<PAGE>
As filed with the Commission on September 29, 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. 74 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
X
Amendment No. 74 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):
[X] Immediately upon filing pursuant to paragraph (b)
[ ] On August 31, 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:
[X] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Communications Portfolio has also executed this Registration Statement.
<PAGE>
Deutsche Asset Management
Mutual Fund
Prospectus
September 29, 2000
Institutional Class
Communications
[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 A Member of the
the contrary is a criminal offense.] Deutsche Bank Group [LOGO]
<PAGE>
Overview
-------------------------------------------------------------------------------
of Communications--Institutional Class
Goal: The Fund seeks to maximize total return.
Core Strategy: The Fund will seek to achieve this objective through a
combination of long-term growth of capital and, to a lesser extent, current
income. The Fund invests primarily in common stocks of companies in the
communications field.
INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective as the Fund. The Fund, through the master
portfolio, seeks to maximize total return. The Fund seeks this objective
through a combination of long-term growth of capital and, to a lesser extent,
current income. In selecting investments, the Fund's investment adviser and
sub-adviser (the "investment advisers") will choose securities of companies
that are engaged in the research, development, manufacture, or sale of
communications services, technology, equipment, or products. The investment
advisers emphasize both traditional communications companies and those that
engage in new information based applications. The investment advisers believe
that investing in a portfolio of common stocks as well as dividend and
interest-paying securities of companies in the communications field offers an
attractive opportunity for maximizing total return.
-------------------------------------------------------------------------------
Communications--Institutional Class
Overview of Communications-- Institutional Class
<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 Communications
<TABLE>
<S> <C>
Objective................................................................... 7
Strategy.................................................................... 7
Principal Investments....................................................... 7
Investment Process.......................................................... 7
Risks....................................................................... 8
Management of the Fund...................................................... 8
Calculating the Fund's Share Price.......................................... 9
Performance Information..................................................... 9
Dividends and Distributions................................................. 9
Tax Considerations.......................................................... 10
Buying and Selling Fund Shares.............................................. 10
Financial Highlights........................................................ 13
</TABLE>
-------------------------------------------------------------------------------
3
<PAGE>
Overview of Communications--Institutional Class
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. For example:
. Your investment in the Fund will vary from day-to-day based on changes in the
prices of the Fund's portfolio securities. The prices of portfolio securities
reflect investor perceptions of the economy, the markets, and the companies
represented in the Fund's portfolio.
. Regulatory or technological change in the communications field may affect the
Fund because it concentrates its investments in communications companies. The
Fund's value may fluctuate more than less concentrated investment portfolios.
. Because the Fund invests in relatively few issuers, the performance of one or
a small number of portfolio holdings can affect overall performance more than
if the Fund were diversified.
WHO SHOULD CONSIDER INVESTING
IN THE FUND
The Fund requires a minimum investment of $250,000. You should consider
investing in the Fund if you are seeking total return over the long term and
you are willing to accept the risks and uncertainties of investing in the
common stocks of companies in the communications field. There is, of course, no
guarantee that the Fund will realize its goal. You should not consider
investing in the Fund if you are pursuing a short-term financial goal, seeking
regular income and stability of principal or cannot tolerate fluctuations in
the value of your investments.
The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities in the telecommunications
field. 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.
--------------------------------------------------------------------------------
4
<PAGE>
Overview of Communications--Instututional Class
TOTAL RETURNS, AFTER FEES AND EXPENSES
Because the Fund is newly offered and has no performance history, the following
bar chart and table show the performance history of Class A shares of the Flag
Investors Communications Fund, Inc. (the "Flag Fund"). Prior to September 29,
2000, the Flag Fund operated as a stand-alone Fund that directly acquired and
managed its own portfolio securities. On September 29, 2000, the Flag Fund's
assets were contributed to the master portfolio, the Communications Portfolio,
into which the Fund will invest all of its assets. In managing the Fund, the
investment adviser employs the same investment objectives, policies and
strategies that were employed in managing the Flag Fund.
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing year-to-year changes in the
performance of the Flag Fund. The table compares the average annual return of
the Flag Fund with that of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index") over one, five and ten years and since the Flag
Fund's inception (January 18, 1984). In both the bar chart and the table, the
Flag Fund's performance is adjusted to reflect the overall expense ratio of the
Fund's Institutional Class shares (1.00%). The S&P 500 Index is a passive
measure of stock market returns. It does not factor in the costs of buying,
selling and holding stocks--costs that are reflected in the Flag Fund's
results.
--------------------------------------------------------------------------------
The Standard & Poor's 500 Index is a well-known stock market index that
includes common stocks of 500 companies from several industrial sectors
representing a significant portion of the market value of all stocks publicly
traded in the United States, most of which are traded on the New York Stock
Exchange. Stocks in the S&P 500 Index are weighted according to their market
capitalization (the number of shares outstanding multiplied by the stock's
current price).
[HEAD, CHART AND FOOTNOTE APPEARS HERE]
YEAR-BY-YEAR RETURNS
Flag Class/1/
(each of the last 10 calendar years)
1990 -7.63%
1991 23.20%
1992 12.36%
1993 18.03%
1994 -6.40%
1995 33.37%
1996 13.60%
1997 37.47%
1998 85.35%
1999 45.43%
For the period shown in the bar chart, the highest return in any calendar
quarter was 51.20% (fourth quarter 1998) and its lowest quarterly return was
-6.63% (third quarter 1999).
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Since Inception
1 Year 5 Years 10 Years (Jan. 18, 1984)/2/
<S> <C> <C> <C> <C>
Flag Fund 45.43% 41.21% 23.01% 22.79%
----------------------------------------------------------
S&P 500 Index 21.04% 28.56% 18.17% 18.21%
----------------------------------------------------------
</TABLE>
/1/Flag Fund performance is presented
because the Fund has no performance
history. The Flag Fund's performance
will differ from the Fund's
performance because each fund has
different shareholder fees and
expenses. The performance shown is
adjusted to reflect the overall
expense ratio of the Fund's
Institutional Class shares (1.00%).
The Flag Fund is sold primarily
through securities dealers and
through financial institutions that
act as shareholder servicing agents.
The Flag Fund is sold through a
different prospectus.
/2/S&P 500 Index performance is
calculated from January 31, 1984.
--------------------------------------------------------------------------------
5
<PAGE>
Overview of Communications--Institutional Class
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 Communications--Institutional
Class.
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, the fee waiver applies during the first year only and you sold your
shares at the end of the period.
You may use this hypothetical example to compare the Fund's expense ratio 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 estimated expenses
for the current fiscal year of both the Fund and the Communications 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 master portfolio's investment adviser and administrator have
contractually agreed to waive 0.15% of their fees until at least September 30,
2002. The Fund's administrator has also contractually agreed, for the period
from September 29, 2000 to December 31, 2001, to waive its fees and reimburse
expenses so that the Fund's total expenses will not exceed 1.00%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
/4/The 2% short-term redemption fee applies to shares redeemed (either by
selling or exchanging into another fund) within 60 days of purchase. The fee is
withheld from redemption proceeds and retained by the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on
Purchases None
----------------------------------------------
Maximum Sales Charge on Reinvested
Dividends None
----------------------------------------------
Maximum Short-Term Redemption Fee
(as a percentage of amount
redeemed, as applicable) 2.00%/4/
----------------------------------------------
</TABLE>
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C>
Management Fees 0.73%
--------------------------------------------------------------------
Distribution and
Service (12b-1) Fees None
--------------------------------------------------------------------
Other Fund Operating
Expenses 0.79%
--------------------------------------------------------------------
Total Fund Operating
Expenses 1.52%
--------------------------------------------------------------------
Less: Fee Waiver or Expense Reimbursement 0.52%/2/
--------------------------------------------------------------------
Net Expenses 1.00%
--------------------------------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C>
$102 $429
---------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
6
<PAGE>
A detailed look
--------------------------------------------------------------------------------
at Communications--Institutional Class
OBJECTIVE
The Fund seeks to maximize total return. While we give priority to seeking
total return, we cannot offer any assurance of achieving this objective. The
Fund's objective is not a fundamental policy. We must notify shareholders
before we change it, but we do not require their approval to do so.
STRATEGY
The Fund will seek to achieve its objective through a combination of long-term
growth of capital and, to a lesser extent, current income. The investment
advisers emphasize investment in companies offering products and services that
both support traditional communications and facilitate new information based
applications. Examples of such companies are companies that offer outsourced
communications billing and tele-services products or network computing
technology that supports basic Internet functionality such as web-site
operations for electronic commerce and other Internet based applications. The
investment advisers believe that the expansion of the worldwide
telecommunications market will create new opportunities for both established
and emerging providers of telecommunications products and services. As a
result, we believe that investing in a portfolio of common stocks as well as
dividend and interest-paying securities of companies in the communications
field offers an attractive opportunity for maximizing total return.
PRINCIPAL INVESTMENTS
The Fund primarily owns common stocks of companies in the communications field.
The Fund normally focuses on securities of companies that are engaged in the
research, development, manufacture, or sale of communications services,
technology, equipment, or products. It may also invest in convertible
securities rather than investing in a company's common stock and in bonds and
short-term cash equivalents. The Fund may also invest up to 10% of its assets
in stocks and other securities of companies not publicly traded in the United
States.
--------------------------------------------------------------------------------
Convertible securities are bonds or preferred stocks that give purchasers the
right to exchange for a specified number of shares of a company's common stock
at specified prices within a certain period of time. Purchasers receive regular
interest payments until they exercise their exchange right.
INVESTMENT PROCESS
The investment advisers follow an investment philosophy referred to as
"flexible value". We look for attractive price-to-value relationships in
undervalued stocks of strong companies with good management. The emphasis is on
individual stock selection, fundamental research, and valuation flexibility,
without rigid constraints.
The investment advisers believe the communications industry offers significant
long-term opportunity for a broad variety of companies to focus on unique
sectors and strategies to create and grow attractive businesses. Beyond
recognizing the potential for profitable business segments within the overall
communications industry, we tend to focus on individual companies.
Factors we assess include:
. Management team
. Market position
. Business strategy
. Catalysts for change
. Attractive valuation
We concentrate investments in those stocks which we believe offer the best
potential return relative to possible risks. We retain investment positions for
as long as the business fundamentals remain favorable and the valuations do not
become excessive. We will sell or reduce holdings if business fundamentals
deteriorate or if the price-to-value relationship becomes unattractive.
Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. We may invest in money market instruments and other
investment grade income producing securities, investments that would not
ordinarily be consistent with the Fund's objectives. To the extent we adopt
such a position and over the course of its duration, the Fund may not meet its
goal of maximizing total return. We would follow such a strategy only if we
believed the risk of loss in pursuing the Fund's primary investment strategies
outweighed the opportunity for gain.
--------------------------------------------------------------------------------
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Fund sells and replaces the value of its securities within a given period. We
expect this Fund to have a low portfolio turnover rate.
--------------------------------------------------------------------------------
7
<PAGE>
A Detailed Look at Communications--Institutional Class
RISKS
Below we set forth some of the prominent risks associated with investing in
general and with investing in the telecommunications field in particular.
Primary Risks
Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of stock prices, including stocks
held by the Fund.
Concentration Risk. The Fund concentrates its investments in common stocks of
companies in the communications field. As a result, market price movements,
regulatory or technological changes, or economic conditions affecting companies
in this field will have a significant impact on the Fund's performance.
Diversification Risk. The Fund is non-diversified. This means that it may
invest in securities of a relatively limited number of issuers. Thus, the
performance of one or a small number of portfolio holdings can effect overall
performance more than if the Fund was diversified.
Foreign Investment Risk. To the extent that the Fund holds companies based
outside the United States, it faces the risks inherent in foreign investing.
Adverse political, economic or social developments could undermine the value of
the Fund's investments or prevent the Fund from realizing their full value.
Financial reporting standards for companies based in foreign markets differ
from those in the United States. Finally, the currency of the country in which
the Fund has invested could decline relative to the value of the U. S. dollar,
which would decrease the value of the investment to U.S. investors.
Secondary Risk
Pricing Risk. We value securities in the Fund at their stated market value if
price quotations are available and, if not, 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
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, Investment
Company Capital Corp. ("ICCC"), with headquarters at One South Street,
Baltimore, Maryland 21202, acts as the Fund's investment adviser and Alex.
Brown Investment Management ("ABIM"), with headquarters at One South Street,
Baltimore, Maryland 21202, acts as the Fund's sub-adviser. ICCC is responsible
for supervising and managing all of the Fund's operations, including overseeing
the performance of ABIM. ABIM is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates. Under the investment advisory agreement, the Fund pays the
investment adviser a fee, calculated daily and paid monthly, at the following
annual rates based upon the master portfolio's average daily net assets: 1.00%
of the first $100 million, 0.90% of the next $100 million, 0.85% of the next
$100 million, 0.80% of the next $200 million, 0.73% of the next $500 million,
0.68% of the next $500 million and 0.65% of that portion exceeding $1.5
billion. ICCC compensates ABIM out of its advisory fee.
ICCC is also the investment adviser to other mutual funds. These funds,
together with the Fund, had approximately $12.8 billion of net assets as of
August 31, 2000. ABIM is a registered investment adviser with approximately
$10.8 billion under management as of August 31, 2000.
Portfolio Managers
The following portfolio managers are responsible for the day-to-day management
of the master portfolios:
Bruce E. Behrens, CFA, Principal of ABIM and Co-manager of the master
portfolio.
. Co-manager of Flag Investors Communications Fund, Inc. since inception
(January 18, 1984).
. Joined ABIM in 1981. Prior to that, senior vice president and principal of
Corbyn Associates from 1978 to 1981; vice president at Investment Counselors
of Maryland from 1972 to 1978; and securities analyst at Citibank from 1968
to 1972.
. Member and Former President, Baltimore Securities Analysts Society; and
Member, Financial Analysts Federation.
. 32 years of investment experience.
. BA, Denison University; MBA from University of Michigan.
Liam D. Burke, Vice President of ABIM and Co-manager of the master portfolio.
. Co-manager of Flag Investors Communications Fund, Inc. since 1997. Prior to
that, telecommunications analyst for the Flag Fund since 1994.
. Vice President of ABIM since 1994. Prior to that, telecommunications industry
analyst at Ferris, Baker, Watts, Inc. from 1992 to 1994; managing director of
Frey & Co., a
--------------------------------------------------------------------------------
8
<PAGE>
A Detailed Look at Communications--Institutional Class
Baltimore based private investment bank, and eight years in positions that
included operations, regional staff management and national account sales at
AT&T.
. 11 years of investment experience.
. BA, Georgetown University; MBA from The George Washington University
Other Services. Bankers Trust Company provides administrative services--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 ICCC.
Service agents may charge additional fees to investors only for those services
not otherwise included in the ICCC 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 Communications Portfolio. The Fund and the
master portfolio have the same investment objective. The master portfolio is
advised by ICCC and sub-advised by ABIM. The master portfolio may accept
investments from other feeder funds. The feeders bear the master portfolio's
expenses in proportion to their assets. Each feeder can set its own transaction
minimums, fund-specific expenses and other conditions. This arrangement allows
the 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 quotations 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.
The Fund may charge a short-term redemption fee of 2% on the value of the
shares redeemed (either by selling or exchanging into another fund) within 60
days of purchase.
PERFORMANCE INFORMATION
The Fund's performance can be used in advertisements that appear in various
publications. It may be compared to the performance of various indices and
investments for which reliable performance data is available. The Fund's
performance may also be compared to average, performance rankings, or other
information prepared by recognized mutual fund statistical services.
DIVIDENDS AND DISTRIBUTIONS
Dividends, if any, are paid quarterly. Capital gains will be distributed at
least annually. We automatically reinvest all dividends and any capital gains,
unless you tell us otherwise.
--------------------------------------------------------------------------------
The New York Stock Exchange is open every week, Monday through Friday, except
when the following holidays are celebrated: New Year's Day, Martin Luther King,
Jr. Day (the third Monday in January), Presidents' Day (the third Monday in
February), Good Friday, Memorial Day (the last Monday in May), Independence
Day, Labor Day (the first Monday in September), Thanksgiving Day (the fourth
Thursday in November) and Christmas Day.
--------------------------------------------------------------------------------
9
<PAGE>
A Detailed Look at Communications--Institutional Class
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 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>
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
shares owned for income; losses subject to
one year or less special rules
---------------------------------------------
</TABLE>
The tax considerations for tax deferred accounts or non-taxable entities will
be different. Because each investor's tax circumstances are unique and because
the tax laws are subject to change, we recommend that you consult your tax
advisor about your investment.
BUYING AND SELLING FUND SHARES
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 Deutsche Asset Management Service Center
Mail 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 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>
Shares of the Fund may be purchased without regard to the investment minimums
by employees of Deutsche Bank AG, 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 AG, or any of its affiliates or
subsidiaries, their spouses and minor children. 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
Service Center.) Mail the completed application along with a check
payable to Communications--Institutional Class (1728) to the
Service Center. The addresses are shown under "Contacting the
Mutual Fund Service Center of Deutsche Asset Management"
By Wire: Call the 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 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: To sell by mail send a signed letter to the Service Center with your
name, your fund number and account number,
--------------------------------------------------------------------------------
10
<PAGE>
A Detailed Look at Communications--Institutional Class
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 $50,000 invested in your
account to keep it open (except for retirement accounts). 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 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: Communications--Institutional Class (1728)
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 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.
Short-Term Redemption Fee
The Fund may charge a short-term redemption fee of 2% on the value of the
shares redeemed (either by selling or exchanging into another fund) within 60
days of purchase. This fee will compensate the Fund for expenses directly
related to short-term shareholder trading and will facilitate portfolio
management. The short-term redemption fee is withheld from redemption proceeds
and retained by the Fund.
The short-term redemption fee does not apply to:
. exchanges into another class of shares of the Fund;
. shares acquired through reinvestment of dividends and other distributions;
. shares of the Fund in an account which is closed by us because it fails to
meet minimum balance requirements; and
. shares held in an account of certain retirement plans or profit sharing
plans, due to certain economies associated with these accounts.
The fee may apply to shares held through omnibus accounts. You should consult
with your retirement plan administrator or service agent to determine whether a
redemption fee is applicable to your shares. This fee is not a deferred sales
charge and is not a commission. The fee is paid to the Fund.
The Fund will use the "first-in, first out" method to determine your holding
period. Under this method, the date of redemption or exchange will be compared
with the earliest purchase date of shares held in your account. If your holding
period is less than 60 days, the short-term redemption fee will be assessed on
the current net asset value of those shares. For purposes of computing the
redemption fee, any shares bought through reinvestment of distributions will be
redeemed first without charging the fee, followed by shares held the longest.
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 Service Center. It is then your service agent's responsibility to
transmit the order to the Service Center by the next business day. 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 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.
--------------------------------------------------------------------------------
11
<PAGE>
A Detailed Look at Communications--Institutional Class
. 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 and no
later than seven days.
. We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in
market value.
. If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your service agent or the 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
Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
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 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 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, letter or wire.
. If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
--------------------------------------------------------------------------------
12
<PAGE>
A Detailed Look at Communications--Institutional Class
Because the Fund is newly offered and has no performance history, financial
highlights are presented for Class A shares of the Flag Investors
Communications Fund, Inc. (the "Flag Fund"). Prior to September 29, 2000, the
Flag Fund operated as a stand-alone Fund that directly acquired and managed its
own portfolio securities. On September 29, 2000, the Flag Fund's assets were
contributed to the master portfolio, the Communications Portfolio, into which
the Fund will invest all of its assets.
The table below provides a picture of the Flag Fund's financial performance for
the past five years. The information selected reflects financial results for a
single Class A share of the Fund. The total returns in the tables represent the
rate of return that an investor would have earned on an investment in the Flag
Fund, assuming reinvestment of all dividends and distributions. The information
for the fiscal years ended December 31, 1995, 1996, 1997, 1998 and 1999 has
been audited by PricewaterhouseCoopers LLP, whose report, along with the Flag
Fund's financial statements, is included in the Flag Fund's annual report. The
annual report of the Flag Fund is available free of charge by calling the
Service Center at 1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Years Ended December 31,
June 30, 2000/1/ 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value at Be-
ginning of Period $43.65 $34.23 $19.37 $15.59 $14.87 $12.30
-----------------------------------------------------------------------------------------------
Income from Investment
Operations:
Net Investment Income 0.07 0.23 0.12 0.27 0.27 0.40
-----------------------------------------------------------------------------------------------
Net Realized and
Unrealized Gain/(Loss)
on Investments (6.15) 14.83 16.05 5.41 1.67 3.58
-----------------------------------------------------------------------------------------------
Total from Investment
Operations (6.08) 15.06 16.17 5.68 1.94 3.98
-----------------------------------------------------------------------------------------------
Less Distributions from:
Net Investment Income
and Net Realized
Short-Term Gains (0.03) (0.33) (0.40) (0.40) (0.38) (0.41)
-----------------------------------------------------------------------------------------------
Net Realized Long-Term
Gains (0.25) (5.31) (0.91) (1.50) (0.84) (1.00)
-----------------------------------------------------------------------------------------------
Total Distributions (0.28) (5.64) (1.31) (1.90) (1.22) (1.41)
-----------------------------------------------------------------------------------------------
Net Asset Value at End
of Period $37.29 $43.65 $34.23 $19.37 $15.59 $14.87
-----------------------------------------------------------------------------------------------
Total Return/2/ (13.99)% 45.47% 85.30% 37.36% 13.46% 33.44%
-----------------------------------------------------------------------------------------------
Ratios to Average Daily
Net Assets:
Expenses 0.89%/3/ 0.96% 1.05% 1.11% 1.14% 0.93%/4/
-----------------------------------------------------------------------------------------------
Net Investment Income 0.33%/3/ 0.62% 0.48% 1.07% 1.74% 2.85%/5/
-----------------------------------------------------------------------------------------------
Supplemental Data:
Net Assets at End of
Period (000) $1,793,748 $2,115,885 $1,275,775 $622,865 $505,371 $492,454
-----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 9% 17% 14% 26% 20% 24%
-----------------------------------------------------------------------------------------------
</TABLE>
/1/Unaudited.
/2/Total return excludes the effect of sales charge.
/3/Annualized.
/4/Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 0.99% for the year ended December 31, 1995.
/5/Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 2.79% for the year ended December 31,
1995.
--------------------------------------------------------------------------------
13
<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 September 29, 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 the 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.
Communications--Institutional Class
BT Investment Funds
Distributed by:
ICC Distributors, Inc. CUSIP #055922629
1728PRO
(09/00)
811-4760
<PAGE>
Deutsche Asset Management
Mutual Fund
Prospectus
September 29, 2000
Investment Class
Communications
[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 A Member of the
the contrary is a criminal offense.] Deutsche Bank Group [LOGO]
<PAGE>
Overview
--------------------------------------------------------------------------------
of Communications--Investment Class
Goal: The Fund seeks to maximize total return.
Core Strategy: The Fund will seek to achieve this objective through a
combination of long-term growth of capital and, to a lesser extent, current
income. The Fund invests primarily in common stocks of companies in the
communications field.
INVESTMENT POLICIES AND STRATEGIES
The Fund is a feeder fund that invests all of its assets in a master portfolio
with the same investment objective as the Fund. The Fund, through the master
portfolio, seeks to maximize total return. The Fund seeks this objective
through a combination of long-term growth of capital and, to a lesser extent,
current income. In selecting investments, the Fund's investment adviser and
sub-adviser (the "investment advisers") will choose securities of companies
that are engaged in the research, development, manufacture, or sale of
communications services, technology, equipment, or products. The investment
advisers emphasize both traditional communications companies and those that
engage in new information based applications. The investment advisers believe
that investing in a portfolio of common stocks as well as dividend and
interest-paying securities of companies in the communications field offers an
attractive opportunity for maximizing total return.
--------------------------------------------------------------------------------
Communications--Investment Class
Overview of Communications
<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 Communications
<TABLE>
<S> <C>
Objective................................................................... 7
Strategy.................................................................... 7
Principal Investments....................................................... 7
Investment Process.......................................................... 7
Risks....................................................................... 8
Management of the Fund...................................................... 8
Calculating the Fund's Share Price.......................................... 9
Performance Information..................................................... 9
Dividends and Distributions................................................. 9
Tax Considerations.......................................................... 10
Buying and Selling Fund Shares.............................................. 10
Financial Highlights........................................................ 13
</TABLE>
--------------------------------------------------------------------------------
3
<PAGE>
Overview of Communications--Investment Class
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. For example:
. Your investment in the Fund will vary from day-to-day based on changes in the
prices of the Fund's portfolio securities. The prices of portfolio securities
reflect investor perceptions of the economy, the markets, and the companies
represented in the Fund's portfolio.
. Regulatory or technological change in the communications field may affect the
Fund because it concentrates its investments in communications companies. The
Fund's value may fluctuate more than less concentrated investment portfolios.
. Because the Fund invests in relatively few issuers, the performance of one or
a small number of portfolio holdings can affect overall performance more than
if the Fund were diversified.
WHO SHOULD CONSIDER INVESTING IN THE FUND
You should consider investing in the Fund if you are seeking total return over
the long term and you are willing to accept the risks and uncertainties of
investing in the common stocks of companies in the communications field. There
is, of course, no guarantee that the Fund will realize its goal. You should not
consider investing in the Fund if you are pursuing a short-term financial goal,
seeking regular income and stability of principal or cannot tolerate
fluctuations in the value of your investments.
The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities in the telecommunications
field. 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.
--------------------------------------------------------------------------------
4
<PAGE>
Overview of Communications--Investment Class
TOTAL RETURNS, AFTER FEES AND EXPENSES
Because the Fund is newly offered and has no performance history, the following
bar chart and table show the performance history of Class A shares of the Flag
Investors Communications Fund, Inc. (the "Flag Fund"). Prior to September 29,
2000, the Flag Fund operated as a stand-alone Fund that directly acquired and
managed its own portfolio securities. On September 29, 2000, the Flag Fund's
assets were contributed to the master portfolio, the Communications Portfolio,
into which the Fund will invest all of its assets. In managing the Fund, the
investment adviser employs the same investment objectives, policies and
strategies that were employed in managing the Flag Fund.
The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing year-to-year changes in the
performance of the Flag Fund. The table compares the average annual return of
the Flag Fund with that of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index") over one, five and ten years and since the Flag
Fund's inception (January 18, 1984). In both the bar chart and the table, the
Flag Fund's performance is adjusted to reflect the overall expense ratio of the
Fund's Investment Class shares (1.25%). The S&P 500 Index is a passive measure
of stock market returns. It does not factor in the costs of buying, selling and
holding stocks--costs that are reflected in the Flag Fund's results.
--------------------------------------------------------------------------------
The Standard & Poor's 500 Index is a well-known stock market index that
includes common stocks of 500 companies from several industrial sectors
representing a significant portion of the market value of all stocks publicly
traded in the United States, most of which are traded on the New York Stock
Exchange. Stocks in the S&P 500 Index are weighted according to their market
capitalization (the number of shares outstanding multiplied by the stock's
current price).
[HEAD, CHART AND FOOTNOTE APPEARS HERE]
[GRAPH]
YEAR-BY-YEAR RETURNS
Flag Fund/1/
(each of the last 10 calendar years)
1990 -7.88%
1991 22.95%
1992 12.11%
1993 17.78%
1994 -6.65%
1995 33.12%
1996 13.35%
1997 37.22%
1998 85.10%
1999 45.18%
For the period shown in the bar chart, the highest return in any calendar
quarter was 51.14% (fourth quarter 1998) and its lowest quarterly return was
-6.69% (third quarter 1999).
PERFORMANCE FOR PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Since Inception
1 Year 5 Years 10 Years (Jan. 18, 1984)/2/
<S> <C> <C> <C> <C>
Flag Fund 45.18% 40.95% 22.75% 22.54%
----------------------------------------------------------
S&P 500 Index 21.04% 28.56% 18.17% 18.21%
----------------------------------------------------------
</TABLE>
/1/ Flag Fund performance is
presented because the Fund has no
performance history. The Flag Fund's
performance will differ from the
Fund's performance because each fund
has different shareholder fees and
expenses. The performance shown is
adjusted to reflect the overall
expense ratio of the Fund's
Investment Class shares (1.25%) The
Flag Fund is sold primarily through
securities dealers and through
financial institutions that act as
shareholder servicing agents. The
Flag fund is sold through a different
prospectus.
/2/ S&P 500 Index performance is
calculated from January 31, 1984.
--------------------------------------------------------------------------------
5
<PAGE>
Overview of Communications--Investment Class
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 Communications--Investment
Class.
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, the fee waiver applies during the first year only and you sold your
shares at the end of the period.
You may use this hypothetical example to compare the Fund's expense ratio 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 estimated expenses
for the current fiscal year of both the Fund and the Communications 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 master portfolio's investment adviser and administrator have
contractually agreed to waive 0.15% of their fees until at least September 30,
2002. The Fund's administrator has also contractually agreed, for the period
from September 29, 2000 to December 31, 2001, to waive its fees and reimburse
expenses so that the Fund's total expenses will not exceed 1.25%.
/3/For the first year, the expense example takes into account fee waivers and
reimbursements.
/4/The 2% short-term redemption fee applies to shares redeemed (either by
selling or exchanging into another fund) within 60 days of purchase. The fee is
withheld from redemption proceeds and retained by the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on
Purchases None
---------------------------------------------
Maximum Sales Charge on Reinvested
Dividends None
---------------------------------------------
Maximum Short-Term Redemption Fee
(as a percentage of amount
redeemed, as applicable) 2.00%/4/
---------------------------------------------
</TABLE>
ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets/1/
<S> <C>
Management Fees 0.73%
-------------------------------------------------
Distribution and
Service (12b-1)
Fees None
-------------------------------------------------
Other Fund
Operating Expenses 1.04%
-------------------------------------------------
Total Fund
Operating Expenses 1.77%
-------------------------------------------------
Less: Fee Waiver or
Expense Reimbursement 0.52%/2/
-------------------------------------------------
Net Expenses 1.25%
-------------------------------------------------
</TABLE>
EXPENSE EXAMPLE/3/
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C>
$127 $507
---------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
6
<PAGE>
A detailed look
--------------------------------------------------------------------------------
at Communications--Investment Class
OBJECTIVE
The Fund seeks to maximize total return. While we give priority to seeking
total return, we cannot offer any assurance of achieving this objective. The
Fund's objective is not a fundamental policy. We must notify shareholders
before we change it, but we do not require their approval to do so.
STRATEGY
The Fund will seek to achieve its objective through a combination of long-term
growth of capital and, to a lesser extent, current income. The investment
advisers emphasize investment in companies offering products and services that
both support traditional communications and facilitate new information based
applications. Examples of such companies are companies that offer outsourced
communications billing and tele-services products or network computing
technology that supports basic Internet functionality such as web-site
operations for electronic commerce and other Internet based applications. The
investment advisers believe that the expansion of the worldwide
telecommunications market will create new opportunities for both established
and emerging providers of telecommunications products and services. As a
result, we believe that investing in a portfolio of common stocks as well as
dividend and interest-paying securities of companies in the communications
field offers an attractive opportunity for maximizing total return.
PRINCIPAL INVESTMENTS
The Fund primarily owns common stocks of companies in the communications field.
The Fund normally focuses on securities of companies that are engaged in the
research, development, manufacture, or sale of communications services,
technology, equipment, or products. It may also invest in convertible
securities rather than investing in a company's common stock and in bonds and
short-term cash equivalents. The Fund may also invest up to 10% of its assets
in stocks and other securities of companies not publicly traded in the United
States.
--------------------------------------------------------------------------------
Convertible securities are bonds or preferred stocks that give purchasers the
right to exchange for a specified number of shares of a company's common stock
at specified prices within a certain period of time. Purchasers receive regular
interest payments until they exercise their exchange right.
INVESTMENT PROCESS
The investment advisers follow an investment philosophy referred to as
"flexible value". We look for attractive price-to-value relationships in
undervalued stocks of strong companies with good management. The emphasis is on
individual stock selection, fundamental research, and valuation flexibility,
without rigid constraints.
The investment advisers believe the communications industry offers significant
long-term opportunity for a broad variety of companies to focus on unique
sectors and strategies to create and grow attractive businesses. Beyond
recognizing the potential for profitable business segments within the overall
communications industry, we tend to focus on individual companies.
Factors we assess include:
. Management team
. Market position
. Business strategy
. Catalysts for change
. Attractive valuation
We concentrate investments in those stocks which we believe offer the best
potential return relative to possible risks. We retain investment positions for
as long as the business fundamentals remain favorable and the valuations do not
become excessive. We will sell or reduce holdings if business fundamentals
deteriorate or if the price-to-value relationship becomes unattractive.
Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. We may invest in money market instruments and other
investment grade income producing securities, investments that would not
ordinarily be consistent with the Fund's objectives. To the extent we adopt
such a position and over the course of its duration, the Fund may not meet its
goal of maximizing total return. We would follow such a strategy only if we
believed the
--------------------------------------------------------------------------------
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Fund sells and replaces the value of its securities within a given period. We
expect this Fund to have a low portfolio turnover rate.
--------------------------------------------------------------------------------
7
<PAGE>
A Detailed Look at Communications--Investment Class
risk of loss in pursuing the Fund's primary investment strategies outweighed
the opportunity for gain.
RISKS
Below we set forth some of the prominent risks associated with investing in
general and with investing in the telecommunications field in particular.
Primary Risks
Market Risk. Deteriorating market conditions might cause an overall weakness in
the market that reduces the absolute level of stock prices, including stocks
held by the Fund.
Concentration Risk. The Fund concentrates its investments in common stocks of
companies in the communications field. As a result, market price movements,
regulatory or technological changes, or economic conditions affecting companies
in this field will have a significant impact on the Fund's performance.
Diversification Risk. The Fund is non-diversified. This means that it may
invest in securities of a relatively limited number of issuers. Thus, the
performance of one or a small number of portfolio holdings can effect overall
performance more than if the Fund was diversified.
Foreign Investment Risk. To the extent that the Fund holds companies based
outside the United States, it faces the risks inherent in foreign investing.
Adverse political, economic or social developments could undermine the value of
the Fund's investments or prevent the Fund from realizing their full value.
Financial reporting standards for companies based in foreign markets differ
from those in the United States. Finally, the currency of the country in which
the Fund has invested could decline relative to the value of the U. S. dollar,
which would decrease the value of the investment to U.S. investors.
Secondary Risk
Pricing Risk. We value securities in the Fund at their stated market value if
price quotations are available and, if not, 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
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, Investment
Company Capital Corp. ("ICCC"), with headquarters at One South Street,
Baltimore, Maryland 21202, acts as the Fund's investment adviser and Alex.
Brown Investment Management ("ABIM"), with headquarters at One South Street,
Baltimore, Maryland 21202, acts as the Fund's sub-adviser. ICCC is responsible
for supervising and managing all of the Fund's operations, including overseeing
the performance of ABIM. ABIM is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates. Under the investment advisory agreement, the Fund pays the
investment adviser a fee, calculated daily and paid monthly, at the following
annual rates based upon the master portfolio's average daily net assets: 1.00%
of the first $100 million, 0.90% of the next $100 million, 0.85% of the next
$100 million, 0.80% of the next $200 million, 0.73% of the next $500 million,
0.68% of the next $500 million and 0.65% of that portion exceeding $1.5
billion. ICCC compensates ABIM out of its advisory fee.
ICCC is also the investment adviser to other mutual funds. These funds,
together with the Fund, had approximately $12.8 billion of net assets as of
August 31, 2000. ABIM is a registered investment adviser with approximately
$10.8 billion under management as of August 31, 2000.
Portfolio Managers
The following portfolio managers are responsible for the day-to-day management
of the master portfolios:
Bruce E. Behrens, CFA, Principal of ABIM and Co-manager of the master
portfolio.
. Co-manager of Flag Investors Communications Fund, Inc. since inception
(January 18, 1984).
. Joined ABIM in 1981. Prior to that, senior vice president and principal of
Corbyn Associates from 1978 to 1981; vice president at Investment Counselors
of Maryland from 1972 to 1978; and securities analyst at Citibank from 1968
to 1972.
. Member and Former President, Baltimore Securities Analysts Society; and
Member, Financial Analysts Federation.
. 32 years of investment experience.
. BA, Denison University; MBA from University of Michigan.
--------------------------------------------------------------------------------
8
<PAGE>
A Detailed Look at Communications--Investment Class
Liam D. Burke, Vice President of ABIM and Co-manager of the master portfolio.
. Co-manager of Flag Investors Communications Fund, Inc. since 1997. Prior to
that, telecommunications analyst for the Flag Fund since 1994.
. Vice President of ABIM since 1994. Prior to that, telecommunications industry
analyst at Ferris, Baker, Watts, Inc. from 1992 to 1994; managing director of
Frey & Co., a Baltimore based private investment bank, and eight years in
positions that included operations, regional staff management and national
account sales at AT&T.
. 11 years of investment experience.
. BA, Georgetown University; MBA from The George Washington University
Other Services. Bankers Trust Company provides administrative services--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 ICCC.
Service agents may charge additional fees to investors only for those services
not otherwise included in the ICCC 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 Communications Portfolio. The Fund and the
master portfolio have the same investment objective. The master portfolio is
advised by ICCC and sub-advised by ABIM. The master portfolio may accept
investments from other feeder funds. The feeders bear the master portfolio's
expenses in proportion to their assets. Each feeder can set its own transaction
minimums, fund-specific expenses and other conditions. This arrangement allows
the 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 quotations 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.
The Fund may charge a short-term redemption fee of 2% on the value of the
shares redeemed (either by selling or exchanging into another fund) within 60
days of purchase.
PERFORMANCE INFORMATION
The Fund's performance can be used in advertisements that appear in various
publications. It may be compared to the performance of various indices and
investments for which reliable performance data is available. The Fund's
performance may also be compared to average, performance rankings, or other
information prepared by recognized mutual fund statistical services.
DIVIDENDS AND DISTRIBUTIONS
Dividends, if any, are paid quarterly. Capital gains will be distributed at
least annually. We automatically reinvest all dividends and any capital gains,
unless you tell us otherwise.
--------------------------------------------------------------------------------
The New York Stock Exchange is open every week, Monday through Friday, except
when the following holidays are celebrated: New Year's Day, Martin Luther King,
Jr. Day (the third Monday in January), Presidents' Day (the third Monday in
February), Good Friday, Memorial Day (the last Monday in May), Independence
Day, Labor Day (the first Monday in September), Thanksgiving Day (the fourth
Thursday in November) and Christmas Day.
--------------------------------------------------------------------------------
9
<PAGE>
A Detailed Look at Communications--Investment Class
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 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>
Income dividends Ordinary income
--------------------------------------------
Short-term capital gains
distributions Ordinary income
--------------------------------------------
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 shares Capital gains or losses
owned more than one
year
---------------------------------------------
Your sale of shares Gains treated as ordi-
owned for one year nary income; losses
or less subject to special
rules
---------------------------------------------
</TABLE>
The tax considerations for tax deferred accounts or non-taxable entities will
be different. Because each investor's tax circumstances are unique and because
the tax laws are subject to change, we recommend that you consult your tax
advisor about your investment.
BUYING AND SELLING FUND SHARES
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 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 the Fund may be purchased without regard to the investment minimums
by employees of Deutsche Bank AG, 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 AG, or any of its affiliates or
subsidiaries, their spouses and minor children. 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
Service Center.) Mail the completed application along with a check
payable to Communications--Investment Class (1729) to the Service
Center. The addresses are shown under "Contacting the Mutual Fund
Service Center of Deutsche Asset Management"
By Wire:
Call the 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 deferred 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 Service Center at 1-800-730-1313.
--------------------------------------------------------------------------------
10
<PAGE>
A Detailed Look at Communications--Investment Class
Two Ways to Buy and Sell Shares in Your Account
MAIL:
Buying: Send your check, payable to the Fund, to the 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: To sell by mail send a signed letter to the 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 (except for
retirement accounts). 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 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: Communications--Investment Class (1729)
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 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.
Short-Term Redemption Fee
The Fund may charge a short-term redemption fee of 2% on the value of the
shares redeemed (either by selling or exchanging into another fund) within 60
days of purchase. This fee will compensate the Fund for expenses directly
related to short-term shareholder trading and will facilitate portfolio
management. The short-term redemption fee is withheld from redemption proceeds
and retained by the Fund.
The short-term redemption fee does not apply to:
. exchanges into another class of shares of the Fund;
. shares acquired through reinvestment of dividends and other distributions;
. shares of the Fund in an account which is closed by us because it fails to
meet minimum balance requirements; and
. shares held in an account of certain retirement plans or profit sharing
plans, due to certain economies associated with these accounts.
The fee may apply to shares held through omnibus accounts. You should consult
with your retirement plan administrator or service agent to determine whether a
redemption fee is applicable to your shares. This fee is not a deferred sales
charge and is not a commission. The fee is paid to the Fund.
The Fund will use the "first-in, first out" method to determine your holding
period. Under this method, the date of redemption or exchange will be compared
with the earliest purchase date of shares held in your account. If your holding
period is less than 60 days, the short-term redemption fee will be assessed on
the current net asset value of those shares. For purposes of computing the
redemption fee, any shares bought through reinvestment of distributions will be
redeemed first without charging the fee, followed by shares held the longest.
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 Service Center. It is then your service agent's responsibility to
transmit the order to the Service Center by the next business day. You should
contact your service agent if you have a dispute as to when your order was
placed with the fund. Your
--------------------------------------------------------------------------------
11
<PAGE>
A Detailed Look at Communications--Investment Class
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 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.
. Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and no
later than seven days.
. We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in
market value.
. If you sell shares by mail or wire, you may be required to obtain a
signature guarantee. Please contact your service agent or the 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
Service Center for more information.
. During periods of heavy market activity, you may have trouble reaching the
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 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 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, 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 Service Center at 1-800-730-
1313.
. Systematic 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.
-------------------------------------------------------------------------------
12
<PAGE>
A Detailed Look at Communications--Investment Class
Because the Fund is newly offered and has no performance history, financial
highlights are presented for Class A shares of the Flag Investors
Communications Fund, Inc. (the "Flag Fund"). Prior to September 29, 2000, the
Flag Fund operated as a stand-alone Fund that directly acquired and managed its
own portfolio securities. On September 29, 2000, the Flag Fund's assets were
contributed to the master portfolio, the Communications Portfolio, into which
the Fund will invest all of its assets.
The table below provides a picture of the Flag Fund's financial performance for
the past five years. The information selected reflects financial results for a
single Class A share of the Fund. The total returns in the tables represent the
rate of return that an investor would have earned on an investment in the Flag
Fund, assuming reinvestment of all dividends and distributions. The information
for the fiscal years ended December 31, 1995, 1996, 1997, 1998 and 1999 has
been audited by PricewaterhouseCoopers LLP, whose report, along with the Flag
Fund's financial statements, is included in the Flag Fund's annual report. The
annual report of the Flag Fund is available free of charge by calling the
Service Center at 1-800-730-1313.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Years Ended December 31,
June 30, 2000/1/ 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net Asset Value at
Beginning of Period $43.65 $34.23 $19.37 $15.59 $14.87 $12.30
----------------------------------------------------------------------------------------------
Income from Investment
Operations:
Net Investment Income 0.07 0.23 0.12 0.27 0.27 0.40
----------------------------------------------------------------------------------------------
Net Realized and
Unrealized Gain/(Loss)
on Investments (6.15) 14.83 16.05 5.41 1.67 3.58
----------------------------------------------------------------------------------------------
Total from Investment
Operations (6.08) 15.06 16.17 5.68 1.94 3.98
----------------------------------------------------------------------------------------------
Less Distributions from
Net Investment Income
and Net Realized
Short-Term Gains (0.03) (0.33) (0.40) (0.40) (0.38) (0.41)
----------------------------------------------------------------------------------------------
Net Realized Long-Term
Gains (0.25) (5.31) (0.91) (1.50) (0.84) (1.00)
----------------------------------------------------------------------------------------------
Total Distributions (0.28) (5.64) (1.31) (1.90) (1.22) (1.41)
----------------------------------------------------------------------------------------------
Net Asset Value at End
of Period $37.29 $43.65 $34.23 $19.37 $15.59 $14.87
----------------------------------------------------------------------------------------------
Total Return/2/ (13.99)% 45.47% 85.30% 37.36% 13.46% 33.44%
----------------------------------------------------------------------------------------------
Ratios to Average Net
Assets:
Expenses 0.89% 0.96% 1.05% 1.11% 1.14% 0.93%/4/
----------------------------------------------------------------------------------------------
Net Investment Income 0.33%/3/ 0.62% 0.48% 1.07% 1.74% 2.85%/5/
----------------------------------------------------------------------------------------------
Supplemental Data and
Ratios:
Net Assets at End of
Period (000) $1,793,748 $2,115,885 $1,275,775 $622,865 $505,371 $492,454
----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 9% 17% 14% 26% 20% 24%
----------------------------------------------------------------------------------------------
</TABLE>
/1/Unaudited.
/2/Total return excludes the effect of sales charge.
/3/Annualized.
/4/Without the waiver of advisory fees, the ratio of expenses to averge daily
net assets would have been 0.99% for the year ended December 31, 1995.
/5/Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 2.79% for the year ended December 31,
1995.
--------------------------------------------------------------------------------
13
<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 September 29, 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 the 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.
Communications--Investment Class
BT Investment Funds
Distributed by:
ICC Distributors, Inc. CUSIP #055922611
1729PRO (9/00)
811-4760
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 29, 2000
BT Investment Funds
Communications -- Investment Class
Communications -- Institutional Class
BT Investment Funds (the "Trust") is an open-end management investment company
comprised of several funds. Communications (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 maximize total return.
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 an
open-end management investment company having the same investment objective as
the Fund. This investment company is the Communications Portfolio (the
"Portfolio"), which is a series of Flag Investors Portfolios Trust (the
"Portfolio Trust").
Shares of the Fund are sold by ICC Distributors, Inc. ("ICCD"), the Trust's
Distributor, to private banking, brokerage and institutional clients of Deutsche
Bank AG or any of its affiliates or subsidiaries and to customers of other
organizations ("Service Agents"). Shares of the Fund may also be sold to
employees of Deutsche Bank AG or any of its affiliates or subsidiaries, their
spouses and minor children, and Trustees or Directors of any investment company
advised by Deutsche Bank AG or any of its affiliates or subsidiaries, their
spouses and minor children.
The Fund's Prospectuses dated September 29, 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.
INVESTMENT COMPANY CAPITAL CORP. ("ICCC")
Investment Adviser and Administrator to the Portfolio
ALEX. BROWN INVESTMENT MANAGEMENT ("ABIM")
Sub-Adviser to the Portfolio
BANKERS TRUST COMPANY ("Bankers Trust")
Administrator to the Fund
ICC DISTRIBUTORS, INC. ("ICCD")
Distributor
1-800-730-1313
<PAGE>
TABLE OF CONTENTS
PAGE
----
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS................................1
Investment Objective........................................................1
Investment Policies.........................................................1
Investment Restrictions.....................................................8
Portfolio Transactions and Brokerage Commissions............................9
PERFORMANCE INFORMATION.......................................................11
Standard Performance Information...........................................12
Comparison of Fund Performance.............................................13
Economic and Market Information............................................13
VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND....................14
Valuation of Securities....................................................14
Purchase of Shares.........................................................15
Redemption of Shares.......................................................16
Redemptions and Purchases in Kind..........................................16
Trading in Foreign Securities..............................................18
MANAGEMENT OF THE TRUST AND THE PORTFOLIO.....................................18
Trustees of the Trust......................................................18
Officers of the Trust......................................................20
Trustee Compensation Table.................................................20
Trustees of the Portfolio Trust............................................21
Officers of the Portfolio Trust............................................23
Trustee Compensation Table.................................................24
Code of Ethics.............................................................26
Investment Advisers........................................................26
Administrator of the Fund..................................................28
Administrator of the Portfolio.............................................29
Custodian, Transfer Agents and Fund Accounting Services....................29
Distributor................................................................30
Service Agent..............................................................30
Use of Name................................................................31
Banking Regulatory Matters.................................................31
Counsel and Independent Auditors...........................................31
ORGANIZATION OF THE TRUST.....................................................31
TAXATION......................................................................33
Taxation of the Fund.......................................................33
Taxation of the Portfolio..................................................34
Foreign Securities.........................................................35
Distributions..............................................................35
Sale of Shares.............................................................35
Foreign Withholding Taxes..................................................36
Backup Withholding.........................................................36
Foreign Shareholders.......................................................36
Other Taxation.............................................................36
FINANCIAL STATEMENTS..........................................................36
APPENDIX.....................................................................A-1
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objective
The Fund seeks to maximize total return through a combination of long-term
growth of capital and, to a lesser extent, current income. 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.
In seeking its objective, the Portfolio invests primarily in common stock,
securities convertible thereto and debt obligations of companies in the
communications field. For this purpose, companies would be considered to be in
the "communications field" if they were engaged in the research, development,
manufacture or sale of communications services, technology, equipment or
products. Companies would be considered to be "engaged" in the research,
development, manufacture or sale of communications services, technology,
equipment or products if they derived at least 50% of their revenues from such
activities.
The Portfolio's investment adviser (the "Adviser") and sub-adviser (the
"Sub-adviser"), collectively, (the "Advisers"), believe that investing in a
portfolio of securities of companies in the communications field affords an
attractive opportunity for achieving this investment objective. Effective
communication through the transmission of voice, pictures and data is becoming
increasingly important and the communications field now embraces a wide variety
of products and services, such as local and long distance telephone service,
wireless service (e.g., cellular telephone or paging services), video,
telecommunications equipment, media, and information technology. Information
technology combines data processing and telecommunications to support more
efficient and economical business processes and consumer activities. The rapidly
improving performance and declining cost of transmission have helped the global
expansion of information technology. For example, businesses have an increasing
need to connect to remote users such as employees, suppliers and customers.
Customers are increasingly relying on telecommunications-based applications like
on-line banking and shopping to save time and money. Worldwide
telecommunications market expansion will create opportunities for established
and emerging providers of telecommunications products and services. Although
new, high growth technologies are being adopted at an increasing rate,
commercial acceptance still lags the introduction of new products and services.
Traditional communications companies, such as telephone companies, are
positioned to serve the existing and developing needs of their customer base
with a combination of current and new offerings. Evolving user requirements have
also led to the development of separate industry segments, outside the local
telephone and long distance businesses, which enable non-traditional
1
<PAGE>
telecommunications providers a chance to benefit from the growing worldwide
demand for voice, data and video services.
There can be no assurance that the Portfolio's investment objective will be
achieved. The Portfolio's investment objective may not be changed by the Board
of Trustees without shareholder approval.
Under normal market conditions at least 65% of the Portfolio's total assets will
be invested in common stock, securities convertible thereto and debt obligations
of companies in the communications field, as defined above. Depending on the
circumstances, the Portfolio may temporarily and for defensive purposes invest
up to 100% of its net assets in money market instruments and in other
income-producing securities.
Convertible Securities. The Portfolio may invest in convertible securities. In
general, the market value of a convertible security is at least the higher of
its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). A convertible security tends to increase in market
value when interest rates decline and tends to decrease in value when interest
rates rise. However, the price of a convertible security also is influenced by
the market value of the security's underlying common stock. Thus, the price of a
convertible security tends to increase as the market value of stock declines.
Investments in convertible securities generally entail less risk than investing
in common stock of the same issuer.
Investments in Investment Grade Securities. In general, the Portfolio will
invest in investment grade non-convertible corporate debt obligations that are
rated, at the time of purchase, BBB or higher by Standard and Poor's Ratings
Group ("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's"),
or, if unrated, determined to be of comparable quality by the Portfolio's
Advisers, under criteria approved by the Portfolio's Board of Trustees.
Investment grade securities (securities rated BBB or higher by S&P or Baa or
higher by Moody's) are generally thought to provide the highest credit quality
and the smallest risk of default. Securities rated BBB by S&P or Baa by Moody's
have speculative characteristics. Up to 10% of the Portfolio's total assets
(measured at the time of the investment) may be invested in lower quality
non-covertible corporate debt obligations (securities rated BB or lower by S&P
or Ba or lower by Moody's and unrated securities of comparable quality).
Securities that were investment grade at the time of purchase but are
subsequently downgraded to BB/Ba or lower will be included in the 10% category.
In the event any security owned by the Portfolio is downgraded, the Advisers
will review the situation and take appropriate action, but will not be
automatically required to sell the security. If such a downgrade causes the 10%
limit to be exceeded, the Portfolio will be precluded from investing further in
non-convertible corporate debt obligations that are below investment grade. (See
"Investments in Non-investment Grade Securities" below.)
Below Investment Grade Securities. The Portfolio may purchase non-convertible
corporate debt obligations that carry ratings lower than those assigned to
investment grade bonds by Moody's or S&P, or that are unrated if such bonds, in
the Advisers' judgment, meet the quality criteria established by the Board of
Trustees. These bonds are generally known as "junk bonds."
2
<PAGE>
These securities may trade at substantial discounts from their face values.
Accordingly, if the Portfolio is successful in meeting its objectives, investors
may receive a total return consisting of both income and capital gains. Appendix
A to this Statement of Additional Information sets forth a description of the
S&P and Moody's rating categories, which indicate the rating agency's opinion as
to the probability of timely payment of interest and principal. These ratings
range in descending order of quality from AAA to D (though the Portfolio will
not purchase securities rated, at the time of purchase, below C), in the case of
S&P, and from Aaa to C, in the case of Moody's.
Ratings of S&P and Moody's represent their opinions of the quality of bonds and
other debt securities they undertake to rate at the time of issuance. However,
these ratings are not absolute standards of quality and may not reflect changes
in an issuer's creditworthiness. Accordingly, the Advisers do not rely
exclusively on ratings issued by S&P or Moody's in selecting portfolio
securities but supplement such ratings with independent and ongoing review of
credit quality. In addition, the total return the Portfolio may earn from
investments in high-yield securities will be significantly affected not only by
credit quality but also by fluctuations in the markets in which such securities
are traded. Accordingly, selection and supervision by the Advisers of
investments in lower rated securities involves continuous analysis of individual
issuers, general business conditions, activities in the high-yield bond market
and other factors. The analysis of issuers may include, among other things,
historic and current financial conditions, strength of management,
responsiveness to business conditions, credit standing and current and
anticipated results of operations. Analysis of general business conditions and
other factors may include anticipated changes in economic activity in interest
rates, the availability of new investment opportunities and the economic outlook
for specific industries.
Investing in higher yield, lower rated bonds entails substantially greater risk
than investing in investment grade bonds, including not only credit risk, but
potentially greater market volatility and lower liquidity. Yields and market
values of high-yield bonds will fluctuate over time, reflecting not only
changing interest rates but also the bond market's perception of credit quality
and the outlook for economic growth. When economic conditions appear to be
deteriorating, lower rated bonds may decline in value due to heightened concern
over credit quality, regardless of prevailing interest rates. In addition,
adverse economic developments could disrupt the high-yield market, affecting
both price and liquidity, and could also affect the ability of issuers to repay
principal and interest, thereby leading to a default rate higher than has been
the case historically. Even under normal conditions, the market for junk bonds
may be less liquid than the market for investment grade corporate bonds. There
are fewer securities dealers in the high-yield market and purchasers of
high-yield bonds are concentrated among a smaller group of securities dealers
and institutional investors. In periods of reduced market liquidity, the market
for junk bonds may become more volatile and there may be significant disparities
in the prices quoted for high-yield securities by various dealers. Under
conditions of increased volatility and reduced liquidity, it would become more
difficult for the Portfolio to value its portfolio securities accurately because
there might be less reliable objective data available.
Investment in Securities of Foreign Issuers. From time to time, the Portfolio
may invest in American Depositary Receipts ("ADRs"), which are interests in
securities of foreign companies, and up to 10% of the Portfolio's total assets
in debt and equity securities of issuers not publicly
3
<PAGE>
traded in the United States, when the Advisers believe that such investments
provide good opportunities for achieving income and capital gains without undue
risk. Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Investors should realize
that the value of the Portfolio's foreign investments may be adversely affected
by changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition of (or change in) exchange control or economic or monetary
policies in the United States or abroad. One or more of these events could
result in appreciation or depreciation of portfolio securities and could
favorably or unfavorably affect the Portfolio's operations. Furthermore, the
economics of individual foreign nations may differ from the U.S. economy,
whether favorably or unfavorably, in areas such as growth or gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency or
balance of payments position; it may also be more difficult to obtain and
enforce a judgement against a foreign issuer. In general, less information is
publicly available with respect to foreign issuers than is available with
respect to U.S. companies. Most foreign companies are also not subject to the
uniform accounting and financial reporting requirements applicable to issuers in
the United States. Any foreign investments made by the Portfolio must be made in
compliance with U.S. and foreign currency restrictions and tax laws restricting
the amounts and types of foreign investments.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Portfolio is also authorized to enter into
certain foreign currency exchange transactions. Furthermore, 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. The settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. Finally, there may be less
government supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States.
Restricted Securities. The Portfolio may invest in securities eligible for
resale pursuant to Rule 144A under the Securities Act of 1933, as amended ("Rule
144A Securities") that have been determined to be liquid by the Advisers under
standards approved by the Portfolio's Board of Trustees, and may invest up to
10% of its net assets in Rule 144A Securities that are illiquid (see "Investment
Restrictions"). Rule 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.
Repurchase Agreements. The Portfolio may enter into repurchase agreements with
domestic banks or broker-dealers deemed to be creditworthy by the Advisers. A
repurchase agreement is a short-term investment in which the Portfolio acquires
ownership of a debt security and the seller agrees to repurchase the obligation
at a future time and set price, usually not more than seven days from the date
of purchase, thereby determining the yield during the Portfolio's holding
period. The value of underlying securities will be at least equal at all times
to the total amount of the repurchase obligation, including the interest factor.
The Portfolio makes payment for such
4
<PAGE>
securities only upon physical delivery or evidence of book-entry transfer to the
account of a custodian or bank acting as agent. The underlying securities, which
in the case of the Portfolio are securities of the U.S. Government only, may
have maturity dates exceeding one year. The Portfolio does not bear the risk of
a decline in value of the underlying securities unless the seller defaults under
its repurchase obligation. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Portfolio could experience both delays in
liquidating the underlying securities and loss including (a) possible decline in
the value of the underlying security while the Portfolio seeks to enforce its
rights thereto, (b) possible subnormal levels of income and lack of access to
income during this period, and (c) expenses of enforcing its rights.
Lending of Portfolio Securities. The Portfolio may lend its investment
securities to approved institutional borrowers who need to borrow securities in
order to complete certain transactions, such as covering short sales, avoiding
failures to deliver securities or completing arbitrage operations. By lending
its investment securities, the Portfolio attempts to increase its net investment
income through the receipt of interest on the loan. Any gain or loss in the
market price of the securities loaned that might occur during the term of the
loan would belong to the Portfolio. The Portfolio may lend its investment
securities so long as the terms, structure and the aggregate amount of such
loans are not inconsistent with the Investment Company Act of 1940, as amended
(the "1940 Act") or the Rules and Regulations or interpretations of the SEC
thereunder, which currently require that (a) the borrower pledge and maintain
with the Portfolio collateral consisting of liquid, unencumbered assets having a
value at all times not less than 100% of the value of the securities loaned, (b)
the borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Portfolio at any time, and (d) the
Portfolio receive reasonable interest on the loan (which may include the
Portfolio investing any cash collateral in interest bearing short-term
investments), and distributions on the loaned securities and any increase in
their market value. There may be risks of delay in recovery of the securities or
even loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Advisers to be of good standing and when, in the judgment of the Advisers, the
consideration that can be earned from such securities loans justifies the
attendant risk. All relevant facts and circumstances, including the
creditworthiness of the borrower, will be considered in making decisions with
respect to the lending of securities, subject to review by the Board of Trustees
of the Portfolio.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Board of Trustees. In addition, voting rights may pass with
the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted. 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.
Covered Call Options. In an attempt to earn additional income, and as a means of
protecting the Portfolio's assets against market declines, the Portfolio may, to
a limited extent, write
5
<PAGE>
covered call option contracts on certain of its securities and purchase call
options for the purpose of eliminating outstanding contracts.
When the Portfolio writes a call option on securities that it owns, it gives the
purchaser of the option the right, but not the obligation, to buy the securities
at the price specified in the option (the "Exercise Price") at any time prior to
the expiration of the option. In the strategy to be employed by the Portfolio,
the Exercise Price, plus the option premium paid by the purchaser, is almost
always greater than the market price of the underlying security at the time the
option is written. If any option is exercised, the Portfolio will realize the
long-term or short-term gain or loss from the sale of the underlying security
and the proceeds of the sale will be increased by the net premium originally
received. By writing a covered option, the Portfolio may forego, in exchange for
the net premium, the opportunity to profit from an increase in value of the
underlying security above the Exercise Price. Thus, options will be written when
the Advisers believe the security should be held for the long term but expect no
appreciation or only moderate appreciation within the option period. The
Portfolio also may write covered options on securities that have a current value
above the original purchase price but which, if then sold, would not normally
qualify for a long-term capital gains treatment. Such activities will normally
take place during periods when market volatility is expected to be high.
Only call options that are traded on a national securities exchange will be
written. Call options are issued by the Options Clearing Corporation, which also
serves as the clearinghouse for transactions with respect to options. The price
of a call option is paid to the writer without refund on expiration or exercise,
and no portion of the price is retained by The Options Clearing Corporation or
the exchanges. Writers and purchasers of options pay the transaction costs,
which may include commissions charged or incurred in connection with such option
transactions.
The Portfolio may write options contracts on its securities up to 20% of the
value of its net assets at the time such options are written. The Portfolio will
not sell the securities against which options have been written (uncover the
options) until after the option period has expired, the option has been
exercised or a closing purchase has been executed.
Call options may be purchased by the Portfolio, but only to terminate an
obligation as a writer of a call option. This is accomplished by making a
closing purchase transaction, that is, the purchase of a call option on the same
security with the same Exercise Price and expiration date as specified in the
existing call option. A closing purchase transaction with respect to calls
traded on a national securities exchange has the effect of extinguishing the
obligation of a writer. Although the cost to the Portfolio of such a transaction
may be greater than the net premium received by the Portfolio upon writing the
original option, the Board of Trustees believes that it is appropriate for the
Portfolio to have the ability to make closing purchase transactions in order to
prevent its portfolio securities from being purchased pursuant to the exercise
of a call. The Advisers may also permit the call option to be exercised. A
profit or loss from a closing purchase transaction will be realized depending on
whether the amount paid to purchase a call to close a position is less or more
than the amount received from writing the call. A profit or loss from an option
exercised will be realized depending upon whether the cost of the stock sold
6
<PAGE>
through the exercise, minus the premium received on the option, is less or more
than the proceeds of the exercise.
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 the Fund, the Portfolio may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in the Portfolio are not required to sell their shares at the same
public offering price as the Fund due to variations in sale commissions and
other fund-specific 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 Portfolio.
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 Deutsche Asset Management at 1-800-730-1313.
The master-feeder structure is relatively complex, so shareholders should
carefully consider this investment approach.
Small funds investing in the Portfolio may be materially affected by the actions
of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro-rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds with large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operation of the Portfolio.
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
7
<PAGE>
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, the Advisers also make their own
evaluation of these securities, subject to review by the Board of Trustees of
the Portfolio. 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 Advisers will consider such an event in
their 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 Fund's investment program is subject to a number of
investment restrictions that reflect self-imposed standards as well as federal
and state regulatory limitations. The following investment restrictions, which
are "fundamental policies" of the Fund and the Portfolio, are in addition to
those described in the Fund's Prospectuses 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 (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. Invest less than 65% of its total assets in the communications field,
except as described in the Prospectus, provided that: (a) otherwise the
Portfolio (or Fund) will not concentrate more than 25% of its total assets
in securities of issuers in any industry and (b) notwithstanding this
limitation or any other fundamental investment limitation, assets may be
invested in the securities of one or more management investment companies
to the extent permitted by the 1940 Act and the rules and regulations
thereunder;
2. Invest in the securities of any single issuer if, as a result, the
Portfolio (or Fund) would hold more than 10% of the outstanding voting
securities of such issuer, except that the Fund's
8
<PAGE>
assets may be invested in the securities of one or more management
investment companies to the extent permitted by the 1940 Act and the rules
and regulations thereunder;
3. Borrow money, except as a temporary measure for extraordinary or emergency
purposes in an amount not exceeding 10% of the value of the total assets of
the Portfolio (or Fund) at the time of such borrowing;
4. Invest in real estate or mortgages on real estate;
5. Purchase or sell commodities or commodities contracts, provided that the
Portfolio (or Fund) may invest in financial futures and options on such
futures;
6. Act as an underwriter of securities within the meaning of the U.S. federal
securities laws except insofar as it might be deemed to be an underwriter
upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities. This restriction shall
not limit the Fund's ability to invest in securities issued by other
registered investment companies;
7. Issue senior securities; or
8. Make loans, except that the Portfolio (or Fund) may purchase or hold debt
instruments in accordance with its investment objectives and policies, and
may loan portfolio securities and enter into repurchase agreements as
described in this Registration Statement.
Additional Restrictions. The following are non-fundamental policies. In order to
comply with certain statutes and policies, the Portfolio (or the Trust on behalf
of the Fund), will not as a matter of operating policy (except that no operating
policy shall prevent the Fund from investing all of its assets in an open-end
investment company with substantially the same investment objectives):
1. Invest in shares of any other investment company registered under the 1940
Act, except as permitted by federal law; and
2. Invest more than 10% of the value of its net assets in illiquid securities
(as defined under federal and state securities laws).
The percentage limitations contained in these restrictions apply at the time of
purchase of securities. 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
ABIM is responsible for decisions to buy and sell securities for the Portfolio,
for the broker-dealer selection and for negotiation of commission rates, subject
to the supervision of ICCC. Purchases and sales of securities on a securities
exchange are effected through broker-dealers
9
<PAGE>
who charge a commission for their services. Brokerage commissions are subject to
negotiation between ABIM and the broker-dealers. ABIM may direct purchase and
sale orders to any broker-dealer, including, to the extent and in the manner
permitted by applicable law, its affiliates and ICCD.
In over-the-counter transactions, orders are placed directly with a principal
market maker and such purchases normally include a mark up over the bid to the
broker-dealer based on the spread between the bid and asked price for the
security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Portfolio will not deal with
affiliates of the Advisers in any transaction in which affiliates of the
Advisers act as a principal.
If affiliates of the Advisers are participating in an underwriting or selling
group, the Portfolio may not buy portfolio securities from the group except in
accordance with rules of the SEC. The Portfolio believes that the limitation
will not affect its ability to carry out its present investment objective.
ABIM's primary consideration in effecting securities transactions is to obtain
best price and execution of orders on an overall basis. As described below,
however, ABIM may, in its discretion, effect transactions with dealers that
furnish statistical, research or other information or services that are deemed
by ABIM to be beneficial to the Portfolio's investment program. Certain research
services furnished by broker-dealers may be useful to ABIM with clients other
than the Portfolio. Similarly, any research services received by ABIM through
placement of portfolio transactions of other clients may be of value to ABIM in
fulfilling its obligations to the Portfolio. No specific value can be determined
for research and statistical services furnished without cost to ABIM by a
broker-dealer. ABIM is of the opinion that because the material must be analyzed
and reviewed by its staff, its receipt does not tend to reduce expenses, but may
be beneficial in supplementing ABIM's research and analysis. Therefore, it may
tend to benefit the Portfolio by improving ABIM's investment advice. In
over-the-counter transactions, ABIM will not pay any commission or other
remuneration for research services. ABIM's policy is to pay a broker-dealer
higher commissions for particular transactions than might be charged if a
different broker-dealer had been chosen when, in ABIM's opinion, this policy
furthers the overall objective of obtaining best price and execution. Subject to
periodic review by the Portfolio's Board of Trustees, ABIM is also authorized to
pay broker-dealers (other than affiliates of the Advisers) higher commissions
than another broker might have charged on brokerage transactions for the
Portfolio for brokerage or research services. The allocation of orders among
broker-dealers and the commission rates paid by the Portfolio will be reviewed
periodically by the Board.
Subject to the above considerations, the Board of Trustees has authorized the
Portfolio to effect portfolio transactions, through affiliates of the Advisers.
At the time of such authorization the Board adopted certain policies and
procedures incorporating the standards of Rule 17e-1 under the 1940 Act which
requires that the commissions paid the affiliates of the Advisers must be
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities
10
<PAGE>
during a comparable period of time." Rule 17e-1 also contains requirements for
the review of such transactions by the Board of Trustees and requires ICCC and
ABIM to furnish reports and to maintain records in connection with such reviews.
ABIM manages other investment accounts. It is possible that, at times, identical
securities will be acceptable for the Portfolio and one or more of such other
accounts; however, the position of each account in the securities of the same
issuer may vary and the length of time that each account may choose to hold its
investment in such securities may likewise vary. The timing and amount of
purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Portfolio or one or more of these accounts is considered at or about the same
time, transactions in such securities will be allocated among the accounts in a
manner deemed equitable by ABIM. ABIM may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution. Such simultaneous transactions, however,
could adversely affect the ability of the Portfolio to obtain or dispose of the
full amount of a security that it seeks to purchase or sell.
Prior to September 29, 2000, ICCC and ABIM served as adviser and sub-adviser,
respectively, to the Flag Investors Communications Fund, Inc. (the "Flag Fund"),
a stand-alone Fund that directly acquired and managed its own portfolio
securities. On September 29, 2000, the Flag Fund's assets were contributed to
the Portfolio and the Flag Fund was made a feeder fund to the Portfolio.
ABIM directed transactions to broker-dealers and paid related commissions
because of research services in the following amounts on behalf of the Flag
Fund:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31,
--------------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transactions Directed $931,691,059 $ 244,993,558 $ 312,672,931
--------------------------------------------------------------------------------------------------------------------
Commissions Paid $1,135,899 $ 275,519 $ 406,249
--------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal years ended December 31, 1999 and December 31, 1998, the Flag
Fund paid $7,200 and $4,500, respectively in brokerage commissions to DB Alex.
Brown or its affiliates. For the fiscal year ended December 31, 1997, the Flag
Fund paid no brokerage commissions to DB Alex. Brown or its affiliates. The
Portfolio is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act) that the Portfolio has
acquired during its most recent fiscal year. As of December 31, 1999, the Flag
Fund held a 2.00% repurchase agreement issued by Goldman Sachs & Co. valued at
$126,131,000, a 3.25% repurchase agreement issued by J.P. Morgan securities,
Inc. valued at $126,131,000 and a 2.50% repurchase agreement issued by Morgan
Stanley & Co. valued at $57,303,000. Goldman Sachs & Co., J.P. Morgan
Securities, Inc. and Morgan Stanley & Co. are "regular brokers or dealers" of
the Flag Fund.
PERFORMANCE INFORMATION
11
<PAGE>
Standard Performance Information
From time to time, quotations of the 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: The 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. The 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 the 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 the Fund to total returns
published for other investment companies or other investment vehicles. Total
return reflects the performance of both principal and income.
Performance information may include the Fund's investment results and/or
comparisons of its investment results to the S&P 500 Index, or various other
unmanaged indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications will be
calculated on a total rate of return basis in the manner set forth in this SAI.
From time to time, fund rankings may be quoted from various sources, such as
Lipper Analytical Services, Inc., Value Line, and Morningstar, Inc.
The Trust may provide period and average annualized "total return" quotations
for the shares. The shares' "total return" refers to the change in the value of
an investment in the shares over a stated period based on any change in net
asset value per share and including the value of any shares purchased with any
dividends or capital gains distributed during such period. Period total return
may be annualized. An annualized total return is a compounded total return which
assumes that the period total return is generated over a one-year period, and
that all dividends and capital gains distributions are reinvested. Because of
the compounding effect, an annualized total return will be higher than a period
total return if the period is shorter than one year.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund and
changes in the shares' expenses. In addition, during certain periods for which
total return may be provided, the Advisers, shareholder Service Agent,
Administrator, or ICCD, 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.
12
<PAGE>
Because the Fund is newly offered and has no performance history, the following
table shows the performance history of Class A shares of the Flag Fund. Prior to
September 29, 2000, the Flag Fund operated as a stand-alone Fund that directly
acquired and managed its own portfolio securities. On September 29, 2000, the
Flag Fund's assets were contributed to the master portfolio, the Communications
Portfolio, into which the Fund will invest all of its assets. In managing the
Fund, the Advisers employ the same investment objectives, policies and
strategies that were employed in managing the Flag Fund. The Flag Fund
performance is adjusted to reflect the overall expense ratio of the Investment
Class and Institutional Class shares of the Fund.
<TABLE>
<CAPTION>
Average Annual Total Returns for the Periods Ended December 31, 1999
--------------------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since Inception
(January 18, 1984)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Flag Fund (adjusted to reflect expenses of 45.18% 40.95% 22.75% 22.54%
Investment Class)
--------------------------------------------------------------------------------------------------------------------
Flag Fund (adjusted to reflect expenses of 45.43% 41.21% 23.01% 22.79%
Institutional Class)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Comparison of Fund Performance
Comparison of the quoted non-standardized 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 form of commentary on these
developments by portfolio managers and their views and analysis
13
<PAGE>
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 Fund's net asset value per share fluctuates. The net asset value for shares
of each class is determined by adding the interest of such class of shares in
the market value of the Fund's total assets (i.e., the value of its investment
in the Portfolio and other assets), subtracting the interest of such class of
shares in the liabilities of the Fund and those attributable to such class of
shares, and dividing the remainder by the total number of such class of shares
outstanding. The net asset value for each class of shares may differ due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled. Values of assets in the Portfolio are determined on the basis of their
market value or where market quotations are not determinable, at fair value as
determined by the Trustees of the Portfolio Trust.
Market values of portfolio securities are determined as follows:
The fixed income portion of the Portfolio and portfolio securities with a
maturity of 60 days or more, including securities that are listed on an exchange
or traded over the counter, are valued using prices supplied daily by an
independent pricing service or services that (i) are based on the last sale
price on a national securities exchange or, in the absence of recorded sales, at
the average of readily available closing bid and asked prices on such exchange
or at the average of readily available closing bid and asked prices in the
over-the-counter market, if such exchange or market constitutes the broadest and
most representative market for the security and (ii) in other cases, take into
account various factors affecting market value, including yields and prices of
comparable securities, indication as to value from dealers and general market
conditions. If such prices are not supplied by a Portfolio's independent pricing
service, such securities are priced in accordance with procedures adopted by the
Trustees of the Portfolio Trust. All portfolio securities with a remaining
maturity of less than 60 days are valued by the amortized cost method.
The value of investments listed on a U.S. securities exchange is based on the
last sale prices on the NYSE generally at 4:00 p.m. (U.S. Eastern time) or, in
the absence of recorded sales, at the average of readily available closing
bid-and-asked prices on such exchange. Securities listed on a foreign exchange
considered by the Advisers to be a primary market for the securities are valued
14
<PAGE>
at the last quoted sale price available before the time when net assets are
valued. Unlisted securities, and securities for which the Advisers determines
the listing exchange is not a primary market, are valued at the average of the
quoted bid-and-asked prices in the over-the-counter market. The value of each
security for which readily available market quotations exist is based on a
decision as to the broadest and most representative market for such security.
For purposes of calculating net asset value, all assets and liabilities
initially expressed in foreign currencies will be converted into U.S. dollars at
the prevailing market rates available at the time of valuation.
Trading in securities on most foreign exchanges and over-the-counter markets is
normally completed before the close of the NYSE and may also take place on days
on which the NYSE is closed. If events materially affecting the value of
securities occur between the time when the exchange on which they are traded
closes and the time when a Portfolio's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees, although the
actual calculation may be done by others.
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. 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.
15
<PAGE>
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
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.
The Fund and Portfolio reserve the right to redeem all of its shares, if the
Fund's and/or Portfolio's Board votes to liquidate and terminate the Fund or
Portfolio.
The Fund may charge a short-term redemption fee of 2.00% on the value of the
shares redeemed (either by selling or exchanging into another fund) within 180
days (approximately six months) of purchases.
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
16
<PAGE>
making payment in whole or in part in readily marketable securities chosen by
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 shareholder in securities, the
shareholder may incur transaction expenses in converting these securities into
cash. The Trust, on behalf of the Fund, and the Portfolio have elected, however,
to be governed by Rule 18f-1 under the 1940 Act as a result of which the Fund
and the Portfolio are obligated to redeem shares or beneficial interests, as the
case may be, with respect to any one investor during any 90-day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund or
the Portfolio, as the case may be, at the beginning of the period.
The Portfolio has agreed to make a redemption in kind to the Fund whenever the
Fund wishes to make a redemption in kind and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of the
Portfolio and in no case will they receive a security issued by the Portfolio.
The Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the Fund is permitted to redeem in kind or
unless requested by the Fund.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Portfolio determines its net asset
value. At the close of each such business day, the value of each investor's
beneficial interest in the Portfolio will be determined by multiplying the net
asset value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals which are to be effected as of the close
of business on that day will then be effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio will then be recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the close of business on such day
plus or minus, as the case may be, the amount of net additions to or withdrawals
from the investor's investment in the Portfolio effected as of the close of
business on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of the close of business on such day plus or
minus, as the case may be, the amount of net additions to or withdrawals from
the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as the close of business on the following
business day.
The Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Net Asset Value" as of the day the Fund receives the securities. This is
a taxable transaction to the shareholder. Securities may be accepted in payment
for shares only if they are, in the judgment of the Adviser, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's Portfolio); (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of market; and (iv) if stock, have a value
which is readily ascertainable as evidenced by a listing on a stock exchange,
over-the-counter market or by readily available market quotations from a dealer
in such securities. The Fund
17
<PAGE>
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Trading in Foreign Securities
Trading in foreign cities may be completed at times that vary from the closing
of NYSE. In computing the net asset value, the Portfolio 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 Trust are managed under the
supervision of separate Boards of Trustees. By virtue of the responsibilities
assumed by the Administrator, 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.
The Boards are composed of persons experienced in financial matters who meet
throughout the year to oversee the activities of the Trust and the Portfolio
Trust. In addition, the Boards review contractual arrangements with companies
that provide services to the Trust and Portfolio Trust and review the Fund and
Portfolio's performance.
Trustees of the Trust
The Trustees and officers of the Trust, 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.
CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the Trust;
Trustee of each of the other investment companies in the Deutsche Asset
Management Fund Complex1; 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; Trustee of
each of the other investment companies in the Deutsche Asset Management Fund
Complex; Retired;
--------------------------
1 The "Deutsche Asset Management Fund Complex" consists of BT Investment Funds,
BT Institutional Funds, BT Pyramid Mutual Funds, BT Adviser 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.
18
<PAGE>
formerly Partner, KPMG Peat Marwick; Director, Vintners International Company
Inc., Coutts (U.S.A.) International, Coutts Trust Holdings Ltd., Coutts Group
(registered investment companies); Trustee, Phoenix Zweig Series Trust, Phoenix
Euclid Market Neutral Fund (registered investment companies); General Partner,
Pemco (a registered investment company). His address is 5070 North Ocean Drive,
Singer Island, Florida 33404.
MARTIN J. GRUBER (birth date: July 15, 1937) -- Trustee of the Trust; Trustee of
each of the other investment companies in the Deutsche Asset Management Fund
Complex; Nomura Professor of Finance, Leonard N. Stern School of Business, New
York University (since 1964); Trustee, TIAA (registered investment company);
Director, S.G. Cowen Mutual Funds, Japan Equity Fund, Inc., Taiwan Equity Fund,
Inc. (registered investment companies). His address is 229 South Irving Street,
Ridgewood, New Jersey 07450.
RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Trust; Trustee of
each of the other investment companies in the Deutsche Asset Management Fund
Complex; Managing Director, Deutsche Asset Management; Director, Flag Investors
Funds and ISI Family of Funds (registered investment companies); President,
Morgan Grenfell Investment Trust (registered investment company); Managing
Director, DB Alex. Brown LLC; Director and President, Investment Company Capital
Corp. (registered investment adviser); Chartered Financial Analyst. His address
is One South Street, Baltimore, Maryland 21202.
RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the Trust;
Trustee of each of the other investment companies in the Deutsche Asset
Management 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; Trustee of
each of the other investment companies in the Deutsche Asset Management 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) (a registered investment company); Director, TWA
Pilots Directed Account Plan and 401(k) Plan (1988 to present) (a registered
investment company). His address is 99 Jordan Lane, Stamford, Connecticut 06903.
PHILIP SAUNDERS, JR. (birth date: October 11, 1935) -- Trustee of the Trust;
Trustee of each of the other investment companies in the Deutsche Asset
Management 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;
Trustee of each of the other investment companies in the Deutsche Asset
Management Fund Complex; Retired; Corporate Vice President, Newmont Mining
Corporation (prior to 1987); Director,
19
<PAGE>
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.
The Board has an Audit Committee that meets with the Trust's independent
auditors to review the financial statements of the Trust, the adequacy of
internal controls and the accounting procedures and policies of the Trust. Each
member of the Board except Mr. Hale also is a member of the Audit Committee.
Officers of the Trust
RICHARD T. HALE (birth date: July 17, 1945) -- President and Chief Executive
Officer of the Trust; Trustee of each of the other investment companies in the
Deutsche Asset Management Fund Complex; Managing Director, Deutsche Asset
Management; Director, Flag Investors Funds and ISI Family of Funds (registered
investment companies); President, Morgan Grenfell Investment Trust (registered
investment company); Managing Director, DB Alex. Brown LLC; Director and
President, Investment Company Capital Corp. (registered investment adviser);
Chartered Financial Analyst. His address is One South Street, Baltimore,
Maryland 21202.
DANIEL O. HIRSCH (birth date: March 27, 1954) -- Secretary of the Trust;
Director, Deutsche Asset Management Americas since 1999; Director, DB Alex.
Brown LLC 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.
CHARLES A. RIZZO (birth date: August 5, 1957) -- Treasurer of the Trust;
Director, Deutsche Asset Management, and Vice President and Department Head, DB
Alex. Brown LLC from 1998 to 1999; Formerly, Senior Manager,
PricewaterhouseCoopers LLP from 1993 to 1998. His address is One South Street,
Baltimore, MD 21202.
Messrs. Hirsch and Rizzo also hold similar positions for other investment
companies for which ICCD, or an affiliate serves as the principal underwriter.
No person who is an officer or Trustee of Bankers Trust is an officer or Trustee
of the Trust. No Trustee, officer or employee of ICCD 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
--------------------------------------------------------------------------------
Total Compensation from
Aggregate Compensation Deutsche Asset Management
Trustee from Trust* Fund Complex*
--------------------------------------------------------------------------------
Charles P. Biggar $3,050 $43,750
--------------------------------------------------------------------------------
20
<PAGE>
--------------------------------------------------------------------------------
S. Leland Dill $16,417 $43,750
--------------------------------------------------------------------------------
Martin Gruber $2,972 $45,000
--------------------------------------------------------------------------------
Richard J. Herring $2,642 $43,750
--------------------------------------------------------------------------------
Kelvin Lancaster $12,617 $18,750
--------------------------------------------------------------------------------
Bruce E. Langton $2,972 $43,750
--------------------------------------------------------------------------------
Philip Saunders, Jr. $16,924 $45,000
--------------------------------------------------------------------------------
Harry Van Benschoten $3,050 $45,000
--------------------------------------------------------------------------------
* The information provided is for the BT Investment Funds, which is comprised of
14 funds, for the year ended December 31, 1999.
As of September 20, 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).
Because the Fund is newly offered, no shareholder of record owned 5% or more of
the outstanding voting shares of the Fund as of September 20, 2000.
Trustees of the Portfolio Trust
The Trustees and officers of the Portfolio Trust, 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.
TRUMAN T. SEMANS* (birth date: October 27, 1926) -- Chairman and Trustee of the
Portfolio Trust; Vice Chairman, Brown Investment Advisory & Trust Company
(formerly, Alex. Brown Capital Advisory & Trust Company); Director, Investment
Company Capital Corp. (registered investment adviser) and Director and President
of Virginia Hot Springs Inc. (property management). Formerly, Managing Director
and Vice Chairman, Alex. Brown & Sons Incorporated (now DB Alex. Brown LLC) and
Director, ISI Family of Funds (registered investment companies). His address is
Brown Investment Advisory & Trust Company, 19 South Street, Baltimore, Maryland
21202.
RICHARD R. BURT (birth date: February 3, 1947) -- Trustee of the Portfolio
Trust; Chairman, IEP Advisors, Inc.; Chairman of the Board, Weirton Steel
Corporation; Member of the Board, Archer Daniels Midland Company (agribusiness
operations), Hollinger International, Inc. (publishing), Homestake Mining
(mining and exploration), HCL Technologies (information technology) and Anchor
Technologies (gaming software and equipment); Director, Mitchell Hutchins family
of funds (registered investment companies); and Member, Textron Corporation
International Advisory Council. Formerly, partner, McKinsey & Company
(consulting), 1991-1994; U.S. Chief Negotiator in Strategic Arms Reduction Talks
(START) with former Soviet Union and U.S. Ambassador to the Federal Republic of
Germany, 1985-1991. His address is IEP Advisors, LLP, 1275 Pennsylvania Avenue,
NW, 10th Floor, Washington, DC 20004.
RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Portfolio Trust;
Trustee of each of the other investment companies in the Deutsche Asset
Management Fund Complex; Managing
21
<PAGE>
Director, Deutsche Asset Management; Director, Flag Investors Funds and ISI
Family of Funds (registered investment companies); President, Morgan Grenfell
Investment Trust (registered investment company); Managing Director, DB Alex.
Brown LLC; Director and President, Investment Company Capital Corp. (registered
investment adviser); Executive Vice President, ICCD, each Fund's principal
underwriter, since July 2000; Chartered Financial Analyst. His address is One
South Street, Baltimore, Maryland 21202.
* Messrs. Semans and Hale are Trustees who are "interested persons," as defined
in the 1940 Act.
JOSEPH R. HARDIMAN (birth date: May 27, 1937) -- Trustee of the Portfolio Trust;
Private Equity Investor and Capital Markets Consultant; Director, Wit Capital
Group (registered broker-dealer), The Nevis Fund (registered investment
company), and ISI Family of Funds (registered investment companies). Formerly,
Director, Circon Corp. (medical instruments), November 1998-January 1999;
President and Chief Executive Officer, The National Association of Securities
Dealers, Inc. and The NASDAQ Stock Market, Inc., 1987-1997; Chief Operating
Officer of Alex. Brown & Sons Incorporated (now DB Alex. Brown LLC), 1985-1987;
General Partner, Alex. Brown & Sons Incorporated (now DB Alex. Brown LLC),
1976-1985. His address is 8 Bowen Mill Road, Baltimore, Maryland 21212.
LOUIS E. LEVY (birth date: November 16, 1932) -- Trustee of the Portfolio Trust;
Director, Kimberly-Clark Corporation (personal consumer products), Household
International (banking and finance) and ISI Family of Funds (registered
investment companies). Formerly, Chairman of the Quality Control Inquiry
Committee, American Institute of Certified Public Accountants, 1992-1998,
Trustee, Merrill Lynch Funds for Institutions, 1991-1993; Adjunct Professor,
Columbia University-Graduate School of Business, 1991-1992; and Partner, KPMG
Peat Marwick, retired 1990. His address is 26 Farmstead Road, Short Hills, New
Jersey 07078.
EUGENE J. MCDONALD (birth date: July 14, 1932) -- Trustee of the Portfolio
Trust; President, Duke Management Company (investments); Executive Vice
President, Duke University (education, research and health care); Executive Vice
Chairman and Director, Central Carolina Bank & Trust (banking) and Director,
Victory Funds (registered investment companies). Formerly, Director AMBAC
Treasurers Trust (registered investment company), DP Mann Holdings (insurance)
and ISI Family of Funds (registered investment companies). His address is Duke
Management Company, Erwin Square, Suite 1000, 2200 West Main Street, Durham,
North Carolina 27705.
REBECCA W. RIMEL (birth date: April 10, 1951) -- Trustee of the Portfolio Trust;
President and Chief Executive Officer, The Pew Charitable Trusts (charitable
foundation); Director and Executive Vice President, The Glenmede Trust Company
(investment trust and wealth management). Formerly, Executive Director, The Pew
Charitable Trusts and Director, ISI Family of Funds (registered investment
companies). Her address is The Pew Charitable Trusts, One Commerce Square, 2005
Market Street, Suite 1700, Philadelphia, Pennsylvania 19103-7017.
22
<PAGE>
ROBERT H. WADSWORTH (birth date: January 29, 1940) -- Trustee of the Portfolio
Trust; President, Investment Company Administration LLC, President, Trustee,
Trust for Investment Managers (registered investment company) and President,
Director, First Fund Distributors, Inc. (registered broker-dealer); Director,
The Germany Fund, Inc., The New Germany Fund Inc., The Central European Equity
Fund, Inc., and Vice President, Professionally Managed Portfolios and Advisors
Series Trust (registered investment companies). Formerly, President, Guinness
Flight Investment Funds, Inc. (registered investment companies); and President,
The Wadsworth Group (registered investment advisor). His address is 4455 E.
Camelback Road, Suite 261 E., Phoenix, Arizona 85018.
Officers of the Portfolio Trust
CARL W. VOGT, Esq. (birth date: April 20, 1936) -- President of the Portfolio
Trust; Senior Partner, Fulbright & Jaworski L.L.P. (law); Interim President of
Williams College; Director, Yellow Corporation (trucking), American Science &
Engineering (x-ray detection equipment), and ISI Family of Funds (registered
investment companies). Formerly, Chairman and Member, National Transportation
Safety Board; Director, National Railroad Passenger Corporation (Amtrak); and
Member, Aviation System Capacity Advisory Committee (Federal Aviation
Administration); and Director, Flag Investors Family of Funds (registered
investment companies). His address is 4455 E. Camelback Road, Suite 261 E.,
Phoenix, Arizona 85018.
CHARLES A. RIZZO (birth date: August 5, 1957) -- Treasurer of the Portfolio
Trust; Director, Deutsche Asset Management, and Vice President and Department
Head, DB Alex. Brown LLC from 1998 to 1999; Formerly, Senior Manager,
PricewaterhouseCoopers LLP from 1993 to 1998. His address is One South Street,
Baltimore, MD 21202.
AMY M. OLMERT (birth date: May 14, 1963) -- Secretary of the Portfolio Trust;
Director, Deutsche Asset Management; and Vice President, BT Alex. Brown
Incorporated (now DB Alex. Brown LLC), 1997-1999. Formerly, Senior Manager,
Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP), 1988-1997. Her
address is One South Street, Baltimore, Maryland 21202.
DANIEL O. HIRSCH (birth date: March 27, 1954) -- Assistant Secretary of the
Portfolio Trust; Director, Deutsche Asset Management Americas since 1999;
Director, DB Alex. Brown LLC 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.
Trustees and officers of the Portfolio Trust are also Trustees, Directors or
officers of some or all of the other investment companies managed, administered
or advised by ICCC or its affiliates. There are currently 24 funds in the Flag
Investors Funds and Deutsche Banc Alex. Brown Cash Reserve Fund, Inc. fund
complex (the "Flag Fund Complex"). Mr. Semans serves as Chairman of five funds
and as a Director of 19 other funds in the Flag Fund Complex. Mr. Hale serves as
Chairman of three funds and as Director of 21 funds in the Flag Fund Complex.
Ms. Rimel and Messrs. Burt, Hardiman, Levy, McDonald and Wadsworth serve as
Directors of each of the
23
<PAGE>
funds in the Flag Fund Complex. Mr. Vogt serves as President of seven of the
funds in the Flag Fund Complex. Mr. Rizzo serves as Treasurer, Ms. Olmert serves
as Secretary, and Mr. Hirsch serves as Assistant Secretary, for each of the
funds in the Flag Fund Complex.
Some of the Trustees of the Portfolio Trust are customers of, and have had
normal brokerage transactions with, DB Alex. Brown or its affiliates in the
ordinary course of business. All such transactions were made on substantially
the same terms as those prevailing at the time for comparable transactions with
unrelated persons. Additional transactions may be expected to take place in the
future.
With the exception of the Portfolio Trust's President, officers of the Portfolio
Trust receive no direct remuneration in such capacity from the Portfolio Trust.
Officers and Trustees of the Portfolio Trust who are officers or Directors of
ICCC or its affiliates may be considered to have received remuneration
indirectly. As compensation for his or her services as Trustee, each Trustee who
is not an "interested person" of the Portfolio Trust (as defined in the 1940
Act) (an "Independent Trustee") and Mr. Vogt, the Portfolio Trust's President,
receives an aggregate annual fee (plus reimbursement for reasonable
out-of-pocket expenses incurred in connection with his or her attendance at
board and committee meetings) from each fund in the Flag Fund Complex for which
he or she serves. In addition, the Chairmen of the Flag Fund Complex's Audit
Committee and Executive Committee receive an annual fee from the Flag Fund
Complex. Payment of such fees and expenses is allocated among all such funds
described above in direct proportion to their relative net assets.
Trustee Compensation Table
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Aggregate Compensation Total Compensation from Flag Fund
Trustee from Portfolio Trust* Complex**
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Truman T. Semans $0 $0
-----------------------------------------------------------------------------------------------
Richard T. Hale $0 $0
-----------------------------------------------------------------------------------------------
Richard R. Burt $7,166 $9,750
-----------------------------------------------------------------------------------------------
James J. Cunnane $0 $29,250 for services on 12 Boards in the
Fund Complex
-----------------------------------------------------------------------------------------------
Joseph R. Hardiman $0 $39,000 for services on 12 Boards in the
Fund Complex
-----------------------------------------------------------------------------------------------
Louis E. Levy $0 $49,000 for services on 12 Boards in the
Fund Complex
-----------------------------------------------------------------------------------------------
Eugene J. McDonald $0 $49,000 for services on 12 Boards in the
Fund Complex
-----------------------------------------------------------------------------------------------
Rebecca W. Rimel $ $39,000 for services on 12 Boards in the
Fund Complex
-----------------------------------------------------------------------------------------------
Carl W. Vogt $0 $39,000 for services on 12 Boards in the
Fund Complex
-----------------------------------------------------------------------------------------------
Robert H. Wadsworth $4,050 $39,000 for services on 12 Boards in the
Fund Complex
-----------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
* The information provided is for the Portfolio Trust, which is comprised of 7
funds, for the year ended December 31, 1999.
** The information provided is for the Flag Fund Complex, which is comprised of
16 funds, for the year ended December 31, 1999.
The Flag Fund Complex has adopted a Retirement Plan for Directors who are not
employees of the Portfolio Trust, the Portfolio's Administrator or its
respective affiliates (the "Directors' Retirement Plan") and a Retirement Plan
for a former Director serving as the Portfolio Trust's President (collectively,
the "Retirement Plans"). After completion of six years of service, each
participant in the Retirement Plans will be entitled to receive an annual
retirement benefit equal to a percentage of the fee earned by the participant in
his or her last year of service. Upon retirement, each participant will receive
annually 10% of such fee for each year that he or she served after completion of
the first five years, up to a maximum annual benefit of 50% of the fee earned by
the participant in his or her last year of service. The fee will be paid
quarterly, for life, by each fund for which he or she serves. The Retirement
Plans are unfunded and unvested. The Portfolio Trust currently has two
participants in the Directors' Retirement Plan, a Director who retired effective
December 31, 1994 and another Director who retired effective December 31, 1996,
each of whom qualified for the Retirement Plan by serving thirteen years and
fourteen years, respectively, as Directors in the Flag Fund Complex and who will
be paid a quarterly fee of $4,875 by the Flag Fund Complex for the rest of his
life. Such fees are allocated to each fund in the Flag Fund Complex based upon
the relative net assets of such fund to the Flag Fund Complex. Mr. McDonald has
qualified for, but has not received, benefits.
Set forth in the table below are the estimated annual benefits payable to a
Participant upon retirement assuming various years of service and payment of a
percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of service at
December 31, 1999 are as follows: for Mr. Levy, 5 years; for Mr. McDonald, 7
years; for Ms. Rimel and Mr. Vogt, 4 years; for Mr. Hardiman, 1 year; and for
Mr. Burt and Mr. Wadsworth, 0 years.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Flag Fund Complex Upon Retirement
---------------- ----------------------------------------------------------------------
Chairmen of Audit and Executive Committees Other Participants
------------------------------------------ ------------------
<S> <C> <C>
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
25
<PAGE>
Any Trustee and the President of the Portfolio Trust who receive fees from the
Portfolio Trust is permitted to defer 50% to 100% of his or her annual
compensation pursuant to a Deferred Compensation Plan. Messrs. Levy, McDonald,
Vogt, Burt, Wadsworth, and Ms. Rimel have each executed a Deferred Compensation
Agreement. Currently, the deferring Trustees may select from among various funds
in the Flag Fund Complex in which all or part of their deferral account shall be
deemed to be invested. Distributions from the deferring Trustees' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of ten years.
Code of Ethics
The Boards of the Fund and the Portfolio each has adopted a Code of Ethics
pursuant to Rule 17j-1 under the 1940 Act. The Fund and Portfolio's Code of
Ethics specifies that Access Persons of the Fund and Portfolio who are subject
to Codes of Ethics adopted by their employers may comply with their employer's
Code in lieu of the Fund and Portfolio's Code if such Code has been approved by
the Board. As a result, the Fund and Portfolio's Code permits Fund and Portfolio
personnel to invest in securities for their own accounts, but requires
compliance with pre-clearance requirements, trading "blackout periods" that
prohibit trading by personnel within periods of trading by the Fund or Portfolio
in the same security, and other restrictions which are imposed by the Codes of
Ethics of the adviser and distributor.
The Fund and Portfolio's underwriter and the Portfolio's Advisers each have also
adopted a Code of Ethics. The Codes allow personnel to invest in securities for
their own accounts, but require compliance with the Codes' pre-clearance
requirements and other restrictions, including "blackout periods" and minimum
holding periods, subject to limited exceptions. The Codes prohibit purchases of
securities in initial public offerings and require prior approval for purchases
of securities in private placements.
Investment Advisers
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
ICCC as investment adviser and ABIM as sub-adviser. ICCC also serves as
investment adviser and ABIM serves as sub-adviser to other funds in the Flag
Fund Complex.
ICCC is an indirect subsidiary of Deutsche Bank AG. ABIM is a limited
partnership affiliated with the Adviser. Buppert, Behrens & Owen, Inc. ("BB&O")
a company organized and owned by three employees of ABIM, owns a 49% limited
partnership interest and a 1% general partnership interest in ABIM. DB Alex.
Brown LLC ("DBAB") owns the remaining 50% general partnership interest. On May
17, 2000, ABIM and BB&O entered into an Agreement and Sale of Partnership
Interests ("Sale Agreement") with DBAB that will result in BB&O holding all
partnership interests in ABIM, effective as of a March 2001 closing date. In
connection with this sale, ABIM also entered into a Trademark Licensing
Agreement (the "License Agreement") with BT Alex. Brown Holdings, Inc. ("BTAB
Holdings") that will permit ABIM to continue to use the "Alex. Brown" name from
the March 2001 closing date until December 31, 2005.
26
<PAGE>
The March 2001 closing date for the Sale Agreement is contingent upon, among
other things, the approval of proposed sub-advisory agreements by the
shareholders of Flag Investors Equity Partners Fund, Inc. ("Equity Partners")
and Flag Investors Value Builder Fund, Inc. ("Value Builder"). The Sale
Agreement also includes a provision prohibiting ABIM, BB&O, and its employees
partners, officers or Trustees from providing investment advisory services to
any other registered investment company pursuing the same investment strategies
as the Portfolio, Equity Partners and Value Builder. Consistent with the
fiduciary duties that ICCC owes the Portfolio as its adviser, the Sale Agreement
and License Agreement do not prevent ICCC from suggesting that the Portfolio
terminate its relationship with ABIM, but any such termination must ultimately
be recommended by a majority of the Portfolio's Independent Trustees and
approved by the Portfolio's Board.
Under the Investment Advisory Agreement, ICCC obtains and evaluates economic,
statistical and financial information to formulate and implement investment
policies for the Portfolio. ICCC has delegated this responsibility to ABIM
provided that ICCC continues to supervise the performance of ABIM and report
thereon to the Portfolio's Board of Trustees. Any investment program undertaken
by ICCC or ABIM will at all times be subject to policies and control of the
Portfolio's Board of Trustees. ICCC will provide the Portfolio with office space
for managing its affairs, with the services of required executive personnel and
with certain clerical and bookkeeping services and facilities. These services
are provided by ICCC without reimbursement by the Portfolio for any costs.
Neither ICCC nor ABIM shall be liable to the Portfolio or its shareholders for
any act or omission by ICCC or ABIM or any losses sustained by the Portfolio or
its shareholders except in the case of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty. The services of ICCC and ABIM to the
Portfolio are not exclusive and ICCC and ABIM are free to render similar
services to others.
As compensation for its services, ICCC is entitled to receive a fee from the
Portfolio, calculated daily and paid monthly, at the following annual rates
based upon the Portfolio's average daily net assets: 1.00% of the first $100
million, 0.90% of the next $100 million, 0.85% of the next $100 million, 0.80%
of the next $200 million, 0.73% of the next $500 million, 0.68% of the next $500
million and 0.65% of that portion exceeding $1.5 billion. As compensation for
its services, ABIM is entitled to receive a fee from ICCC, payable from its
advisory fee, calculated daily and paid monthly, at the following annual rates
based upon the Fund's average daily net assets: 0.65% of the first $100 million,
0.60% of the next $100 million, 0.55% of the next $100 million, 0.50% of the
next $200 million, 0.45% of the next $500 million, 0.42% of the next $500
million and 0.40% of that portion in excess of $1.5 billion.
Each of the Investment Advisory Agreement and the Sub-Advisory Agreement has an
initial term of two years and will continue in effect from year to year
thereafter if such continuance is specifically approved at least annually by the
Portfolio's Board of Trustees, including a majority of the Independent Trustees
who have no direct or indirect financial interest in such agreements, by votes
cast in person at a meeting called for such purpose, and by a vote of a majority
of the outstanding Shares (as defined under "Capital Stock"). The Portfolio or
ICCC may terminate the Investment Advisory Agreement on sixty days' written
notice without penalty. The Investment
27
<PAGE>
Advisory Agreement will terminate automatically in the event of assignment (as
defined in the 1940 Act). The Sub-Advisory Agreement has similar termination
provisions.
Prior to September 29, 2000, the Flag Fund operated as a stand-alone Fund that
directly acquired and managed its own portfolio securities. On September 29,
2000, the Flag Fund's assets were contributed to the Portfolio and the Flag Fund
was made a feeder fund to the Portfolio. Prior to September 29, 2000, under a
previous investment advisory agreement, ICCC received a fee from the Flag Fund,
calculated daily and paid monthly, at the following annual rates based upon the
Flag Fund's average daily net assets: 0.85% of the first $100 million, 0.75% of
the next $100 million, 0.70% of the next $100 million, 0.65% of the next $200
million, 0.58% of the next $500 million, 0.53% of the next $500 million and
0.50% of that portion exceeding $1.5 billion. As compensation for its services,
ABIM received a fee from ICCC, payable from its advisory fee, calculated daily
and paid monthly, at the following annual rates based upon the Flag Fund's
average daily net assets: 0.60% of the first $100 million, 0.55% of the next
$100 million, 0.50% of the next $100 million, 0.45% of the next $200 million,
0.40% of the next $500 million, 0.37% of the next $500 million and 0.35% of that
portion in excess of $1.5 billion.
Under the previous investment advisory agreement, advisory fees paid by the Flag
Fund to ICCC and sub-advisory fees paid by ICCC to ABIM for the last three
fiscal years were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------
Fees Paid to: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
ICCC $11,892,502 $5,927,518 4,172,769
ABIM $8,337,261 $4,132,229 $2,944,897
-------------------------------------------------------------------------------------------------------------------
</TABLE>
If the current Investment Advisory Agreements had been in effect during these
periods, the fees paid by the Flag Fund to ICCC would have been higher.
Administrator of the Fund
Under its Administration and Services Agreement with the Trust, Bankers Trust
Company (the "Administrator") 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 Administrator a fee, computed daily
and paid monthly, equal on an annual basis to 0.35% and 0.10% of the average
daily net assets of the Investment Class and Institutional Class shares,
respectively, of 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.
Bankers Trust will generally assist in all aspects of the Fund's operations;
supply and maintain office facilities (which may be in the Administrator'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
28
<PAGE>
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.
Administrator of the Portfolio
Under its Administrative Services Agreement with the Portfolio, ICCC will
supervise and manage all aspects of the Portfolio's operations, other than
portfolio management and distribution; provide the Portfolio with such
executive, administrative, clerical and bookkeeping services as are deemed
advisable by the Portfolio's Board of Trustees; provide the Portfolio with, or
obtain for it, adequate office space and all necessary office equipment and
services including telephone service, heat, utilities, stationary, supplies and
similar items for any offices as are deemed advisable by the Portfolio's Board
of Trustees; supervise the operations of the Portfolio's transfer agent and
dividend disbursing agent; provide the Portfolio with such administrative and
clerical services for the maintenance of certain shareholder records as are
deemed advisable by the Portfolio's Board of Trustees; and arrange, but not pay
for, the periodic updating of prospectuses and supplements thereto, proxy
material, tax returns, reports to and filings with the SEC and State Blue Sky
authorities. The Administrative Services Agreement provides that the
Administrator will furnish, at its own expense and without cost to the
Portfolio, the services of one or more officers of the Portfolio to the extent
that such officers may be required by the Portfolio for the proper conduct of
its affairs. The Portfolio assumes and pays all other expenses of the Portfolio.
The Administrative Services Agreement continues in full force and effect until
terminated. The Administrative Services Agreement may be terminated at any time,
on waivable written notice within 60 days and without penalty, by vote of the
Portfolio's Board of Trustees or by ICCC. The agreement automatically terminates
in the event of its assignment.
The Administrative Services Agreement obligates the Administrator to exercise
care and diligence and to act in good faith and to use its best efforts within
reasonable limits in performing the services provided for under the agreement,
but ICCC is not liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Administrator.
Under the Administrative Services Agreement, the Portfolio pays ICCC an annual
fee based on the Portfolio's average daily net assets. This fee is calculated
and accrued daily and the amounts of the daily accruals shall be paid monthly,
at the annual rate of 0.02% of the Portfolio's assets. ICCC may from time to
time voluntarily waive a portion of its administrative services fee.
Custodian, Transfer Agents and Fund Accounting Services
Bankers Trust, 130 Liberty Street, New York, New York 10006, serves as Custodian
for the Trust pursuant to the Administration and Services Agreement. Bankers
Trust also serves as the Portfolio's custodian pursuant to a separate agreement.
As Custodian, Bankers Trust holds the
29
<PAGE>
Fund's and Portfolio's assets. Bankers Trust may be reimbursed by the Fund for
its out-of-pocket expenses. Bankers Trust will comply with the self-custodian
provisions of Rule 17f-2 under the 1940 Act. Bankers Trust receives such
compensation from the Portfolio for its services as custodian as may be agreed
to from time to time by Bankers Trust and the Portfolio.
Until September 30, 2000, Bankers Trust also serves as transfer agent and
dividend disbursing agent of the Trust 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.
As of October 1, 2000, Investment Company Capital Corp. ("ICCC"), One South
Street, Baltimore, Maryland, 21202, serves as transfer agent of the Trust
pursuant to a transfer agency agreement. Under its transfer agency agreement
with the Trust, ICCC 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. ICCC may be
reimbursed by the Fund for its out-of-pocket expenses. Investment Company
Capital Corp. serves as transfer and dividend disbursing agent to the Portfolio.
Bankers Trust provides certain accounting services to the Trust pursuant to the
Administration and Services Agreement. ICCC provides certain accounting services
to the Portfolio under a Master Services Agreement between the Portfolio and
ICCC. In addition, the Portfolio reimburses ICCC for certain out-of-pocket
expenses.
Distributor
ICCD is the principal distributor for shares of the Fund. ICCD is a registered
broker/dealer and is unaffiliated with the Fund's Advisers and Administrator.
The principal business address of ICCD is Two Portland Square, Portland, Maine
04101. In addition to ICCD's duties as Distributor, ICCD and its affiliates may,
in their discretion, perform additional functions in connection with
transactions in the shares of the Fund.
Service Agent
Bankers Trust acts as a Service Agent pursuant to its Administration and
Services Agreement with the Trust and receives no additional compensation from
the Fund for such shareholder services. The service fees of any other Service
Agents, including broker-dealers, will be paid by Bankers Trust from its fees.
The services provided by a Service Agent may include establishing and
maintaining shareholder accounts, processing purchase and redemption
transactions, arranging for bank wires, performing shareholder sub-accounting,
answering client inquiries regarding the Trust, assisting clients in changing
dividend options, account designations and addresses, providing periodic
statements showing the client's account balance, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding to the Trust executed proxies and obtaining such other information
and performing such other services as the Administrator or the Service Agent's
clients may reasonably request and agree upon with the Service Agent. Service
Agents may separately charge their clients additional fees only to cover
30
<PAGE>
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 administrator to 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.
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 Administration
and Services Agreement and other activities for Fund described in the Prospectus
and this SAI without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. However, counsel has pointed out that future
changes in either federal or state statutes and regulations concerning the
permissible activities of banks or trust companies, as well as future judicial
or administrative decisions or interpretations of present and future statutes
and regulations, might prevent Bankers Trust from continuing to perform those
services for the 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. Morgan, Lewis and Bockius LLP, 1701 Market
Street, Philadelphia, Pennsylvania 19103-2921, serves as Counsel to the
Portfolio. PricewaterhouseCoopers LLP, 250 West Pratt Street, Baltimore,
Maryland 21201, 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
31
<PAGE>
class of shares of beneficial interest of the Fund. The Trust reserves the right
to add additional series in the future. The Trust also reserves the right to
issue additional classes of shares of the Fund. No series of shares will have
any preference over any other series.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. Shareholders of the Fund are not entitled to vote on
Trust matters that do not affect the Fund. There normally will be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares.
The shares of the series participate equally in the earnings, dividends and
assets of the particular series. The Trust may create and issue additional
series of shares. The Trust's Declaration of Trust permits the Trustees to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interest in series. Each share
represents an equal proportionate interest in a series with each other share.
Shares when issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each share held.
Because the Fund is newly offered, no shareholders of record owned 25% or more
of the voting securities of the Fund as of September 29, 2000. Therefore, no
shareholder is deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of its 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 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.
32
<PAGE>
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.
Whenever the Trust is requested to vote on a matter pertaining to the Portfolio,
the Trust will vote its shares without a meeting of Fund shareholders if the
proposal, if made with respect to the Fund, would not require the vote of Fund
shareholders as long as such action is permissible under applicable statutory
and regulatory requirements. The Trust will hold a meeting of Fund shareholders
for all other matters requiring a vote, and the Trust will cast all of its votes
at the meeting of investors in the Portfolio in the same proportion as the votes
of the Fund shareholders. Other investors with a greater pro rata ownership of
the Portfolio could have effective voting control of the operations of the
Portfolio.
TAXATION
Taxation of the Fund
The Trust intends to qualify annually and to elect the Fund to be treated as a
regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must, among other things:
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income, if any, each taxable year.
33
<PAGE>
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:
. at least 98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year;
. 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
. 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
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.
34
<PAGE>
Foreign Securities
Income from investments in foreign securities may be subject to foreign taxes.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries will vary.
If the Fund is liable for foreign taxes, and if more than 50% of the value of
the Fund's total assets at the close of its taxable year consists of stocks or
securities of foreign corporations, the Fund may make an election pursuant to
which certain foreign taxes paid by it would be treated as having been paid
directly by its shareholders. Pursuant to such election, the amount of foreign
taxes paid will be included in the income of the Fund's shareholders, and the
Fund shareholders (except tax-exempt shareholders) may, subject to certain
limitations, claim either a credit or deduction for the taxes. Fund shareholders
will be notified after the close of the Fund's taxable year whether the foreign
taxes paid will "pass through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the portion which represents income derived from sources within
each such country.
The amount of foreign taxes for which a shareholder may claim a credit in any
year generally will be subject to a separate limitation for "passive income,"
which includes, among other items of income, dividends, interest and certain
foreign currency gains. Because capital gains realized by the Fund on the sale
of foreign securities will be treated as U.S. source income, the available
credit of foreign taxes paid with respect to such gains may be restricted by
this limitation.
Distributions
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends-received deduction. The Taxpayer
Relief Act of 1997 created additional categories of capital gains taxable at
different rates. The categories of gain and related rates will be passed through
to shareholders in capital gain dividends. Shareholders receiving distributions
in the form of additional shares, rather than cash, generally will have a cost
basis in each such share equal to the net asset value of a share of the Fund on
the reinvestment date. Shareholders will be notified annually as to the U.S.
federal tax status of distributions.
Sale of Shares
Any gain or loss realized by a shareholder upon the sale or other disposition of
shares of the Fund, or upon receipt of a distribution in complete liquidation of
the 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
35
<PAGE>
loss to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
Foreign Withholding Taxes
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries.
Backup Withholding
The Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
Foreign Shareholders
The tax consequences to a foreign shareholder of an investment in the Fund may
be different from those described in this SAI. Foreign shareholders are advised
to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
Other Taxation
The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor the Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code.
Fund shareholders may be subject to state and local taxes on the Fund's
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
FINANCIAL STATEMENTS
Because the Fund is newly offered, it does not have financial statements. The
financial statements for the Flag Fund for the semi-annual period ended June 30,
2000 and for the fiscal year period ended December 31, 1999 are incorporated
herein by reference to the Flag Fund's Semi-Annual Report dated June 30, 2000. A
copy of the Flag Fund's Semi-Annual Report must accompany the delivery of this
SAI.
36
<PAGE>
APPENDIX
CORPORATE BOND RATINGS
Standard & Poor's Bond Ratings
AAA - The highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA - Very strong capacity to pay interest and repay principal and, in
the majority of instances, differs from the higher rated issues only in small
degree.
A - Strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
BBB - Regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
BB, B, CCC, CC and C - Regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - This rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action taken, but payments on this
obligation are being continued.
D - In payment default. The D rating category is used when interest
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The D rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
Moody's Bond Ratings
Aaa - Judged to be of the best quality. Carries the smallest degree of
investment risk and 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.
A-1
<PAGE>
Aa - Judged to be of high quality by all standards. Together with the
Aaa group, comprise what are generally known as high grade bonds. Rated lower
than the Aaa bonds because margins of protection may not be as large as in Aaa
securities or the fluctuation of protective elements may be of greater amplitude
or there may be other elements present that make the long-term risks appear
somewhat larger than in Aaa securities.
A- Possess many favorable investment attributes and are to be
considered as upper- medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa - Considered as medium-grade obligations, that is, neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Judged to have speculative elements; their future cannot be
considered as well-assured. Often the protection of interest and principal
payments may be very moderate; and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Caa - Of poor standing. May be in default or there may be present
elements of danger with respect to principal or interest.
Ca - Represent obligations that are speculative in a high degree. Often
in default or have other marked shortcomings.
C - The lowest rated class of bonds. Can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
A-2
<PAGE>
September 29, 2000
Investment Adviser and Administrator of the Portfolio
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, MD 21202
Sub-Adviser of the Portfolio
ALEX. BROWN INVESTMENT MANAGEMENT
One South Street
Baltimore, MD 21202
Administrator of the Fund
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Distributor of the Fund
ICC DISTRIBUTORS, INC.
Custodian and Transfer Agent of the Fund
BANKERS TRUST COMPANY
130 Liberty Street
(One Bankers Trust Plaza)
New York, NY 10006
Independent Auditors
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, MD 21201
Counsel to the Trust
WILLKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, NY 10019
Counsel to the Portfolio
MORGAN LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, PA 19103-2921
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.
CUSIPs: 055922611
055922629
DEUCOMMSAI (9-00)
<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
(i) Appendix A dated September 29, 2000, to Distribution Agreement -filed
herewith;
(f) Bonus or Profit Sharing Contracts - Not applicable;
(g) Custodian Agreement dated July 1, 1996; 2
(i) Amendment No. 2 to Exhibit A of the Custodian Agreement dated October
8, 1997; 3
(ii) Amendment No. 3 to Exhibit A of the Custodian Agreement dated June
10, 1998; 7
(iii) Amendment No. 4 to Exhibit A of the Custodian Agreement dated
December 9, 1998; 7
(iv) Amendment No. 5 to Exhibit A of the Custodian Agreement dated
December 23, 1999; 12
(v) Amendment No. 6 to Exhibit A of the Custodian Agreement dated
September 29, 2000 - filed herewith;
(vi) Cash Services Addendum to Custodian Agreement dated December 18,
1997; 4
(h) Administration and Services Agreement dated October 28, 1992; 8
(i) Exhibit D to the Administration and Services Agreement as of October
28, 1992, as revised September 29, 2000 - filed herewith;
(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
<PAGE>
(vi) Expense Limitation Agreement dated March 31, 2000, on behalf of BT
Investment Lifecycle Long Range Fund, BT Investment Lifecycle Mid
Range Fund, and BT Investment Lifecycle Short Range Fund; 15
(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; 14
(viii) Expense Limitation Agreement dated September 30, 1999 on behalf of
Preservation Plus Income Fund; 13
(ix) Expense Limitation Agreement on behalf of Mid Cap for the period
August 31, 2000 through January 31, 2001; 17
(x) Expense Limitation Agreement on behalf of Communications for the
period September 29, 2000 through December 31, 2001 - filed
herewith;
(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; 16
---------------------------------------
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.
<PAGE>
7. Incorporated by reference to Post-Effective Amendment No. 57 to
Registrant's Registration Statement as filed with the Commission on
February 8, 1999.
8. Incorporated by reference to Post-Effective Amendment No. 29 to
Registrant's Registration Statement as filed with the Commission on
November 8, 1993.
9. Incorporated by reference to Post-Effective Amendment No. 60 to
Registrant's Registration Statement as filed with the Commission on March
15, 1999.
10. Incorporated by reference to Post-Effective Amendment No. 63 to
Registrant's Registration Statement as filed with the Commission on July
29, 1999.
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.
14. Incorporated by reference to Post-Effective Amendment to No. 68 to
Registrant's Registration Statement as filed with the Commission on April
28, 2000.
15. Incorporated by reference to Post-Effective Amendment to No. 69 to
Registrant's Registration Statement as filed with the Commission on May 1,
2000.
16. Incorporated by reference to Post-Effective Amendment No. 70 to
Registrant's Registration Statement as filed with the Commission on June
26, 2000.
17. Incorporated by reference to Post-Effective Amendment No. 73 to
Registrant's Registration Statement as filed with the Commission on August
31, 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.
<PAGE>
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 AG. Bankers Trust conducts a variety of commercial
banking and trust activities and is a major wholesale supplier of financial
services to the international institutional market.
To the knowledge of the Trust, none of the directors or officers of Bankers
Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Deutsche Bank AG 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, 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; 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-
<PAGE>
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, 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-
<PAGE>
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.
(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.
<PAGE>
(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 A. 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
and Administrator)
DST: 210 West 10th Street
Kansas City, MO 64105.
ICC Distributors, Inc.: Two Portland Square
(Distributor) Portland, ME 04101
ITEM 29. Management Services.
Not Applicable
ITEM 30. Undertakings.
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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
Amendment 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. 74 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 29th day of September, 2000.
BT INVESTMENT FUNDS
By: /s/ Daniel O. Hirsch
--------------------
Daniel O. Hirsch, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Daniel O. Hirsch Secretary September 29, 2000
-------------------- (Attorney in Fact
Daniel O. Hirsch For the Persons Listed Below)
/s/ RICHARD T. HALE* President, Chief Executive
Richard T. Hale Officer and Trustee
/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 J. HERRING* Trustee
Richard J. Herring
<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
COMMUNICATIONS PORTFOLIO has duly caused this Post-Effective Amendment No.
74 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 29th day of September, 2000.
COMMUNICATIONS PORTFOLIO
By: /s/ Carl W. Vogt, Esq.*
Carl W. Vogt, Esq.
President
This Post-Effective Amendment No. 72 to the Registration Statement of BT
Investment Funds has been signed below by the following persons in the
capacities indicated with respect to COMMUNICATIONS PORTFOLIO.
NAME TITLE
By: /s/TRUMAN T. SEMANS* Chairman and
Truman T. Semans Director
/s/ RICHARD R. BURT* Director
Richard R. Burt
/s/ RICHARD T. HALE* Director
Richard T. Hale
/s/ JOSEPH R. HARDIMAN* Director
Joseph R. Hardiman
/s/ LOUIS E. LEVY* Director
Louis E. Levy
/s/ EUGENE J. McDONALD* Director
Eugene J. McDonald
/s/ REBECCA W. RIMEL* Director
Rebecca W. Rimel
/s/ ROBERT H. WADSWORTH* Director
Robert H. Wadsworth
<PAGE>
/s/ CARL W. VOGT, ESQ.* President
Carl W. Vogt, Esq.
/s/ Charles A. Rizzo* Chief Financial and
Charles A. Rizzo Accounting Officer
*By: /s/ Daniel O. Hirsch
Daniel O. Hirsch
Attorney-in-Fact
* By Power of Attorney - filed herewith.
<PAGE>
FLAG INVESTORS PORTFOLIOS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard R. Burt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux, Amy M.
Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Portfolios Trust
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Richard R. Burt
Richard R. Burt
Date: September 26, 2000
<PAGE>
FLAG INVESTORS PORTFOLIOS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph R. Hardiman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Portfolios Trust
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Joseph R. Hardiman
Joseph R. Hardiman
Date: September 26, 2000
<PAGE>
FLAG INVESTORS PORTFOLIOS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Portfolios Trust
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
Louis E. Levy
Date: September 26, 2000
<PAGE>
FLAG INVESTORS PORTFOLIOS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Portfolios Trust
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
Eugene J. McDonald
Date: September 26, 2000
<PAGE>
FLAG INVESTORS PORTFOLIOS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Portfolios Trust
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
Truman T. Semans
Date: September 26, 2000
<PAGE>
FLAG INVESTORS PORTFOLIOS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Robert H. Wadsworth, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Portfolios Trust
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Robert H. Wadsworth
Robert H. Wadsworth
Date: September 26, 2000
<PAGE>
FLAG INVESTORS PORTFOLIOS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Portfolios Trust
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
Richard T. Hale
Date: September 26, 2000
<PAGE>
FLAG INVESTORS PORTFOLIOS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Portfolios Trust
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a trustee of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
Rebecca W. Rimel
Date: September 26, 2000
<PAGE>
FLAG INVESTORS PORTFOLIOS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Charles A. Rizzo, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Portfolios Trust
(the "Fund") to comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the "1940 Act"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as Treasurer of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Charles A. Rizzo
Charles A. Rizzo
Date: September 26, 2000
<PAGE>
RESOLUTION RELATING TO THE ORGANIZATION OF
COMMUNICATIONS
RESOLVED, That the President, any Vice President, the Treasurer or any
Assistant Treasurer and the Secretary or any Assistant
Secretary of the Trust be and they hereby are, and each
acting singly hereby is, authorized to prepare, execute
personally or as attorney-in-fact and file with the
Commission on behalf of the Funds a registration statement on
Form N-1A under the 1940 Act relating to the Funds, and any
and all exhibits and other documents relating thereto, and
any and all amendments to said registration statement, and to
pay all prescribed filing fees therefor, all in such form as
the officer or officers executing the same with the advice of
counsel may deem necessary or appropriate.
