Trust
September 1998
To All Employees:
This is your personal copy of the Rules for Business Conduct, which sets
forth the Firm's code of business ethics. Please read this document carefully
and advise any staff members you may supervise to do so as well.
The Rules describe our commitment to conduct all business of Bankers Trust in
the spirit of fair dealings, consideration for the rights of others, and
strict principles of good corporate citizenship and practices. As employees,
we have an important responsibility to ensure that our own conduct meets the
highest standards of personal and corporate integrity. Only through the
continuing efforts of each of us to adhere to these principles can Bankers
Trust's reputation for high ethical and professional standards be maintained.
These Rules apply to all employees of Bankers Trust and its subsidiaries,
regardless of location. The policies and standards contained in the booklet
protect and guide each of us in making our business decisions, and in our
dealings on behalf of Bankers Trust. Your commitment to comply with the
letter and the spirit of these Rules, and your common sense and good judgment
in recognizing when you may need to seek guidance as to how they should be
applied to situations you encounter, are essential.
<PAGE>
Should you ever have any question as to how to interpret or apply the Rules
to any event or circumstance, I encourage you to seek guidance from the
Compliance Department.
Sincerely,
Frank Newman
Chairman and
Chief Executive Officer
Introduction
------------------------------------------------------------------------
The Rules for Business Conduct (the Rules) apply worldwide to all employees
of Bankers Trust Corporation and its subsidiaries (referred to herein as
"Bankers Trust" or the "Firm"). These Rules set forth the Firm's global
commitment to conduct all business of Bankers Trust lawfully and in
accordance with high standards of personal and corporate integrity.
Adhering to the Rules for Business Conduct is one of the conditions of
employment with Bankers Trust. Failure to comply may subject you to
disciplinary action, including possible dismissal.
No written rules can anticipate every situation. Common sense and good
judgment in responding to situations that may not seem to be specifically
covered by these Rules, and in recognizing when to seek advice regarding the
application of the Rules, are a must for each employee.
The Rules for Business Conduct incorporate certain requirements of U.S.
Federal and New York state laws and regulations. Where there is a conflict
between the provisions of the Rules for Business Conduct and the requirements
of local laws and regulations of other jurisdictions in which Bankers Trust
does business, those local laws will prevail.
Corporate Conduct
------------------------------------------------------------------------
1. Bankers Trust's Reputation
The Firm's reputation for integrity is its most valuable asset, and the
conduct of its employees must protect this asset at all times. Accordingly,
Bankers Trust and its employees obligate themselves to conduct their business
on behalf of Bankers Trust in accordance with high ethical standards, and to
avoid personal conduct which may compromise the Firm's reputation.
2. Ethical Conduct
The Rules for Business Conduct are based on fundamental principles of
fairness, honesty and ethical behavior. All business of Bankers Trust should
be conducted in the spirit of fair dealings, consideration for the rights of
others, and strict principles of good corporate citizenship and practices.
3. Lawful Conduct
Bankers Trust requires compliance with the law in the conduct of its
business. Employees should consult with the Legal Department if they have any
questions regarding the laws of any country or jurisdiction where Bankers
Trust does business.
4. Bankers Trust Policies and Standards
All employees are required to maintain ongoing compliance with all statements
of policies, procedures and standards of Bankers Trust, and with lawful and
ethical business practices, whether or not they are specifically mentioned in
the Rules for Business Conduct.
5. Internal Reporting Obligation
You are required to report any known or suspected violations of the Rules to
your Managing Officer and to the Compliance Department. If for any reason you
believe that the matter cannot be raised through that
<PAGE>
channel, you should report it directly to the head of Corporate Compliance in
New York.
For purposes of these Rules, your "Managing Officer" is defined to be an
officer of at least the Managing Director level to whom you directly or
indirectly report, who is in charge of the unit or office to which you are
assigned. Your Managing Officer is senior to you and would generally be a
Department Head, Division Head, Function Head, Group Head, General Manager or
Company President.
For purposes of these Rules, the "Compliance Department" refers to the
Bankers Trust Compliance Department and the BTAL Compliance Department. The
Bankers Trust Compliance Department is organized generally by U.S. business
lines and regionally for Asia, Europe/Middle East/Africa and Latin America,
and is comprised of the following groups:
. Broker-Dealer Compliance (including Latin America)
. Fiduciary Compliance
. Corporate Compliance
. Europe & Asia Regional Compliance
The BTAL Compliance Department is organized generally by business lines in
Australia and New Zealand.
6. Questions
If you are in doubt as to the specific application of these Rules or about
the propriety of any particular conduct, you must bring the matter to the
attention of your Managing Officer and the Compliance Department prior to
taking action.
Rules for Dealing with Potential Conflicts of Interest
------------------------------------------------------------------------
1. The Basic Rule
There must be no conflict, or appearance of conflict, between the self-
interest of any employee and the responsibility of that employee to Bankers
Trust, its shareholders or its customers.
2. Personal Benefit
You must never improperly use your position with Bankers Trust for personal
or private gain to you, your family or any other person.
3. Improper Payments or Gifts
You are prohibited from soliciting or accepting any personal payment or gift
to influence, support or reward any service, transaction or business
involving Bankers Trust, or that appears to be made or offered to you in
anticipation of any future service, transaction or business opportunity. A
payment or gift includes any fee, compensation, remuneration or thing of
value.
Under the Bank Bribery Act and other applicable laws and regulations, severe
penalties may be imposed on anyone who offers or accepts such improper
payments or gifts. If you receive or are offered an improper payment or gift,
or if you have any questions as to the application or interpretation of
Bankers Trust's rules regarding the acceptance of gifts, you must bring the
matter to the attention of the Compliance Department.
4. Permissible Business Gifts
Subject to the prerequisites of honesty, absolute fulfillment of fiduciary
duty to Bankers Trust, relevant laws and regulations, and reasonable conduct
on the part of the employee, the acceptance of some types of reasonable
business gifts received by employees may be permissible, and the rules are as
follows:
. Cash gifts of any amount are prohibited. This includes cash equivalents
such as gift certificates, bonds, securities or other items that may be
readily converted to cash.
. Acceptance of non-cash gifts, souvenirs, tickets for sporting or
entertainment events, and other items with a value less than U.S. $200
or its equivalent is generally permitted, when it is clear that they are
unsolicited, unrelated to a transaction and the donor is not attempting
to influence the employee. In accordance with regulations and practices
in various jurisdictions, as well as the rules of the New York
<PAGE>
Stock Exchange (the "NYSE") and the National Association of Securities
Dealers (the "NASD"), employees of certain business lines may be subject
to more stringent gift giving and receiving guidelines. For example,
employees of BT Alex. Brown Incorporated (the U.S. Broker-Dealer) are
generally not permitted to offer or accept gifts with a value greater
than U.S. $100.
. Acceptance of gifts, other than cash, given in connection with special
occasions (e.g., promotions, retirements, weddings, holidays), that are
of reasonable value in the circumstances are permissible.
. Employees may accept reasonable and conventional business courtesies,
such as joining a customer or vendor in attending sporting events, golf
outings or concerts, provided that such activities involve no more than
the customary amenities.
. The cost of working session meals or reasonable related expenses
involving the discussion or review of business matters related to
Bankers Trust may be paid by the customer, vendor or others, provided
that such costs would have otherwise been reimbursable to the employee
by Bankers Trust in accordance with the Firm's travel and entertainment
and expense reimbursement policies.
5. Bankers Trust Gifts to Persons Other than Government Officials
In appropriate circumstances, it may be acceptable and customary for Bankers
Trust to extend gifts to customers or others who do business with the Firm.
You should be certain that the gift will not give rise to a conflict of
interest, or appearance of conflict, and that there is no reason to believe
that the gift will violate applicable codes of conduct of the recipient.
Employees with appropriate authority to do so may make business gifts at the
Firm's expense, provided that the following requirements are met:
. Gifts in the form of cash or cash equivalents may not be given
regardless of amount.
. The gift must be of reasonable value in the circumstances, and should
not exceed a value of U.S. $200 (or U.S. $100 if the gift falls under
NYSE, NASD or similar applicable rules) unless the specific prior
approval of the appropriate Managing Officer is obtained.
. The gift must be lawful and in accordance with generally accepted
business practices of the governing jurisdictions.
. The gift must not be given with the intent to influence or reward any
person regarding any business or transaction involving Bankers Trust.
6. Bankers Trust Gifts to Government Officials
You must contact the Compliance Department prior to making any gift to a
governmental employee or official. You should be aware that various
government agencies, legislative bodies and jurisdictions may have rules and
regulations regarding the receipt of gifts by their employees or officials.
In some cases, government employees or officials may be prohibited from
accepting any gifts. (Refer to page 12 for additional rules regarding
-----------------------------------------------
political contributions.)
-----------------------
7. Business Affiliations
As a general rule, a conflict of interest, or the appearance of a conflict,
might arise if your Bankers Trust duties involve any actual or potential
business with a person, entity or organization in which you or your Family
Members have a substantial personal or financial interest. Accordingly, the
following rules apply:
a. You may not act on behalf of Bankers Trust in connection with any
business or potential business involving any person, entity or
organization in which you or your Family Members have direct or indirect
(i) managerial influence, such as serving as an executive officer,
director, general partner or similar position or (ii) substantial
ownership or beneficial interest.
b. You must promptly notify your Managing Officer and the Compliance
Department of any business affiliation that you or your Family Members
have that might give rise to a conflict of interest, or the appearance
of a conflict, by virtue of your Bankers Trust duties and position, the
nature of the activities of your business unit and the nature of your
outside business affiliation. If, in the judgment of Bankers Trust, the
situation presents a concern, steps will be taken to resolve it.
<PAGE>
c. You must obtain the permission of a member of the Bankers Trust
Management Committee prior to accepting any appointment to serve as an
executive officer, director, general partner or similar position of any
person, entity or organization which is an existing or prospective
customer, supplier or competitor of Bankers Trust.
d. If you are an officer of any Bankers Trust entity, you are required to
report certain information about your business affiliations annually to
the Office of the Secretary. In addition, you must report to the Office
of the Secretary, within 10 days of each occurrence, any situation
involving an existing or prospective customer, supplier or competitor of
Bankers Trust in which either you or your Family Members:
. serve or accept an appointment to serve as an executive officer,
director, general partner or similar position; or
. hold or acquire any substantial ownership or beneficial interest, or
have a 10% or greater ownership or controlling interest.
You must determine whether any of the following definitions apply to your
business affiliation or the situation of the person, entity or organization
with which you are affiliated, and you should raise any questions about their
application to your Managing Officer and the Compliance Department. The
following definitions help you determine how this rule applies to your
particular circumstances:
"Family Members" For purposes of the Rules for Business Conduct, your Family
Members include your spouse, minor children, and any other person who resides
in your household or depends on you or your spouse for financial support.
"Substantial Interest" Whether a particular ownership or beneficial interest
is "substantial" depends on the circumstances, such as the size and nature of
the entity's business and the nature of its relationship to Bankers Trust;
your Bankers Trust duties in relation to that entity; and the size and nature
of the interest in that entity in relation to your compensation and net
worth.
"Existing or Prospective Customer, Supplier or Competitor" An existing or
prospective customer or supplier of Bankers Trust includes any person, entity
or organization that (i) has done business with Bankers Trust within the past
year, or (ii) has been in contact with Bankers Trust during the past year
regarding potential business, regardless of whether or not you work in the
particular unit that deals with that customer or supplier. A competitor of
Bankers Trust includes any person, entity or organization that does business
in competition with any unit of Bankers Trust.
8. Borrowing Arrangements
In general, you should borrow only from banks, thrifts, consumer finance
companies, brokerage firms, and other institutions that regularly lend money
and extend credit in the ordinary course of their business (herein called
"Financial or Consumer Lenders"). The following additional rules apply:
. You are not permitted to solicit or accept treatment from any lender
which the lender would not in the ordinary course of business extend to
any unrelated third party.
. You are not permitted to borrow from an existing or prospective
customer, supplier or competitor of Bankers Trust unless it is a
Financial or Consumer Lender, and the credit is extended in the ordinary
course of its business and involves only the usual and customary terms.
. You are required to obtain the written permission of your Managing
Officer prior to borrowing from other than a Consumer and Financial
Lender.
. In general, you are permitted to borrow personally from your parents,
grandparents or other close relatives. However, you must still ensure
that such borrowing will not give rise to a conflict of interest
regarding Bankers Trust or your Bankers Trust duties.
<PAGE>
If you are a Bankers Trust officer, borrowing arrangements from other than a
Financial or Consumer Lender must be reported to the Office of the Secretary
within 10 days of being incurred.
9. Outside Employment
You may not engage in any employment or activity outside of Bankers Trust
that could reasonably be expected to conflict with the interests of Bankers
Trust or interfere with your Bankers Trust responsibilities. You must obtain
the written permission of your Managing Officer prior to accepting any
outside employment, consultancy or position for which you will receive
compensation.
You are permitted to engage on a voluntary basis in lawful charitable, civic,
religious or political organizations, and to receive reimbursement of
reasonable and normal expenses from such an organization. No Managing Officer
approval is required if your volunteer activities do not interfere with your
ability to perform your Bankers Trust duties, and there is no conflict of
interest, or appearance of a conflict, resulting from any relationship
between the organization and Bankers Trust.
10. Personal Fiduciary Arrangements with Customers
You may not directly or indirectly accept any bequest or legacy from a
customer, or accept personal appointment to serve as a customer's executor,
administrator, trustee or guardian, unless that customer is your Family
Member (as previously defined), or is closely related to you (such as your
parents or grandparents). Additionally, you may not personally accept power
of attorney or sole signing authority on behalf of any customer account. Any
exception to the foregoing requires the written approval of a member of the
Bankers Trust Management Committee.
11. Personal Investments
You must always act to avoid any actual or potential conflict of interest
between your Bankers Trust duties and responsibilities, and your personal
investment activities. To avoid potential conflicts, you should not
personally invest in securities issued by companies with which you have
significant dealings on behalf of Bankers Trust, or in investment vehicles
sponsored by them. Additional rules that apply to securities transactions by
employees, including the requirement for employees to pre-clear personal
securities transactions and rules regarding how Employee Related Accounts
must be maintained, are described in the booklet entitled Personal Securities
Transactions by Employees, a supplement to the Firm's policy statement
Confidential Information, Insider Trading and Related Matters. Copies of
these policies can be obtained from the Compliance Department.
Rules for Dealing with Governmental Officials and Political Candidates
------------------------------------------------------------------------
1. Corporate Payments or Political Contributions
No corporate payments or gifts of value may be made to any outside party,
including any government official or political candidate or official, for the
purpose of securing or retaining business for the Firm, or influencing any
decision on its behalf.
. Bankers Trust maintains a Political Action Committee, supported by
voluntary contributions from its officers, through which contributions
are made to political parties or candidates. The Political Action
Committee is the only means by which Bankers Trust may lawfully
participate in U.S. Federal elections.
. Corporate contributions to political parties or candidates in
jurisdictions not involving U.S. Federal elections are permitted only
when such contributions are made in accordance with applicable local
laws and regulations, and the prior approval of a member of the Bankers
Trust Management Committee has been obtained.
Under the Foreign Corrupt Practices Act, Bank Bribery Law, Elections Law and
other applicable regulations, severe penalties may be imposed on Bankers
Trust and on individuals who violate these laws and regulations. Similar laws
and regulations may also apply in various countries and legal jurisdictions
where Bankers Trust does business.
<PAGE>
2. Personal Political Contributions
No personal payments or gifts of value may be made to any outside party,
including any government official or political candidate or official, for the
purpose of securing business for Bankers Trust or influencing any decision on
its behalf. You should always exercise care and good judgment to avoid making
any political contribution that may give rise to a conflict of interest, or
the appearance of conflict. For example, if your business unit engages in
business with a particular governmental entity or official, you should avoid
making personal political contributions to officials or candidates who may
appear to be in a position to influence the award of business to Bankers
Trust.
Certain employees, such as those who are engaged in Bankers Trust's municipal
finance and municipal securities activities, are subject to the requirements
set forth in Bankers Trust's policy "Complying with MSRB G-37." In addition,
employees assigned to certain areas of BT Alex. Brown Incorporated are
required to obtain approval of the Compliance Department prior to making or
soliciting political contributions. Contact your supervisor or the Compliance
Department to obtain a copy of this policy or if you have any questions
regarding political contributions.
3. Entertainment of Government Officials
Entertainment and other acts of hospitality toward government or political
officials should never compromise or appear to compromise the integrity or
reputation of the official or Bankers Trust. When hospitality is extended, it
should be with the expectation that it will become a matter of public
knowledge.
Rules for Dealing with Information
------------------------------------------------------------------------
1. Insider Trading
Purchasing or selling securities, futures, loans or other financial
instruments while in possession of material nonpublic information about or
affecting them, or improperly disclosing such nonpublic information directly
or indirectly to others, is prohibited. This prohibition applies to personal
transactions as well as transactions effected in the course of your
employment, and to all material nonpublic information, regardless of whether
you obtained it as a result of your employment with Bankers Trust. If you are
uncertain whether information in your possession is material or nonpublic,
you must consult the Compliance Department before making a purchase or sale
to which it is relevant. Violation of applicable insider trading laws and
regulations could subject you to substantial personal civil or criminal
penalties.
2. Confidential Information
Improper disclosure or misuse of confidential information, such as
information related to specific transactions, Bankers Trust, its customers or
others, is prohibited. You are required to treat confidential information in
a responsible and proper manner, and in accordance with the policies and
procedures of Bankers Trust.
You must read and comply with Bankers Trust's policies and procedures
regarding the protection and use of confidential information, as set forth in
the policy statement "Confidential Information, Insider Trading and Related
Matters." You should contact the Compliance Department if you need a copy of
this policy.
3. Proprietary Information
Bankers Trust's trade secrets and know-how, financial information concerning
Bankers Trust, its customers, and its employees, and specifications,
programs, materials and documentation relating to all financial models and
products, computer and telecommunications systems, software, hardware and
applications developed or used by Bankers Trust are confidential and
proprietary to Bankers Trust. You are prohibited from using or divulging such
information except as permitted or required in connection with your work on
behalf of Bankers Trust, and you may not use it for your personal or private
benefit, or for the benefit of any other person or entity, during or after
your employment with Bankers Trust.
4. Proprietary Products and Transactions
Transactions and business opportunities developed by other employees or by
you in connection with your work activities on behalf of Bankers Trust belong
to Bankers Trust, and may not be used for your personal or private benefit,
or for the benefit of any other person or entity, during or after your
employment with Bankers Trust.
<PAGE>
5. Information Technology
The unauthorized duplication of software developed internally or obtained
from outside suppliers is prohibited, regardless of whether such unauthorized
duplication is for business or personal use. Additionally, you must adhere to
the Firm's standards and policies regarding the use of its technology and
computer equipment. Copies of Bankers Trust's "End-User Technology Policy"
can be obtained from the Technology Strategic Planning Department or from
your local or regional Human Resources Officer.
6. Privacy of Electronic and Other Information
If you use Bankers Trust equipment, systems or electronic mail to prepare,
store or transmit information of a personal or private nature, you waive your
right to privacy regarding such information. Under certain circumstances,
Bankers Trust audit, compliance, security and other investigatory personnel
may be permitted to access all information on such equipment.
7. Financial and Accounting Information
Accounting and other records must accurately, completely and properly
describe the transactions they record. All transactions, contracts, assets,
liabilities, revenues and expenses of Bankers Trust must be recorded in its
regular books of account and records, and all commitments, assets held in
custody for clients and other "off-balance sheet" items must be completely,
accurately and properly reported. No secret or unrecorded transaction,
contract, fund or asset may be created or maintained for any purpose. False,
fictitious or misleading entries regarding any transaction or account are
prohibited.
8. Regulatory and Other Reporting
Bankers Trust will disclose, on a timely basis, information required to
evaluate the fairness of its financial presentation, soundness of its
financial condition and the propriety of its operations. All such reports,
whether they are required in connection with specific regulations or
otherwise, must be fair, complete and accurate. Concealment, alteration or
withholding of information from authorized auditors or regulatory agencies is
prohibited.
9. Information and Accounting Controls
Employees having control or input regarding Bankers Trust assets or
transactions are required to handle them with the strictest integrity, and
ensure that such transactions and the acquisition or disposal of assets are
in accordance with management's general or specific authorization. Adherence
to prescribed accounting and control policies and procedures is required at
all times.
10. Governmental or Regulatory Inquiries
Governmental agencies and regulatory organizations may from time to time
conduct surveys or make inquiries that request information about Bankers
Trust, its customers or others that would generally be considered to be
confidential or proprietary. If you receive such a request that is outside
the normal course of your business unit's activities, you should notify your
Managing Officer and the Compliance Department before you respond.
11. Responding to Media Inquiries and Requests for Speeches
All requests for speeches, interviews or comments for use in broadcasts,
newspapers, magazines or other media should be referred to, or cleared by,
Corporate Affairs (in the U.S. and Australia), the designated Communications
Officer (in London), Marketing Services (in Asia) or the head of your Bankers
Trust office (for all other international locations). When practical, these
departments should be furnished with, given an opportunity to comment on, the
text or outline of the statement or speech and responses to any likely
questions.
Rules for Dealing with Customers, Suppliers and the Public
----------------------------------------------------------
1. The Basic Rule
Bankers Trust will compete for business only on the basis of quality, price
of product and service to its customers. All dealings with existing and
prospective customers of Bankers Trust, and with others, must be handled with
honesty, integrity and high ethical standards, and must adhere to the letter
and the spirit of applicable laws and regulations.
2. New Business Activities
The types of products and services offered and sold to customers must be
permissible under applicable regulations, and must meet the Firm's standards
regarding product disclosure, approval and other matters. New products and
business initiatives require special approval before they can initially be
sold to customers as described in Bankers Trust's New Business Activity
Policy, copies of which can be obtain from the Compliance Department.
<PAGE>
3. New Client Approval
Certain information must be reviewed and approved by management prior to
establishing a business relationship with a new customer. Bankers Trust's
policy, New Client Approval, can be obtained from the Compliance Department.
4. "Know Your Customer"
If you have responsibilities for managing customer relationships, you should
ensure that appropriate "know your customer" procedures are properly applied
throughout the duration of Bankers Trust's relationship with the customer.
Such procedures should be sufficient to provide reasonable assurance that the
customer is not using Bankers Trust for the furtherance of illegal or
improper activities as described further in the Firm's policy statement
Prevention and Detection of Money Laundering and Reporting of Criminal and
Suspicious Activity.
5. Communication with Customers and the Public
Communication with customers and others must be fair, balanced and honest.
Misleading, exaggerated or false claims about Bankers Trust's products,
services or their characteristics should never be made to customers or
others.
6. Pricing and Terms
Product pricing and related terms and conditions of products and services
must comply with applicable laws and regulations, and must be consistent with
Bankers Trust standards of fairness and integrity.
7. Customer Complaints
Customer complaints, disputes or dissatisfaction with the products or
services of Bankers Trust must be addressed fairly and promptly. Customer
complaints of a severe or unusual nature that may affect the overall
reputation of Bankers Trust should be immediately brought to the attention of
your Managing Officer and the Compliance Department.
8. Improper Customer Conduct
Knowingly aiding or assisting any customer or other person in the violation
of laws and regulations that apply to such customer or other person is
prohibited.
9. Special Regulatory Matters Involving Customers
Bankers Trust may, from time to time, receive notification that a customer is
under investigation by regulatory or law enforcement authorities, describing
certain information, account blockages or other actions that may be required.
You should not inform the customer of such regulatory action, or of any
response submitted by Bankers Trust, without the prior specific permission of
the Legal Department or the Compliance Department.
10. Anti-Competitive Conduct
All business of Bankers Trust must be conducted in fair and open competition.
Under no circumstances should an employee discuss or commit the Firm to any
arrangement with competitors affecting pricing or marketing policies.
Violation of anti-trust laws and regulations (referred to in some
jurisdictions as competition laws) could subject you and the Firm to
substantial civil and criminal penalties.
11. Tying Arrangements
Anti-trust and competition laws and regulations of many jurisdictions may
prohibit or restrict anti-competitive conduct, including certain forms of
tying arrangements. Bankers Trust is also subject to additional anti-tying
restrictions as set forth in the Bank Holding Company Act and Regulation Y,
as interpreted by the Federal Reserve Board (the "Federal Reserve tying
rules"). Recently, the Federal Reserve modified these rules to eliminate
certain types of tying restrictions while continuing to prohibit others.
Since the laws and regulations that apply to tying arrangements are complex,
you should seek guidance from the Compliance Department or Legal Department
if you are unsure as to whether a proposed tying arrangement is permissible.
Bank tying arrangements are generally those in which the extension of credit,
the provision of a service or the related pricing is varied or conditioned
upon the customer obtaining additional products or services from Bankers
Trust. Tying could involve linking products and services to be provided by
the same or another Bankers Trust entity.
<PAGE>
As a general matter, the Federal Reserve tying rules are more restrictive
when Bankers Trust Company ("BTCo") or another affiliated bank is involved in
the proposed tying arrangement. The Federal Reserve tying rules no longer
apply if BTCo or another affiliated bank is not involved in the tying
arrangement.
Restricting Availability or Varying the Pricing of Bank Products
A bank is prohibited under the Federal Reserve tying rules from conditioning
the availability of a loan or other product or service, or vary the pricing
thereof, on the condition that a customer obtains an additional product or
service offered by the bank or another affiliate unless the additional
product or service is a "traditional" bank product, such as a loan, deposit
or trust service.
For example, it would be permissible under the Federal Reserve tying rules
for the bank to condition its loan on the requirement that the customer must
maintain a deposit account with the bank or another affiliate. However, it
would not be permissible for the bank to condition the availability or vary
the pricing of its loan on the requirement that the customer chooses an
affiliate as an underwriter of the customer's securities.
Safe Harbors
If BTCo or another affiliated bank is not involved in providing or varying
the pricing of the product or services, or in restricting the customer's
ability to use a competitor's product or service, then the Federal Reserve
tying rules do not apply.
For example, it would be permissible under the Federal Reserve tying rules
for a nonbank affiliate to tie a merger and acquisition advisory service to
the customer's appointment of that affiliate (or another nonbank affiliate)
as the underwriter of the customer's securities.
Subject to compliance with applicable local laws and regulations, a safe
harbor under the Federal Reserve tying rules also exists for "foreign"
transactions, that is, where the customer is an entity organized and having
its principal place of business outside of the U.S. or, if the customer is a
natural person, he or she is a citizen of a foreign country other than the
U.S. In such instances, the Federal Reserve tying rules would not apply even
if the tying arrangement involves BTCo or another affiliated bank.
As stated earlier, the requirements of the Federal Reserve tying rules and
applicable local laws and regulations can be complex. If a tying arrangement
is contemplated, you should contact the Compliance Department or Legal
Department if you have questions.
12. Purchases and Commitments
Purchases and commitments on behalf of Bankers Trust must be made, and
contracts awarded and orders given, solely on a sound commercial basis in
consideration of quality, price and service, and may only be made by Bankers
Trust personnel who have been given express authority to do so.
Rules for Dealing with Other Employees
------------------------------------------------------------------------------
1. The Basic Rule
All dealings with other employees should be consistent with the Firm's
commitment to honesty, integrity and ethical behavior.
2. Cooperation
Every employee should cooperate fully with Bankers Trust internal and
independent auditors, attorneys, compliance and security personnel, and other
authorized parties acting on behalf of the Firm, and you should never
withhold information from them.
3. Awareness
Employees should obtain sufficient knowledge about the laws, regulations and
policies that apply to their particular Bankers Trust duties to enable them
to avoid possible violations, or recognize when they need to seek guidance
from their supervisor or others to avoid possible violations.
4. Supervision
The Firm's business activities must be subject to appropriate supervision by
Bankers Trust supervisory personnel.
<PAGE>
You are a supervisor if your Bankers Trust duties involve managing or
directing the work of others. As a supervisor, you have a responsibility to
ensure that the Bankers Trust activities of the employees you supervise are
properly directed toward achieving the general and specific objectives of
Bankers Trust, in accordance with applicable policies and procedures. The
supervisor is accountable for the Bankers Trust activities performed under
his or her direction.
5. Due Care in Delegation
The supervisor should delegate responsibilities to other employees only if
satisfied that such other employees possess the necessary skills and
experience to properly fulfill the responsibilities assigned.
6. Instruction and Training
The supervisor should provide adequate training and instruction regarding the
objectives of the responsibilities delegated, and the manner in which they
are to be carried out in accordance with Bankers Trust policies.
7. Review and Monitoring
The supervisor should understand how the employees are performing the
responsibilities delegated to them. This monitoring should be sufficient in
the particular circumstances to reasonably ensure that the supervisor will
promptly identify errors or improper work-related activities.
8. Correction and Follow-Up
The supervisor should take prompt corrective action if errors or improper
conduct are identified. Depending on the severity and nature of the errors or
improper conduct, the supervisor is responsible for reporting such matters to
his or her Managing Officer and the Compliance Department.
9. Preferential Treatment
No employee should give or receive any preferred conditions of employment
because of family or personal relationships. Personnel decisions must be
based on sound management practices and not on personal concerns.
10. Unlawful Conduct
The Firm's policy prohibits employees from engaging in unlawful conduct that
may represent a threat to Bankers Trust or to the safety of any other
employee or agent of Bankers Trust. Any employee convicted of a serious
crime, including but not limited to the sale, possession or use of illegal
drugs or substances, will be subject to disciplinary action, including
possible dismissal.
11. Human Resources Policies
Additional policies setting forth the Firm's standards regarding personnel
matters, such as equal opportunity and affirmative action, performance
evaluation and counseling, compensation and benefit programs, and other
matters related to employment with Bankers Trust, are issued by the Human
Resources Department. These Human Resources policies meet legal and
regulatory requirements of various jurisdictions in which Bankers Trust does
business, and you are required to comply with the letter and the spirit of
these policies. Copies of applicable policies can be obtained from the Human
Resources Department or your local or regional Human Resources Officer.
12. Off-Premise Requirement for Employees in Sensitive Positions
Employees in "sensitive positions" (as determined and notified by the
employee's manager) are required to be off-premises for a period of at least
two consecutive weeks each year. The off-premises period may be satisfied by
using available vacation, or through a combination of vacation, holiday,
medical leave, jury duty or other authorized absences.
Sensitive positions generally include those in which the employee has
authority and access to make entries to the books and records of the Firm,
effect wire transfers or move funds, or enter into specific transactions such
as extending credit or trading securities on behalf of the Firm.
During the required off-premises period, such employees are prohibited from
directing activity, entering transactions or changing the Firm's records in
any manner, whether through an off-site computer link, written instruction of
any kind, or by telephone or other sort of communication. Only communications
of a general business nature are permitted during the off-premises period.
<PAGE>
Regional management and individual business units may also require employees
in non-sensitive positions to be off-premises for a period of at least two
consecutive weeks each year. Additional information about Bankers Trust's
"Vacation & Off-Premises Policy" can be obtained from the Compliance
Department.
Rules for Dealing with Certain Legal, Judicial or Regulatory Matters;
Reports of Violations
------------------------------------------------------------------------
1. General Matters
You must promptly inform your Managing Officer of matters about which you
become aware which might adversely affect the reputation of Bankers Trust or
be a threat to its assets.
2. Violations of Bankers Trust Policies
You must promptly report to your Managing Officer and the Compliance
Department every known or suspected violation of Bankers Trust's policies,
including the Rules for Business Conduct, regardless of whether such
violation involves you or another employee.
3. Fraudulent Activity
You must promptly report to the Compliance Department or Investigative
Services every known or suspected work-related event of questionable,
fraudulent or dishonest nature of which you become aware, whether such
activity involves employees or outsiders.
4. Arrests, Indictments and Convictions
You must promptly notify your Managing Officer and the Compliance Department
if you are arrested, indicted or convicted of any crime or violation of
applicable law, other than those involving minor traffic infractions.
5. Employee Involvement in Regulatory and Other Formal Proceedings
You are required to promptly report, to your Managing Officer and the
Compliance Department, your involvement in certain governmental proceedings
(such as judicial, legislative or administrative proceedings) or regulatory
hearings. Your involvement is reportable regardless of whether it involves
your testimony as a witness, an actual or prospective party or target, or
otherwise, and such involvement:
. calls into question in any way your character, integrity or honesty; or
. concerns Bankers Trust or another Bankers Trust employee, customer or
supplier; or
. concerns you, and has received or is likely to receive publicity.
6. Lobbying, Public Testimony and Related Matters
Regarding matters which may affect the business, reputation or standing of
Bankers Trust, you may not appear as a witness, give testimony or sign a
statement advocating a position at the request of outside parties, except as
required by law, and you may not lobby before any government, legislative,
judicial or administrative body without the specific prior approval of your
Managing Officer and the Government Relations Department.
7. Managing Officer Reporting
Each Managing Officer who receives a report or becomes aware of conduct,
behavior or other circumstance that is questionable or prohibited by the
Rules for Business Conduct must ensure that such matter is brought to the
attention of the Compliance Department.
Other Matters
------------------------------------------------------------------------
1. Ongoing Compliance
Your adherence to the Rules for Business Conduct, and to all lawful policies
and procedures of Bankers Trust, is required of you. Failure to comply with
them may subject you to disciplinary action, including possible dismissal.
<PAGE>
2. Resignation and Termination
None of the policies contained or referred to in these Rules constitutes or
grants a legal right of any nature to any employee of Bankers Trust, nor do
any of them confer any right or privilege upon any employee or on any
particular group of employees. The Rules do not constitute an employment
contract. Subject to relevant local law and the terms of any applicable
individual written employment contract, employment with Bankers Trust is "at
will" and you have the right to resign at any time. Conversely, Bankers Trust
has the right to terminate the employment of any employee at any time in its
sole discretion, for any lawful reason.
3. Modifications to or Waivers of the Rules
Modifications to or waivers of the Rules may be made only by a member of the
Bankers Trust Management Committee.
4. Confirming Your Compliance with the Rules
Annually, employees of Bankers Trust are required to sign a statement
acknowledging that they have received the Rules for Business Conduct and
confirming their adherence to Bankers Trust's policies.
5. If You Have Questions
All questions regarding the Rules, the propriety of an action not covered by
the Rules, or other compliance-related matters should be referred to the
Compliance Department.
NOTE: An Employee's failure to report matters required to be reported under
the Rules for Business conduct is itself a violation of these Rules and
represents an independent ground for disciplinary action, up to and including
discharge.
<PAGE>
FORUM INVESTMENT ADVISORS, LLC
FORUM FUND SERVICES, LLC
Code of Ethics
as amended January 17, 2000
INTRODUCTION
This Code of Ethics (the "Code") has been adopted by Forum Fund Services,
LLC ("FFS") and Forum Investment Advisors, LLC ("FIA" and collectively with FFS,
"Forum"). This Code pertains to Forum's investment advisory and distribution
services to registered management investment companies or series thereof (each a
"Fund"). In addition, this Code applies to employees of Forum's commonly
controlled companies who serve as officers of a Fund. This Code establishes
standards and procedures for the detection and prevention of activities by which
persons having knowledge of the investments and investment intentions of a Fund
may abuse their fiduciary duties to the Fund and addresses other types of
conflict of interest situations. Definitions of underlined terms are included
----------
in Appendix A.
1. POLICY STATEMENT
Forum forbids any Access Person, Investment Personnel or Fund Officer from
-------------- -------------------- ------------
engaging in any conduct which is contrary to this Code. In addition, due to
their positions, Forum also forbids any Access Person or Investment Personnel
------------- --------------------
from engaging in any conduct which is contrary to Forum's Insider Trading Policy
and Related Procedures. In addition, many persons subject to the Code are also
subject to the other restrictions or requirements which affect their ability to
open securities accounts, effect securities transactions, report securities
transactions, maintain information and documents in a confidential manner and
other matters relating to the proper discharge of your obligations to Forum.
These include contractual arrangements with Forum, policies adopted by Forum
concerning confidential information and documents and FFS' Compliance and
Supervisory Procedures Manual.
Forum has always held itself and its employees to the highest ethical
standards. While this Code is only one manifestation of those standards,
compliance with its provisions is essential. Failure to comply with this Code
is a very serious matter and may result in disciplinary action being taken.
Such action can include among other things, monetary fines, disgorgement of
profits, suspension or even termination of employment.
2. WHO IS COVERED BY THIS CODE
(a) All Access Persons and Investment Personnel, in each case only with respect
-------------- --------------------
to those Funds as listed on Appendix B.
(b) Fund Officers, but only with respect to those Funds for which they serve as
-------------
Fund Officers as listed in Appendix B.
-------------
<PAGE>
3. PROHIBITED TRANSACTIONS
(a) Prohibition Against Fraudulent Conduct. It is unlawful for Access
------
Persons, Investment Personnel and Fund Officers to use any information
- ------- -------------------- -------------
concerning a security held or to be acquired by a Fund, or their ability to
-------------------------------
influence any investment decisions, for personal gain or in a manner detrimental
to the interests of a Fund. In addition, they shall not, directly or
indirectly:
(i) employ any device, scheme or artifice to defraud a Fund or engage in
any manipulative practice with respect to a Fund;
(ii) make to a Fund, any untrue statement of a material fact or omit to
state to a Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading; or
(iii) engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon a Fund.
(b) Blackout Period. Access Persons and Investment Personnel shall not
-------------- --------------------
purchase or sell a Covered Security in an account over which they have direct or
------- --------
indirect influence or control on a day during which they know or should have
known a Fund has a pending "buy" or "sell" order in that same security until
that order is executed or withdrawn.
(c) Additional Investment Personnel Blackout Period. No Investment
----------
Personnel shall purchase or sell a Covered Security within five calendar days
- --------- ----------------
before or two calendar days after a Fund for which the Investment Personnel
--------------------
makes or participates in making a recommendation trades in that security. Any
profits realized on trades within this proscribed period shall be disgorged.
This blackout period does not apply to money market mutual funds which are
advised by FIA.
(d) Fund Officer Prohibition. No Fund Officer shall directly or indirectly
------------
seek to obtain information (other than that necessary to accomplish the
functions of the office) from any Fund portfolio manager regarding (i) the
status of any pending securities transaction for a Fund or (ii) the merits of
any securities transaction contemplated by the Fund Officer.
------------
(e) Blackout Period Exclusions and Definitions. The following
transactions shall not be prohibited by this Code and are not subject to the
limitations of Sections 3(b) and (c):
(i) purchases or sales over which you have no direct or indirect
influence or control (for this purpose, you are deemed to have
direct or indirect influence or control over the accounts of a
spouse, minor children and relatives residing in your home);
(ii) purchases which are part of an automatic dividend reinvestment plan;
(iii) purchases or sales which are non-volitional on your part; and
(iv) purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer.
<PAGE>
Your trading shall be exempt from the limitations of Sections 3(b) and (c)
provided that (i) the market capitalization of a particular security exceeds
$1 billion and (ii) pending orders of FIA do not exceed two percent of the daily
average trading volume of the security for the prior 15 days.
For purposes of Sections 3(b) and (c), and subject to Section 3(g) below,
the (i) common stock and any fixed income security of an issuer shall not be
deemed to be the same security and (ii) non-convertible preferred stock of an
issuer shall be deemed to be the same security as the fixed income securities of
that issuer; and (iii) convertible preferred stock shall be deemed to be the
same security as both the common stock and fixed income securities of that
issuer.
(f) Requirement for Preclearance. Investment Personnel must obtain prior
--------------------
written approval from the designated Review Officer before:
(i) directly or indirectly acquiring securities in an initial public
offering for which no public market in the same or similar securities
of the issue has previously existed; and
(ii) directly or indirectly acquiring securities in a private placement.
In determining whether to preclear the transaction, the Review Officer
designated under Section 5 shall consider, among other factors,
whether the investment opportunity should be reserved for a Fund, and
whether such opportunity is being offered to the Investment Personnel
--------------------
by virtue of their position with the Fund.
Any Investment Personnel of a Fund who has taken a personal position
--------------------
through a private placement will be under an affirmative obligation to disclose
that position in writing to the Review Officer if they play a material role in
the Fund's subsequent investment decision regarding the same issuer; this
separate disclosure must be made even though the Investment Personnel has
---------- ---------
previously disclosed the ownership of the privately placed security in
compliance with the preclearance requirements of this section. Once disclosure
is given, an independent review of the Fund's investment decision will be made.
(g) Other Prohibited Transactions. Access Persons, Investment Personnel
-------------- --------------------
and Fund Officers shall not:
-------------
(i) induce or cause a Fund to take action or to fail to take action, for
personal benefit rather than for the benefit of the Fund;
(ii) accept anything other than of de minimis value or any other
preferential treatment from any broker-dealer or other entity with
which a Fund does business;
(iii) establish or maintain an account at a broker-dealer, bank or other
entity through which securities transactions may be effected without
written notice to the designated Review Officer prior to
establishing such an account;
(iv) use knowledge of portfolio transactions of a Fund for your personal
benefit or the personal benefit of others;
(v) violate the anti-fraud provisions of the federal or state securities
laws;
<PAGE>
(vi) serve on the boards of directors of publicly traded companies,
absent prior authorization based upon a determination by the Review
Officer that the board service would be consistent with the
interests of the Fund and its shareholders.
(h) Undue Influence. Access Persons, Investment Personnel and Fund
-------------- -------------------- ----
Officers shall not cause or attempt to cause any Fund to purchase, sell or hold
- --------
any security in a manner calculated to create any personal benefit to you. You
shall not recommend any securities transactions for a Fund without having
disclosed (through reports in accordance with Section 4, preclearance in
accordance with Section 3(f), or otherwise) your interest, if any, in such
securities or the issuer thereof, including, without limitation, (i) your
beneficial ownership of any securities of such issuer, (ii) any position with
- --------------------
such issuer or its affiliates and (iii) any present or proposed business
relationship between you (or any party in which you have a significant interest)
and such issuer or its affiliates.
(i) Corporate Opportunities. Access Persons, Investment Personnel and
-------------- --------------------
Fund Officers shall not take personal advantage of any opportunity properly
- -------------
belonging to a Fund.
(j) Confidentiality. Except as required in the normal course of carrying
out their business responsibilities, Access Persons, Investment Personnel and
-------------- --------------------
Fund Officers shall not reveal information relating to the investment intentions
- -------------
or activities of any Fund, or securities that are being considered for purchase
or sale on behalf of any Fund.
4. REPORTING REQUIREMENTS
(a) Reporting. Access Persons, Investment Personnel and Fund Officers must
-------------- -------------------- -------------
report the information described in this Section with respect to transactions in
any Covered Security in which they have, or by reason of such transaction
acquire, any direct or indirect beneficial ownership. They must report to the
designated Review Officer unless they are otherwise required by a Fund, pursuant
to a Code of Ethics adopted by the Fund, to report to the Fund or another
person.
(b) Exclusions from Reporting. Purchases or sales in Covered Securities in
------------------
an account in which you have no direct or indirect influence or control are not
-------
subject to the reporting requirements of this Section.
(c) Initial Holding Reports. No later than ten (10) days after you become
subject to this Code as set forth in Section 2, you must report the following
information:
(i) the title, number of shares and principal amount of each Covered
Security (whether or not publicly traded) in which you have any direct
or indirect beneficial ownership as of the date you became subject to
--------------------
this Code;
(ii) the name of any broker, dealer or bank with whom you maintained an
account in which any securities were held for your direct or indirect
benefit as of the date you became subject to this Code; and
(iii) the date that the report is submitted.
<PAGE>
(d) Quarterly Transaction Reports. No later than ten (10) days after the
end of a calendar quarter, you must report the following information:
(i) with respect to any transaction during the quarter in a Covered
Security (whether or not publicly traded) in which you have, or by
reason of such transaction acquired, any direct or indirect beneficial
ownership:
(1) the date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each Covered Security involved;
(2) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(3) the price of the Covered Security at which the transaction was
effected;
(4) the name of the broker, dealer or bank with or through which the
transaction was effected; and
(5) the date that the report is submitted.
(ii) with respect to any account established by you in which any Covered
Securities (whether or not publicly traded) were held during the
quarter for your direct or indirect benefit:
(1) the name of the broker, dealer or bank with whom you established
the account;
(2) the date the account was established; and
(3) the date that the report is submitted.
(e) Annual Holdings Reports. Annually, you must report the following
information (which information must be current as of a date no more than thirty
(30) days before the report is submitted):
(i) the title, number of shares and principal amount of each Covered
Security (whether or not publicly traded) in which you had any direct
or indirect beneficial ownership;
(ii) the name of any broker, dealer or bank with whom you maintain an
account in which any securities are held for your direct or indirect
benefit; and
(iii) the date that the report is submitted.
(f) Certification of Compliance. You are required to certify annually (in
the form of Attachment A) that you have read and understood the Code and
recognize that you are subject to the Code. Further, you are required to
certify annually that you have complied with all the requirements of the Code
and you have disclosed or reported all personal securities transactions pursuant
to the requirements of the Code.
(g) Alternative Reporting. The submission to the Review Officer of
duplicate broker trade confirmations and statements on all securities
transactions shall satisfy the reporting requirements of Section 4. The annual
holdings report may be satisfied by confirming annually,
<PAGE>
in writing, the accuracy of the records maintained by the Review Officer and
recording the date of the confirmation.
(h) Report Qualification. Any report may contain a statement that the
report shall not be construed as an admission by the person making the report
that he or she has any direct or indirect beneficial ownership in the Covered
Securities to which the report relates.
(i) Account Opening Procedures. You shall provide written notice to the
Review Officer prior to opening any account with any entity through which a
Covered Securities transaction may be effected. In addition, you will promptly:
(i) provide full access to a Fund, its agents and attorneys to any and all
records and documents which a Fund considers relevant to any
securities transactions or other matters subject to the Code;
(ii) cooperate with a Fund, or its agents and attorneys, in investigating
any securities transactions or other matter subject to the Code;
(iii) provide a Fund, its agents and attorneys with an explanation (in
writing if requested) of the facts and circumstances surrounding any
securities transaction or other matter subject to the Code; and
(iv) promptly notify the Review Officer or such other individual as a Fund
may direct, in writing, from time to time, of any incident of
noncompliance with the Code by anyone subject to this Code.
5. REVIEW OFFICER
(a) Duties of Review Officer. The Chief Compliance Officer of Forum has
been appointed by the Director of FIA and FFS as the Review Officer to:
(i) review all securities transaction and holdings reports and shall
maintain the names of persons responsible for reviewing these reports;
(ii) identify all persons subject to this Code who are required to make
these reports and promptly inform each person of the requirements of
this Code;
(iii) compare, on a quarterly basis, all Covered Securities transactions
with each Fund's completed portfolio transactions to determine whether
a Code violation may have occurred;
(iv) maintain a signed acknowledgment by each person who is then subject to
this Code, in the form of Attachment A; and
(v) identify persons who are Investment Personnel of the Fund and
--------------------
inform those persons of their requirements to obtain prior written approval
from the Review Officer prior to directly or indirectly acquiring ownership
of a security in any private placement or initial public offering.
(vi) exempt any Fund Officer from provisions of this Code if the person is
------------
subject to similar requirements of a Fund's Code of Ethics.
(b) Potential Trade Conflict. When there appears to be a transaction that
conflicts with the Code, the Review Officer shall request a written explanation
of the person's transaction.
<PAGE>
If after post-trade review, it is determined that there has been a violation of
the Code, a report will be made by the designated Review Officer with a
recommendation of appropriate action to the Director of FIA and FFS and a Fund's
Board of Trustees (or Directors).
(c) Required Records. The Review Officer shall maintain and cause to be
maintained:
(i) a copy of any code of ethics adopted by Forum which has been in effect
during the previous five (5) years in an easily accessible place;
(ii) a record of any violation of any code of ethics, and of any action
taken as a result of such violation, in an easily accessible place for
at least five (5) years after the end of the fiscal year in which the
violation occurs;
(iii) a copy of each report made by anyone subject to this Code as
required by Section 4 for at least five (5) years after the end of the
fiscal year in which the report is made, the first two (2) years in an
easily accessible place;
(iv) a list of all persons who are, or within the past five years have
been, required to make reports or who were responsible for reviewing
these reports pursuant to any code of ethics adopted by Forum, in an
easily accessible place;
(v) a copy of each written report and certification required pursuant to
Section 5(e) of this Code for at least five (5) years after the end of
the fiscal year in which it is made, the first two (2) years in an
easily accessible place; and
(vi) a record of any decision, and the reasons supporting the decision,
approving the acquisition by Investment Personnel of securities under
--------------------
Section 3(f) of this Code, for at least five (5) years after the end
of the fiscal year in which the approval is granted.
(d) Post-Trade Review Process. Following receipt of trade confirms and
statements, transactions will be screened for the following:
(i) same day trades: transactions by Access Persons and Investment Personnel
-------------- --------------------
occurring on the same day as the purchase or sale of the same security by a
Fund for which they are an Access Person or Investment Personnel.
------------- --------------------
(ii) portfolio manager trades: transactions by Investment Personnel within
--------------------
five calendar days before and two calendar days after a Fund, for
which the Investment Personnel makes or participates in making a
--------------------
recommendation, trades in that security.
(iii) fraudulent conduct: transaction by Access Persons, Investment
-------------- ----------
Personnel and Fund Officers which, within the most recent 15 days, is
--------- -------------
or has been held by a Fund or is being or has been considered by a
Fund or FIA for purchase by a Fund.
(iv) other activities: transactions which may give the appearance that an
Access Person, Investment Personnel or Fund Officer has executed
------------- -------------------- ------------
transactions not in accordance with this Code.
(e) Submission to Fund Board. The Review Officer shall annually prepare a
written report to the Board of Trustees (or Directors) of a Fund listed in
Appendix B that
<PAGE>
(i) describes any issues under this Code or its procedures since the last
report to the Trustees, including, but not limited to, information
about material violations of the code or procedures and sanctions
imposed in response to the material violations; and
(ii) certifies that the Fund has adopted procedures reasonably necessary to
prevent Access Persons, Investment Personnel and Fund Officers from
-------------- -------------------- -------------
violating this code.
<PAGE>
FORUM CODE OF ETHICS
APPENDIX A
DEFINITIONS
(a) Access Person:
-------------
(i)(1) of FIA means each director or officer of FIA, any employee or agent
of FIA, or any company in a control relationship to FIA who, in
connection with the person's regular functions or duties, makes,
participates in or obtains information regarding the purchase or sale
of Covered Securities by a Fund advised by FIA, or whose functions
------------------
relate to the making of any recommendations with respect to such
purchases or sales; and
(i)(2) any natural person in a control relationship to FIA who obtains
information concerning recommendations made to a Fund by FIA with
regard to the purchase or sale of Covered Securities by the Fund;
------------------
(ii) of FFS means each director or officer of FFS who in the ordinary
course of business makes, participates in or obtains information
regarding the purchase or sale of Covered Securities for a Fund or
------------------
whose functions or duties as part of the ordinary course of business
relate to the making of any recommendation to a Fund regarding the
purchase or sale of Covered Securities.
------------------
(b) Act means the Investment Company Act of 1940, as amended.
---
(c) Beneficial Owner shall have the meaning as that set forth in Rule 16a-
----------------
1(a)(2) under the Securities Exchange Act of 1934, as amended, except that
the determination of direct or indirect beneficial ownership shall apply to
all Covered Securities which an Access Person owns or acquires. A
beneficial owner of a security is any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares a direct or indirect pecuniary interest (the opportunity, directly or
-------------------------------------
indirectly, to profit or share in any profit derived from a transaction in the
subject securities) in a security.
Indirect pecuniary interest in a security includes securities held by a
---------------------------
person's immediate family sharing the same household. Immediate family means
----------------
any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-
law, or sister-in-law (including adoptive relationships).
(d) Control means the power to exercise a controlling influence over the
-------
management or policies of a company, unless this power is solely the result
of an official position with the company. Ownership of 25% or more of a
company's outstanding voting securities is presumed to give the holder
thereof control over the company. This presumption may be rebutted by the
Review Officer based upon the facts and circumstances of a given situation.
<PAGE>
(e) Covered Security means any security except:
----------------
(i) direct obligations of the Government of the United States;
(ii) bankers' acceptances and bank certificates of deposits;
(iii) commercial paper and debt instruments with a maturity at issuance of
less than 366 days and that are rated in one of the two highest
rating categories by a nationally recognized statistical rating
organization;
(iv) repurchase agreements covering any of the foregoing; and
(v) shares of registered open-end investment companies.
(f) Fund Officer means any employee of Forum or of a company commonly
------------
controlled with Forum who is an officer or director/trustee of a Fund.
(h) Investment Personnel means
- --- --------------------
(i) any employee of FIA who, in connection with his or her regular
functions or duties, makes or participates in making recommendations
regarding the purchase or sale of securities by a Fund managed by FIA;
and
(ii) any individual who controls FIA or a Fund for which FIA is an
--------
investment adviser and who obtains information concerning
recommendations made to the Fund regarding the purchase or sale of
securities by the Fund.
(i) Purchase or sale includes, among other things, the writing of an option to
----------------
purchase or sell.
(j) Security held or to be acquired by the Fund means
----------------------------------
(i) any Covered Security which, within the most recent 15 days (x) is or
has been held by the applicable Fund or (y) is being or has been
considered by the applicable Fund or its investment adviser for
purchase by the applicable Fund; and
(ii) and any option to purchase or sell, and any security convertible into
or exchangeable for, a Covered Security.
